Bubble bubble toil and trouble in Germany

Any time property prices rise rapidly it can make the property market subject to an unjustified surge in confidence, that is why I am surprised to see Germany’s housing market has risen 10% in the last 12 months. Germany has long been lauded as an example of how to maintain a ‘steady’ market, but it seems that the last year has disproved this rule.

I can’t help but think that their market is undergoing a dynamic similar to the one our own had in 2003 up to the boom. During that time the German and French economies were not performing as well as ours and credit became cheap and available, their banks currently don’t have the funding constraints ours do and this means that they are able to lend at a time when rates are very low making carry cost very cheap.

The non-synchronized nature of central and peripheral Europe is showing, in 2003 our economy was doing well and this cheap credit environment aided in helping prices shoot up. Now the roles are reversed and Germany is doing well while everybody else is struggling but then we see this rapid upswing in prices.

There will always be the typical bubble reasoning that ‘there are strong fundamentals’ or that ‘demographic make up shows this is going to last’ etc. The truth is that it won’t and if we see another year of this in 12 months time then you can be satisfied that there is a bubble forming. When it bursts is hard to say or know, but burst it will. Of course, this is a premature call, but it is still noteworthy.

Perhaps in the future they might learn the lessons we are learning now, after all, nobody gets to break the rules indefinitely – that rule being that no nation is a champion perpetually and that they can fall victim to the boom/bust phenomena just like everybody else.

Comments

  1. Bernard Murphy

    How does this tally with your comment that Germany have found a steady balance in relation to their GNP/GDP ratios in your blog of August 28?

  2. 2Pack

    You’ll love this so Karl 😀

  3. @2pack lol… you’ve gone to the dark side! good luck with the inevitable ‘ban’

  4. @Bernard, I suppose it doesn’t really square does it?! The ‘just right’ comment is that they haven’t had a bubble to date, I suppose that doesn’t discount that one can form though. The higher multiples haven’t caused their market to crash, but upswings in prices are often an symptom of the problem and as mentioned here – they have the reverse issue we did in 2003.

    To be honest, my opinion changes regularly, new information comes out and I totally contradict what I said before!

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