Housing bubbles appear pretty similar on the way up. Yet the aftermaths of recent real estate booms in the US, UK, Spain and Australia have been extremely varied. US home prices took a real hammering. The formerly hot housing markets of the UK and Spain, on the other hand, declined somewhat but never fully deflated, while Australian real estate prices have rebounded with remarkable vigour. Why have these housing markets, which not long ago marched in lockstep, produced such diverse outcomes?
One explanation is national differences in housing supply. Markets where land was readily available for development, most notably the US, were flooded with new construction during the boom period. Annual housing completions in the US climbed roughly 50 per cent in the five years to the market peak in 2006. The resulting oversupply of unsold properties has lasted to the current day. But in other parts of the world, including Britain and Australia, new housing supply didn’t keep up with rising home prices and there was no overhang of properties to sell off when the credit crunch struck.
Bubbles can still break, however, even when the market is not saturated with new buildings.