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- [00:05]
A
All right, welcome back to Real Estate Without Borders. I'm Dave Hutch and I'm here with legendary Daniel F. We're already into charts and graphs. We have one of the hottest real estate reports of the year. The UBS Global. How I took it away. The UBS Global Real Estate Bubble Index for 2024. We're going to be covering our housing bubbles popping, or are we? Just in a temporary correction, Daniel Foley is going to read this report for you so you don't have to. I just stole your line, buddy.
- [00:36]
B
Yeah, that's good.
- [00:37]
A
Sorry about that.
- [00:37]
B
Yeah, I've already spent a lot of time reading this report. It came out like Q3, maybe early Q4 last year. October, I think. Yeah, always August. Yeah. So it's a little stale, but I would say most of the conclusions in it are true. And we'll cover this when it comes out again later this year and see what's happened with all these markets. But some really interesting conclusions. I think the, the city in the world that has the highest risk of a bubble might surprise you, so stay tuned for that. But.
- [01:10]
A
So this comes out every quarter?
- [01:11]
B
No, it comes out once a year. Sorry. Yeah, so. So they'll do like, they'll do a 2025 edition. And, and honestly, I would say, you know, a lot of people question the correctness of the report, but why is that? I don't know. People like to complain. You've seen our Twitter comments or whatever. YouTube comments. Fair enough.
- [01:31]
A
Just so you guys are aware, this, this report is like how many? 1 4, 800 pages. So you're welcome.
- [01:37]
B
It's a big one. Yeah, but, but I think that they, I think people think that it's like shilly and like, try. But, but look, here's, here's my understanding of its track record based on the markets that I know. Well, it called Vancouver's bubble in 16. It called Toronto's bubble in 17. Right. It called Toronto's bubble again in 21. So right now it has Miami at the top of the global bubble risk rankings. Toronto, Los Angeles and Geneva remain in elevated risk territory. And European cities. Europe is actually evolving as like I'm starting to get some, some buy appetite from, from, for myself personally, for Europe right now. I think like it says here, Frankfurt, Munich and Paris saw major price corrections and Dubai recorded the biggest risk increase over the past year. So stand out there.
- [02:33]
A
Yeah, the, the Dubai is crazy because obviously, I mean, as a realtor, we see Dubai all over our social media. I think it's one of the. Probably the More talked about cities on social media. I think a lot of realtors that maybe have left Toronto have started doing a Dubai thing. But it's cool to like really dive into the numbers because all we most people really hear about is just like super surface level numbers. Right. So to actually dive into it, I think it's really cool. And honestly, Miami being at the top, what was the stat? The prices have increased over 50% since something. Since 2019 or something like that.
- [03:08]
B
Yeah, yeah, like pre covered, basically. I mean, it makes sense. Like Miami, I get it. It's just everybody knew that that party was going to come to an end. Like there was tons of cash piling into it during COVID because everyone in the world was going there because it was literally the only place on earth that didn't have a lockdown. And then.
- [03:26]
A
And Mexico. Tulum.
- [03:28]
B
Yeah, there you go. And then shortly after that, I think that that momentum kind of gave it the next two years, you know. Then like after that, people were like, oh, prices went up so high in Miami. Everybody wants to live there now. And then the next two years, people kept piling on with the, you know, people, everybody late to the party, right? Oh yeah, it went up 10% last year. It's go up 10% this year. And then, you know, the US is really good at building, right? They're very efficient at. At building to meet market demand. So Miami's seen a lot of construction. It's actually seeing contraction in population now.
- [04:00]
A
I think that actually sort of cut you off. I think that happens a lot. And we not to always bring it back to Tulum here, but we saw the same thing. I think the original investors that came in, same with Miami, right? The original investors that got in, they made their, they made their cap their gains and they, they did well. But it's usually the nervous investor that sits and waits and they're the ones that kind of pay the price because they're sitting and waiting for so long that they, they already watch do its thing and then by the time they invest, it's already, you know, too far gone. It's like that nervous investor that gets kind of hurt in these. In these markets.
- [04:34]
B
Yeah, I think what is it? Scared money don't make money. Right?
- [04:36]
A
That's right.
- [04:37]
B
And like. And honestly, dude, like, I've been a scared money guy. I'm like the king of scared money dudes. But like, honestly man, I'm like the. I am like the little bear king. But the, the truth is like, I've always. I just use that as Like, I think some people say, okay, I'm fully risk off and I'm not going to buy anything. Whereas the truth is if you see risk in the market, that's just a sign that you need to manage the risk away and control the variables that you can control and understand the variables that you can't control. I think overbuilding is, is a bit of a thing that like happens kind of as the whipsaw effect. Like a lot of those people who bought, maybe, let's say, let's say Miami had a three year run, right? So year one was, was if you bought year one, you probably still got some padding. Year two, you might be at risk. You bought year three, you've probably lost equity. Right, right. As it, as it comes down, that's, that tends to happen in a lot of these markets. You get like, and, and it's just like stock trades as well. Right. People pile in and it gets overbought and then the value corrects and you wipe out some of the, the weaker buyers. That, that shouldn't have been there, right? Yeah, let's.
- [05:40]
A
The overbuilding, the, the one thing I noticed when I was going through this is it seems like overbuilding was a very common topic everywhere. Not everywhere, but most places. You know, like, we're seeing the same thing in Toronto, right?
- [05:54]
B
Yeah, yeah.
- [05:54]
A
Which is interesting.
- [05:56]
B
It's funny because, you know, everybody thought Canada had this structural undersupply of housing. And now all of a sudden we're like, oh, how what's happening? We have too many houses, vacancy rates are rising, and it's like, oh, well, maybe this is because we measure the price of houses with dollars and not immigrants. Right? Like, right. Honestly, like, everyone's like, oh, there's so many people moving to Canada. It's like, well, what do we measure the house prices with? Dollars. Right. So it doesn't matter how many people move there if they have no money. What matters is how much money all of the buyers in the market have. And that's why credit drives markets. Right. And right now we're seeing a global credit contraction and that's why we're seeing all of these corrections. So talk to me a little bit about how housing affordability plays a role in that.
- [06:37]
A
For sure. I think I'm gonna get you a hat that says scared money. I think I like that. I want to, I want to coin that one housing affordability.
- [06:44]
B
So, right, it's got to have like a, like a, like a, like a ghost emoji on it.
- [06:49]
A
Starting a merch already episode what is this? I don't even know anymore.
- [06:52]
B
Can't wait to sell one shirt to like my mom.
- [06:55]
A
Three listeners. Hope you guys buy it. We'll make you, make you a good deal. All right, so as of right now. Well actually that's not true. So buyers can afford for 40% less living space than in 2021. That's crazy if you actually think about that. So home prices in major cities remain decoupled from local income. Well, you just talked about that, right? Yeah, it's the affordability.
- [07:20]
B
Well, at the end of the day what really drives prices up is the ability for local residents of that economy to earn a wage and pay their mortgage or rent in that market. Right, right. So places like Hong Kong, Paris and London, it takes over 10 years salary to buy a 650 square foot apartment. I think that's just to save for.
- [07:39]
A
I was gonna say that might be the down payment. What's the number in Toronto? I'm gonna pull that up while you're scrolling.
- [07:45]
B
Yeah, it's on here, it's on here. I'll pull up the chart. Toronto's not that bad actually. Toronto's. I think, I think Hong Kong is like, it's, it's like, it's like 30 or 40 years. I'll find it. It's right here. Number of years a skilled service worker needs to be able to buy a 60 square meter or which is a 650 square foot flat near the city center. Hong Kong, 21 years. It looks like Toronto is like kind of middle of the pack. Right. Toronto's like, we're even close to the bottom five to 10 years. So the worst ones from top to bottom, Hong Kong, Tokyo, Paris and, and being mindful like Hong Kong is worse by like a massive margin. Tokyo, Paris, London, Tel Aviv are all the same. We've got Singapore, Sydney, Munich, Sao Paulo. The first US city on that list is, is New York. So everything that we just mentioned is less affordable for workforce housing for local people trying to buy a house than New York City as an example.
- [08:43]
A
Crazy. What's the first Canadian city or the highest? Vancouver.
- [08:46]
B
Vancouver's two below New York. Yeah. So it goes New York, Zurich, Vancouver.
- [08:50]
A
Crazy. So interest rate hikes make homes 40% more expensive, obviously. So let's use, let's use a five hundred thousand dollar mortgage at 3% would cost around 2100 dollars a month. Now at 7% that jumps to 3, 300. It's a big jump, it's a big gap. You know I can speak from experience. I Took a variable in Toronto on my primary residence and I started around 1.6. Now it's around, you know, but it went up to six and a half percent and it jumped significantly. People can't, that's crazy. But I think where that's leading people to is away from homeownership and to renting.
- [09:31]
B
Right.
- [09:32]
A
And that's why we saw that in that percentage in the US where I think it was 24% of buyers in the US are first time homebuyers. That's it, only 24%.
- [09:41]
B
That's crazy. Yeah. Home buying sentiment in the US has fallen off of a cliff. If you look at this chart that I'm about to pull up here, Goldman Sachs housing affordability index shows continuously decreasing affordability. Right.
- [09:56]
A
Since when 2020 been dropping?
- [09:58]
B
Yeah, yeah. And it's, and this is all just from mortgage rates. It's literally as bad. Housing affordability is literally as bad as it was before the, the global financial crisis.
- [10:06]
A
Well, it's like, okay, so home prices let's say in some of these cities like Miami have risen 50% and while the, the, the wage has only really risen what 15, 20%. It just doesn't match up. It's not me. The math's not math and you know what I mean?
- [10:20]
B
Well, yeah. And so Americans can't afford to buy homes. And, and realistically to make the US real estate investment thesis make sense, you need the marginal buyer to be bidding up homes. Right. You need the, you need the first time home buyer to be driving demand in those markets. And I think that's right now that's.
- [10:36]
A
Who like again just from trading in Mexico and trading in Toronto actively, like you just said, I think the people that are, are paying the premium. It's not the investors, the investors aren't the ones coming and paying the premiums because they're, it's a numbers based only investment. Right. Where the first time home buyers have such an emotional attachment to this. Where it's like usually when I go into any sort of offer, I got an offer going in today for one of my clients in Toronto and it's like pre offer, there's already two offers registered. I've set the expectations on. Okay, what, what is your max before you get emotionally into this? Because emotions play a huge role and like you said, significantly further for first time home buyers.
- [11:14]
B
Yeah, dude. I have gone off on this so many times because people are always saying oh, investors ruin the housing market. And I'm like, okay. There was a period of time when speculators not investors ruined the housing market. Right. People buying because they felt the prices were going to go up. But by and large, at least in Canada, which is a really good example of a market that is detached from fundamentals, first time home buyers are 50% of your buyers. Okay, first time home buyers have never bought a house before, so they're, there's a good chance they're not going to do a good job at it. Right. Let's be fair. Right? It's pretty accurate, right? Like, honestly, it's like, hey, you know, like let's put the novice team against the. Yeah, like. And so. Exactly. And so they've also never, they're younger, so they're probably working with some realtor who did 1.6 deals last year. Right, right. And so they're more likely to overpay, they're more likely to be irrational. They're more likely, they have a qualitative incentive. They have fear, they have fomo, they have all of these different things that are incentivizing them to pay more money than they probably should for the home. So.
- [12:12]
A
Right.
- [12:13]
B
Honestly, man, that marginal buyer is who sets the market up or down, by the way.
- [12:17]
A
Like, I agree, I agree 100%. I see it a lot. I still work with a lot of first time home buyers. I think their rationale behind it, I think with a lot of the younger first time home buyers is they, they're looking at this as, as a place they're going to be spending a lot of time. So to them, they're, they rationalize that overspending with time, you know, which isn't the way to do it, but hey, yeah, is what it is. So, okay. Rents have outpaced wage growth in most major cities, rising 5 to 15, 2023 alone. Housing shortages, fuel rent increases like Vancouver, Madrid, Zurich, now this one actually I wanted to get into with you and this is off script, as you might say. Now it says short term rentals, Airbnb impact supply. So in tourist heavy cities, investors are turning to long term rentals into short term units, removing inventory from local residents. I don't agree with that.
- [13:08]
B
I mean it's definitely a factor. I just don't think it's as big of a factor as everybody wants to make it sound.
- [13:13]
A
Right, I agree. I, I mean, look, in Toronto specifically it's very difficult. There's very few air legal AirBNBs that are allowed in in Toronto. I, I would, I think it's the same in Vancouver. Can we fact check that?
- [13:27]
B
Yeah, Vancouver did a ban as well BC I think did most, most municipal and provincial jurisdictions in Canada have done some sort of regulatory hurdle for short term rental?
- [13:37]
A
I think it's just a, a scapegoat, I don't think, I don't, I don't believe that the short term rental Airbnb supply has like a massive effect on this.
- [13:44]
B
But, you know, yeah, I would say I agree. I think that it's, I don't think, like, I think house prices can be set at the margins because it transacts lower. I don't think rents can be set at the margins and because it's, it's, you know, a much higher turnover product. And, and to say that like, yeah, okay, it pulls a little bit of supply out, but it also, that was during a period of time like when, when, when the, the microscope was really put on Airbnb's impact in the market. It was during COVID when everybody was doing staycations. You couldn't fricking fly half the time. So it's like, oh yeah, of course it's going to look like things are going to look a little bit more damaging when you've got half the population of the world working from home and moving out of their downtown condos and living in, you know, nice places all over the country.
- [14:30]
A
Right.
- [14:30]
B
Yeah. Obvious. It does. It wouldn't surprise me to say that that had an impact the same way it is when all of these digital nomads move to the Portuguese and Spain's of the world or tulum like we're describing. Right. So. Right. I guess we'll use that to kind of segue to the housing shortage factor, where they talk about rising rents kind of keeping markets afloat. So the chart that we just mentioned, the number of years a skilled service worker needs to work to be able to buy a flat near the city center, they have another one where it shows a price to rent ratio. I'm gonna pull it up. You know, you can count on me to pull the chart up. Don't worry, I, I will never miss a chance again. Last episode we recorded, I was really disappointed in my chart pulling.
- [15:10]
A
So let's get double the charts in this one.
- [15:12]
B
Oh, look at this, the great chart. So same. So same same chart. But this is the number of years the flat of the same size needs to be rented out to pay for the flat. And so this is basically like, it's like a derivative of your cap rate and we're going to dive into the cap rate and kind of like different ways to analyze properties in, in a one of our Next episodes. But the reality is, you know, you look at a place like Vancouver, Sydney, it says prices dipped, but a lack of new construction is continuing to push rents up. Right. Both of those cities are also seeing population growth. You know, taking this list from top to bottom, you've got Zurich and Munich at the top. So both European markets. I think Germany, economically is going to get smoked in this recession, this global downturn. Then you've got Tel Aviv, Geneva, another Swiss city, Hong Kong, Frankfurt, Tokyo, Sydney, London, Paris, Amsterdam, Vancouver, Stockholm, Milan, Singapore, Toronto. And then you finally get to Boston, the first US city, Boston and la. And then you get Warsaw, Poland and New New York City. So for comparison, Boston, Louisiana and New York are in the lower third of the list. Everything listed before those on a price to rent based basis is, is a. Basically a better investment.
- [16:29]
A
Yeah.
- [16:29]
B
Or sorry, sorry, a worse investment for a global city than. Than your New York, LA or Boston. So these are the world cities. This kind of reads as like your who's who of like, you know, these are your, your trade hubs of all of those countries. So I guess it's safe to say probably from a investment perspective that if we're buying real estate outside of the US we might not be doing it in one of these global trade hubs.
- [16:55]
A
We cover a couple of these in the episode, which is good too. But that's cool. That's a cool chart actually. Hey, send that to me.
- [17:02]
B
I will, I will.
- [17:03]
A
So I. Could you do a voiceover actually, so I can just put it on my Instagram?
- [17:06]
B
Yeah, for sure. Here's Dan. You just. Do you just do your hook? Check out this cool video I found.
- [17:14]
A
Me in the other corner just pointing at you, nodding about, giving facts. Should we dive into maybe some key cities here?
- [17:23]
B
Finally talk, talk about who won the bubble race this year.
- [17:29]
A
Who was number one? 2023.
- [17:31]
B
Toronto. Yeah, it was Toronto last year.
- [17:34]
A
Crazy. And we're nowhere. Done. Pull up the first one again. Now we're down to what?
- [17:40]
B
I gotta. Gotta check if we go to the actual.
- [17:44]
A
Yeah, yeah, pull it up, man. I'll dive into this right as we get going here. Oh no.
- [17:48]
B
Oh, there it is right there. Yeah, Toronto's fifth now. Oh wow, we're down.
- [17:51]
A
Yeah, we're down.
- [17:53]
B
Yeah, it might have been, it might have been Zurich or. I'll pull it up, I'll pull up last year's. I have it on my computer here.
- [17:58]
A
That's all right, we'll cover Zerk in this one. But let's start with Miami. The winner, number one. We can tag team this one. But so as we kind of touched on before, so prices in Miami up 50 since 2019, I think it went through that like ultra, ultra, like wealthy buyers, like feeling the demand there. Everyone wanted to live in Miami. It was kind of the cool thing to do, especially during the pandemic. And then a little bit after insurance costs, which are something that maybe we should cover. Climate change, which I don't know about that, and new condo regulations. I've heard so many different rumors about insurance costs and different spots of Miami and what it costs to actually have that homeownership with insurance. Do you, do you have those numbers? Is there a chart you could pull up with that or just off?
- [18:38]
B
Yeah, I can probably pull something up. Yeah.
- [18:41]
A
In the back of the old noodle, you got those numbers laying around somewhere.
- [18:44]
B
But yeah, I mean, like insurance isn't, is an input. Right. If you think about running your real estate business. Right. If you're a real estate investor, you have like, it's like any other business, you have costs. Right?
- [18:53]
A
Right.
- [18:54]
B
And these are the costs that you have to pay to produce a good of a rentable place for a business or, or an individual to occupy. And so if your insurance cost is going up, that can very quickly eat away at your margins. Right. The other bigger risk is that you, your place just becomes uninsurable. And now all of a sudden your lender calls, now your lender calls the deal. Right. Or calls the loan on the deal because you're, because part of your, in a lot of cases, part of your covenant on a loan around the world is that you need to have insurance on the property. So if, if the house gets leveled, the lender still has some value left in it. Right. And so if all of a sudden you can't insure the property, then your lender is less likely to want to lend and you might be. Have an issue with renewal on that, that deal.
- [19:41]
A
I'm just crunching some numbers over here, general averages. You got. I got this. Well, according to Grok too, for policy, let's see this. For $150,000 house, it'd be about 8,600 per year. For a $300,000 house, about US$15,000 per year. For a $450,000 house, that's $22,000 per year. That's high.
- [20:10]
B
Yeah. It does make you wonder whether or not it's actually like if that's a factor, like playing into the viability of the market, like.
- [20:22]
A
Right.
- [20:24]
B
I got a couple of charts I got pulled up Here. But so it says. So this is from 2024 in Southwest Florida, high home insurance rates are driving away would be home buyers. And the chart basically shows the Florida premiums versus US premiums. Wait till I show you this chart. It's sick. You're gonna like it. Super Canadian because it's got a hockey stick on it.
- [20:44]
A
Oh, I love it.
- [20:45]
B
Yeah.
- [20:46]
A
So what's that? 22 000.
- [20:48]
B
So this is the article. In southwest Florida home high home insurance rates are driving away would be buyers. And there's your char surging in Florida.
- [20:56]
A
Wow.
- [20:57]
B
Yeah. So they've gone up from basically your US Insurance premiums have gone up or insurance policy rates have gone up. I don't know, maybe 50% over since 2020. And. And Florida's gone up. What is that? Probably from 2 grand to 6 grand. So 3x increase.
- [21:14]
A
Let's say a $400,000 house. That means it's a. Almost a $1800 a month insurance payment alone.
- [21:21]
B
Yeah.
- [21:22]
A
That's crazy.
- [21:23]
B
Yeah. And they're. So their home insurance rates are rising faster than any state. Nearly triple the U.S. average. And you can see this. Florida leads the U.S. in home insurance premium hikes. You got Florida and then Nebraska after random.
- [21:35]
A
Nebraska.
- [21:37]
B
Colorado, I guess is that is Nebraska Tornado Alley. I don't know.
- [21:41]
A
Let me find this out.
- [21:44]
B
Nebraska and then shows 70% of Florida homeowners have seen insure. Have seen rise in insurance costs or changes in coverage. I'm currently three and nearly three and four. Four Florida homeowners have seen insurance changes in the past year.
- [22:01]
A
So Nebraska is a part of Tornado Alley, if you were wondering.
- [22:05]
B
There you go.
- [22:05]
A
You're welcome.
- [22:07]
B
Amazing. Yeah. So I think, you know, a couple of other factors that are mentioned here. So obviously insurance is a big piece. The other piece is investors are dominating the market. You know, the 30% of my Miami home buyers in the last two years were investors or institutional buyers. Which means price stability depends on rental demand, not local wages. So it kind of gets detached from. From the wage side of things there. Right. Should we, should we chat? Jump over to Toronto and Vancouver quickly blow through those.
- [22:38]
A
I would love that.
- [22:39]
B
Yeah. So I mean they, they acknowledge that Toronto and Vancouver are still high risk, but they feel that they're subsiding a little bit. Like because the markets have both come down there. They have down by 10% in real terms since 2022. I would say it's probably a little bit higher than that in real terms. Real means adjusted for inflation, by the way. So inflation was pretty hot in Canada. And prices came, did come down more than that. Prices came down that, more than that in, in nominal terms since 2022 peak, probably down about 15% in both of those markets. You adjust that for inflation, they're probably down about 20% in real terms. So Toronto is still labeled as elevated risk and Vancouver's at moderate risk. Rising rents are keeping investors engaged and, and once the bank of Canada starts cutting rates, there is a chance that, I mean, we're already starting to see some demand coming back in. I think that, you know, Trump tariffs, we discussed it in another episode. There's a lot of economic headwinds for Canada to deal with. I don't think it's purely about rates right now.
- [23:36]
A
I think we, I have seen an uptick a little bit. Maybe it's just me, but, but to be truthful, I've seen a decent uptick in buyer activity over the last month for sure in Toronto and especially for condos. What, you know, last year, even a, even a decent, the condo had to be perfect for it to sell. Now it's like anything that's larger. I think this is the natural evolution of what happens and correct me if I'm wrong, but when the prices drop, typically what gets a, like what gets. People are looking to get deals, right? So they're going after the, the homes, the freeholds, because those freeholds went from like 1.5 to, let's say 1.2. So people are getting in to get those deals. But then you have the condo market where if it only drops, like you said, even 10%, 12%, it's really not as big of a deal to certain people. So the condo market's been struggling in Toronto, but it's the bigger, the bigger wealth laid out. Floor plan units are selling decently right now.
- [24:27]
B
And who are you seeing the buyers being? Like first time buyers? Yeah, man, that's what I thought. I figured that would happen. I thought first time buyers would come in and save the condo market. And they seem to be, I mean, I still think there's downside risk in the condos, but like, you're getting to the point where, look, Toronto is one of those cities where first time buyers basically have not been able to afford a home for a long time. They probably feel like they're never going to be able to afford to detach. They're seeing condos getting absolutely decimated, down like 20%, probably off peak. And it's like, okay, this is probably my last time to get in and get on the housing ladder, start paying off a mortgage rather than paying rent. And so they're all going to buy all these condos. Right. At pretty deep discounts to the relative value. I still think, again, I still think there's risk, but I don't think most first time buyers really care. Right. I think most first time buyers are buying a house for savings vehicles. Vehicle.
- [25:10]
A
Right.
- [25:11]
B
And to get on the housing ladder and stop paying rent. Honestly, I think that that's. And like they're irrational buyers in that regard. But it is what it is. Like that's not for me to judge them. I wouldn't do it.
- [25:19]
A
But I think they have a lot of pressure from family too. You know, like a lot of the first time buyers that I work with are they're getting, you know, some of their funding from the bank of mom and dad and mom and dad owned properties. You know, first time home buyers aren't 20 year olds. They're, they're, they're 30s, you know, and the, our parents were married with four kids with, you know, the house paid off already. So there's that pressure, but neither here nor there. Frankfurt.
- [25:44]
B
Yeah, let's jump over to Germany. Like I, I would say economic setup. I think Germany's got some trouble ahead, but it seems like their markets are already correcting. So tell me about Germany.
- [25:53]
A
Yeah, we, you know what, actually I would say my, aside from Americans, my number two biggest client is Germans in investing into Lumex.
- [26:01]
B
Germans love real estate, man. They love it.
- [26:03]
A
Yeah. There I have quite a few German clients. They love Mexico also. We should. How. I'm not going to ask that question. How close is it to here, flight Germany?
- [26:13]
B
It's, I don't know, seven or eight hours.
- [26:16]
A
That's far. So prices are down in Germany about 20% from the peak. Okay, so it's still high historically, you know, but, but it's stabilizing. So I got a few notes here that I wanted to cover. So prices are down 20% from the peak, which could be a potential buying opportunity. However, you're seeing prices now hovering around like 2018 levels. And this is one of the steepest correction, especially in Frankfurt's recent history following the interest rates in the economic slowdown. I went to check out what the actual interest rates are and I wasn't able to. Here we go. And I wanted to, I wanted you to scroll down here on the old script, Mr. Fosh. Yeah, I wanted to cover this because I'm curious your, your thoughts on this. It's talking about how Frankfurt. Well, I guess different spots of Germany. The ecb, which is the. They're like central bank, Right? They were seeing interest rates, like super low in 20, 2018, correct? Like crazy low.
- [27:17]
B
Yeah. I mean, a lot of the Eurozone did have like. So rates did come down, like, during that period of time. Remember there was like a little bit of a mini downturn during Trump's presidency before when they were like, rates were, were creeping up. That's what happened in, in, like, it was kind of the part of the perfect storm that happened in like, rates got low in, in Canada in 2018. A lot of, A lot of central banks were dropping rates in 20, late 2017 through 2018.
- [27:41]
A
I was trying to run a comparable, like an analysis from where rates were in 20, 2016, 2017, 2018 to today, but I couldn't find the answer.
- [27:49]
B
But I would say they're, they're pretty comparable to present day. Maybe we're maybe a little bit higher today. So.
- [27:55]
A
Okay, so they're going through the same thing. So in Frankfurt, rents are rising despite falling prices. So the average rent per square meter in Frankfurt is 17 per. I guess 17 per square meter per month. So a 9.4% increase over last year, which is interesting. Housing shortages, fewer new developments. I think that's global really, what's happening. So, I mean, we can't just base an investment off of rental income alone. Obviously there's much more that goes into that investment. But rental income, Frankfurt seems to be strong. I'm not going to cover that part. The. I mean, look, okay, let's, let's get into Munich and then we can dissect both. How's that sound? Oh, you got some charts.
- [28:40]
B
Yeah. This is your chart that you're looking for. This is your, this is your interest rates back to 2015.
- [28:45]
A
Okay. What was 2015?
- [28:47]
B
So what was 2015 was like 15 was like one. These are your mortgage rates. So between one to two and a half percent, basically. And then now we're at like four in the fours.
- [29:01]
A
Okay.
- [29:03]
B
That doesn't reflect current day that, that chart ends 2023, but it's come down to about. I think you'd probably be in like the 2 to 3 range from like the 1 to 3 range. Yeah.
- [29:13]
A
Interesting. So it kind of followed what Canada's doing almost.
- [29:16]
B
Yeah. Look, like all of these economies kind of move in lockstep to not devalue their currency so much. Right, right.
- [29:24]
A
Then we got Munich. Munich home prices have also dropped 20 from their peak. Like Frankfurt, Munich has seen a 20 drop in property prices since 2021. Their average price Per square meter for existing homes is between 7, 600 Euros and 8,000 Euros per square meter. But with it being much higher to closer to 10,000 per square meter in the more sought after areas. Rental prices are at an all time high in Munich. Interesting. Average rents now 22, about $23 per square meter making it one of the most expensive rental markets in Europe. Interesting.
- [30:03]
B
Such a nice looking city man. Lots of all like six story buildings. So euro missing middle I'd say the Americans call it.
- [30:11]
A
I. Yeah. That is beautiful actually.
- [30:14]
B
Well yeah, a lot of, a lot of German cities have height limits which is why their supply is so limited. Like they don't like you'll see Munich, Copenhagen, Paris, they all have limits. Where you could build near this, near like the main historic cores so that they don't completely destroy the city with blue glass buildings like we North American trade hubs like to do.
- [30:37]
A
Sounds like a place that we're from.
- [30:40]
B
Yeah, so that's that. Honestly really like that exclusionary zoning has actually contributed quite a bit to their inability to add more meaningful supply to the market.
- [30:50]
A
Okay. So that, so demand is outpacing the supply long term growth potential. So the housing supply is extremely limited due to the strict building regulations you just mentioned and high land costs.
- [31:00]
B
Yeah.
- [31:01]
A
Interesting.
- [31:03]
B
For sure, for sure. So if you're buying in Germany, if you're an American looking to buy real estate in Germany, where would you be doing it given you want to capitalize? You hear that, you hear these two guys talking about prices dropping 20 your blood in the streets kind of investor and you're trying to say okay, should I buy in Frankfurt or Munich? Where would, where would you look? I think Frankfurt may be best for value investors looking for rental income.
- [31:26]
A
And.
- [31:26]
B
And Munich seems to be maybe more for long term appreciation and rental stability. And again both markets are down 20% from their peak. So.
- [31:36]
A
Interesting.
- [31:38]
B
You don't see these pullbacks very often. Right. The, the you know, entry points, let's.
- [31:42]
A
Call them and they have a says what to watch out for. If interest rates drop, the markets could rebound fast. So locking in the deal, you might be able to pay it off long term. However, short term investors might be cautious due to continued economic uncertainty. Interesting.
- [31:58]
B
Yeah.
- [31:58]
A
You want to smash. I'm excited for this part to be honest.
- [32:03]
B
Yeah, yeah. So. So Dubai recorded the biggest bubble risk increase of the year. Prices are up 40% since 2024. Sorry. Since 2020 huge supply is coming on board. There's tons of tons of new projects being built contemplated pre sold and demand still hasn't dropped off. I feel like there's a lot of money moving into Dubai right now. I think people are kind of like, it's part of that, like anti woke kind of, you know, people are like really looking for like these new trade hubs where things are just done differently. Right, agreed. And I think, I think that part of the world is really growing. Dubai is one to watch. Saudi Arabia, lots of money and, and economic growth coming out of that part of the world.
- [32:55]
A
Have you seen what do you think that. Honestly, I just wonder when that demand's gonna like, end. You know, it seems like it's been super hot for quite some time, to be honest. It's been hot since the pandemic, you know, and it's still going. You can't really believe everything you see on social media. But from what I do see on social media, it seems like it's. The demand is still very strong and it's like, well, when's that going to end? I know they're big in a cryptocurrency there and a lot of the people that move there are, yeah, they're taking.
- [33:24]
B
That's maybe that's why Miami's getting smoked, because they're stealing all the crypto bros.
- [33:28]
A
That's probably a part of it. I've heard, I've never been to Dubai, but I've heard you can pay with most of the stuff down there with crypto.
- [33:34]
B
Really?
- [33:34]
A
Yeah.
- [33:35]
B
You just got to sit in the store for a half hour and wait for the transfer to take place.
- [33:39]
A
That's right.
- [33:40]
B
Crypto Bros.
- [33:42]
A
It's above my, my knowledge base.
- [33:45]
B
So yeah, so let's, let's talk a little bit about what happened in Dubai in 2008. Because I think that that's like the question is, is this a cautionary tale? Right. Because. Because Dubai was ripping during that period of time as well. A lot of that, A lot of that, yeah, you're seeing it, what's called a positive wealth effect. So basically, you know, people from America making a ton of money in real estate in America, and there was a lot of American commerce taking place in dubai. And in 2008, Dubai's real estate market experienced a dramatic crash, plummeting almost 60% in some areas. A lot of developers went bankrupt. Right. 60% huge. Like that would have been comparable to what was happening in some of the worst spots in the US during the 08 crisis.
- [34:26]
A
Wow.
- [34:27]
B
And a lot of that was from stuff like we're seeing right now, speculative buying, excessive leverage and exposure to the global financial crisis. And they actually needed a $20 billion bailout from neighboring Abu Dhabi to stabilize their economy. So the question is. Yeah.
- [34:41]
A
B.
- [34:42]
B
So the qu. Well, what's a million bucks? That's like a 20 million bucks is like a car over there, man. People are driving 20 million dollar cars in Dubai. B. Come on, Dave. This is global real estate. So the question is, are there differences for today and 2008? And I would say similar to the US they did change a lot of their regulations with the way they structured the pre construction space and their lending space. So you now need higher down payment requirements. There's a more diverse global buyer pool rather than just like kind of pure speculation from a lot of US investors during that period of time. And, and I think a better, like stronger financial system and better financial oversight and transparency in their real estate transactions. So the question is, is it actually. Are we actually seeing a huge increase in, in bubble risk in Dubai?
- [35:37]
A
They had foreign investors fueled about 85% of Dubai buyers. So call those Dubaiers the Dubai Zero property taxes, high rental yields, and a.
- [35:49]
B
Growing 85% of Dubai property buyers are foreign. That's crazy.
- [35:54]
A
Crazy.
- [35:55]
B
Yeah, crazy. Now this is what, let's talk about what actually makes it compelling because I get it like, and everyone I've talked to, like, they always make a compelling case. Like I hear about like, you know, people are always trying to sell me property in Miami or blah blah, blah place, you know, like Tulum. I got this guy, you know, always trying to sell me property in Tulum.
- [36:13]
A
You know, one day.
- [36:14]
B
Yeah. But I, you know, Dubai is like from a golden visa perspective from like you know, really moving your, your economic life somewhere else. Zero property taxes, high rental yields, and a massively growing economy I think really makes it compelling. I could see like, I, I would agree valuation is probably a little bit high. Overbuilt. Yeah, potentially. But it does seem to be like a market that's just absolutely crushing it. I think the big risk there is like, it's, it's like, it's almost like Canada in such that you can't go outside half the year.
- [36:44]
A
Yeah, it's super, super hot from what I've heard.
- [36:47]
B
Yeah, I like, I like, like a balanced, you know, like balance. Like, I like seasons. Do you know some. Yeah, I don't mind it. I don't know. Like, winter's not that bad.
- [36:57]
A
Man, oh man, I disagree. I. I can't do winters, man. I, I actually threw out all my jackets and I regretted it instantly because I can't go home now in the Winters. Well, I can, but I gotta buy a jacket. I don't want to. But this is my only concern with Dubai. I'm only, I'm only, I like Dubai. I want to go check out Dubai. To be honest, I'm just jealous of all the realtors over there. But I mean, I think one of the only thing that concerns me is, is the oversupply. To be honest, it seems like they're building so quick. And again, I'm just basing this off of conversations I've had with people that have invested there or friends I know that have looked into it. I hear that these buildings are still selling out within. Like, like one of my friends here, for example, there was a pre construction launch. He told me that he had to wake up at like 3, 4am to put his offer in or I was gonna get sold out. There's no way that's gonna happen. He woke up at normal time like 7, 8 and the building was sold out. Crazy. So I mean if that keeps happening and that keeps up, you know, that everyone's going there to build. I mean, you know, I think you.
- [38:02]
B
See a global, like a global recession and some, and a negative wealth effect. Like we talked about the positive wealth effect, right. People in America making a ton of money in real Estate in 2008 and they're like, oh, let's go mess around in some other markets around the world. And then they go, and you know, and that's, that's positive wealth effect. Well, what's the negative wealth effect? Well, China's economy is melting down and look at how much Chinese capital is pulled out of Canada's economy. As an example, right. Canadian real estate. You can see tons of Chinese sellers happening. Same thing could happen in Dubai if you see other economies around the world melting down, which all of them seem to be trying to do at the moment.
- [38:36]
A
Right.
- [38:38]
B
That, that would, you know, I mean 85% like you said, right. 85% of buyers in Dubai are foreign buyers. So their, their real estate market is heavily exposed to the ebbs and flows of other economies around the world and would. It would be massively impacted by a negative wealth effect. So if people lose money in their own economies and they need to liquidate their Dubai condos that they bought to shore up a little bit of cash, maybe to cover a bad position back home, that's how it becomes contagious.
- [39:11]
A
Right?
- [39:11]
B
Yeah.
- [39:12]
A
So let's, let's, let's talk about rate cuts before we wrap this up. But UBS predicts that rate cuts will revive Demand. I'm what? First of all, before I even get into this, I want your opinion on that because I, I do agree to an extent. They're, they're saying that low rates could push up home prices, home prices back up in 2025 and like are we at the bottom of this cycle?
- [39:37]
B
You know, so from my perspective, typically real estate is one of the first things to recover as rates come down. So it's the first thing to get hit as rates go up, which we saw happen in a lot of these markets. And then it usually does recover more as rates come down. It's again, it's one of the first things to recover. That doesn't mean that it's going to start recovering. Immed think usually as rates come down, rates are getting cut in response to recessionary environment in a lot of economies and as you start seeing that recession kind of play out then people are losing jobs so they're not paying their mortgages or their rent and now all of a sudden that's pulling values down. So there is a bit of a lag. Right? As when you're in a recession you typically it doesn't happen immediately that, that prices kind of just go up per se. But I would say they're not wrong that interest rates will, will stimulate demand. We right now the demand environment is horrible. So interest rates should stimulate a little bit of demand. Will it be enough to push prices back up? Probably not immediately, but eventually, yeah, for sure.
- [40:39]
A
Yeah. I don't think it's going to happen overnight but I do think I, I again I'm only speaking for the markets that I'm actively trading in and, and I've definitely seen more activity, I've seen people with more confidence. I think when interest rates drop, I think for the average, you know, the average or maybe first time investor, they feel a little bit more confident in the market or they feel maybe that their money can go further, which it can to an extent. But I think the average, I shouldn't say that. I think the, the, the newer investors, they, they're not studying the economics as, as tightly as, as maybe a more experienced investor, you know. So for them something that's super crucial to them is the interest rate because that's just putting essentially more money in their pocket when they're going to buy. Right. So that's a huge metric for these like newer or like the average investor.
- [41:23]
B
That's a good point. I hadn't really thought about that. Like it will help resurrect demand for people who don't care so much about like the actual macro risk environment and really just care about like what's the cost? Right? What's, what's the cost of, of owning this place? For me, that's good.
- [41:37]
A
When I, when I have my, that's, you're too smart, dude.
- [41:40]
B
You gotta level the intelligence of the average buyer.
- [41:43]
A
Come back, come down to my level. Like the most of the conversations that I have of, you know, I, I like to think of myself as fairly educated. But when I bring up these like economics or macroeconomic, you know, type conversations, I, I can tell that most of the, either first time home buyers or like a new investor, they don't think about that. Their, their one main metric is what does this cost? For me right now if I buy this at this interest rate and a lot of people buy payments, people buy payments. And I think a lot of people are looking at like people want to, want to do what other people are doing. So when there's more buyers in the market, more people feel comfortable buying because it makes them feel like, okay, if they're buying, I'm buying. This feels right. I feel like I'm doing the right thing. Whereas if nobody's buying and you have some realtors being, you know, telling you it's a good time to buy, then you kind of feel like it's maybe a scam, you know?
- [42:36]
B
Right.
- [42:37]
A
That's how they think.
- [42:37]
B
But yeah, no, I, I, I'm, I'm never like exceptionally well in touch with the like consumer psychology because I don't have any emotions. So like, it's hard for me to like really understand.
- [42:51]
A
I'm a big emotions guy. Yeah, yeah, you're a big vibe guy.
- [42:54]
B
Just. Yeah. You live in Tulum, right. You wear linen and ride your dirt bike around. That's what I would expect. An emotion's got to be.
- [43:02]
A
That's right. I'm, I'm in, it's very high energy here in Tulum. I'm in touched with it. I wear no shoes sometimes in the grass.
- [43:09]
B
Oh, grounding. You're a big grounding guy. Just freaking love grounding, dude.
- [43:12]
A
But it's very common here. I can't do that, man. My feet are fragile. I can't be wearing no, no flip flops around here.
- [43:17]
B
You're just gonna get a grounding sheet for your bed. I'm not joking, dude. I have one of those. It's sick. Yeah, man. So I had a bad car accident like 2019. And I, and I, I have like really bad like upper back pain from it, like whiplash. And whatever. Like, brutal. Like, you'll know. You'll notice I'm, like, always, like, moving my neck around when we're recording because my neck's, like, just. It's like, in a lot of pain. And the only thing that, like, significantly reduced. No. Well, it was. Whatever. It's funny in the context of the conversation. And the only thing that is, like, really significantly reduced the pain is. Is fricking grounding. No joke, man. I watched the Amazon documentary and I was like, this is total bullshit. This cannot be true. And then I tried it and I was like, what is happening right now? This is.
- [43:57]
A
You actually feel better from this blanket or this. The thing?
- [44:00]
B
Yeah, yeah. I mean, I do it. Like, I'll just. Yeah, Like, I'll. I'll walk outside. We getting. Is this our first affiliate pitch on the show right now?
- [44:09]
A
Put the Amazon link up here.
- [44:11]
B
Yeah, but no, like, if you just go walk around with your feet on the ground, like, if you're like, legs are sore after a leg day, like, just literally go and sit on the ground for, like, I don't know, like, go take a nap, lay on the ground and just take a nap.
- [44:23]
A
Does it have to be on grass?
- [44:24]
B
No, it's. As long as it's not. Like, it has to just be conductive. So it could be, like, rock, sand, grass, water. Like, if you go in the ocean, it's even better. That's why people love standing, like, walk swimming in the ocean. So it grounds you, man.
- [44:35]
A
Did you know that this is Tulum? Most of Tulum is on top of cenotes. Okay. So, like, there's tons of water underneath of us. Like, most of the developments here, they don't have a. They don't tie into city water because they have cenotes underneath with, like, unlimited water. Well, not unlimited, but a lot of water. But that's why the energy they say in tulum is so high, because there's so much water underneath. So I got to do some grounding after this.
- [44:58]
B
Go do it, man. You'll feel way better if you're sore. You just know. Pay attention. Like, pay attention to your. Your pain level before and after. And I'm curious for you to report back in our next episode.
- [45:07]
A
I'll report back.
- [45:09]
B
Okay, I think that's it. Hey, we got anything else? I think we're good.
- [45:12]
A
I think that's it.
- [45:13]
B
Okay, thanks a lot. Please send this to your mom. Share with all your friends. Like, subscribe, comment. Whatever the kids are saying these days, smash that, like, button, do a tick tock dance, whatever. Just appreciate you listening. Keep. Keep doing it. Yeah.