What does real estate want to do? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 28 August 2013
What does real estate want to do? A  A  A

Baltimore, Maryland

Big day yesterday for stocks. Big day for gold.

Stocks down 170 points on the Dow. Gold up $27.

Just guessing...but both markets are probably moving in the direction they 'should' move. Stocks seem to want to go down and gold seems to want to go up. And if that's what they want to do...who are we to argue with them?

But for 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 on 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. They biggest buyers I see are Russians. Then, the French. I guess the Russians have a lot of money. And compared to France, everything is still cheap.

"The third major group of buyers is coming 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 getting ready for as crisis. They're probably right about that."

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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. On Long Island, the big spenders come from Wall Street. The New York Times reports:

    ... there 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 Robert Shiller think of this boom in real estate?
    "Housing is a market with momentum," he told CNBC, "and right now, the momentum is up

    But "none of this is real, the housing market has gotten very speculative."

    California "has gone up and down like a roller-coaster for decades but doesn't get anywhere... that's what these markets have become...driven by irrational exuberance."

    "For the long-term buyer, the fact that [prices] are going up now doesn't mean anything for where it will when you sell."
The WSJ meanwhile 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, meanwhile, seems to resist most real estate trends. It went down when in real terms, it 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 sought a small apartment in the heart of town. We bought one. Renovated it to a high standard. And then we realized that we needed a bigger place. While we are technically 'empty nesters,' we found that 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 neighbors. 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.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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