Skip to main content

Real Estate the false god of appreciation

The temptation has always been to believe that trend persists forever.   This is simply not the case.   Baby boomers have experienced two trends over their lifetimes, declining interest rates since the early 1990s (when they began saving) and ever-rising real estate prices (more or less the same timeframe).   

This 30-trend has become a mantra for the investment class.  However, as the world is now discovering interest rates can rise and have risen, and house prices can fall, and have fallen.  

The drop in the US has been small, with two hiccups, 2008 and the subprime crisis a decade and a half earlier.  The limits of housing as an investment can be seen in several European countries and in Asia.   In Spain, Portugal and Italy, houses can be bought for virtually nothing.   The trend so far in these countries has been limited to the countryside, but in Japan, it is now in Tokyo too house prices have declined dramatically in the city.   We are talking about buying a house in Tokyo's central district for a few thousand dollars -- in 1987 such properties were worth millions.

The big unknown is China -- It is estimated that nearly 25% of the country's GDP is construction-related.   Today, millions of homes are vacant, first because Chinese investors see these as investments and not assets to be used, but more importantly, because the volume of empty apartments is so large as to dwarf the entire stock from the rest of the planet.   Estimates are that there are around 500 million empty apartments in China.

Friday, the Chinese government announced a US$40 billion program to encourage home ownership by reducing down payments for home loans.   The fifty largest construction conglomerates have all filed for bankruptcy, the total owed is in the Trillions (Evergrand and Country Garden accounted for at least US$ 500 billion probably much more).

My point is that in ALL instances of falling real estate prices the same conditions occurred, demographic decline has become evident and is an unstoppable force.  The average age of a Japanese person is 55 years old.   Not only don't 49-year-olds have no more children, they don't buy additional real estate.   

That is why the trend is breaking, real estate in certain conditions can still be an average asset to hold, but it is no longer the sure thing it was 20 years ago.


Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Trump and Venezuela...

The US now owns Venezuela…and not in a good way.  America is not known for its nation building skills, and yet it now owns the disaster that is Venezuela.   Starvation and exodus are the natural progression.   In addition it will become a haven for narco-terrorists, more so than it already was. I am sure that Trump and his friends really thought that little attack very well…I guess that he will now attack Iran now.  
Post a Comment
Read more