Housing Bubbles......

Another housing bubble in Hong Kong? A study conducted at Wharton on the Hong Kong housing market in the late 90's may provide some clues.

Wong says the movements in the underlying market and macro-economic fundamentals in Hong Kong during the period studied do not fully justify the dramatic price upswing or the changes in the volume of trading in homes.

I have always been amazed at the price of Hong Kong real-estate and the people's willingness to believe in real-estate as a wealth creator. The study makes some interesting points.

"The interesting thing is, the bubble grows as speculative activities build up," Wong notes. "There is likely to be some speculative demand in the market at all times, but bubbles form only when there is substantial speculation. What we can do is to keep track of changes in turnover volume, separate increases in turnover due to speculation and those due to other factors, and therefore get a sense of how much speculation there is. When there is a frenzy of trading, a red flag should be raised and we should take a careful look at the fundamentals (which are difficult to measure) and housing prices."

From what I understand, housing turnover has grown dramatically and this may be an indicator that we are in a bubble in Hong Kong. The other important piece of data that is critical is the proportion of investment/speculation relative to final consumption, those that plan to live in their houses. I don't know what these numbers are. But in any case, the number of transactions has been falling for several months and this may be a precursor to an adjustment downward in housing prices.

Additionally, there are signs of a housing bubble in several markets in the United States where there has been rampant speculation and short-term trading of properties.

I am not very bullish on the price of Hong Kong real-estate. I think that these levels are unsustainable. Also, one gets so little for your money here relative to other markets in the world.