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John Hardy: Global housing bubbles could ‘unwind violently’

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From Canada to the UK, New Zealand to Scandinavia, there is a large scale housing bubble that could burst at any time. That’s according to Saxo’s John Hardy who says the bubble has emerged because of the Central Banks’ response to the 2008 financial crisis. He says because they chose to print money, smaller economies were forced to adopt low interest rate policies. These led to cheap credit which in turn created housing bubbles.
John Hardy warns that there are already signs of a slow down in housing activity in two countries – the UK and New Zealand. He says mortgage approvals are already 15-20 percent below the highs witnessed earlier this year. And because of hints of interest rate rises, carry traders are buying GBP and NZD.
It may take a few quarters before we see change but John Hardy warns there is mounting risk out there. “The situation could unwind violently” he predicts. So what factors could lead to the housing bubble bursting? He thinks there are four main reasons – the threat to liquidity, interest rate hikes, the potential for lower household incomes and macroprudential policy which is being used to deal with excess leverage in the housing market.