Bavaria and the real estate bubble

283 posts in this topic

1 hour ago, Goodbye_BlueSky said:

 

So I am also not sure whats gonna happen to housing in 15 years, I see very less reasons for the price explosion of last 3 years. One of my friends who bought a 10 years old Apprtment in Ottobrun close to Munich costs around 80% more after 4 years, this is crazy for housing price (Immobilie  means not mobile after all :)) 

 

This is a classic lament in a rising market. How old are you? The old adage always applies: sex and real estate--get all you can when you're young!

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" ... get all you can when you're young! " like your motto , a very wise one :)

About rising market, you are also right. I think I have missed the boat already.

And about bubble: Its not a bubble as long as its rising. And no one can really tell how long it will rise  ...

 

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1 hour ago, silty1 said:

 

This is a classic lament in a rising market. How old are you? The old adage always applies: sex and real estate--get all you can when you're young!

 

In Munich this probably would have worked out alright for you because of the rising prices recently, but in other markets that wouldn't be the case.  Stock market has also more than doubled in the last 5 years, so you probably would have been better putting your money there actually.

 

Prices in Munich seem to be somewhat out of control at the moment, probably fueled by people being able to get fixed rate 10 year loans at close to 1%.  At these rates, you can borrow 500k at 1% tilgung and still only pay about 850 euros a month for it.  When it costs double that or more to rent a decent apartment in the city, people are willing to put a lot down to buy because the overall cost per month is less.

 

However, because of that things seem way out of whack. For example, here's a new 2 bedroom, 107sqm apartment selling just north of Muenchener Freiheit for 890,000 euros (over a million once you pay costs and pay the 35k for a garage spot). People are willing to pay it though, because you could have this for around 1700 euros a month without a downpayment (maybe you couldn't get a bank to give you such a loan, but a lot of people have some kind of deposit, which would reduce their monthly payments even further).

1 million for a 2 bedroom apartment is a crazy amount of money though, putting Munich up there with some of the most expensive cities in the world.  I was looking the other day, and the cost of buying in Munich is now about the same as buying in San Francisco.  Renting here however remains much cheaper than most of the world most expensive cities - San Francisco in this case is about 3 times more expensive than Munich for rentals.

 

If interest rates went back up to 5% (which is historically not an unusual level), I think everything would come crashing down.  The thing is, the interest situation doesn't seem like it's going to change anytime soon, and in Germany, you tend to get fixed loans so this crash will likely be spread out and not so detrimental to people because they've locked in super low rates.

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"  The thing is, the interest situation doesn't seem like it's going to change anytime soon,"

Looks same to me, I guess interest rates wil remain ultra low for 10-15 years in the EU. Which actually also means deflationary pressure. By deflation I actually understand prices should go down or remain the same. Actually many prices have gone down lately  - oil, mionerals etc. If I remember the price of a new Polo sized car to what its now, I guess car prices has also remained same or even got lower last 5-7 years. No growth, no inflation..

Only thing thats going through the Stratosphere is house price... 

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My landlord is renting his parents house to us. He personally has never owned a property himself, and is also a renter himself even though he is 52. By the way he owns a financial advice company with two offices in Fulda region and one in Munich (obviously loaded). Kind of puzzling. First time I see him, I'll pick his brain then post his explanation.  I have lived in Florida for 17 years and owned houses there for 15 of those years. Actually still own two. I always thought buying was a way to go, unless he tells me something I don't know.

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I know quite a lot of people who own property and rent it and then live in rented accommodation themselves. The cost of repairs to your property are then tax deductible and any rental income pays the rent on the property where you live. There are other financial advantages. I don't think that this would work in the UK where people rent only for the short or medium term and treat the rented property house like shit. In Germany it works because people rent for the long term and consider the rented property their home and take good care of it.

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On 28.9.2016, 10:35:17, Hutcho said:

Munich rated number 5 city in the world on the Real Estate Bubble Index:

Your linked article only shows that Munich rated number 5 on a list of global financial centres for being at risk of a housing bubble. By your logic, the 18th most likely city for being at risk of a housing bubble (Chicago) is rated as undervalued!!

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Hey guys, just a short update on my side. We are still looking for a house. We had the chance to buy a couple of pieces of crap for nearly the price of a new home, but passed on those, because they were horrible. Otherwise, there are some new houses going up, but with prices of around €650k which is over budget. For reference, we live in a small community of 6500 near Rosenheim.

 

Just a tip, for those looking. Try talking to Interhyp. Sparkasse told me that despite having a decent amount of Eigenkapital saved up, that we could only afford a house up to €500k on my wage. Unfortunately, there are no houses available in this price range. Interhyp on the other had could find financing for up to €600k. Had I known this earlier, we could have gotten a nice DHH for €569k last year (October 2016). Unfortunately, we missed out. Now there is another Bauträger building DHH in the same street, with smaller lots, and less living space, for €650k (May 2017). €80k more expensive 8 months later, for less space; is this not really a bubble?

 

Nevertheless, I hope we can find something by the end of the year, which is our goal. If we don't find something by then, we are pulling the plug on the idea.

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1 hour ago, dmbartender said:

€80k more expensive 8 months later, for less space; is this not really a bubble?

 

Bubble or not, it all has to do with market forces - if you were selling, and could get €80k more now than six months ago, I am pretty sure you would sell for the extra €80k!

As I see the current situation, either you pay the extra €80k and settle down there, or you don't, in which case, you can continue renting for the rest of your life.

 

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4 minutes ago, robinson100 said:

As I see the current situation, either you pay the extra €80k and settle down there, or you don't, in which case, you can continue renting for the rest of your life.

Or until you move to a more affordable area.

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Ok, I would like to update this thread. I was hoping to report the good news that we finally found a house. We have gotten so desperate, that we have started writing Erbengemeinschaften when we hear that someone dies. Anyway, we were ready to pay full asking price of €560k for a single family home, albeit a Fertighaus with a little over 400m2 garden. We actually told the lady that we'd pay her asking price, then went on vacation. Three days into vacation, I called to make sure everything was kosher, and it turns out she looked for another family to pay more. The end of the story is, the other family will get the house because they are willing to pay €580k, and maybe even more had we gotten involved in the bidding war. So that also didn't work out.

 

As for the bubble, I do not think it is a bubble anymore. Or rather, that the prices will keep climbing until the interest someday increases to above 4%, capping affordability. I can imagine what many are doing now, is getting a 10 year loan on the house at these crazy prices, because then the Tilgung is still affordable. Then, after 10 years if the interest is at 5% when they need to renegotiate, they will have to liquidate their homes. So while I think that the market will become more affordable some day, that does not help us now. I really wish I knew four years ago what we know now. Not only is it close to impossible to find anything, and the prices are crazy, but we have already put so much time, effort, and hope into the search, and we are just getting dejected.

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1 hour ago, dmbartender said:

Ok, I would like to update this thread. I was hoping to report the good news that we finally found a house. We have gotten so desperate, that we have started writing Erbengemeinschaften when we hear that someone dies. Anyway, we were ready to pay full asking price of €560k for a single family home, albeit a Fertighaus with a little over 400m2 garden. We actually told the lady that we'd pay her asking price, then went on vacation. Three days into vacation, I called to make sure everything was kosher, and it turns out she looked for another family to pay more. The end of the story is, the other family will get the house because they are willing to pay €580k, and maybe even more had we gotten involved in the bidding war. So that also didn't work out.

 

As for the bubble, I do not think it is a bubble anymore. Or rather, that the prices will keep climbing until the interest someday increases to above 4%, capping affordability. I can imagine what many are doing now, is getting a 10 year loan on the house at these crazy prices, because then the Tilgung is still affordable. Then, after 10 years if the interest is at 5% when they need to renegotiate, they will have to liquidate their homes. So while I think that the market will become more affordable some day, that does not help us now. I really wish I knew four years ago what we know now. Not only is it close to impossible to find anything, and the prices are crazy, but we have already put so much time, effort, and hope into the search, and we are just getting dejected.

 

Think 20 years+. That's what we recently got from the banks at 2% per year. These long duration contracts ensure that inflation alone takes good care of a significant amount of debt and that the impact of future interest rate increases will be dampened. I'm counting with the prices estagnating or falling for a while and then slowly recovering at a low pace, the amount of money, industry of all sorts and for this reason populational pressure in the metropolitan region of Munich (includes Rosenheim) is huge and set to increase in the next 10 to 20 years, imo.

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I think there is a bubble, but it's not a bubble that will burst rather just deflate slowly.  Like you and mtbiking rightly point out, people are getting these super low interest rates and locking them in for 15, 20 or even 30 years.  You can currently get a 750,000 euro loan, locked in for 15 years at a cost of a bit over 2000 euros a month.  For a lot of people, that seems like a good deal, because they can spend a million on a house or apartment and pay about the same as they do right now, but don't have to worry about a landlord and have their "rent" locked for many years and at the end will own something (or part of something at least, most people are likely not paying back 750k in 15 years).

 

Once interest rates go up, prices will come down somewhat because people will not be able to afford 750k loans anymore and as such, demand will drop.  However, supply will also probably drop because people won't want to sell their property because they are locked into a sweet interest rate and are under no pressure to sell because their rates aren't going up.

 

This is very different to places like the UK/Australia/US where people usually have variable rate loans.  When the interest rate doubles, most people can't afford their mortgages anymore and must sell.  That is what causes the bubble to burst. I can't imagine prices going much higher, because purchase prices in Munich are one of the highest in the world right now, but I don't think it'll drop much either in the short/medium term.

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If interest rates go up the interest in buying will drop which means there will be even more pressure to rent. My not so cheap rental property was gone in one week as it is, and the couple who got it actually applied within the first couple of hours of the advert being online - that was one of our deciding factors to rent the place to them.  But I agree with you, we bought a new place with the intent to live there for the next 40 years, I don't think it's feasible anymore to buy and sell in five years as a business model.

 

Prices will burst if the DAX companies invested in Munich suddenly run into problems and decide to leave.

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This is what a bubble looks like. Germany is a weird market. Normally when prices go up people gain equity and want to upgrade to a nicer place. People in apartments move to a townhouse, people in townhouses move to houses etc. But as Germans are rentors and on top of that rately move it means that the supply is greatly constrained. So too many buyers and not enough sellers means prices go up. 

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Tim Hortons Man: that is an interesting article. I figured the prices would be quickly rising in all the top notch cities around the world, where the interest is super low. It is also what I have told my wife - likely any place we would move to that has enough work and decent infrastructure will also be too expensive, as these low interest rates have had their cumulative effect now over the last four years. It is just a shame that this has passed us by, it seems now we are screwed. Either we buy something overpriced (in our minds) knowing we will never be able to pay it off, or we just give up on the idea altogether and stay renters.

 

What I wonder is, what the heck do we do with our savings of the last 10 years that we were hoping to use as a down payment? I don't want to put it in the stock market, and gold is also very speculative.

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35 minutes ago, dmbartender said:

Tim Hortons Man: that is an interesting article. I figured the prices would be quickly rising in all the top notch cities around the world, where the interest is super low. It is also what I have told my wife - likely any place we would move to that has enough work and decent infrastructure will also be too expensive, as these low interest rates have had their cumulative effect now over the last four years. It is just a shame that this has passed us by, it seems now we are screwed. Either we buy something overpriced (in our minds) knowing we will never be able to pay it off, or we just give up on the idea altogether and stay renters.

 

What I wonder is, what the heck do we do with our savings of the last 10 years that we were hoping to use as a down payment? I don't want to put it in the stock market, and gold is also very speculative.

 

You’re too young to be thinking like that, unless somehow your capability to work is permanently impaired. You have  30 years to recover from a bad investment. And 30 years is more than enough time for you to have a solid return in the stock market. Don’t underestimate the forces of capitalism. 

 

If house prices go up in a place like Munich it likely means that the interest rates go up. Whether the property will be cheaper for you over the years is for this reason higher debatable. For a million euro loan you’d be paying at the moment around €1600 per month in interest. If the rates double you’ll be paying that much interest for a €500,000 loan. 

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Invest at least some of your savings - let your money work for you.

 

What will you do with it? There's this thing called retirement....

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On 30/09/2017, 02:50:37, Tim Hortons Man said:

This is what a bubble looks like. Germany is a weird market. Normally when prices go up people gain equity and want to upgrade to a nicer place. People in apartments move to a townhouse, people in townhouses move to houses etc. But as Germans are rentors and on top of that rately move it means that the supply is greatly constrained. So too many buyers and not enough sellers means prices go up. 

 

227k EUR for the one bed apartment they're talking about in the article, in a suburb 30km out of town.  So the equivalent of Gemering maybe.  Sounds like a bargain to me.  Here's a one bed apartment in Gemering, but old, not new like the ones in Vancouver.  Nothing special, almost 100k more than in Vancouver and that's before costs.

 

That's how crazy Munich is.

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