SoCal in World Context

Dec 01, 2012 78 Comments by

This website focuses on Southern California real estate, but how are we doing here in context of the world real estate situation? Real estate is cyclical, and as we all know, we have just come through a significant correction in general prices in the United States as well as Southern California. US prices, on average, peaked in 2006 and bottomed in 2009. Prices in other countries have different patterns. Canada peaked in 2008 and dropped for about a year, but resumed its rapid price appreciation up until recently. Canada has been blessed with a variety of natural resources which have helped support the economy and the real estate market. But sometimes things go crazy, like in Vancouver. Having visited Vancouver several times, I appreciate its beauty and hospitality.  But I’m not buying a little vacation home there in the near future.  The combination of a strong economy, a beautiful location, looser lending requirements, low interest rates, and a consistent flow of investors and residents from China, has resulted in one of the biggest bubbles in the world.   There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to  In comparison, the NAR reports that as of April, just over 7,000 homes sold in the entire US for over $1 million.  And this despite the fact that the US population is 135X greater than the metro Vancouver market, the average personal disposable income in the US is 20% higher than the Vancouver average ($37,100 vs. $30,800) while US per capita GDP is higher than the average for all of BC.  House prices, which have made a break downward, have grown relative to personal disposable income, inflation,

rents and GDP per capita.  In general, these indices will normalize over the long run. Either house prices will fall, or the other factors will increase.  Incomes have a long way to go.

The chart below indicates that in addition to Canada, other countries that are still in bubble territory are Hong Kong, Singapore, Belgium, France, New Zealand, and Australia.  Relatively undervalued countries include Japan, Germany and the United States. The overvalued countries have some of the same issues as Canada such as a desirable location, hot-money coming from other countries and loose lending.

The under-valued countries have different issues.   The United States has recently experienced its price correction.  Japan has been in a long-term decline since the 1980’s bubble and has had structural, economic, demographic and environmental problems.  Germany, on the other hand, has not gone through the bubble scenario that most of the world has.  In general, residences in Germany require a 20% down-payment from the bank where you have saved the money over the years.  This has taken the speculators out of the market.   Relatively low leverage like this was prevalent in the United States and other countries until the 1970’s.

In conclusion, in terms of the real estate cycle, the United States appears to be in a favorable position compared to other countries.  Because of positive environmental and economic factors, places such as Canada, and Vancouver in particular, are still in the bubble stage of the cycle.  Using a variety of indices, we can rate various countries in terms of their real estate prices.  From a world-wide perspective, prices in the United States appear to be reasonably priced, when considering income and rents.



About the author

Charles (Chuck) Segelhorst, chief appraiser, has 20 years of real estate appraisal experience. He is a certified general real estate appraiser, the highest level of California State appraisal licensing. Mr. Segelhorst received a master’s degree in business administration from American Graduate School of International Management (Thunderbird), Glendale Arizona and a bachelor’s degree in economics, cum laude, from California State University, Long Beach. In addition, he has completed appraisal course-work through the Appraisal Institute. Specialized classes that he has completed include: Income Capitalization, High Value Residence Appraisal, Valuation of Detrimental Conditions, Appraisal Procedures, Appraisal Applications, Econometrics and Financial Statement Analysis. He has testified in Municipal and Superior Courts as an expert witness.

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    • SoCalAppraisal says:

      Thank you for your kind responses. It appears that readers are located throughout the world. It is difficult to give generalized world-wide forecasts and trends. Every area is unique and is affected by different economic, geographic and political factors. One of the few factors that might affect all geographic areas and property types would be an increase in interest rates. With rates at historic lows in most areas, there is nowhere to go but up. Affordability could be significantly reduced by higher interest rates and capitalization rates for commercial property could increase, with consequent lower valuations. Potential declines could be greatest in those areas that have the highest ratios of income to value. I look forward to writing again soon. Merry Christmas and a happy and successful new year.

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