Is London Blowing a New Housing Bubble?

You might excuse a bloke for not knowing we're in the midst of a housing crisis. In London, the real estate party still rages on. Prices are going up in fashionable parts of the city -- way up, reports the Wall Street Journal. A one-bedroom co-op flat near Hyde Park? Asking price, $1.5 million. Or, how about a two bedroom duplex for $3.3 million?

"The London real estate bubble," warns the Journal, "arguably the biggest one of all, still hasn't popped."

And that's a problem because, if it does pop, it could potentially take with it the chances for a full-throttled global economic recovery, especially in light of the growing concerns about the health of the European Union.

The head of Boston money firm Jeremy Grantham tells the Journal that the current British property bubble may be the biggest the world has seen since Japan's back in 1990. London real estate prices are down only about 9 percent from their 2007 peaks, meaning there is plenty of room for further and maybe even dramatic deflation.

The Journal raises a serious question: Is the worldwide real estate crash, then, really over? Or is the worst actually still to come?
Some observers have been crowing about London's bounce back.

"The city's high-end real estate is seeing a V-shaped recovery, as the weak pound lures foreign buyers," reported Business Insider's Henry Blodget. "Prices are now down only 11 percent from the peak." That was in August, when about 250 homes and apartments were sold in London, each in the very rich neighborhood of $1.6 million or so. A year earlier, only about 75 homes in that price category managed to sell.

"The combination of rising prices and increasing confidence in the central London market has had a dramatic impact on the number of sales which have taken place," residential London researcher Liam Bailey told Business Insider.

There is all sorts of rationale given for the surge in real estate prices: foreign buyers lured by a weak pound, London's unique appeal. But that doesn't stop a growing sense of nervousness that, at the beginning of 2010, that there is a gigantic real estate bubble just waiting to blow up in all of our faces. As the WSJ headline put it: "The London real estate bubble is back -- and it's scary!"

Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate and related issues for several years.
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