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Re: what I am learning about the housing bubble
what some very smart folks in argentina have to say about it...
i love this post...
Yes, diversification is the key. It's part of the reason why so many foreigners are interested in getting their money INTO the real estate market in Argentina. It's still relatively cheap compared to most world capital cities around the world.
I've been flying around this year to evaluate real estate in many large cities throughout the world. It's amazing the value that Buenos Aires still represents. I was recently in London where property in Kensington was over u$s 25,000 a sq. meter!!! In Madrid and Barcelona where I was also researching it was about u$s 12,500 per sq. meter in prime areas/buildings. In Manhattan in many developments I was looking to buy into $15,000+ per sq. meter. In the ritziest area of Recoleta I can still buy for $3,000 or less per sq. meter and what's more incredible is that I can charge more per night than I can in Madrid or Barcelona! Case in point, I rented a million dollar apartment in Barcelona and I paid u$s 250/night. That same apartment in Buenos Aires would cost about $250,000 and I'd charge $275 per night.
Diversification is good and the sub-prime mess is only the tip of the iceberg. I called the sub-prime mess publicly about 2 years ago. I predict it will get worse as more ARM (adjustable rate mortgages) set to go higher this and next year. The foreclosure rate in the USA is at an all time high. I predict the same thing that is happening in the USA will happen in London sometime in 2009 or 2010 (maybe sooner). They are handing out money there like it's free. The real estate has gotten so expensive that the finance companies and banks are being forced to give out loans to people that shouldn't be getting loans (same thing that happened in the USA). Some of the multiple ratios relative to the salary levels are insane.
I think Benco you made excellent points. Diversification is the best thing. Yes, dollars are better than pesos but the dollar is an extremely weak currency around the world. I bought a ton of Euros and British Sterling a while back and they have all appreciated significantly and don't expect the dollar to get strong anytime soon. Look at the Canadian dollar. Remember when it was 65 cents on the dollar. In case people haven't noticed, it's 1:1 now. That should be a wake up call.
The world is a changing place. Remember when you read stories not a great while back about people starving and waiting for bread in lines in Moscow. Look what happened there now. It's the most expensive city in the world. Starbucks just moved there and a large Cappachino is almost u$s 9 there! Almost double of New York.
People are so pidgeon holed with a "the sky is falling, the sky is falling attitude" (especially as it relates to Argentina). History has proven that sometimes the best time to buy is "when the sky is supposedly falling". I saw the sub-prime mess in the USA and I'll start buying real estate again there once I feel it has hit the bottom which I think might happen in mid to late 2008. I think there will be some bargains out there. I first started buying real estate in Argentina in 2004 a good 2 years after the crash. I wish I bought at the bottom like my instincts told me and bought in 2002. Instead I wanted 2 years. Still, I'm buying more now than I did in 2004. I still believe you will see a big capital appreciation upwards in a country where there is nothing left to invest in besides real estate and the investment is in dollars NOT pesos. The locals can't and won't put their money in the bank and banks are itching to get into the mortgage market. All these things spell more supply side increase and supply side increase signals prices going higher. And you have a system that is almost all 100% cash now so these INVESTORS that bought real estate had 100% of the cash so the market is insulated and essentially bubble-proof UNLIKE the situation in the USA where it's all built on fantasy (credit).
Originally posted by jimmygu3
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Check out this chart I created of US housing since 1930 priced in gold grams per square foot.
At a current value of 3.4 gold grams/sq ft (gg/sf), housing priced in gold is already at a historically low level seen only in the period around 1935 and 1980. 1980's all-time low of 1.8 gg/sf was followed by a sharp reversal to 4.2 gg/sf by 1985, even with tight credit, a recession and record high rates.
Aren't we to expect that at some point we will revert to the mean of about 5 gg/sf? The only way to get there is for nominal housing prices to outpace gold by 50%! If one expected gold to drop 50%, he could argue that housing will drop 25% to accomplish the mean reversion.
But this is iTulip, land of $2,500 gold! The data point in the chart for 2012 is assuming EJ's target price is reached in 5 years and housing prices stay flat. The result would be housing for 1.1 gg/sf, a historical low 39% below the bottom in 1980 and 66% lower than the bottom of the great depression. Of course if you factor in a nominal drop in housing prices, as nearly everyone here seems to expect, the price in gg/sf drops even further off the charts.
Why is it so hard for us to believe that it will take more of this Monopoly money to pay for a house in the future? In Argentina, housing prices following the 2001 currency crisis immediately went down 50% in "real" USD terms, but up 60% in local currency. In the intervening 6 years, amidst terrible unemployment, financial, social and political turmoil, prices have climbed an additional 70% in both USD and pesos. Nominal housing prices in Argentina now stand at roughly 3 times pre-crisis levels.
The US is not Argentina, but I know a lot of Argentines and they feel foolish for ever having faith in a currency that was so overvalued. Real assets were the place to store wealth in their crisis. I believe it will be in ours as well.
At a current value of 3.4 gold grams/sq ft (gg/sf), housing priced in gold is already at a historically low level seen only in the period around 1935 and 1980. 1980's all-time low of 1.8 gg/sf was followed by a sharp reversal to 4.2 gg/sf by 1985, even with tight credit, a recession and record high rates.
Aren't we to expect that at some point we will revert to the mean of about 5 gg/sf? The only way to get there is for nominal housing prices to outpace gold by 50%! If one expected gold to drop 50%, he could argue that housing will drop 25% to accomplish the mean reversion.
But this is iTulip, land of $2,500 gold! The data point in the chart for 2012 is assuming EJ's target price is reached in 5 years and housing prices stay flat. The result would be housing for 1.1 gg/sf, a historical low 39% below the bottom in 1980 and 66% lower than the bottom of the great depression. Of course if you factor in a nominal drop in housing prices, as nearly everyone here seems to expect, the price in gg/sf drops even further off the charts.
Why is it so hard for us to believe that it will take more of this Monopoly money to pay for a house in the future? In Argentina, housing prices following the 2001 currency crisis immediately went down 50% in "real" USD terms, but up 60% in local currency. In the intervening 6 years, amidst terrible unemployment, financial, social and political turmoil, prices have climbed an additional 70% in both USD and pesos. Nominal housing prices in Argentina now stand at roughly 3 times pre-crisis levels.
The US is not Argentina, but I know a lot of Argentines and they feel foolish for ever having faith in a currency that was so overvalued. Real assets were the place to store wealth in their crisis. I believe it will be in ours as well.
what some very smart folks in argentina have to say about it...
i love this post...
Yes, diversification is the key. It's part of the reason why so many foreigners are interested in getting their money INTO the real estate market in Argentina. It's still relatively cheap compared to most world capital cities around the world.
I've been flying around this year to evaluate real estate in many large cities throughout the world. It's amazing the value that Buenos Aires still represents. I was recently in London where property in Kensington was over u$s 25,000 a sq. meter!!! In Madrid and Barcelona where I was also researching it was about u$s 12,500 per sq. meter in prime areas/buildings. In Manhattan in many developments I was looking to buy into $15,000+ per sq. meter. In the ritziest area of Recoleta I can still buy for $3,000 or less per sq. meter and what's more incredible is that I can charge more per night than I can in Madrid or Barcelona! Case in point, I rented a million dollar apartment in Barcelona and I paid u$s 250/night. That same apartment in Buenos Aires would cost about $250,000 and I'd charge $275 per night.
Diversification is good and the sub-prime mess is only the tip of the iceberg. I called the sub-prime mess publicly about 2 years ago. I predict it will get worse as more ARM (adjustable rate mortgages) set to go higher this and next year. The foreclosure rate in the USA is at an all time high. I predict the same thing that is happening in the USA will happen in London sometime in 2009 or 2010 (maybe sooner). They are handing out money there like it's free. The real estate has gotten so expensive that the finance companies and banks are being forced to give out loans to people that shouldn't be getting loans (same thing that happened in the USA). Some of the multiple ratios relative to the salary levels are insane.
I think Benco you made excellent points. Diversification is the best thing. Yes, dollars are better than pesos but the dollar is an extremely weak currency around the world. I bought a ton of Euros and British Sterling a while back and they have all appreciated significantly and don't expect the dollar to get strong anytime soon. Look at the Canadian dollar. Remember when it was 65 cents on the dollar. In case people haven't noticed, it's 1:1 now. That should be a wake up call.
The world is a changing place. Remember when you read stories not a great while back about people starving and waiting for bread in lines in Moscow. Look what happened there now. It's the most expensive city in the world. Starbucks just moved there and a large Cappachino is almost u$s 9 there! Almost double of New York.
People are so pidgeon holed with a "the sky is falling, the sky is falling attitude" (especially as it relates to Argentina). History has proven that sometimes the best time to buy is "when the sky is supposedly falling". I saw the sub-prime mess in the USA and I'll start buying real estate again there once I feel it has hit the bottom which I think might happen in mid to late 2008. I think there will be some bargains out there. I first started buying real estate in Argentina in 2004 a good 2 years after the crash. I wish I bought at the bottom like my instincts told me and bought in 2002. Instead I wanted 2 years. Still, I'm buying more now than I did in 2004. I still believe you will see a big capital appreciation upwards in a country where there is nothing left to invest in besides real estate and the investment is in dollars NOT pesos. The locals can't and won't put their money in the bank and banks are itching to get into the mortgage market. All these things spell more supply side increase and supply side increase signals prices going higher. And you have a system that is almost all 100% cash now so these INVESTORS that bought real estate had 100% of the cash so the market is insulated and essentially bubble-proof UNLIKE the situation in the USA where it's all built on fantasy (credit).
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