International House Bubbles

(This document is being updated as new country information becomes available, this revision 2 Oct 2013)

This is what a housing bubble is supposed to look like:

Ireland House Prices and Household Debt follow the same pattern

or this:
US house prices and household debt follow the same pattern


House prices rise, leading to market revaluation, with debt rising in parallel slightly behind it as people are borrowing money to put into houses in a rising market (and this is what happened in Ireland and the United States). This becomes more obvious if you only look at the increases in house price and household debt from one period to the next.

Ireland graph of increasesUS increases only


If you add up the total house price increases from Q1 2002 to when the bubble leveled off prior to collapse in Q3 2006, and compare it to the total added to household debt in the period, the two totals are 98.06% similar for Ireland. So, for Ireland, all house price rises were created by household borrowing. Similarly for the United States, the increase in debt is 98.12% of the dollar value increase in house prices.


However, this is not what has happened in New Zealand. House prices have gone up, but household debt has not gone up by the same amount:


In particular, during the period of rapid house price rises from 2003 to 2007 (inclusive) household debt increased by far less than can possibly explain the level of house price rises.


Focusing on the amount of increase from year to year, if you add up the total price increases in house prices 2003-2007, and the total household debt for the same period, household debt is only 34.85% of the total that house prices increased by. As household debt is, at most, only of the amount that house prices increased by (unlike Ireland where it is all of the amount house prices increased by), the only sane explanation is that money had been entering the New Zealand housing sector in ways that are not related to household debt and these ways are ways not found in the Irish property market. This means that the conventional model of people getting mortgages to buy houses fueling the housing bubble is broken with respect to New Zealand. For the purposes of this argument, it is not important that the total rise in debt to house price rise in Ireland and the U.S. is 1 to 1, simply that the proportion is a lot more than New Zealand.


As an additional note, for the most recent year figures are available (2012) New Zealand Household debt can only explain 12% of house price increases.


New Zealand:

Reserve Bank C18 data inflation adjusted on the basis of Stats NZ CPI figures

Ireland Household Price:
Ireland Household Liabilities:
via Table 8.1
and adjusted for Inflation between years by:

United States:
The United States figures required combining multiple data sources
Household Dept vs. Income: Factbook 2012 - ISSN - © OECD 2012
Household Income per capita:
U.S Population:
House Prices, percentage change on previous year:
Total value of housing stock in 2006:
Inflation Adjustments:



David Hood,
Oct 3, 2013, 12:22 AM