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Wait for 2011 to buy real estate

with one comment

While it might be tempting to buy US real estate at presently depressed prices, or to look around in Dubai for a distressed seller, the best bargains for global real estate are probably not going to emerge until 2011.

For one thing the interest rate cycle is all wrong for rock bottom bargains now. The lowest real estate prices almost always coincide with the highest rates of interest, not the lowest as we see presently in many parts of the world.

Buy a property now and you can be certain that interest rates will eventually rise off their current generational lows, and that will take house prices down. Nominal prices therefore have further to tumble, although the US after a multi-year decline must be closer to reaching the bottom than markets that have crashed more recently like Dubai.

Houses getting cheaper

Indeed, when you compare disposable incomes to house prices in the USA, houses can be said to be getting cheap by historic standards. But that can still not be said of the UK, in particular, as well as many parts of Europe, and Dubai for that matter (where asking prices are unrealistic given the upcoming supply).

Governments around the world have done their utmost to support house prices in the current recession. Perhaps they have done too much, and sustained prices at artificially inflated prices. That definitely looks true for the UK with an election coming up in 2010.

You also have to ask not only whether the global recession is really over, and not about to reappear in a double-dip, and just how strong the recovery is likely to become. It is going to take years of current low growth to make up what has been lost. This is not the sort of frothy economic environment to pump house prices back up.

Do not buy in 2010

Of course, where people are buying a home to live in you can be less rigorous in making an investment case, as there is a saving on rent and convenience to consider. But for investment properties 2010 has too many negatives and not enough positives to make what is a relatively low yield investment for a high capital risk.

The only time to invest in property is when prices are on the floor and yields high. Then you have only capital upside and a rising return on your investment.

It is the exact reverse of the property boom which is actually a terrible and even suicidal time to invest. And while property booms fall faster than they rise the best bargains will probably not appear until 2011 except in special situations like portfolio liquidations.

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Written by Peter Cooper

December 21, 2009 at 9:48 am

One Response

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  1. Well said. I’m interested in the whole ‘rent to buy’ process over here in Ireland.

    Gerry Wallace

    January 8, 2010 at 4:32 pm


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