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By Alan Hall | Excerpted from the October 2015 Socionomist


It’s been less than a decade since the housing bubble burst, yet home prices in the UK and US today hover near new highs. Even so, socionomist Alan Hall foresees a darker future for real estate. He warns that once again, housing data suggests that the real estate market is beginning to wilt.

Here is an excerpt of Hall’s October 2015 article.

United Kingdom

Hot Times Begin to Cool for the High End, Already Cool Elsewhere

… Figure 2 plots the FTSE EPRA/NAREIT UK Index, which is designed to represent general trends in UK real estate by tracking the performance of 33 major real estate companies and real estate investment trusts (REITs) listed on the London Stock Exchange. The performance of these investments has failed to keep pace with home prices. The index is down 37% from its February 2007 all-time high. Another widely cited metric, the FTSE 350 Real Estate Investment Trust Index, looks similar. The general trend peaked in 2007 because that’s when most people were buying. Since then, investors in REITs who bought into the mania have bided their time or sold at a loss.

REITs-Index-2007-Highs-Fig2

Figure 2: UK REITs Index Still Below 2007 Highs

The one sector of the UK housing market that has flourished in recent years is high-end real estate, yet there are signs that it is beginning to wilt. Booming luxury markets are hallmarks of asset manias and are often the last to break down after a bull run. Luxury real estate in London was irresistible for wealthy international investors in 2013-2014, but 2015 has been less rosy. Homes are taking longer to sell, and sellers are slashing prices. The first big whiff of panic was in April, when real estate agents Douglas and Gordon reported sales of homes worth more than £2 million “dropped by 80 per cent in the past year.” On September 8, Bloomberg said,

Investors betting on making a quick profit on luxury apartments in south London’s Nine Elms district, Europe’s largest project for prime new homes, are facing long waits for buyers. Almost 30 percent of new properties in the district have languished on the market for more than a year … .

United States

Opulent Estates Will Become Meltdown Manors

The luxury housing bubble stretches beyond London to broader Europe and onto the shores of the US, where the real estate mania percolates in a narrow, wealthy slice of the population. On May 1, Dow Jones launched Mansion Global, a worldwide luxury real estate website “designed to empower international buyers to make intelligent purchase decisions and to engage the luxury real estate enthusiast.” The September Socionomist reported on the $200 million sale of three floors of a Manhattan condominium tower, the most expensive single residential real estate deal in US history. And the average square footage of new homes built in the US is greater than it was at the top of the previous housing mania …


 

In the complete 6-page article, Hall spells out the weaker, waning activity in broader housing markets in the US and UK, and examines land prices in Japan.

Understanding the psychology behind these trends can help you decide whether to buy, sell, rent or stay put.

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