Nouriel Roubini is seeing signs that we are “entering bubble territory” in nearly a score of developed and emerging markets countries that he warns “looks like a slow-motion replay of the last housing-market train wreck.”
In a Nov. 29 opinion piece appearing on Project Syndicate, the NYU professor and economist says the signs of “frothiness” include fast-rising home prices, high and rising price-to-income ratios and high levels of mortgage debt as a share of household debt. Aided in the developed countries by very low short- and long-term interest rates, and considering their slow GDP growth, low inflation and high unemployment, “the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices.”
In the developed world, Roubini sees the beginning of bubbles in Europe (Switzerland, Sweden, Norway, Finland, France, Germany and at least in London in the U.K.) in North America (Canada) and in Australia and New Zealand. Bubbles are appearing in EM countries (though he says the “situation is more varied”) in those countries: Hong Kong, Singapore, China, and Israel and in major cities in Turkey, India, Indonesia and Brazil.
“With central banks…wary of using policy rates to fight bubbles,” Roubini’s biggest worry is that the standard tools applied by regulators—what he calls “macro-prudential” regulation and supervision of the financial system to address frothy housing markets—will prove “inadequate to control housing bubbles.”
Roubini did not discuss the U.S. housing market, but two reports last week showed that the domestic market is certainly improving. Building permits for future U.S. home construction rose 6.2% in October to 1.03 million units, beating economists’ consensus expectations and reaching the highest level since June 2008. The S&P/Case Shiller composite housing price index of 20 metropolitan areas increased 13.3% in September over September 2012, the strongest single-month gain in the index since February 2006.