The real estate bubble that led to the 2008 U.S. housing crash and the subsequent recession might be rearing its ugly head again — except this time it is worldwide, according to the
Financial Times.
According to data from research company MSCI, prices and yields around the world on property are hitting records last seen before the previous crisis. Real estate prices in the U.S. are particularly aggressive, the data showed.
Peter Hobbs, MSCI's research managing director, told the Times the escalating increases might be difficult to sustain, citing "frenzied buying."
"Most global markets are at or close to historic low [yield] levels," he said. The yield is defined as rental revenue as a percentage of a property's value. As values go up, yields go down.
The driving force behind the higher real estate prices is "exceptionally low" bond yields, which have made real estate more attractive to investors, Hobbs explained.
The newspaper said the MSCI data showed publicly traded real estate companies have been significantly outperforming the broader global stock markets.
The data will compound fear that quantitative easing programs around the globe are fueling price bubbles in many asset classes.
MSCI concluded that real estate investment cash has flooded into continental Europe in the past year — particularly the periphery, some nations of which have had the deepest financial problems in the region.
"People are moving up the risk curve into riskier locations and taking on higher levels of debt and more challenging development activity," Hobbs said. "When you're at or near the top of the cycle that is not necessarily a good thing to be doing."
A new International Monetary Fund (IMF) report found that banking system exposure to real estate in China amounts to almost 20 percent of that nation's GDP.
"In China, the disinflationary force of property price declines could strain bank and shadow bank balance sheets and spill over more broadly," the report states.
"Retrenchment of overinvested industries, real estate sector adjustments and property price declines, particularly in China, which could spill over to emerging markets more broadly."
Min Zhu, deputy managing director of the IMF, called for a measure of investor caution in a column for the iMF Direct website.
"History teaches us to be wary when house price surges are accompanied by booms in the availability of credit. Such 'twin booms' in house prices and credit are more likely to end in busts, and the recovery from those busts is slower and more costly in terms of lost income," Zhu wrote.
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