This theme – housing issue (which has spoiled the Muscovites according to Bulgakov) relevant to me personally, so it’s not just theoretical calculations and posts.
My task is (in the eyes of the wife), when we buy an apartment? I will try my readers to the figures to explain what I explained to her in words, my investment strategy.
First problem: we live in a small Studio, but I want one bedroom in the area in which we live…
The difference will be more than the cost of the Studio, so a considerable sum of money and the dilemma is simple: to take out a mortgage or to wait and save.
Just what and how much to wait?
Hope needs to be backed up with something.
This dilemma is complicated by the daily news in the style of: the real Estate will only grow in price from Newspapers and articles, paid developers. But I read these articles: In June the capital renew absolute record for number of sold apartments in new buildings.
At the same time reduced prices Over the past year, the average price of 1 square meter in new buildings of the capital fell by 11.5% and reached 142,2 thousand rubles., indicate the realtors. Semi-annual decline was 3.9%, the strongest buildings fell to the West of the capital, said in a press release.
“The price in the 80-100 thousand rubles. per 1 sq. m in Moscow a year ago, met in single projects. Today it is not uncommon. Thus, buyers have a unique opportunity to acquire an apartment in the capital at suburban prices,” — said the Director of the Department of project management “Metrium Groups” Anna Sokolova.
Lower prices may be partially due to the discounts that developers are offering to buyers, according to realtors. At the moment apartments are sold with a discount of 50% of new projects in the Moscow region. It is only in Moscow, in St. PETERSBURG more relaxed, but start discounts. Or here’s the news: the Construction sector in may continued its sheer drop, accelerating it to a record pace. As reported on Thursday Rosstat, the volume of performed construction works decreased in annual terms by 9%.
A month earlier, in April, the drop was 5.9% in March and 1.4%. The construction broke through the “bottom” of the crisis – that is, the levels of July-August 2015 year, in April, says the leading expert of the “development Center” HSE Mykola Kondrashov, in may it fell below the crisis levels of 2009. Say eat up and buy when cheaper.
But, I’ll wait some more. Why?
The answer is in the book of Nobel laureate in Economics Robert Shiller “Irrational exuberance”. It is a lot of interesting things about the property and the stock market in the US with detailed analysis. To enumerate all the tricks and clever things there pointless. I show you one of them on the Russian market.
Let’s start the calculations.
Before You graph the cost per square meter of secondary housing in St. Petersburg under the Bulletin real estate and the Moscow Exchange: real Estate from September 1997, have increased in price more than stocks due to fundamental underestimation of the Soviet Union and the lack of mortgage lending.
Before the 2008 crisis, real estate has reached its “normal price” in a market economy. As you can see, the price of apartments was restored only in 2015 after a fall. Thus, the stock market and the real estate market are currently at their peaks, as before the crisis in 2008.
And where are Schiller, You ask? And despite the fact that the price of “Covenant corner” follow equity prices with a lag of one year. In the US, this lag is about a year. Let’s take a closer look at the period before the crisis of 2008: so, the peak in the stock market the MICEX index was recorded in may 2008 and reached 1925,24, and then fall over to 611,32 in November 2008 or 3 times in six months!!! Lightning the crisis. What was with the prices per square meter?
They grew, in spite of everything – with 100 245,8 RUB/sq. m to 108 614,1 RUB./sq m in October 2008! I.e. almost the peak of the crisis: stocks at the bottom, and apartments on top. And then starts exactly the opposite: stocks are rising and real estate is falling.
The peak of the fall in property prices was in December 2009 – 81 468,90 RUB/sq. m. i.e., the difference amounted to little more than a year in comparison with the stock market. Thus, we calculated the lag in the year on the Russian market. The same backlog of the prices in the USA! These data were obtained over a vast period of time in the United States, and more than one crisis. But, as you can see, the scheme is the same. This is due to the fact. what the stock market people are thrown into a panic immediately, but real estate can wait and maintain. Such patience lasts for exactly a year…
And then the prices fall, as in the whole economy. The stock market is still growing, so the estate can grow, and maybe not due to the fact that the money and the people end in connection with the annual pre-Christmas panic and the rise of the dollar and panic buying real estate every time.
The crisis in Russia is not similar to the previous one: it has many peaks, but when you start falling? It depends on the world market and oil prices. Another point that I would like to mention is that the property in real terms is almost not growing, and if growing, it is not much. This data more than 100 years in the United States.
What does it mean? So the fact that property prices grow with the rate of inflation on a long term period. Once the prices go up, once the fall, but the price growth within the inflation. Therefore, on the price chart I have decided added another line, the so-called minimal lines. As it turns out? I took the values at the end of 1997 at a cost per square meter and the index, and indexed them on the official inflation. I.e., the minimum prices are the prices converted to 1997!
Frankly speaking, I did not expect such results: Stocks at the peak of the 2008 crisis, fell below the 1998 level and that’s assuming that there was no default, and six months of bad weather. And property prices are anywhere close to the minimum…
Now, in General, a wild situation: the current value of the index 1884,22, and the minimum value is 1 441,91, i.e. the market decline by 30% will mean 1998! Ask yourself why such a mess? Or if there is an error in the calculations? I went over it 2 times – no error. The fact is that the Russian stock market is dramatically undervalued – at the 2nd place in the world on the cheap. No wonder that the largest gas company in the world Gazprom, is how Uber app in your phone. It generally is normal?
Away from the topic. And what about the “funny feet”? And the meters do not so much fall, but in past hard times 2008 fell by 21.44%. This is the average temperature in the hospital, and specific proposals differ. So after 2 years, if the property drops by 20% or more, and my assets grow, I’ll be able to part from them, to improve their living conditions. So, this is my strategy.
And You think for yourself, decide for yourself and take a mortgage at 16% – it is more reliable…
