Bavaria and the real estate bubble

283 posts in this topic

Hey guys, I thought I would update this topic again. 

 

I suppose I can finally concede that this is in fact not a bubble, and that the prices will not become affordable any time soon. We should have bit the bullet 5 years ago, when half a million seemed like a lot. Now we are at about €750k for a new DHH, when the occasional one pops up on the market (this is in a small village 60 mins outside of Munich). Prices have been going up steadily in our local market by €50k a year, and although I didn't think it was sustainable, experience proves otherwise.

 

As to another reference, a friend of mine working in Munich found a 100m2 apartment for ca. 700k recently. Seems like a lot, but I suppose that will be a great investment in Munich.

 

Anyway, to update our personal situation, we moved into a single family home to rent. It costs about twice as much as our old apartment, but still half of what owning it would cost. Probably consumes about half of my disposable income. It is a beautiful house though.

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well, in the south of Munich (like Oberhaching, for instance - which is not even among the top-locations), prices for houses have doubled on average since 2012. I do believe that this is not a healthy development and I also believe that sometime during the next 5-10 years there will be a period of time when prices for real-estate will take a serious nosedive ...for a while.

However, since the demographics show that the larger Munich area is going to grow by another 10% thru migration from other areas of Bavaria/Germany/therestofthefuckingworld and since Munich does not allow high-rising buildings much and the counties around Munich do not want to free too much land for building new houses and all, the demand will continue to outpace what is offered on the market and hence prices will consequently continue to grow in a long-term trend.  IMO.

 

Cheerio

 

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The fact that interest rates just got lowered again (to -0.5%) doesn't help the situation either.

Until they go back up again, and they relax building regulations/open up more land for development and people stop coming to Munich, the prices probably won't come down.  I just can't imagine that they'll go up any further, otherwise Munich will have the most expensive purchase prices in the entire world (even though rents are no where near close to the most expensive and are quite reasonable in comparison, another thing that makes the situation somewhat concerning), but I said this 5 years ago too, so could very well be wrong again.

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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.

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19 minutes 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.

Yep all my property investments have tripled over last 10 years or quadrupled last 20 years. 

Break even on my other investments is a victory

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42 minutes 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.

 

Had you invested in the stock market at that time, your money would have doubled as well.  Had you invested in property in 2000 and sold in 2010, you'd have made no profit and you'd have been better off renting.

Of course no one can predict the economic future.  Even Warren Buffet admits that someone investing regularly into solid Dow Jones/S&P 100 companies will beat most experts.

You got lucky, you should be happy with that.  It still doesn't mean property is always a good investment, and that renting is a bad one which I believe is what triggered the discussion you're talking about.

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8 minutes ago, Hutcho said:

 

Had you invested in the stock market at that time, your money would have doubled as well.

 

The profit is much more, because in the meantime I have lived in the house.   And how could I have invested in the stock market money I still didn't have?

 

8 minutes ago, Hutcho said:

You got lucky, you should be happy with that.

 

I am.

 

 

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The leverage you got by earning a profit on a loan was certainly advantageous in this case, but it also involves higher risk.  If your house value halved and you had a 90% loan, you'd owe the bank money.  You might think this sounds unrealistic, but it's exactly what happened in the US in 2008 to thousands of people who ended up going bankrupt (along with banks because of their risky loans) because their house was worth much less than their loan.

 

You can also leverage in the stock market like this, if you're willing to take the bigger loss.

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1 hour 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.

I cannot afford to buy the house I can afford to rent. Counteract that argument!

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Just now, MikeMelga said:

I cannot afford to buy the house I can afford to rent. Counteract that argument!

 

Interest rate is negative so buying is technically for free, except the risk of prices going down.

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7 hours ago, dmbartender said:

I suppose I can finally concede that this is in fact not a bubble, and that the prices will not become affordable any time soon.

 

I disagree by the following reasons:

- economy is about to turn ugly in general

- German automotive sector is already down by 20% and will take a huge hit in the next few years, especially BMW and Audi

 

When BMW starts firing people and when suppliers start collapsing, then house prices will come down fast.

 

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2 minutes ago, Krieg said:

 

Interest rate is negative so buying is technically for free, except the risk of prices going down.

1) I would not have enough money for the downpayment nor the bank would allow me to borrow so much based on my income

2) you are of course forgetting that I need to put in a lot of money upfront, which I could invest somewhere else

3) You are underestimating the economic change to come

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Just now, MikeMelga said:

1) I would not have enough money for the downpayment nor the bank would allow me to borrow so much based on my income

2) you are of course forgetting that I need to put in a lot of money upfront, which I could invest somewhere else

3) You are underestimating the economic change to come

 

1. You bought a Tesla.  That's almost enough for a down payment.

2. Like the money you invested in your Tesla

3. People told me the same in 1998 when I bought my first property.  I am now close to finish paying the 6th one.   Yes, I understand I have no properties in a country badly affected by the 2008 crisis, still I guess I could survive a crisis because the properties are spread so the whole world would have to have big problems in which situation we will be all screwed in the same boat. 

 

To be honest, you, like everyone, make your own decisions and put your money wherever you prefer and give priorities to whatever you choose to give.   I respect that.   The problem is you think only your way is the way and you think you are a financial guru.  Who still has to work 9 to 5.

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9 hours ago, Krieg said:

 

1. You bought a Tesla.  That's almost enough for a down payment

In which planet do you live?? The Tesla costed 55k, the downpayment for the house I'm living is 400.000€!!!

 

9 hours ago, Krieg said:

2. Like the money you invested in your Tesla

Not buying a house gives me the opportunity to enjoy life. With the rest I save, I invest in stock exchange and in some private stocks.

 

9 hours ago, Krieg said:

3. People told me the same in 1998 when I bought my first property.  I am now close to finish paying the 6th one.   Yes, I understand I have no properties in a country badly affected by the 2008 crisis, still I guess I could survive a crisis because the properties are spread so the whole world would have to have big problems in which situation we will be all screwed in the same boat. 

 

To be honest, you, like everyone, make your own decisions and put your money wherever you prefer and give priorities to whatever you choose to give.   I respect that.   The problem is you think only your way is the way and you think you are a financial guru.  Who still has to work 9 to 5.

I can retire at the age of 50 if I keep saving. Not very comfortable, but enough. I do own a house, in a place where houses are cheap, in a very nice town near the ocean in Portugal. But buying in Munich is just stupid. Sure, you invested in 1998, good for you. Luck's about to run out. And that's the point!

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37 minutes ago, MikeMelga said:

In which planet do you live?? The Tesla costed 55k, the downpayment for the house I'm living is 400.000€!!!

 

You can get 100% loans.  On a 1.000.000€ loan at 1% interest you would pay under 1000 euro a month in interest.

 

37 minutes ago, MikeMelga said:

 

I can retire at the age of 50 if I keep saving. Not very comfortable, but enough. I do own a house, in a place where houses are cheap, in a very nice town near the ocean in Portugal. But buying in Munich is just stupid. Sure, you invested in 1998, good for you. Luck's about to run out. And that's the point!

 

That's a pretty bold statement.  If you invested 5 years ago it certainly wasn't stupid (10 or 15 years ago even less stupid), and we'll have to wait another 5 years to see if you're correct, but I can't imagine that the housing market will do significantly worse than the stock market, which is certainly due for a correction soon.

 

Unfortunately I can't see prices going down unless Munich itself takes a massive turn for the worst which would be bad for us all, and much worse than simply high housing prices.  It might happen with the automated driving revolution that will hit us soon, that will likely be dominated by American tech companies not traditional automakers which could hit a significant part of the industry in Munich.  But like I say, the decline of Audi/BMW/VW is not something we should excite ourselves about.

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10 hours ago, MikeMelga said:

I cannot afford to buy the house I can afford to rent. Counteract that argument!

 

pretty much that.

 

If I buy a place and for some unforeseen reason have to rent it out, and can't come close to breaking even?  nope.

 

I live in a teeny apartment, and if I were to buy it, I'd have to sink every cent of my savings into and STILL pay what I'm paying now in rent to the mortgage to have it paid off by the time I have to retire.  That's if I get lucky and manage to stay well-employed til I'm 65+.

 

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?

 

for those reasons it just does not make financial sense to me.  better (for me) to stay here and rent while I'm well employed, and buy something cheaper elsewhere in the meantime for a fraction of the price to give me some security in the non-working years to come.

 

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 and she had to start selling.  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.  All signs point to the fact that I'm never going to find that in Munich long term.

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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. 

 

Yeah, it’s very likely that we’ll soon have a major economic crisis. A lot of the industry will have to reinvent itself. In the long term it doesn’t matter, as long as there’s a Western Europe Germany will be one of or the focal point of it. 

 

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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 :/

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