Real Estate History Repeats in More Ways than One

Real Estate History Repeats in More Ways than One

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--While everyone is focusing on Greece, today’s Daily Reckoning begins with why you should actually be paying more attention to Spain. Then I’ll take you to Chicago in the late nineteenth century. I want to show you how human behaviour doesn’t really ever change. The same motivation behind what happened back then is showing up in Australia in 2015. Invest accordingly.

--To Spain, then. In case you didn’t catch the news, the Financial Times reported on Monday that Spanish house prices rose 1.8% in the fourth quarter of 2014. The National Statistics Institute says the last quarterly rise is at the fastest pace since the Spanish real estate bubble collapsed in 2008.

--There are some other interesting statistics worth noting. Residential mortgages rose for the first time in four years in March of last year. From June onwards, they kept going up every month at double digit rates. The average interest rate on the mortgages was lower in 2014 than it was a year earlier.

--The key quote from the Financial Times article is this:

--That has been the problem in Europe since the crisis erupted. It’s the same after every property downturn. Credit gets tight because the banks have to cover their losses and they start hoarding cash. That’s a problem when bank credit is equal to 97% of the money supply, which is exactly the case in the modern economy.

--So when the banks get back on a sustainable footing, they start lending again. And the cycle begins again. The economy begins to reflate as credit expands. If you want to understand the process, Cycles, Trends and Forecasts is the place to start. The economy becomes so much clearer once you understand it. Your investing acumen moves up too.

--There are still real estate bargains to be had in Spain. They won’t last long.

--And don’t worry about Greece in terms of some sort of catastrophic financial event. It is most unlikely. Greece represents a tiny share of European GDP. In time some form of resolution will be found.

--More importantly, you need to realise that as the bad debts are cleared away in Spain, Ireland and Italy, it won’t be long before credit begins to expand in Europe. Then, hey presto, all those people who worried about the debts will switch to chasing the rising property values as the economy begins to grow...

--It’s all history repeating.

--It’s already happening in the UK and Australia. But one of the problems for people who want to get in on the real estate action is, in some cases anyway, the high cost of an initial deposit.

--Markets work, and are responding. Over in London, City AM reports that a property start-up is going to use crowdfunding to buy property, so that it’s ‘accessible to retail investors’.

--City AM reports:

--There are already other companies in the UK doing the same thing. It’s the same here in Australia. Both countries appear to be taking their lead from the US. The pitch is the same: you only need a small amount of money to start profiting from real estate. Don’t let the big end of town shut you out.

--It’s just another reason the real estate cycle can continue to run. Make the most of it while you can.

--This behaviour is nothing new. I mentioned Chicago at the top of today’s DR. In the 1930s, a man called Homer Hoyt wrote a book about the history of Chicago from 1830 to 1933.

--In the boom period of the late 1880s (that would lead to the bust in the 1890s), Hoyt describes the market for ‘acre tracts’ on the outskirt of the city:

--The motivation is the same now as it was then: chasing the rent. If you don’t understand this, you are at a substantial investment disadvantage. Get up to speed here.

Regards,