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Real Estate – Cycles – Real Value

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QUESTION: Your real estate model which peaked in 2007 was the broad crazy speculative market you explained in the low end of the market. Then there was a rally back into 2015 which you said would be mainly in Europe and the high end of the market. I am in France and there an uptick in some prices. But I can see, as you taught us, this appears to coincide with the decline in the euro. What actually comes after all of this? I subscribe to the Pro version and you have all the real estate index there covering around the world. Can you provide an update?

Thank you so much


House Euro

ANSWER: The 2007 high was the low-end of the market which became the bubble. That led to the massive decline in real estate where it became a bad word. I had a friend who bought a house at a public auction. The owner had bought it for $7 million at the peak in 2007. My friend bought the property in 2017 for $2.3 million.

Real estate is very hard to forecast because you have the broad market, the low, middle, and high ends of the market. Then you have niche areas that boom in the face of others doing nothing. The 2007 high is the peak in “real” terms. There are many homes in the low to middle-end that are still 30% to 50% below the bubble high in 2007.

The 2015.75 rally was more of the high-end and this was driven by international capital flows. Thus, it was primarily intensely felt in the main centers where international capital moved such as Vancouver, New York, Miami, Los Angeles, etc. You did not see major price advances in smaller regions of no interest to international capital.

Then you have the tax migrations. People are moving from the high tax states to the no or low taxed states in the USA. I had looked at buying a house for my family in Florida, and I had to do the Singapore conference in 2017. I said I would put in a bid upon my return. The house just went on the market. When I returned in a couple of weeks, it had sold. Then the house next door went up for sale and I had to do the Rome conference. I was going to put in a bid and by the time I returned, that had sold. Other areas in the high-taxed states can’t sell. So there are a lot of different outcomes depending on where you are looking.

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You are correct, the record high in the French real estate market remains 2015. There was a three-year low in 2018, then a bounce. This is true of all the results of the decline in the euro which bottomed initially in 2017. You have to look at this from an international “real value” perspective. What a house sold for going into 2015 when the euro was on average $1.30 compared to the international value when the euro was $1.03 is a substantial difference.



You can always just buy the property and then hedge the interest rates and currency. We all need a place to live. In terms of “real value” in real estate, that should begin to rise again after 2032. Going into that period, real estate will rise in nominal terms on a very varied basis depending upon the attitude of the local government. In the USA, for example, do not expect property in Illinois to ever reach the value it was even in 2015 no less 2007. Local municipalities are going broke and they will become very abusive in taxation. This is when people just start to walk away from the property, as was the case with the fall of Rome.