Showing posts with label Skyscraper Indicator. Show all posts
Showing posts with label Skyscraper Indicator. Show all posts

Friday, October 21, 2022

Global Real Estate Bubble Index 2022 | 18.6 Year Real Estate Cycle

UBS (Oct 11, 2022) - Nominal house price growth in the cities analyzed accelerated to 10% from mid-2021 to mid-2022, representing the highest increase since 2007. Four US cities — Miami, Los Angeles, San Francisco, and Boston — are among the top five with the fastest-growing prices.
 

Imbalances
are sky-high in both analyzed Canadian cities, with Toronto topping the index. Valuations in Frankfurt, Zurich, Munich, and Amsterdam also show elevated risks in Europe. In contrast, there is no bubble risk in the US cities. Since last year, mortgage rates have almost doubled on average across the cities analyzed. Alongside increased prices, this makes city housing much less affordable. A skilled service sector worker can afford roughly one-third less housing space than before the pandemic. 
 
 
In almost all cities, households have been leveraging up. Outstanding mortgages recorded the strongest increase since 2008. Debt-to-GDP is on the rise as well, reflecting the cheap financing conditions and weak economic growth since the pandemic. People have returned to the cities. Strong household formation and unaffordable owner-occupied housing drove demand for rental units. As a result, rents grew by 7% on average last year, making up all rental losses accumulated during the first year of pandemic. Higher interest rates, inflation, turmoil in the financial markets, and deteriorating economic conditions are putting the housing boom under pressure. In a majority of cities with high valuations, price corrections have either already begun, or are expected to start in the coming quarters [...] 

Edward R. Dewey & Edwin F. Dakin, 1947:
"No matter what index be used, this 18-year cycle rhythm seems one of the clearest,
most regular patterns revealed in our economic life.
"
 
In 1947 Edward R. Dewey and Edwin F. Dakin showed that 18.6 year real estate cycles have repeated over centuries: in times of inflation or deflation, whether interest rates are high or low, with or without trade barriers, with government subsidies, and with high, low or no taxes. Fred Harrison demonstrated considerable economic predictive power relating to this 18.6 year cycle pattern: 14 years up, interrupted by a mid-cycle dip, followed by 4 years down. In over two centuries, this cycle has only ever been disrupted by two world wars. The cycle has never been shorter than 17 years, or longer than 21.

Dewey and Dakin wrote: "The building cycle is so long that few people experience two complete cycles in their business life. Education, to be effective, must therefore be “book knowledge” rather than experience […] For many individuals, an unfavorable first experience means a lifetime tragedy […] The welfare of an individual is often determined by the time in which he was born. If he is old enough to start business at the low of a business cycle, which is accompanied by […] rising prices, his chances for success are very good. Conversely, if he is born at such a date that he starts in business at the peak of a building cycle, which is accompanied by falling commodity prices, his chances of success are small. Much of the success or failure of an individual is due to forces over which he has no control; but if he understands these forces, he may protect himself from the worst results of unfavorable combinations and profit personally from favorable combinations."
 
All cycles have the same characteristics, but different influences, and government intervention in markets cannot create or suppress the real estate cycles. Credit, created by banks, through fractional reserve banking, fuels the cycle. Each recession brings new rules and regulations to the banking industry, designed to stop problems and prevent abuses; each upturn brings new ways to profit by exploiting loopholes in those rules and regulations. 
 
Residential real estate is first to recover from a downturn. The mid-cycle slowdown is confusing: The 18-year cycle is so long that few people remember the last one, and when market expansion quickly resumes, people think everything is fine. But the coming downturn will always be much worse than a mid-cycle slowdown. In the final years of a cycle, authorities congratulate themselves on how well they are managing things. If banks know the government will bail them out, why be prudent in lending. Seeing huge returns of others, the masses rush into real estate investing, believing it never goes down until fear overtakes greed. Land values peak about 12-24 months before a recession. 
 
A peak in the building cycle usually follows peak in land values, but precedes the recession. Announcement of the next ‘world’s tallest building’ may well be the most reliable indicator of an approaching peak. Copper prices spike into the last years of each real estate cycle. In the US all recessions since 1960 have been preceded by an inverted yield curve. The turning point in a cycle is often the collapse, or near collapse, of a major bank; some event will arise to cause doubt, but you’ll hear assurances that everything is okay. 
 
The crisis at the end always comes in an environment of rising interest rates, and the stock market is first to trough because of its far greater liquidity. Investors, speculators, and homeowners with little equity at the end of a cycle will always be wiped out. Always. Recovery takes years, not months. Historically, prices have dropped 20-30% from previous peaks. In the US the 18.6 Year Real Estate Cycle is expected to peak and crash again around 2025 - 2026.
 
 
See also:

Tuesday, February 28, 2017

The Skyscraper Indicator 1790 - 2015 │ Elliott Wave International


This market sentiment indicator has a reliable history that goes back nearly 200 years!
It's sending a signal today that's as clear as it's ever been.
Source: Elliott Wave International (Feb 27, 2017)
 
Cycles analyst Edward Dewey (1895-1978) was the chief economics analyst for the US Department of Commerce when he developed the "Skyscraper Indicator" in the 1940s: It correlates human optimism to the number of high-rise buildings under construction. When people are very optimistic, they tend to express their feelings in massive construction projects, especially very tall buildings, because they have a need to build toward the sky! Since this extreme optimism is reached at major market peaks, in the economy, severe economic downturns usually follow; not just declines in real estate prices. The world’s current tallest building, the Burj Khalifa in Dubai (828 m), nicely illustrates this process: It was built as a monument to the Gulf emirate’s boom in the middle years of last decade and opened in late 2009, just as the emirate plunged into financial crisis.

Experts note the 18-year financial cycle was disrupted by the First and Second World War,
but returned to its former state in 2006 (HERE)

It doesn't need a prophet to tell where the next bubbles are about to pop: Of all of the world's skyscrapers under construction, China is home to 53% of them and since 2016 China's highest buildings exceed the 'One World Trade Center' (417 m) in New York by 200 meters. The boom is on though in mid 2013 the construction of the planned 838 meter Sky City in south-central China was halted by the authorities for not having a building permission. A similar craze for high rise has gripped South Korea and India. India just finished building two skyscrapers and has 14 skyscrapers currently under construction. However, having survived the Arab Spring miraculously, it is this decrepit royal kleptocracy in Saudi Arabia that is now decorating Jeddah with a 1,007 meter high 'Kingdom Tower'. Let's have a look at what happened during recent high times in different places: The construction of the Taipei 101 (508 m) began in 1999 and was completed in 2004. The duration coincided without the recession in the early 2000s and the tech bubble while in 2010 the completion of the Burj Khalifa coincided with the current global financial crisis. The Asian economic crisis, currency devaluation and speculation in stock and property coincided in 1997-1998 with the completion of the Petronas Towers (452 m), the tallest buildings in the world at the time. Now the 18-Year Real Estate Cycle will again be due to peak and pop around 2016 (+/-). See also HERE

Source: The Visual Capitalist (Feb 11, 2016)

Wednesday, December 18, 2013

The Skyscraper Indicator | Excuse me, while I kiss the sky ...

Cycles analyst Edward Dewey (1895-1978) was the chief economics analyst for the US Department of Commerce when he developed the "Skyscraper Indicator" in the 1940s: It correlates human optimism to the number of high-rise buildings under construction. When people are very optimistic, they tend to express their feelings in massive construction projects, especially very tall buildings, because they have a need to build toward the sky! Since this extreme optimism is reached at major market peaks, in the economy, severe economic downturns usually follow; not just declines in real estate prices. 

The world’s current tallest building, the Burj Khalifa in Dubai (828 m), nicely illustrates this process: It was built as a monument to the Gulf emirate’s boom in the middle years of last decade and opened in late 2009, just as the emirate plunged into financial crisis. These are the highest buildings in 2013:

World's Tallest Buildings 2013

And these are the tallest buildings currently under construction and expected to be complete before 2020:

Skyscrapers under Construction

It doesn't need a prophet to tell where the next bubbles are about to pop: Of all of the world's skyscrapers under construction, China is home to 53% of them and by 2016 China's highest buildings will exceed the 'One World Trade Center' (417 m) in New York by 200 meters. The boom is on though in mid 2013 the construction of the planned 838 meter Sky City in south-central China was halted by the authorities for not having a building permission. A similar craze for high rise has gripped South Korea and India. India just finished building two skyscrapers and has 14 skyscrapers currently under construction. However, having survived the Arab Spring miraculously, it is this decrepit royal kleptocracy in Saudi Arabia that is now giving thanks to each other by decorating Jeddah with a 1,007 meter high 'Kingdom Tower'.

Let's have a look at what happened during recent high times in different places: The construction of the Taipei 101 (508 m) began in 1999 and was completed in 2004. The duration coincided without the recession in the early 2000s and the tech bubble while in 2010 the completion of the Burj Khalifa coincided with the current global financial crisis. The Asian economic crisis, currency devaluation and speculation in stock and property coincided in 1997-1998 with the completion of the Petronas Towers (452 m), the tallest buildings in the world at the time. Now the Great 18-Year Real Estate Cycle will again be due to peak and pop around 2016.