QUESTION: Dear Marty,
First I would like to thank you for all the help you provide especially for us little guys.
I’m from Barcelona, and happily attended the release of “The forecaster” when you were there a few years ago.
I’m under 30 and working my butt off trying to save what I can while paying rent with my partner on a smallish 50m flat (which has become prohibitevely expensive for young local people as rents are at all time highs).
Following your recomendations I’ve put my small savings into movable assets (US and European equities).
With regards to the chart you posted on Spanish Real Estate I was surprised to see the price still so near the bottom of the Housing Crisis. I live in Barcelona and prices are in most cases near or at all time highs for most of the city neighborhoods (of course in € nominal prices wich have dropped quite a bit in $ terms) but as you move away from the city the recovery has been more modest to say the least.
In Barcelona price increses are mostly due to foregneirs moving in and maybe also because people here don’t ussually invest in the stock market but instead put savings into RE (despite the housing bubble people have a big chunk of retirement savings into real estate).
RE is not cheap to say the least but I’m wondering wether I should contract a 30y fixed mortgage and buy a house. My biggest fears are two:
– If long term mortgages dry up I may find out in mkt to mkt loss positions on the house as prices might collapse.
– If the economy declines I have the risk of maybe being fired but still chained to a mortgage.
I fear the later specially since my father has been recently notified that he is going to get fired. The company he works for has decided to fire all employees who are up to 13y!!! close to retirement age (and will probably replace 1/4 of the workforce with cheaper labor).
Given the above do you think it’s still a good time to buy in the big Spanish cities like Barcelona using a fixed mortgage or that you might be better off renting and waiting for the collapse.
ANSWER: Barcelona is one of the most beautiful cities in Europe. It is even one of the best places to live. In terms of local earning power, yes, rent in Barcelona is high. In terms of international value, they are cheap, which is why you have so many foreign investors who have poured into your city. Even economically, Barcelona is extremely productive and this was in part behind the reason for the separatist movement. It also had its own history of separatist movements from the Roman Empire (see Maximus 409 AD).
You have noticed the foreign buyers. As the euro drops, the value of property will look cheaper to a foreign investor than domestic. If you stay in the city proper region, this will have an international bid based on currency. In real terms, of course, the property will decline in value. However, this is more of a short-term trend. We all need a place to live. If you can buy with a FIXED rate mortgage, then you will be better off and certainly do not do floating rates. The risk with banks remains that they will stop lending on property as loans turn bad and political turmoil unfolds. Soon it will be an issue of whether Spain will stay in the euro, or whether the euro even exists. The property in the rural area will always be cheaper. So it depends upon what your personal goals might be. Rural property where you have a bit of land and can grow some food is not a bad hedge. But it has been getting cold even in Spain, a country that normally supplies Europe with food during the winter.
We will be heading into a currency crisis. Tangible assets are the way to survive. The biggest problem with real estate is that you cannot take it with you. So keep that in mind. We need a place to live so that is the bottom line. You do not want all your wealth in one asset. You are young enough to survive the major government reset. That will happen. I remain hopeful that if enough people understand the causes behind this crash, then we can make a difference and push back against tyranny.
Make no mistake about it. Government will ALWAYS act in its own self-interest to survive. There has NEVER been a single government that has EVER admitted it is wrong. They must always suppress the people to survive. Remember one thing: even in the USA, there were only three presidents who ever won slightly more than 60% of the popular vote. So, about 10% of the people really decide the fate of nations. We do not have to convince 100% or even 50%. We just need that 10% to make a difference.