Bavaria and the real estate bubble

283 posts in this topic

8 minutes ago, lisa13 said:

 

and I don't see playing the stock market as any "safer" than real estate either.  People always talk about how they're "up" however much, but in reality you got nothing til you cash out (same for times when you're "down" - if you don't have to sell, you don't have to lose, at least not as the final word).  My mom had a very nasty surprise when she was up, up, up for so many years, but when it came time to cash out in retirement, the dot com crash had wiped out a lot of her gains.  Put a wrench in her plans, to say the least.  She managed mostly because she had a very, very affordable and secure place to live. 

 

That’s not exactly true. Even if you never sell you still get paid dividends periodically from the stock or finds you own, and these don’t go down in value so much as the shares value in a downturn as businesses want to show they’re healthy during recessions. At current valuations you can count with around 200€/month of payouts for every €100,000 you own of a whole world index fond. I’m very sorry to hear about your mom, but she really should have diversified. 

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9 minutes ago, mtbiking said:

you still get paid dividends periodically from the stock or finds you own

 

that is absolutely not a given, at least not with US stocks.  And even if they do pay dividends, I think you are mistaken that they ALWAYs pay.  In fact when I moved here in 2011 I had two years with no dividends, and it took a couple more for it ramp back up again.

 

must be nice to have multiples of 100k invested, too, so you can eek out a few hundred a month.  at *current* valuations no less.  Do you really not see the error in your thinking?

 

she was diversified, by the way.  the whole thing just went to absolute shit at the worst time for her. 

 

I think you are overly optimistic about the safety of this imaginary money you think you have ;)

 

 

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17 minutes ago, mtbiking said:

Betting against the ability of Germans and the German state to solve problems and keep on having one of the most successful societies on earth is underestimating them. If there’s a country with the demonstrated ability to get up after being put on the ground with a bloody nose, that country is Germany. 

 

I think that's a brilliant comment. There's something about this maddening place which makes it worth living here, and you just nailed it.

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29 minutes ago, lisa13 said:

 

my general rule of thumb is I never put myself on the hook for living costs that exceed what I could pay if I were living on unemployment, and that rule has served me quite well thus far.  Sounds great that you can buy a 1million euro home and only pay 1k per month IN INTEREST plus a low tilung - can you not see how nuts that is?  at that rate you'll never own it and it's not just a matter of moving out if you run into financial troubles for whatever reason.  I view that as a prison of one's own making - who needs that kind of stress?

 

You say it's nuts to buy a house for a million that you could never pay off, but had you done it 10 years ago, your house would now be worth 3 million euros, so if you run into financial troubles you could sell it, pay off your loan and still have 2 million euros in the bank and you'd have lived 10 years in a really nice house rather than a small shitty apartment.  Sounds like a good deal to me.

Living conservatively in the way you suggest, with basically cash under the mattress, is really not so smart, just like cashing out your pension during the dotcom crash.  It's not as straight forward as you make it out to be, and it is necessary to take some risk if you want to get ahead.

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3 minutes ago, lisa13 said:

er...yeah, but there were years of destruction, starvation and general suffering for an overwhelming majority of people all around in the course of things.

 

and that's not really the point here anyway.  the point is, what do you do when you lock yourself into a massive debt and can't get out if it?  do you think citizens around the country are going to have pity on "poor" rich münchners and agree to a tax funded bailout or something?  

 

I do agree with you overall but I don't see how that applies to the concept of a housing bubble.  FFS they can't even manage to implement the rent brake in an effective manner :/

 

There’s a lot of wealth in Munich/Bavaria to dampen the effect of a major recession (like in 2009) and almost all mortgages have the low interest rate fixed for a long time. If it all crashes down and never recovers (equals mass unemployment) the debt levels in Munich won’t be the biggest problem - the banks would crash with all the insolvencies. But this won’t happen, as the industry and the state will react and years later the economy will be in an upswing again (it’s almost like the economy is cyclical..).

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19 minutes ago, lisa13 said:

I think you are overly optimistic about the safety of this imaginary money you think you have ;)

 

 

 

Money in the bank is much more imaginary than holding stock or property.  Look what is happening in Venezuela now, and what happened in Germany during the depression, and indeed what they're doing now with quantitative easing.  Cash in the bank, especially at negative interest rates, is your least safe option at the moment.

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34 minutes ago, mtbiking said:

Betting against the ability of Germans and the German state to solve problems and keep on having one of the most successful societies on earth is underestimating them.

 

 

What happened in the past is absolutely no indicator of what will happen in the future.  If you're putting your financial security solely in the hands of the German state, I think you're asking for trouble.

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25 minutes ago, lisa13 said:

 

she was diversified, by the way.  the whole thing just went to absolute shit at the worst time for her. 


It of course sucks if this happens, but if most of your retirement savings are in an investment (as they should be), you start to draw parts of it out a few years before you retire to ensure you can live, so that when it tanks you're not stuck in a hard place.

Sure, you might need to draw out money at a bad time.  But has she rebalanced in the 2000's and kept the money in there, she'd have quadrupled her money by now.

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48 minutes ago, lisa13 said:

 

that is absolutely not a given, at least not with US stocks.  And even if they do pay dividends, I think you are mistaken that they ALWAYs pay.  In fact when I moved here in 2011 I had two years with no dividends, and it took a couple more for it ramp back up again.

 

must be nice to have multiples of 100k invested, too, so you can eek out a few hundred a month.  at *current* valuations no less.  Do you really not see the error in your thinking?

 

she was diversified, by the way.  the whole thing just went to absolute shit at the worst time for her. 

 

I think you are overly optimistic about the safety of this imaginary money you think you have ;)

 

 

 

? What did you own? Single stocks or something like MSCI world or SP500 index fonds.l? We kept getting dividends paid out before, during and after the financial crisis. 

 

Money is safe as I count on never needing to sell my investments, maybe a few percent per year if/when I decide to retire. So I’m perfectly fine with recessions or whatever - welcome them in fact.

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24 minutes ago, Hutcho said:

 

What happened in the past is absolutely no indicator of what will happen in the future.  If you're putting your financial security solely in the hands of the German state, I think you're asking for trouble.

 

Agreed, that would be stupid. Diversification is the key. Having a plan A is fine as long as there’s a plan B and C.

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21 hours ago, Krieg said:

I remember some "experts" here throwing numbers and "proving" how renting was financially much better than owning some years ago when we bought our house.   Now here we are, our house has almost doubled in price, it is almost paid, our current mortgage monthly payment would allow you to rent a 1 bedroom apartment.  Luckily we never listened to the "experts".  Of course those experts are never wrong, so nowadays they say that if we had invested that money in whatever magic investments they do we could have done much better.

 

It is nice that things turned out for you.  

 

In a rear view mirror, buying a house or investing in stocks in 2009 or 2003 or 1994 or 1982 seem obvious choices, but they were fraught with risk.    People complaining that they missed the opportunity don't recognize that the opportunity did not present itself as a sure thing.  

 

If an "expert" from ten years ago told you:

 

1.  major central banks will monetize debt and expand balance sheets 3-5 fold and find that when stimulus is removed, the economy cannot float by itself. 

2.  interest rates on some government bonds will be negative.

3.  interest rates on Spanish and Italian debt (and sometimes Greek debt) will be lower than interest rates on the corresponding maturities of US debt. 

4.  inflation per government statistics will be close to zero.

5.  debt and leverage will surpass 2008 levels.  

6.  the EZB will buy debt from its members' central banks and those central banks will in turn buy corporate bonds from their "national champions" via the LTRO program.

 

you would regarded the person to be mentally unstable and you would have avoided them.  

 

@mtbiking  - Germany's recoveries in the 1920s and in the post WWII era were driven by the US and in the post-Soviet era, that relationship has deteriorated since the 1990s.   

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7 hours ago, mtbiking said:

 

Agreed, that would be stupid. Diversification is the key. Having a plan A is fine as long as there’s a plan B and C.

 

This "diversification" remark is often proffered without much detail.   It is difficult exercise to work through. 

 

Few assets in 2007-2008 besides the USD made it through the crisis unscathed?  The Euro got hammered, so a generic allocation to cash would have resulted in a loss.    Someone holding gold in September, 2008 was vivisected.  

 

In a bear market, investors sell any liquid assets they have regardless of quality to pay off debt or margin calls resulting from their losses.    Unless you are buying short funds or puts, hedges via geographical or sector diversification are hard to find.     Everything gets hammered because it is a question of liquidity.  

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9 hours ago, Hutcho said:

You say it's nuts to buy a house for a million that you could never pay off, but had you done it 10 years ago, your house would now be worth 3 million euros, so if you run into financial troubles you could sell it, pay off your loan and still have 2 million euros in the bank and you'd have lived 10 years in a really nice house rather than a small shitty apartment.  Sounds like a good deal to me.

 

dude...

 

9 hours ago, Hutcho said:

What happened in the past is absolutely no indicator of what will happen in the future.

 

Indeed.  I just find it amazing that you proffer this advice so selectively.

 

The stuff you're spouting about real estate rising in value endlessly - "just look at the last 10 years!" is exactly what led to the real estate crash in the US.  Subprime loans were part of it, but that just set things off.  The bigger part of the problem was that there were so many people who had very little to zero equity built up and lo!  no, their houses were not worth more than what they paid, they were worth less!  Much, much less in many cases.   Sure it's rebounded since then, but not everyone can wait it out...and indeed many people found themselves out of work in tandem with the real estate bust and yet they still had to their mortgages to pay.  And all the advice when things were heating up was along the lines of "yes this place more expensive than what you had in mind but in 5 years you'll double your investment - no worries!"  NOT.

 

you guys can all wax poetic about how everyone can come out on top IF you do things JUST RIGHT, a lot of which basically boils down to market timing.  Of course it's bad to cash out your investments in retirement if the market is sour but you know what?  A lot of people don't have endless supplies of cash in retirement soooooo...  Seriously - if you guys are rolling in so much dough that you can sit on your investments as long as it takes to ride out a damaging and possibly lengthy downturn, good on you.  Most people simply don't have that luxury.

 

Overall ability of the economy to rebound has very little to do with individuals' ability to do the same.  Sure my mom "should" have waited to cash out...until she was dead?  She should have done this or that - all of your recs in hindsight, of course.  Come on.  NO ONE has a crystal ball.  You don't either.  You really and actually don't.  What balticus said about "diversifying" also sticks.  Throwing around vague terms with no concrete, sure fire recipe for guaranteed success is rather disingenuous and the reality is you can't offer those sure fire techniques as they don't exist. 

 

and no I don't advocate keeping your money under the mattress but I do recommend people view ALL investing with a big dose of healthy skepticism, and it is wise to be very very clear about how much you can stand to lose at any given time and not be swayed by the fact that things look good in the moment (or worse, the recent past).  The fact is, if there were any certainty in any investment vehicle we'd all be loaded, right?  Funny that's not the case.

 

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1 hour ago, balticus said:

 

This "diversification" remark is often proffered without much detail.   It is difficult exercise to work through. 

 

Few assets in 2007-2008 besides the USD made it through the crisis unscathed?  The Euro got hammered, so a generic allocation to cash would have resulted in a loss.    Someone holding gold in September, 2008 was vivisected.  

 

In a bear market, investors sell any liquid assets they have regardless of quality to pay off debt or margin calls resulting from their losses.    Unless you are buying short funds or puts, hedges via geographical or sector diversification are hard to find.     Everything gets hammered because it is a question of liquidity.  

 

If you put yourself in a position of never needing to sell that sounds like a great opportunity to get richer. I “lost” money in 2008/2009 and kept investing nevertheless - in index funds and real estate in a couple countries. Of course, we spend around half of our income even with my wife not working full time - at the cost of living a lot more frugally than most colleagues -  and we have recession proof jobs at the cost of not maximizing our earnings by jumping to better opportunities, besides also having some assets just parked there and unfortunately not generating income, but as safe as I can get them.

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7 minutes ago, mtbiking said:

If you put yourself in a position of never needing to sell

 

that sounds pointless and awfully convenient ;)

 

(I really am teasing you - I get your point in theory)

 

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1 hour ago, balticus said:

In a rear view mirror, buying a house or investing in stocks in 2009 or 2003 or 1994 or 1982 seem obvious choices, but they were fraught with risk.    People complaining that they missed the opportunity don't recognize that the opportunity did not present itself as a sure thing.

Buying a house in 2009 in the Netherlands and other countries wouldn't be a good idea since prices dropped until 2013. 10-15% for the Netherlands, in Spain much more. In 2017, the housing prices in the Netherlands reached the 2008 level again just before the crisis started. Buying in 2013 was the best opportunity.

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1 hour ago, lisa13 said:

 

that sounds pointless and awfully convenient ;)

 

(I really am teasing you - I get your point in theory)

 

 

I understand that a lot of people truly need to live from paycheck to paycheck.. but those don’t have money to invest anyway and are of course screwed by a crisis if they lose their jobs. But there are many around here that firmly believe that if they don’t go to a different continent a few times per year and don’t drive a new luxury car they’re not enjoying life. Plus fitness studio for two, dinning out, and so on. And they keep the couple euros they save in the bank because otherwise it’s too risky (reads: too lazy to understand how investing works and too spoilt to do what it takes to save). And when they reach 40 they say now it’s too late to start, as if no information was available on the subject 10 or 20 years ago.

 

It wouldn’t be a problem if every couple of months they wouldn’t write an essay about taxing the “rich” ?

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32 minutes ago, LukeSkywalker said:

Buying a house in 2009 in the Netherlands and other countries wouldn't be a good idea since prices dropped until 2013. 10-15% for the Netherlands, in Spain much more. In 2017, the housing prices in the Netherlands reached the 2008 level again just before the crisis started. Buying in 2013 was the best opportunity.

 

Timing the market is an exercise in futility. 

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2 hours ago, balticus said:

In a bear market, investors sell any liquid assets they have regardless of quality to pay off debt or margin calls resulting from their losses.

 

Only those who have debt and/or go into their margins. Many of us have never done either.

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