Los ghosts regarding the bursting of a housing bubble in the United States alert to the world. In numbers, the value reached by the properties between 2020 and 2021 is well above the maximum reached in the 2007 bubble.
For example, offices, industries, retails, multifamily and hotels, are on average 52.8% above 2007 and in the last year they rose by an average of 16.1% compared to the same period of the previous year. Residential real estate registered a year-on-year increase as of March 2022 of 20.9% in the country in general and 31.4% in Miami, more specifically in Floridaone of the states most benefited by the pandemic: a market in which a demand from millionaires in search of quality of life landed.
In this way, what happens in the real estate market reflects what happens in other industries as well. In other words, “everything went up”, from properties to cryptocurrencies, raw materials, cars, furniture, bicycles, bonds, there is a general bubble. The Federal Reserve injected funds, the government injected spending and the deficit is 16% (in the United States) and inflation is 7.8% in dollars. Now you have to pay for the party.
In this context, the fear of a collapse in real estate sales prices haunt the world. Eduardo Costantini, the creator of Nordelta, and the man who achieved US$2 billion in sales in the two Oceana projects he built in MIami, a brand high end of residential projects that a few weeks ago also opened in Argentina (Puerto Madreo), spoke with THE NATION regarding what is happening in the US real estate market and what are the real possibilities of a “pop”.
“The first thing to do when analyzing what is happening is to segment the real estate market in the United States. you have the housing which is that of real estate for the middle sectors and, on the other hand, the sector high end of very expensive properties. This at the same time is crossed by the states that were recipients and benefited by the pandemic and the states that were disadvantaged in some way, ”the businessman begins the analysis.
What caused the rise in property prices?
In general terms, there was indeed a significant rise in the value of real estate that was driven by the strong economic recovery that took place as of 2021 due to the great help given by the American government: subsidies. In other words, the amount of money that she distributed was to such an extent that it increased the family’s savings, money that they accessed without working. They were in their houses and they received the checks.
Another factor that influenced was the very low interest rate of practically 0.25%. From there, there was a strong economic recovery that materialized at the end of last year and so far this 2022. And the families, who got wealthy in the quarantine, went out to buy houses that had increased in price and that they paid with very low mortgage payments due to the low interest rate.
Now what is happening is that due to the sharp rise in inflation, the American government went out to raise the interest rate and reduce the amount of money. This situation had repercussions and the latest data on the market for properties aimed at the middle sectors indicate that there was a drop in the number of operations of regarding 20% which is a lot with a price level that is 20% higher than last year.
Why did sales operations drop?
The drop in operations is first a product of the rise in prices but also because When the family tries to buy a house, they see that it is 20% more expensive and, furthermore, the monthly installment they have to pay has increased by 30 or 40% because the interest rate has risen.. This situation leads to the fact that they cannot pay it or that many do not qualify in credit criteria because the fee they have to pay is unbalanced with salaries. These variables are what are affecting this entire segment called housing, which has a lot of influence on global activity and on the American economy, which is floundering. We don’t know what consequences it will have, but clearly there is a before and following. Surely there will be a drop in prices and accumulation of inventory by the industry.
Are there families who run the risk of not being able to pay the credits and having to auction off their houses?
If you took out the credit with a fixed rate, the installment will not go up any more, but if you have a variable rate, yes, but the reality is that I do not see that risk because most mortgages are at fixed rates.
And what happens in the property market high end?
The market high end still does not take note of the situation of uncertainty that is taking place in the capital market. From the rise in rates and the price of energy and food and inflation in general, the stock market has dropped 15% in dollars from the indicator of 500 companies while technology, a sector that was previously the standard of the rise in the market fell 20% from the maximum. There is a lot of uncertainty right now regarding whether the market is going to continue down and trend bear market -declining market-, or if it has already corrected and it will behave relatively well. We do not know. What we do know is that investment groups continue to buy land at very high prices and the high end keep paying as if nothing had happened.
How does this new photo impact the American real estate market in Miami?
Miami continues to sell well, especially home sales and at record prices. Me feeling it is going to slow down or it is going to temper. My feeling is that. We are in a critical transition period that you have to wait between three and six months to see where the economy goes, the rates, the inflation.
But can we talk regarding a real estate bubble?
more than bubble there has been a very large increase in production, a very large rebound in the economy, there is a mismatch between demand and supply. There is more demand than supply but now that may change. It depends what happens to the macro. The macro acts very badly in terms of recession plus inflation and there can be a sharp drop in prices. Then it might happen, as it has in the last two years, a bubble.
Do you see any resemblance to the 2008 crisis in the Miami real estate market?
I don’t see anything like the last crisis in 2008-2009 happening, at that time when the market fell, the buyers had no way to pay for the properties so they returned the apartments to the developer or to the banks. Now it has nothing to do with it because you pay more. Second, there are much stronger hands that entered Miami: businessmen, millionaires with a structured plan to stay in that city. It might be adjusted but it will be 15% of the values in the high end. In other words, less might be sold but I don’t see the 2008-2009 crisis at all.
Did the investors who bet on the Miami market do business?
The one who invested in high-end made a spectacular business and the one who did not bet on the market high end also because that 20% rise also applies to medium-quality apartments, properties that increased as have salaries and prices as a result of inflation. You have to consider it in real terms. Houses rose 20% but inflation was 8% so the real rise is 12%. Now the government has to lower inflation, that’s why it raises the interest rate, the key will be to see how the markets, the values, are rearranged and if that rate rise does not imply a small recession in the United States.
