Property Bubble - A pessimistic view

House-price bubble set to hit semis, warns analyst

Peter Clarke, EE Times


LONDON - Malcolm Penn, chief executive of market analysis firm Future Horizons, warned that a house-price boom that has taken hold across the developed world is set to be biggest bubble in global economic history. When it bursts it will almost certainly trigger a collapse of the semiconductor market, just as the stock market bubble of 2000 did, Penn said.

Penn, writing in a monthly newsletter, acknowledged that such bubble trigger points are almost impossible to forecast, and, in the absence of such as burst, stuck to his previous prediction for semiconductor market growth in 2006 of 6.0 percent.

Penn said that at the present time semiconductor equipment purchase was moderate and that indicated the chip industry would avoid serious overcapacity in 2006. "Our big worry is the economy," Penn wrote saying that he is starting to lose confidence in the economic forecasts of the International Monetary Fund (IMF). "Right now the IMF is remarkably bullish, with a growth forecast of 4.4 percent, up 0.1 percent on 2005."

Penn argued that after three years of growth above the long-term average, it was time for some below average growth. The alternative would be a more catastrophic change later. "The economy is currently full of uncertainties, not the least being the current slow down in overall consumer spending, and the inevitable bursting of the (global) house price bubble," Penn wrote.

Penn cited an article in The Economist and reported that the total value of residential property in developed countries had risen by more than $30 trillion over the past five years, to $70 trillion, an increase equivalent to 100 percent of those countries' combined GDPs.

Soft landing possible

Penn went on to say that such rapid growth dwarfed the global stock market bubble of the late 1990s which demonstrated an increase over five years at 80 percent of GDP, and the Wall Street crash (55 percent of GDP). Penn also observed that the stock market crash of 2000 triggered a 32 percent decline in the semiconductor market in 2001.

Penn said that if the global economy grows at 4.4 percent in 2006, the semiconductor market would go through the roof with already tight capacity triggering shortages and price rises.

"If the economy slows, however, it WILL take the semiconductor market with it," Penn wrote. "It will cause demand for boxes to drop, and with it chips, which means automatic overcapacity, a collapse in ASPs, and a global market slowdown, the extent of which will be governed by how much the economy slows."

Penn added that current restraint in fab building by the chip makers should allow the industry to accommodate a moderate slowing in demand without a major crash, provided this triggers further conservatism in capital expenditure.

"Under such a scenario, a soft rein-back scenario is entirely plausible, hence our 6.0 percent 2006 market forecast number, the same as we were postulating in January 2005," Penn concluded.