Today let’s look at real estate. What does real estate want to do?
‘The Miami area is booming,‘ reports a friend who visited yesterday.
‘I’m in Key Biscayne. Real estate went up about 20% last year in my neighborhood. This is like the days before the crisis…
‘Everybody speaks Spanish. So I thought the new people would be coming from Colombia and Mexico. But not at all. The biggest buyers I see are Russians. Then the French. I guess the Russians have a lot of money. And compared to France, everything here is cheap.
‘The third major group of buyers comes from Brazil. They seem to have a lot of money too. And everybody knows that Miami is the place to be if you’re Latin American.
‘Argentines are in fourth place. They come to Miami because they think the Argentine economy is gearing up for another crisis. They’re probably right.‘
Property prices are in the news. Bricks and mortar seem to have sprouted wings. All over the country they are flying.
In Miami, the market is driven by foreigners. In Long Island, the big spenders come from Wall Street. The New York Times reports:
‘[T]here is no surer sign that the big-spending ways that characterized the pre-financial crisis era have returned to the Hamptons than the blue "Farrell Building" signs multiplying across the pristine landscape here, along with the multimillion-dollar houses they advertise. It is a process some are calling "Farrellization," and not necessarily happily.
"We’re as busy as we’ve ever been," said Joe Farrell, the president of Farrell Building" […]
‘With a customer base composed largely of Wall Street financiers, Mr. Farrell has more than 20 new homes under construction, or slated for construction, at a time, making him the biggest builder here by far. He has plans for more, many of them speculative homes built before they have buyers.’
What does Yale economist and co-creator of the Case-Shiller home price indices Bob Shiller think of this boom in real estate? Here’s a note from Zero Hedge on the interview Shiller gave to CNBC.
With the Case-Shiller 20-City index up double-digits for the fourth straight month, Bob Shiller has some choice words for the CNBC interviewers about the ‘housing recovery.’
"Housing is a market with momentum," he notes, "and right now, the momentum is up." But he adds that while house prices are ‘recovering,’ he remains much less sanguine about this recent move.
But it is once he has explained the potential concerns that may weigh on the housing market that Shiller comes into his own as he explains "none of this is real, the housing market has gotten very speculative."
Housing goes through "big cycles," he chides, noting that California "has gone up and down like a roller-coaster for decades but doesn’t get anywhere… that’s what these markets have become."
The Wall Street Journal pursued the story from a more negative angle.
‘The return of the McMansion,‘ it reported, ‘is driven by credit rules that are squeezing out the ‘first timers’.‘
The first timers don’t have much money…or much credit history. Builders put up houses for older, richer buyers. Why? Because that’s where the money is.
Downtown Baltimore resists most real estate trends. The real estate market has probably been on a downward slide for the last 80 years. But even Charm City seems to have gotten on the bandwagon. Recently, we have found few bargains…and surprisingly robust buyers.
When we first returned to the city, after 18 years in Europe, we looked for a small apartment in the heart of town. We bought one and renovated it to a high standard. And then we realised that we needed a bigger place.
Although we are technically ’empty nesters’, we found the nest was getting crowded. Rarely was it actually empty. Usually, we had one or two children…with friends in tow…in residence.
What’s more, we were not cut out for apartment living – not in Baltimore. Our building had a doorman. A co-op board. And lots of neighbours. We can’t be nice to that many people!
So, we decided to sell the apartment. We expected to take a loss – after spending too much on renovations. But we were surprised that a buyer came along almost immediately…willing to pay a fair price.
Even in Baltimore…a real estate renaissance. Imagine that.
for The Daily Reckoning Australia
From the Archives…
Richard Fisher’s ‘Super Easy’ Fed
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US Stocks and the Timeless Wisdom of Izzy Stone
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A Bond Market Tantrum
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Australia’s Economy: Complex, Fragile or Centralised?
19-08-2013 – Nick Hubble