Is this the Beginning of a Globalized Housing Downturn?

Housing has became a global financialized asset class. The possibilities seemed unlimited. And this flow of money, along with local factors, has created enormous distortions in some markets. But the priciest markets are now starting to experience price declines. This includes the priciest markets in the US, Canada, Australia, the UK, Hong Kong, and others. So, is this the beginning of a globalized housing downturn? (13 minutes):

“Can we still describe this as an orderly slowdown in housing conditions?” muses CoreLogic. Read… I’m in Awe of How Fast the Housing Markets in Sydney & Melbourne Are Coming Unglued


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  59 comments for “THE WOLF STREET REPORT

  1. cesqy says:

    Chinese and korean investors love real estate more than equities. A large number of chinese have invested in second and third homes using the real estate as collateral for cheap loans. A global housing market will probably effect those investors first and stocks second . A house is a place to sleep and gold is good for jewelry and coins. The are only worth what someone else will pay you for them.

    • Anon1970 says:

      A lot of other immigrant groups prefer real estate to equities. In cities like Toronto, investing in real estate starting in 1945 was largely a one way bet, with a few bumps along the way e.g. 1990. My rich uncle started speculating in Toronto area real estate after WWII and did very well financially. Unlike Detroit or Chicago or Baltimore, Toronto inner city neighborhoods never became high crime, blighted areas. Federal government policies encouraged immigration after WWII and the Quebec language wars of the late 1970’s encouraged lots of English speaking Canadians from the province to move to Toronto, giving the city a further economic boost.

      • Anything would be preferable to U.S. stocks since fair market value is about eighty percent lower than present day valuations. No wonder so much money is shoveled into real estate. Money seems to flow into things that aren’t rigged.

        • yngso says:

          Rigged, malinvestment, whatever… when too much money is shoved into an asset class there’s a bubble and subsequently a huge loss of money.

  2. michael says:

    Hopefully the excesses will be driven out without mercy. Housing is for living not speculation. Brought to you by the Federal Reserve and our broken Federal Government.

    • Iamafan says:

      Best words I have ever heard:
      Housing is for living not speculation. :-)

      Those who do not want to speculate can rent.

      • polecat says:

        Yup ! I concur with that sentiment : living over grifting ! … which is what just about everything has become up till now … a grifters con … on a planetary scale. So maybe this impending bust is like a Romulan mining drill, using in-the-Red-Matter, as it were .. to form a singularity for an over-hyped housing market, thereby forcing reality back down to earth.

      • michael says:

        “live by the sword die by the sword”

  3. Stan Sexton says:

    As a San Diego real estate Broker for 45 years, I saw the Chinese start to buy by proxy along with Blackstone Group in 2013. These all-cash offers blew out any possibility of normal first-time buyers obtaining a home. Sellers loved the cash and the fast closing times. Many offers were above list price. And the properties were not just Coastal. They were inland as well. One bedroom condos, converted apartments, and SFRs. The Chinese were dumping cash, buying sight unseen. The Wall Street firms could borrow from the Fed window for next to nothing. The result is market prices way over real value and lower owner-occupancy rates. Here, less than 50% own a house and most rent. The Fed has created the worst inequality in history by keeping interest raters low.

    • Memento mori says:

      What percentage of your sales were to Chinese and how many sales on average per month that represent, or is it hearsay that you are presenting as evidence?

      • safe as milk says:

        i don’t know if it’s hearsay as much as an anecdotal observation. in nyc where i live and am NOT a real estate professional, i saw a lot of chinese investment especially after battery park city north was built. not as much these days. now, there seems to be more german and french spoken on the streets of tribeca. the europeans seem to prefer lofts and the asians go for new construction high rises. again, all anecedotal observations. another thing is that these high profile residential buildings like 56 leonard st. (with “10 unique penthouses”), are mostly dark at night suggesting absentee investor owners.

    • Ididsa says:

      “The Fed has created the worst inequality in history by keeping interest raters [sic] low.”

      This is the truth, and they are all too ready to start the process over again, and we barely got out of the gate as far as rates go. The Fed consists of a bunch of corrupt bankers of the worst kind…..

    • Shawn says:

      Well, Wolf did say that the shirts of these housing investors in China where now being ripped off their backs. To me, that is a sense of justice. However, for the smart ones, it’s probably not their money anyways.

    • Marcus says:

      Yet here in San Diego, the Union-Tribune ran a big piece this weekend on the hot hot hot rental market. All of the quotes were from people who have something to gain from the building boom. No dissenting opinions, and a lot of cherry picking data.

  4. Brad says:

    This is why I love wolf. Great analysis with a big view.

  5. yerfej says:

    There is no instance of social of financial engineering working, it simply delays and magnifies the market.

  6. Bankers says:

    From serfdom to serfdom, ownership of housing, land and territory has underpinned how society works since time immemorial, more so than food even since it was realised that without a home you freeze, without land you starve, and without territory others will invade. This necessity forms a main basis of modern money, because it is known that leverage can be exercised on ownership, or on the need of use. The “bonus” is that the owner is locatable at his property, and that any “non-compliance” has a profound effect on the owners wider personal circumstance.

    The heavy financialisation of property, the effect of creating unruly upwards price competition, now at a global level, is to put the cart before the horse. The idea should that housing affordability be only a minor cost to a person, given its importance. That is to say it should reflect only the true cost of materials and labour. Now instead it reflects the maximum you are able to afford under mortgage, and then some. People buy it though, because they have no other choice, because that is all that is offered. The rest get to join the socialist fan club, that ensures further profit for developers at the expense of all. It isn’t even a compromise, just one more avenue.

    The other side of the coin is that many populations are increasingly not involved in directly productive work, or otherwise do work that is considered basically surplus by the big boys and fast movers . That is to say that they are considered more or less an economic deadweight. They do not realise this until they find the only place they are celebrated is acting as conduit for cash into someone else’s pocket.

    Such is life, but when you have such mispricing across whole countries, and internationally, and the resulting economic framework is found to be a sham, chaos will happen.

    We have had a decade of softer intervention already to correct these imbalances, what next level of it is likely if the previous one either fails or has even eventually amplified that imbalance.

    “Interesting times”

  7. rich says:

    I live in a coastal area that still has strong real estate demand and limited inventory. However, I have just put six of my vacant waterfront lots on the market. Here are my reasons:

    To pay for new schools, my property taxes have been raised 34%

    Tourism is the area’s main industry. Consequently, wages are low and house prices are high.

    Thousands of apartment units are being built throughout the area.

    I expect a national recession within three years.

    I believe that the Democrats will ultimately find someone to unseat Trump, and regardless of which Democrat becomes President, low long-term capital gains taxes will become pretty much a thing of the past. Today’s low long-term capital gains taxes will probably be the lowest I’ll ever see.

    I can’t lose money by selling at a profit.

  8. Escher says:

    Will the central banks and politicians allow house prices to go down and take away the “wealth effect” that keeps the house of cards from tumbling down?

    • timbers says:

      If Powell’s response to a teeney weeny itsy bitsy 10% stock market decline is any indication, the answer is a resounding NO.

      Note: Mr Market’s hissy fit 10% decline in no way threatened to freeze credit markets. So Powell’s vigorous intervention to inflate Mr Market from a tiny 10% decline was only to inflate Mr Market, and for that reason alone.

      Of course, Powell doesn’t work for the real estate barons, he is the obedient the errand boy for Wall Street.

      So the above applies only to Wall Street.

      Powell does not care if real estate bought by foreigners on the West coast declines. That’s a local issue.

    • Rinaldo says:

      They were never able to prevent any price from going up. I assume the same applies to tumbling down.

    • yngso says:

      House prices affect the pleebs. Stocks and bonds are for the elites. Guess who the central banksters will try to help?

  9. David Horowitz says:

    The people who bought apartments in the Opal Tower in Sydney might see their value go to $0. Now that is a downturn!

    • Les Francis says:

      In Melbourne this morning. Another inner city high rise apartment building with a cladding fire. Up to seven floors involved.
      A hullabaloo has erupted again regarding inflammable cladding.

      Governments are sitting on reports concerning this cladding. There are so many buildings involved a fiasco will eventuate. There is already one court case between residents, builders, developers and government departments re who will foot the bill to replace the cladding for just one high rise apartment building.

      Not only high rise buildings but there literally tens of thousands of family residences with the cladding.

      The cladding controversy alone had the capacity to crash the market.
      Then there is the shoddy building practices as noted above – i.e. Opal Building in Sydney.
      The banking royal commission report is being released this afternoon.

      I’m expecting the Australian RE market to turn into a rout.

      • David Horowitz says:

        It’s all the rush to build and cash in on the credit bubble. Australia caught a case of the China flu in its construction practices.

    • yngso says:

      A very dead canary in the coalmine. There are thousands of badly built buildings in Auzz. How many more are there around the globe?

  10. WES says:

    It is kind of ironic. The Chinese government is trying to stop capital outflows while the Chinese are more desperate than ever to get their money out of China!

    The next year or so will tell us who is winning!

  11. Kenny Logouts says:

    In the North UK they seem to be building new homes like the Chinese empty cities.

    Thousands of homes. I’ve no idea where all the wealthy people to buy them are coming from, and where they’re finding jobs.

    Purely on a supply/demand balance I can’t see how prices can do anything but drop hard.

    If they don’t and demand is really that high, the demand must be from those moving up from the expensive South UK.
    But it still doesn’t explain the jobs issue.

    I’ve heard anecdotal evidence to suggest people moving to the North and finding work and a new pace of life.
    It does make you wonder what will happen to London prices across the full gamut.

    • GuiriCateto says:

      Maybe developers have a psychotic aversion to rural settings and have never found a field that is not worth building on.

    • Cynic says:

      Interesting: the plan in the UK is also to build about 1 million housing units in the ‘Milton Keynes-Oxford -Cambridge Triangle’, to service hi and bio-tech led growth.

      I find it extremely painful to watch good farmland being dug up and ruined, but if the result is higher tax revenues from the affected regions, it will be done.

      A dying industrial civilization will clearly trash as much as possible as it sinks, with no thought as to those who might come after and need that land……

      • MD says:

        ..but the building you no doubt live in was once a green field too…so what’s the difference?

        If you don’t like building – that’s fine, but go and live in a tent or a cave, or as a wandering ascetic, because to live in a building under which stands a piece of field and then moan about houses being built for other people to enjoy the same facility make you a hypocrite of the highest order.

        • GuiriCateto says:

          No hypocrisy I think, there is a big difference between choosing say a farmhouse with countryside, to then having an urban project built up in your neighbourhood and people shipped in. Same goes for a city, you like a park nearby, so you are a hypocrit for that, for opposing building on it ? It is a choice, people who like rural will not like their surtoundings built up, or even simply their villages bought out. Developers will always look for profits and people who move from the cities will think they are the next best thing to sliced bread. UK is ovecrowded anyway, shame to lose some of the more traditional regions to development trends, and I don’t think you know the north of England (though your reply was to Cynic). I could take you to markets there for example where even Londoners would understand 0.

        • kitten lopez says:

          GuiriCateto, nice elegant polite informative humble humane comeback. and you didn’t demean yourself and take the bait. that’s STRONG. i get bitchy in a heartbeat like most everyone else so i’m taking notes.


        • Kenny Logouts says:

          When the last big rounds of housing development occurred in the UK, it serviced the baby boomer generation and their growing families.
          60s and 70s.

          Today there is no equivalent population growth to drive the housing growth we’re seeing.

          If there are pockets of local demand it surely must come at the cost of market shrinkage elsewhere (big cities like London?)

    • Stan6565 says:

      In SW London too.
      Have a drive through Vauxhall, there is a forest of skyscrapers popping out of the ground. Who for?
      In Kingston, the Dear Leader Mayor Khan has together with local 5th column, set the town up as an “Opportunity Area”, in a process of dubious legality, swept under the carpet without any consultation with the residents. Kingston Council LibDems are all up in arms wanting a “people’s vote” on Brexit, but cannot muster a peep about how are Kingston’s already very overcrowded doctors surgeries or wildly oversubscribed schools going to cope once lumbered with masses of “new residents “, no doubt all very rich people part timing at Starbucks in order to be able to afford £500k a pop boxes.

    • Stephan Foley says:

      New York City currently has 250,000 vacant apartments (apartments not for sale or rent) of which, I would assume, a large part are used as a safety deposit box for overseas money. This number is 8% of total apartments in the city and recently rose by 60,000 over two years which is the same as the number of homeless in the city. Homelessness in NYC costs $1.7 billion in city, state and federal money. It should be mentioned that there are 20,000 homeless children in the city’s shelter system and the 60,000 total is 70% higher than 10 years ago.

      Another thing to question is why are we using EB-5 visas to import wealth when we have an affordability crisis. And also the fact that companies have brought in 250,000 H-1B workers from overseas to the NY metro area.

      I would suggest a couple of things. First, city and state governments have a moral obligation to provide a safe and reasonably affordable environment to their citizens. Second, a good, hard look at Vancouver’s foreign buyer tax and vacant unit tax as something NYC can do to cool its market. Third, discontinuing the EB-5 program. And, forth, requiring businesses bringing in H-1B workers to pay into a fund to provide affordable housing.

      • muneshwar budhu says:

        Use some of that $1.7 billion to build apartments in the south bronx.

    • Global vigilante says:

      As a northerner living in the Greater Manchester region, I can tell you that it’s a mixture of wealthy economic migrants, and wealthy UK southerners. The foreign migrants I now have to live among tend to be of Persian origin. Think of Iranians who have set up businesses here in the UK. The southerners have, like you say, sold their expensive properties and simply bought cheaper properties here in the North. Obviously that’s now pushing up the property market here in places like Manchester. I’m guessing they have plenty of cash left over as well. Enough to be able to retire a bit earlier perhaps. There was a time when I very rarely heard a foreign accent or even a cockney accent, but that was before globalism distroyed localism. I recently received a letter from the local council informing me that they will be building new houses on some local greenbelt land as well brownfield land. If all this carries on our once green and pleasant will be lost forever.

    • yngso says:

      Then add Brexit on top of that…

      • Argus says:

        The Brits will be just fine after Brexit, after an initial period of turmoil. They will still trade with the rest of the world. It may be a bit more cumbersome, but they will be free to make their own decisions. Importantly, they will retain/regain their freedoms and sovereignty.
        This would not have been possible if Maggie had not kept them out of the eurozone.
        The EU’s wheels are starting to come off, just a matter of time.

  12. Aussie says:

    Thanks Wolf, as usual, great work!
    Living in rural northern NSW, I can confirm workers are slowly losing their jobs and hours. I live with four workers, hard workers, labourers. It is getting desperate now for them to keept their head above the water, by years end I can assure you they will have either quite smoking, drinking, or both!


    • MD says:

      You’ve had a pretty good run off the back of the Chinese Stalinist 5 year growth plans – mandated 7%+ annual growth figures, announced a year in advance. Time to rejoin the real world, and do some real work of your own.

    • FormerOcker says:

      Is that near Byron Bay?

      And aussies quitting drinking? Lol, maybe when they die – maybe.

  13. raxadian says:

    When interest rates rise, “bricks” don’t look like such a good investment unless inflation is running rampant.

  14. Charlie303 says:

    To me the fundamental problem has been that banks and corporations know the Government’s and central banks will bail them out. To big to fail. ZIRP. NIRP. QE. So they can and have been very cavalier in their businesses.

    I forecast sometime within 5 to 10 years Government’s won’t be able to bail out the banksters and corporations. Then it gets interesting, borrowing for deficits, borrowing for welfare and warfare, rising unemployment, all up in the air.

  15. Jose says:


    Can you speak to how the individual homeowners/renters are impacted as the markets plunge and the associated assets follow accordingly?

    This seems different than 2007-2009. We saw the investors pull away from the market and the home values began to fall accordingly.

    We then saw in the United States, wages drop as many people were foreced to take pay cuts to remain employed by the global firms as those firms sought regain footing to survive the recession.

    This caused many individuals buying at the higher end of the market to become unable to make their mortgage payments. They found that when they sought to refinance their homes the lenders would refuse because the LTV’s had fallen so drastically. Thus, we saw an increase in foreclosures.

    This time the recession appears to be Global except the United States. We are seeing wage growth this time as others are entering or in recession.

    1) Is that because capital is coming back from those other countries?
    2) And if so, does that create a different result for the US homeowner/renter?
    3) Should a restriction on housing back securites be created to prevent the ballooning in home values since this is the 2nd time in 20 years that we have witnessed this occuring?


    • Wynkoop Ryan says:

      These questions are spot on.

    • yngso says:

      I’m not WR, but am taking a stab at this: The USD and US assets are seen as safe havens, and EM money flowing into them pushes up the prices and worsens the NPL situation for holders of the several trillions of USD loans. At the same time foreign govts are offloadng USTs. The yields of USTs will have to rise to entice anyone to buy them, adding a lot more interest to pay on US debt. Then many more USDs will have to be printed, debasing their value. Then the EM USD loans can be paid off cheaply.

  16. Iamafan says:

    It’s probably easier to think about this in terms of $USD Global Liquidity.
    Before 2017, the world borrowed a lot of dollars and some of those dollars were used for non-productive and speculative assets. 2018-19 saw the Fed destroying their assets and Trump putting the brakes on world trade. This isn’t producing more dollars, it is draining dollars. Hence you see the effects on speculative assets. Less dollars means they sell these assets for dollars – they need liquidity.

    The BIS reported:
    The annual growth rate of US dollar credit to non-bank borrowers outside the United States slowed down to 3%, compared with its most recent peak of 7% at end-2017. The outstanding stock stood at $11.5 trillion.


    • Jose says:

      IAmAFan wrote:

      “This isn’t producing more dollars, it is draining dollars. Hence you see the effects on speculative assets.“

      Perhaps dollars are draining from the global market and being repatriated domestically? Hence as the global market slows down from Trump putting the brakes on world trade?

      Thus my question does this housing bubble bursting have a different result from 2007-09?

  17. Consumers have to buy cornflakes but investors still speculate in corn? It’s the nature of any futures market that sellers will hedge their price and speculators will take the other side. Websites like Zillow make housing a commodity; online brokers offer lower fees, and online mortgage brokers. There is a (new) efficient market in housing, and there is too much supply. A consumable has a fixed life, which applies to the aging class of most US housing. . New technology should bring down building costs, and removing old product from inventory will help restore the balance. Cash for Shacks, could be a new government incentive. Housing came late to the list of consumer products. It means ultimately higher costs, for better products. You have a new big screen TV to replace that 12 inch model? You need a house to wrap around it.

    • Robert S says:

      I’m always surprised by the vast amount of labour and trades that go into home construction. You’ll see subtrades and labourers at work, custom cutting and fitting pieces and details. Reno’s and custombuilds, I can understand, but suburban models on developments: why the mass labour?
      Why not use factory built prefab or sections to quickly assemble onsite.
      I heard somewhere that Japanese houses are made to last 40 years and then replaced.
      What’s needed is to have a new tech to disrupt an entrenched, inefficient industry.

      • Wynkoop Ryan says:

        Completely agree. If costs come aggressively down on prefab and a major disrupting company emerges, I expect this to happen.

      • IanCad says:

        Completely disagree! In percentage terms the labour cost in a site built home is relatively small.
        Off-site (Prefabbed homes) will never compete with traditional frame built homes.
        I have been licensed as a contractor in CA for over thirty years – I know what of I speak.
        The same mistaken impression persists over here in the UK.

      • Paulo says:

        They already exist and are called modulars. (think trailers). The new ones end up costing the same per sq ft, are of inferior quality, and usually have a lot of deficiencies to repair on site. I have been in the ‘trades’ for over 40 years and there is no substitution for quality. Last year I helped my son redo a bunch of electrical mistakes on a new ‘cape cod’ modular some uninformed buyer thought was a good deal. They often look like houses, but believe me, they are not. they end up costing the same, and often more.

        Do you like mass produced meals trucked in? Housing is the same.

  18. J.M.Keynes says:

    – Residential real estate in Hong Kong and in the UK is financed by short term rates and those rates have risen in the past few years. Ouch.
    – Hong Kong follows every move of the Federal Reserve when it comes to (short term) interest rates. So, the cost of financing a home in Hong Kong have gone up in the past 4 years.
    – But I don’t know if the mortgage rates (in Hong Kong) adjust higher when short term move higher as well. Like they did here in the US between 2003 and 2007 with the infamous subprime mortgages. And was one of the reason real estate prices here in the US took a severe beating.

  19. yngso says:

    Oh yes WR, it is! Housing and financial guru Martin North agrees with you.
    Others here have pointed out that at the base of this is ZIRP and NIRP, and may I add the financialization that’s been going on for decades.

Comments are closed.