Clouds Ahead for Real Estate Worldwide, But It Is a Mixed Bag

 This article was first published by me on Talkmarkets:

There are clouds ahead for real estate worldwide, while it remains a mixed bag. As oil prices soften, it appears to most people, the Fed chairman included, that demand is slowing in the world and that oil is simply a gauge of that decline in demand.

So, while there are limited access cities, where tech and growth are strong, and economies that are rising globally, other places are dependent on exports of raw materials. They were high flyers once. They could be the first nations to see real estate price destruction. States in the USA that rely on oil production are likely to see the same unless there is a serious reversal of commodity pricing.

One of the strongest real estate markets in the world is the Australian market. It is a market that is driven by strict land use requirements, and by the export of raw materials to China. As the raw material export business slows down, strict land use keeps prices up. But now there are signs that this market is very dangerously close to implosion.

As Wolf Richter has pointed out, almost 1/2 of the mortgages in Australia are interest only. When they adjust will the occupants be able to pay a higher mortgage? Perhaps this pending real estate doom is why central banks want negative interest rates, in order to protect those with risky mortgages. And don't forget, that protects the bankers, and that is what this is all about.

It is likely that these interest only folks, if they lost their houses, could not afford to rent the very same house. Demand will plummet if these folks walk away and move in with relatives.

Canada's market is really astonishing. Jesse Colombo says that Canada's housing market is 40 percent overvalued compared to the value of the US market in 2005!  Even the IMF is waving warning flags. And Canada could contribute a hit to the US economy if it crashes, since it is the largest trading partner of the USA. Hot money bought Canada's bonds, and could be scared away, causing lending to dry up.

Australian banks do what all banks do when they fear excess froth, they pull back on lending.  Investors must now come up with 20 percent down rather than 5 percent down. The banks want air let out of the bubble. Depending on how long that process takes, it can hurt people, and it was clearly what was done by the US Federal Reserve. 

Other nations appear more stable than those relying on commodities. Many look to foreigners, like Spain has done, giving extended families of investors full residency rights for investing more than $560,855.00 in the nation. It is clear that real estate investing is becoming a global phenomenon.

For the global real estate investor, there is information available through the Global Property Guide. The company says it attempts to give people an unbiased guide to real estate and pitfalls of global investing. The company says it wants you to make money.

I find the articles to be very interesting, and could be an aid to RE investors. Certainly, there is always risk in real estate investing because most of the time it is not a liquid investment. There are bubbly exceptions to that rule. But you may not want to be in those markets unless you are a riverboat gambler.

Just remember that investors come and go. They can sour on a nation. The Japanese were heavily into Los Angeles real estate in the 1990's. Once Japan imploded financially, those investors disappeared and prices stopped their large gains. The same could happen with China, so you have to understand many factors before pulling the trigger, in my opinion.

A nation could be favored today and shunned like a overripe banana tomorrow. The Global Property Guide tracks virtually all nations, looking for "rising" economies. I am not in a position to recommend the website, but as I say, it seems to be a great introduction to real estate in many nations.

And the site addresses lower risk and higher risk, that could lead to higher yields. This article gives some ideas on where to go to assess risk. 

I was reading an article about Las Vegas real estate today, where risk has pulled many back from building certain types of properties. Regular apartments for rent are booming, especially close to the new Ikea store in Southwest Las Vegas. But upscale condominiums are no longer worth the risk to build.  That is why Lorne Polger believes investors will seek out his condos, some on the strip and some off the strip in the Southwest, simply because they aren't building anything like them anymore.

Polger and his partner are selling upscale condos for $250 per square foot, saying that to build them today would require a price of $400 per square foot! The bubble created excess, that could be the bargain of a lifetime. But that excess is not being constructed anymore.

Of course, the behavior of the Millennials will have a lot to do with the kind of housing that will be built and invested in going forward. And certainly, where we are in the debt super cycle, if it really exists, could have a large impact on real estate investing.


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