Real Estate: This Time it’s (Ominously) Different

Most times when people say that “this time it’s different” about a kind of investing, they’re wrong. The only thing different is the person (wrongly) saying that this time it’s different. Such is not, however,the case in residential real estate, as the following figure from a fascinating new OECD global real estate report shows. Where real house prices and the broader economy had been connected in the past, such is currently not the case:

This time it’s (ominously) different.


  1. winners will be those with cash and cash equivalents, and little/no debt. the trick is to be able to buy distressed/reduced properties without having to sell your own (and incur a lower sale price during a bust). stock investors will be hard pressed to drum up this cash…the real estate bust will certainly take the market down as sure as it the common-denominator liquidity buble has held it up. another benefit in the bust of being cash rich is avoiding omrtgages entirely…since rates will be high, borrowing will be expensive.

  2. Michael Robinson says:

    grumpY!: “winners will be those with cash”
    That’s assuming that what’s “different” this time is a speculative asset bubble.
    Another interpretation is that the market is pricing in an expected “debt monetization event”. It’s hard to tell because the interesting data got truncated on the left of the chart, but it sort of looks like the last large deviation of the two data series coincided with the money-printing excesses of the early ’70s.
    There are only two ways out of the looming debt crisis: fiscal austerity or inflation. If you believe the former, then cash trumps real estate; if you believe the latter, then real estate trumps cash.
    Either way, though, I agree with Paul that non-ominous interpretations are hard to come by.

  3. Wil Harkey says:

    Can you overlay this with 30-year interest rates and per capita real income as well? I think it adds to the discussion. Housing prices should somewhat be driven by a given % of real per capita income, and so this picture is incomplete without that data.

  4. Scott Pingrey says:

    Something else to consider: how much lending confidence, and by extension, purchasing potential has been influenced by the extensive use we see now of hedging derivatives (such as credit default swaps)? When I was young, it was quite well understood that a young person with no lending history had basically no chance of getting an automobile loan without having an acceptable co-signer. Derivative writers today are like the co-signers of before. Except that now they are paid to accept the role and the lenders find them rather than the borrower. Seems like this would encourage more lending and buying, the momentum of which could set an ominous trajectory of its own…maintained if lenders can easily get money to lend, and if derivative writers (co-signors) are readily available and capable of stepping in if called upon to cover any payback shortfalls. Pretty big “if’s.”