So I've spent the past few days in Milan with folks from around Europe at a conference. Many conversations turn naturally to real estate - one thing there's not a shortage of is opinions in this arena
The overwhelming consensus is that things are crazy, out of control, and in a way, sad. Throughout Europe. When it takes $1 Million US, or 600,000 Pounds, or 850,000 Euros, to buy a crappy flat in a European city, then something is wrong. When young kids out of university cannot aspire to get a job and buy a home, then something is wrong.
When countries that have 18% VAT and 40% tax rates and flat income growth also have overpriced housing, where even working professionals struggle to make enough money to afford their mortgage, then something is wrong.
When you can get a loan and only fix the interest rate for 2 years, something is wrong.
When you can make $100,000 in a year doing nothing with housing appreciation and $80,000 a year working your ass off, something is wrong.
So, my conclusion?
Something is wrong.
My message to the folks I talk to?
Help is on the way. The global low-interest-rate-fueled Housing Ponzi Scheme is now over. Worldwide. And we're as a planet going to now go back to the ideal of houses as a place to live, versus get rich quick schemes for baby boomers, assets whose value keeps up with inflation at best, and a world where people with real jobs can afford to buy a place to live.
Oh, and a sidenote. Milan is a great city. The food, the shopping, the architecture, the people, the wine and the language. Visit if you can. But just don't plan on buying a flat for a couple more years...
May 23, 2006
Some housing bubble thoughts from Milan
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7 comments:
"And we're as a planet going to now go back to the ideal of houses as a place to live, versus get rich quick schemes for baby boomers, assets whose value keeps up with inflation at best, and a world where people with real jobs can afford to buy a place to live."
I still make money investing in real estate. Always, always, always. Always have, always will.
Before I became a realtor, I made money buying and selling property.
I'll make money on property after I'm not longer a realtor.
Will everyone who gets into the investing game?? Nope, and it's not my problem... as a realtor or as a competing investor.
Clients don't come to me to learn how to invest, the come to me to help find properties and negotiate the transaction.
People like you are the reason we are screwed. It is called self-dealing. You say that a house is a place to live, but you do the opposite, under the guise of "helping" sellers and buyers. RE Agent is a let’s pretend title.
"When young kids out of university cannot aspire to get a job and buy a home, then something is wrong"
Slightly off topic, but because of this very reason, young people in Japan have next to zero savings as a whole. Instead, they live with parents, buy Italian goods, work a little, then take long vacations overseas. Yes, Japanese people as a whole save a ton, but the youth of Japan do not contribute to this savings rate. Could be interesting if this proves to be ths same case in Europe, the US and elsewhere
I'm always shocked that there is a housing bubble in Italy.
Population growth 1980-2000: 0.1%
Population growth 2000-2005: -.1%
% above 65: 19% (Europe avg: 15%)
Who is buying all these home in Italy? It's certainly not italians given their demographics. In another generation, there will be 15% fewer of them!
How is there a housing bubble in Italy without population growth?
It's like that everywhere.
The answer is that it's massive global wage deflation, masked by massive monetary inflation.
Hence, the rich people with lots of money get more and more of deflating money and put it in assets.
The rest of us just get the rear end: global decline in living standard with no compensation.
If you think Italy is bad you should come visit Spain, probably Europe's most overheated market. In Madrid, I rent my apartment for aproximately 30% of what the mortgage would be for the same property. Spain is currently building about 800,000 new homes a year, more than France and Germany combined.
However, prices in some areas dropped by as much as 10% in the first quarter of 2006 and the expectation is that as interest rates rise (97% of mortgages are variable rate) we're going to see things get pretty ugly...
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