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As a rule of thumb, in a secular
real estate bear market Real Estate prices fall until the price equals 100 times
the rent.
Posted December 22, 2208
December 2008, the commercial Real Estate
bubble is - as expected - bursting. In November analysts at Credit Suisse
said two big commercial mortgages that had been packaged into securities in the
past year were likely to default. The rapid deterioration of these loans fed
worries that the weakening economy and higher unemployment rate would drag down
the $800 billion market for commercial-mortgage-backed securities,
or CMBS, which so far has withstood the credit crisis with low delinquency
rates.
Updated December 14, 2008
"You don't get rich by buying a house! You get rich by investing your
money wisely. By buying a house in today's market, you could even get
poor!"
"What asset or Real Estate deflation
(in inflation-adjusted terms) and monetary inflation have in common is that they
are complementary (not opposing) forces of financial destruction. Asset
deflation destroys the purchasing power of your assets even as monetary
inflation destroys the purchasing power of your money".
Today one can buy Real Estate
below $ 10,000. Some of these opportunities are wise investments!
The housing market for the next
several years will undoubtedly take a severe hit. In the end the torrential
flood of homes that come to market for sale will be bought at much lower prices
by my children as well as yours at prices which are affordable. Those who count
on 'a dip' in the market will be amazed how deep the Real Estate market can
slip!
Updated November
3, 2008
This is a very
interesting long term chart of Real Estate. To see just how unusual recent price
activity has been, take a look at Yale economist Robert Shiller's
inflation-adjusted housing chart, going back more than a century.
The chart makes it crystal clear that the current
overvaluation of real estate in real terms grossly exceeds the one during the
1920s. The coming correction in real estate will be protracted and
gut-wrenching, with an expected cumulative effect that is much worse than the
Great Depression.
Posted July 23, 2008
Only $ 5,000 for a three-bedroom house! This is a foretaste of what Spanish
builders may expect in the near future.
July 23 (Bloomberg) --
Fannie Mae, the largest U.S. mortgage finance company, couldn't find a
buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect
St. in Flint, Michigan. So broker Raymond Megie, who is handling the
foreclosure sale, advised cutting the price to $5,000.
Megie still couldn't sell it. ``There's
oversupply,'' he said. The home sold in 2005 for $110,000.
Click here for more...
Real Estate Cycles
Updated
December 14, 2008
Real Estate cycles are by definition LONG TERM
(+70 year) cycles. Most people will during a life time, only experience one cycle. For this
reason it is extremely important to locate each sub cycle in the Long Term
secular up or down trend. Secular trends last up to 75 years. When
I see the misery the Real Estate market is in and I make a link to the historic
low interest rates, I hold my heart when I realize what will happen once the
interest rates, under pressure of (hyper)inflation, start to move up .
There is no doubt we have seen the end
of the Secular bull trend and the euphoria of the Bubble we have seen all over
the world will end up in all history books. The actual Secular Bear market trend
for real estate is real and things are getting worse each month.
How low will real estate prices fall?
When you own a house
and your monthly mortgage payment is double the rent your neighbor pays, you
definitely know something is wrong.
I completely disagree with the Talking
Heads shouting that what we see today is nothing more than a insignificant
reaction and that within 3 years from now, Miss Goldilocks will be back holding
the hand of Real Estate. One should understand the potential dramatic
consequences of a Long Term Secular Bear market that has been initiated at a
point where the general level of worldwide INTEREST rates is LOW. Once
interest rates go up (they already do in countries with weaker economies -
and THEY WILL )
under pressure of inflation, the only way for Real Estate is down.
Looking at historical prices
(including Japan), real estate prices, on average, tend to come down by 75 % to
80 % from peak to bottom.
Basically, it is said that after a
parabolic run-up, prices always fall back until on or below the base where the
run initially started from. Conditions in Japan after 1990 and into 1993
are certainly confirming this. Another rule is that Real Estate
prices will come down until the nominal value equals 100 times the monthly rent.
In other words, if the nominal rent is 1,000 $/ € per month, the property's
value will fall back to $/€ 100,000.
There are also
some people out there -- and I know at least one of them -- who decided
not to put their money in the stock market but rather base their
retirement portfolio on rental properties, typically a very safe and
responsible that. Nonetheless, the recession has now gotten so bad that
even these types of investors.
Anecdotally,
the story I heard from one poor soul is that three of four of his rental
tenants are least three months in arrears on their rent, and this has
put him in arrears on his mortgage payments. It would be a tragedy for
someone like this to wind up in bankruptcy and without retirement money
because of the ripple effects of this recession.
B and A
Air Co. , Florida, USA |
