Grantham: “Day of reckoning” coming for global housing markets

Investment legend Jeremy Grantham has labelled the pandemic global property boom the “fifth great bubble of the modern era” and has warned of an impending global property bust as central banks ‘normalise’ interest rates:

Grantham is convinced that we’re in the midst of a fifth great bubble of the modern era, following the Wall Street crash of 1929, the Japanese asset bubble of 1989, the dotcom blowup in 2000, and the Global Financial Crisis of 2008.

He argues that both stocks and the housing market have been lifted to unsustainable levels owing to speculation from investors and unsustainably loose monetary policies from the Federal Reserve.

[Grantham] warned  late last year that a “day of reckoning” for the housing market would come.

Now, with interest rates for a 30-year fixed-rate mortgage rising to 5.27% this week, their highest levels since 2009, he sees that point coming ever closer.

Grantham’s concerns are justified. House prices across the world’s housing markets soared over the pandemic, dwarfing the run up to the 2000s Global Financial Crisis (GFC):

Global house prices

Global house prices soared over the pandemic.

The boom in prices was driven by stimulatory monetary policy and record low interest rates from the world’s central banks.

Now, with inflation soaring everywhere, central banks are withdrawing quantitative easing and beginning to lift policy interest rates:

Major economy policy interest rates
Advanced economy policy interest rates

This tightening cycle still has a long way to run and could end up doubling average mortgage rates from their pandemic lows.

The obvious risk is that central banks will tighten too far and cause a synchronised global house price crash and potentially a GFC-style global recession.

Unconventional Economist

Comments

  1. boomengineeringMEMBER

    Market forces versus interference, what would happen without CBs or gov’t manipulation, a better outcome maybe as a short intense pain is sometimes better than a long sickly pain.

    • Democracy: “I’ll vote you in, if you take away the pain of my stupid/selfish decisions.”

      Remember, kids pay such a high price for property today, because baby boomers worked too few hours and saved too little.

      • The boomers meme is wearing thin. They are and were far less likely to be property speculators than the following 2 generations , not only that they have much less demographic influence thanks to being mich lower in number thsn the next two generations, if you only know common dog history you will realise they did unionised and go on strike and rarely for trivial r
        easons. I see little evidence of millennial collectively fighting for any kind of justice apart from a tiny lobby against global warming.

        • The boomers meme is wearing thin. They are and were far less likely to be property speculators than the following 2 generations,

          We’ve seen the stats by age group of who owns property, and who claims NG deductions.

          Your assertion is a uncategorical lie..

          not only that they have much less demographic influence thanks to being mich lower in number thsn the next two generations, if you only know common dog history you will realise they did unionised and go on strike and rarely for trivial r
          easons.

          Now we have someone indulging in myth…. this is reality…

          When boomers were kids, the government paid a ‘child endowment’ as a form of welfare, only for it to be revoked afterwards.
          When boomers were school age children, we had one if the highest funded secondary schooling system in the world, only for it to be gutted continuously from the time of Greiner, Kennett, etc.
          When boomers finished secondary schooling, TAFE was amply funded, and university places became free, only for them to both be gutted and Uni loans are now entering life crushing levels.
          When boomers had young kids, childcare was virtually free, only for funding to be removed and childcare now a family crushing expense.
          When boomers entered their prime earnings years, we saw the highest marginal tax rates smashed and public services defunded.
          When boomers had surplus income, namely peak earnings years and kids out of the house, the received tax breaks via CGT discount on assets.
          When boomers started entering retirement, the income support payments between the aged separated, and higher, than the unemployed (i.e younger).

          Average working hours, by census stats showed the were least when boomers were in their 30’s and 40’s. Boomers parents typically worked Saturdays, younger generations are increasingly working more outside of 40 hours. Boomers didnt’ work Saturdays, we know… we were there.

          History shows for boomers;
          * Welfare largesse tracked their life stage, at the expense of everybody else.
          * Everyone else in history has worked harder than boomers.
          * Boomers can’t get enough of someone else’s money

          I see little evidence of millennial collectively fighting for any kind of justice apart from a tiny lobby against global warming.

          The ones making these protests aren’t workers. Young workers are too busy paying for boomers largesse, and spending the few remaining minutes with their too few kids

          • Yeh, what he said.

            Gotta copy n pastem me some of those yummy factoid giblets for next time!

          • You are blaming the boomers for decisions made by the politicians and their backers. Your real problem is with neoliberal elites, who have been doing their best to siphon wealth up to the top for years. The politicians are quite happy to ignore public opinion if it goes against what their backers want, as in the case of excessively high immigration, one of the main causes of high housing costs, congestion, overloaded infrastructure, depressed wages, etc., not because the migrants are more likely to be bad people, but because there are so many of them. We don’t have citizen initiated referenda. It is the younger people who are mainly keeping the neoliberal politicians in power, as they outnumber the boomers by more than two to one. The politicians are counting on masses of uninformed voters of all ages, who are compelled to vote, easily influenced by political advertising, and afraid of rocking the boat. See

            https://www.populationpyramid.net/australia/2022/

            At least initially, the boomers didn’t know how bad neoliberalism is and were taken in when Hawke and Keating used to talk about bringing home the bacon. Steve99 is quite right about who owns investment properties and benefits from the associated rorts.

            https://www.perthnow.com.au/lifestyle/real-estate/gen-y-has-highest-percentage-of-property-investors-in-its-midst-beating-gen-x-and-the-boomers-ng-733ac5bb8ee968e841453e1491694dcc

          • It’s the last 25 years of politicians you need to look at. As for voting over and over for the worst possible government, if the under 35s all voted Labour for what could have been a reforming Labour government re housing policy then things would be starting to look very different.
            Worth checking https://population-pyramid.net/en/pp/australia and only about 51 of boomers voted LNP.
            https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2022/April/Voting_patterns_by_generation
            Pays to look at facts and not just use emotion. The lageses is dolled out to rhe richest in society and big corps. It has always been that a percentage of older people have more thanks to 45 years of work and inheritance. But not all of us by any means. There are more boomers living in caravan parks or even cars than there are owning investment property. It’s time to focus in on the politics rather than a convenient scape goat.

          • Rusty didn’t misapply blame, just pointed out who had it all handed to them on a platter and squandered it. Simple.
            Epic post.

    • BubbleyMEMBER

      Or is it market manipulation encouraged by companies like Blackrock who had been buying up US residential properties?

      This would dramatically improve their purchasing power.

  2. What has changed is the desire (and ability) of the authorities and governments to support the asst markets at all costs.
    They no longer are true markets.
    Traditional analysis is out the window.

    • Grand Funk RailroadMEMBER

      Completely agree with this….

      No asset market is a ‘market’ any more.

      Depending on how you see these things it is

      Viktor Schvets – governments now control the fate of capitalism
      Baran and Sweezy, Minsky etc – Monopoly capitalism
      Karl Marx – capitalism eating itself

      • ErmingtonPlumbingMEMBER

        “governments now control the fate of capitalism”?

        I would argue its completely the other way around!

        Capitalism has already eaten itself and decided its time to replace REAL democratic Government with a Global Techno feudalism that protects the gains/thefts of the neo aristocratic 0.01%

        https://youtu.be/Ghx0sq_gXK4

        • Grand Funk RailroadMEMBER

          Capitalism has already eaten itself and decided its time to replace REAL democratic Government with a Global Techno feudalism that protects the gains/thefts of the neo aristocratic 0.01%

          Think of it this way. Capitalism is the life form from the film ‘Alien’ (1979). It will metastasise and engulf any other life form. Take over the body of other life and consume it and then burst out and try and take some other life. It is our 1%.

          Over the last 40 years it has consumed industry, banking, real estate, and politics. Neo Liberal policy is essentially the multiplication and life (for the alien species) preservation process. Of course it has consumed housing – all people wanted houses and still want them, it has consumed food and energy and the internet and services per se. The ‘service delivery’ you get when calling electricity companies, public services, banks or large retail is that species vomiting upon you so that you can be digested.

          The only way to kill the species is to kill the life of that it has engulfed. It knows this and it uses it to protect itself. It holds us to ransom – its life or our pain. You wanna rid us of the Alien? Or prevent it from doing something it wants to do? (like strip mining virgin wilderness in the amazon or pulping old growth forests). You will have a lot of pain – house prices will crash, food will become scarce, the ‘wealthy’ will cease ‘investing’ for our future. You wanna do something about global warming and carbon mitigation? The Alien will need to be embedded in everything we do. The Alien is us, it controls us, it decides what we do and don’t do and what is good for us. It harvests us, for its own benefits…….

          And now it needs to be nice and close to politics as that is about the only life blood left to extract.

          • Hill Billy 55MEMBER

            Paul summed it up nicely “I do that which I do not want to do, and that which I want to do, I do not do”.

          • Interesting points.
            It’s it capitalism that’s the problem, or is it simply the fate of any successful politicised economic ideal gamed to its extreme?

    • Display NameMEMBER

      Correct, Certainly not a market in any sense that we used to know it. Property is a protected species now. A real break downward only possible if too expensive for government to stop it. And by real I mean > 30%. 20% only pegs back a year or so, nothing substantial.

    • Display NameMEMBER

      Huge skills shortages.

      The absurd things is that after more than a decade of OECD leading migration rates we still have skills shortages. So clearly the migration and training systems in this country are utterly broken. But lets not consider root causes…more warm bodies, quickly.

      • Muttafukaburrasaurus.MEMBER

        Australia really hasn’t tried skills training since the early Hawke years.
        Mass immigration will prove to be the downfall of what was once a resilient cohesive society, comparing people’s reactions to natural disasters now to even twenty years ago is depressing. Weak, helpless, vulnerable victims abound nowadays.

  3. Hugh PavletichMEMBER

    United States …

    Hospital Workers Are Fleeing High Housing Costs: Where Are They Moving? … Becker Hospital Reviews / Zerohedge

    https://www.zerohedge.com/medical/hospital-workers-are-fleeing-high-housing-costs-where-are-they-moving

    By Becker Hospital Reviews

    As hospitals battle workforce shortages, part of their struggles come from workers leaving their jobs at hospitals for various reasons. Some have left because of emotional exhaustion while others have retired early. But there is another factor contributing to the shortages: housing costs. For some hospitals, the issue has become so prevalent they are building employee housing.

    Although the nation’s mover rate has been decreasing for several years, almost half of all movers in 2021 cited housing-related reasons for moving, according to a U.S. Census Bureau report released March 7.

    Mary Broadworth, vice president of human resources at Burlington-based University of Vermont Medical Center, told Becker’s earlier this year there are hurdles when it comes to nurse recruitment and retention, including a lack of housing options because of migration to the state. … read more via hyperlink above …

      • Hugh PavletichMEMBER

        Likely Kiwis in droves to Australia too … and Queensland in particular …

        London calling: Inside the fight to halt the exodus of Kiwi workers … Jane Phare … New Zealand Herald
        … behind paywall …

        https://www.nzherald.co.nz/business/the-exodus-what-kiwi-employers-are-doing-to-fight-the-skilled-worker-shortage/5YVSZA3HIB6J4RBD3UFENWES4E/

        Nothing’s going to stop thousands of cooped-up young Kiwis from heading off now the borders are open but their departure can only exacerbate critical shortages of skilled workers. In the first of a five-part series, Jane Phare looks at what employers are doing to retain skilled workers, and what part the Government will play in terms of immigration.

        Newly trained occupational therapist Jenelle Thomson doesn’t hesitate when asked why she left New Zealand in February to take up a job in Brisbane.

        “It was the money,” she says. That and the cost of living in New Zealand, and the possibility of buying a house in Queensland much more easily than in Auckland. Thomson, 25, hasn’t looked back since heading across the Ditch. She left behind the prospect of a job as an occupational therapist earning $55,000 a year at Middlemore Hospital after graduating from AUT.

        In Brisbane she started on $76,340 in a private practice. If Thomson transfers to clinical work in a hospital, she is likely to earn more than $100,000. Her Kiwi partner, a civil engineer, is earning $30,000 a year more than his previous job in Auckland.

        Their weekly grocery bill is $140 for themselves, and includes cooking two meals a week for two flat mates, compared to more than $200 a week in New Zealand. The couple are saving to buy a house about half an hour out of the city for $545,000. … behind paywall … read more via hyperlink above …

        … Not surprisingly … the latest New Zealand poll results …

        Newshub-Reid Research poll: Labour suffers dramatic fall as National cracks 40 pct … Newshub

        https://www.newshub.co.nz/home/politics/2022/05/newshub-reid-research-poll-labour-suffers-dramatic-fall-as-national-cracks-40-pct.html

    • By a quick guesstimate on those deposits, they are only cash flow positive on tax breaks, not actual income
      Value increases are rounding errors too. Much fun to come

      • 4.5% before costs income for 1.5% return. Obviously stamp duty, rates, agent and maintenance costs are not factored in. When their primary residence converts to P&I they are stuffed. .25% interest rate rise is $5k/y on 2.1 million

    • “Sydney Newlyweds Raphael and Kate have purchased three properties below market value which has brought in positive cashflow of $20,000”

      Kiyosaki disciples, all for $13k after tax, with the concomitant debt hanging over their head like a sword of Damocles

      “The 35-year-old couple”. So she’s already slipping into poor fertility heath territory….

      What a petty, toxic society we’ve become. All of this convoluted behaviour to reach 50% of the poverty threshold….

      • How on earth can anyone buy anything ‘below market value’ – aside from illegality in some form?
        Whatever they paid IS market value. If they were the only bidders then they were The Market, and if there were other bidders, then they paid more than anyone else thought it was worth?

        • How on earth can anyone buy anything ‘below market value’ – aside from illegality in some form?

          it’s a Richard Kiyosaki tactic, wait on the steps of bankruptcy courts.

          There is a house, say valued by a bank, at $250,000. Bank will lend $200k at 80% LVR.

          Offer up to a max of $170k to some poor bastard because of bankruptcy pressures (or the creditor who is after say $170k). Bank still gives you $200k, you buy house at $170k and pocket $30k as deposit for next house.

          Whatever they paid IS market value.

          Bank valuation says otherwise. Works in the other direction too, you bid too high, only to find bank gives 80% of their valuation, you gotta stump up an even greater deposit, unless you put a finance clause in….

    • Does anyone recall that couple a few years ago with something like 20 properties and very little equity? They were roundly disparaged and villified here. Just say’in those mfers are rich today baby!

      I don’t like it either but it bears remembering. Financial success isn’t a popularity contest.

      • Could get interesting for them if they don’t start offloading some. They are the first to be forced to sell if their new found equity turns on them with their interest only loans.

      • CarlosMEMBER

        Straight up luck….. they had no idea what was coming and direction it went. Yes took a punt, not some financial wizards.
        And if it goes south they’ll be at the front of the line for handouts (which they likely took during covid anyway)
        Some people come out of the casino rich too, others go home and bash the missus.

        • Good points.

          What kind of politician turns housing into a winner-take-all casino? What kind of voter repeatedly elects such politicians?

  4. “Day of reckoning” coming for global housing markets
    What silliness :”Day of reckoning” There’s an underlying assumption here that something else is more valuable than housing.
    this assumption is always comparative. So what’s more valuable than housing?
    Money? Pfft don’t make me laugh we print that stuff in $B blocks, it’s everywhere, f’ing everywhere.
    Labour? There is a definite movement towards valuing differentiated labour (which has been absent for over a decade) but is there really sufficient breadth to introduce wide spread wage inflation , maybe but we’ve got a long way to go
    Automation? this is the big unknown, will Automation bend the knee to Politicians or is it the Politicians that will bend the knee?
    My bet is that our Politicians will be easily convinced to become Automations servants (especially if there’s a house in it for them) but who will master Automation, and will they share, will they play nicely? Personally I doubt that they’ll have any interest in playing nicely, instead we’ll see the rise of a Technocratic élite. We’ll beg Automation to F’us harder and naturally it’ll oblige.
    what’s the old joke: Whip me, please, whip me begged the Masochist, No said the grinning Sadist!
    That’s our future, but it’s not a future to be enjoyed by everyone, for most of the population there’s nothing but mortgage slavery ahead, year after year of grinding soul destroying debt slavery.

  5. tmnsoonMEMBER

    “The obvious risk is that central banks will tighten too far and cause a synchronised global house price crash and potentially a GFC-style global recession.”

    I can only hope. More likely they will reverse course when economies start to go into recession, dump rates to try and re-inflate the bubble.

Leave a reply

You must be logged in to post a comment. Log in now