Housing market situation

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scandinavian
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Re: Housing market situation

Post by scandinavian » Mon Sep 23, 2019 1:22 pm

tiagoabner wrote:
Mon Sep 23, 2019 8:35 am
admin wrote:
Sat Sep 14, 2019 8:40 am
yea, I'll get excited again about mortgage rates when they go negative. I want to be paid like a central bank for taking a loan. :lol: why should they have all the fun.
I've heard from an acquaintance that works on real estate that 2.25% is the current rate at Banco de Chile, which is - supposedly - the one doing mortgages at the lowest rate. That's for 10000+ UF at 30 years. Falabella and Banco Estado are said to have the second and third lowest rates at this time.

It seems to be a good time to buy and or refinance to lock down these rates. The best rate in Portugal, with zero or near zero Central Bank interest, would be 1.9%. I'm surprised Chile's mortgages are this cheap.
Yes, certainly the lowest I have seen since arriving 10 years ago. In Santander I have seen 2,08% for something similar. 1.3% for mixed interest rate.
In comparison to Europe, then keep UF in mind. On average 3% yearly increase or so. Chile is thus still way higher than EU.

Jamers41
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Re: Housing market situation

Post by Jamers41 » Mon Sep 23, 2019 2:26 pm

scandinavian wrote:
Mon Sep 23, 2019 1:22 pm
tiagoabner wrote:
Mon Sep 23, 2019 8:35 am
admin wrote:
Sat Sep 14, 2019 8:40 am
yea, I'll get excited again about mortgage rates when they go negative. I want to be paid like a central bank for taking a loan. :lol: why should they have all the fun.
I've heard from an acquaintance that works on real estate that 2.25% is the current rate at Banco de Chile, which is - supposedly - the one doing mortgages at the lowest rate. That's for 10000+ UF at 30 years. Falabella and Banco Estado are said to have the second and third lowest rates at this time.

It seems to be a good time to buy and or refinance to lock down these rates. The best rate in Portugal, with zero or near zero Central Bank interest, would be 1.9%. I'm surprised Chile's mortgages are this cheap.
Yes, certainly the lowest I have seen since arriving 10 years ago. In Santander I have seen 2,08% for something similar. 1.3% for mixed interest rate.
In comparison to Europe, then keep UF in mind. On average 3% yearly increase or so. Chile is thus still way higher than EU.
Yeah, I was about to say........you're probably forgetting that those quoted rates are for amounts expressed in UF. Supposedly loans (and their rates) exist in pesos but from what I've seen they are an unusual animal.

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Re: Housing market situation

Post by admin » Mon Sep 23, 2019 2:33 pm

yea, that is essentially inflation (via the UF index) + 3%, or 2%, or whatever the interest rate is. Keep in mind, one way or the other, your properties are also indexed to the UF. A 3% increase in the UF, is a 3% increase in the underlying market value, expressed in pesos.

Inflation is suppose to run about 2% total this year, mas o menos. We have had a few months where it was essentially zero this year. I think central bank is trying to outrun the possibility of deflation(more like stagflation) developing by cutting rates so drastically.

Seems, from the central bank minutes, the central bank was all on board with cutting .75, but they did not want to spook the economy by doing it. So they only cut 0.50

https://www.df.cl/noticias/economia-y-p ... 01814.html

I am not really sure how to read that, or if I am interested in playing chicken with betting on another rate cut vs. refinancing now. Think I will take my 2% and run.

If they continue to make dramatic cuts, then I will bug my executive again next year.

That said, an annalist I read this morning made a good point. It is not only what you save on your mortgage, but also how asset prices are inflated by low interest rates. Their guestimates of people refinancing now, are looking at about a 25% gain on their property investment between low cost of ownership and price appreciation.

I am highly suspicious if they will cut rate further. Perhaps one or two more quarter point cuts to stay ahead of the U.S. fed, but once we cycle out of the low economic activity months (e.g. winter), I expect inflation will pick up a bit, unemployment will drop, etc, etc. We got mega stimulus packages in the pipe, gas prices will rise a bit, perhaps we get a bit of goose to the copper price, causing the peso to strengthen.

If you are buying with U.S. dollars, the peso is also pretty good right now.
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Baltimore
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Re: Housing market situation

Post by Baltimore » Wed Sep 25, 2019 12:08 pm

at46 wrote:
Thu Sep 19, 2019 12:07 pm
Baltimore wrote:
Wed Sep 18, 2019 11:44 pm
Some interesting stuff to read for those interested in real estate markets in general
Except that real estate markets 'in general' do not exist in Chile :) Everything is priced based on the specifics of each comuna/street/building/floor and orientation towards the sun :)
Absolutely, Chile is the only country in the world that has nothing to learn from the history of the rest of the economies and where economic principles do not apply.

Here is an interesting story about the housing market in Amsterdam from the 1600s to the 1800s
This paper uses the setting of historical Amsterdam to investigate the origins of booms and busts in housing markets. Based on archival data from more than 164,000 property transactions, I discuss the structure of the Amsterdam housing market and construct an annual house price (1604-1810) and turnover (1582-1810) index. I document the existence of various boom-bust cycles, and show that these
were characterized by the same four features as modern cycles: momentum in prices, excess volatility of prices relative to fundamentals, but reversion over the longer run, and a dynamic relationship between turnover and prices. Exploiting exogenous shocks in investor demand for housing, I show that excess liquidity can be a major driver of housing cycles, in particular when accompanied by speculative behavior of investors. Changes in the availability of mortgage credit are not required for the creation of booms and busts: housing cycles appear in Amsterdam despite inactivity in its mortgage markets.
Screen Shot 2019-09-25 at 11.51.56 AM.png
https://www.forbes.com/sites/johnwake/2 ... f58fb69695

https://www.forbes.com/sites/johnwake/2 ... 845f237166

https://www.aeaweb.org/conference/2019/ ... r/bbdhS4n5


With regards to zoning restrictions and property values, turns out that there is almost a laboratory experiment in Santiago that is studied in all urban development programs. In the 1980s all construction limits were removed in Santiago, the land available for construction was nearly doubled. Fourteen years later, in 1994, the government decided to restrict again the city limit and removed 40.000 ha that were previously available for housing development. Surprisingly, property prices remained almost unaltered from previous values after the implementation of both policies.

https://www.researchgate.net/profile/Fr ... encial.pdf

And the prettiest of all graphs...
Screen Shot 2019-09-25 at 11.33.35 AM.png
Screen Shot 2019-09-25 at 11.33.35 AM.png (38.42 KiB) Viewed 1353 times

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Re: Housing market situation

Post by admin » Wed Sep 25, 2019 1:30 pm

apologies if I am repeating myself; again, long thread.

I always found the simple supply / demand curve from economics 101 an overly simplistic explanation of how capitalism works.

We have this strange dynamic going on in Frutillar right now. 5 to 10 years ago, there were not all that many good properties for sale. Lots of farm land around, just no one was really selling. What was for sale, was not that good either. You had to work to find something good, and at reasonable price. There were perhaps 10 good properties around at any moment, and most were way over priced.

Then in like the last year or two, we suddenly have an explosion of developments and even high-rise apartments (well, not that high) for sale in town. We also seem to have a lot of people selling some of the older properties and lots, in the prime parts of Frutillar bajo next to the lake.

So, suddenly, in the immediate Frutillar area, the supply of properties for sale has increased by 100 perhaps 300 times or more vs. say what was on the market 10 years ago.

Guess what?

The prices are going up even faster, with way more supply on the market.

The best explanation I have is that all these new developments are putting serious money in to national advertising campaigns (e.g. big signs as you leave the Puerto Montt airport, along the highway, in the airport, radio, etc) of not only their own lots, but Frutillar in general. They are generating the demand, because the supply is just not explaining the price increases.
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41southchile
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Re: Housing market situation

Post by 41southchile » Thu Sep 26, 2019 12:02 am

admin wrote:
Wed Sep 25, 2019 1:30 pm
apologies if I am repeating myself; again, long thread.

I always found the simple supply / demand curve from economics 101 an overly simplistic explanation of how capitalism works.

We have this strange dynamic going on in Frutillar right now. 5 to 10 years ago, there were not all that many good properties for sale. Lots of farm land around, just no one was really selling. What was for sale, was not that good either. You had to work to find something good, and at reasonable price. There were perhaps 10 good properties around at any moment, and most were way over priced.

Then in like the last year or two, we suddenly have an explosion of developments and even high-rise apartments (well, not that high) for sale in town. We also seem to have a lot of people selling some of the older properties and lots, in the prime parts of Frutillar bajo next to the lake.

So, suddenly, in the immediate Frutillar area, the supply of properties for sale has increased by 100 perhaps 300 times or more vs. say what was on the market 10 years ago.

Guess what?

The prices are going up even faster, with way more supply on the market.

The best explanation I have is that all these new developments are putting serious money in to national advertising campaigns (e.g. big signs as you leave the Puerto Montt airport, along the highway, in the airport, radio, etc) of not only their own lots, but Frutillar in general. They are generating the demand, because the supply is just not explaining the price increases.
Oh the demand is there alright, dont underestimate the Santiago situation and the stress hole that is becoming worse every single year for people from all walks of life from newly weds to retirees, dont underestimate climate change and its effects, dont underestimate newfound wealth in the Los Lagos region from the salmon industry starting over the last 10 to 15 years, dont underestimate the better connections digitally and physically to Los Lagos, dont underestimate foreigners looking for a bolt hole, dont underestimate many factors that is keeping demand strong. The supply side is simply catering to that demand due to lack of viable alternatives in agriculture industries .
What happened 5 to 10 years ago was a combination of all the above and more and the fact places in the South like Frutillar woke up and realised what they had. In 5 to 10 years time its going to be a very different Los Lagos region even from today, which is going to create issues too.
Construction everywhere going on at the moment, I had my backhoe loader guy here this week, he said he hasn't stopped at all this winter , where as in the past there was virtually no work over the long winter, not this year . Everytime I go out I try to mentally calculate how many millions of dollars are being invested in different types of projects, its no China or Dubai by any stretch of the imagination, but there is a LOT of investment going on around the region.
I can't decide for you. You'll have to make up your own mind.

at46
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Re: Housing market situation

Post by at46 » Thu Sep 26, 2019 1:53 pm

The New York Times is touting the Chilean property market. https://www.nytimes.com/2017/12/13/real ... chile.html

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Re: Housing market situation

Post by admin » Mon Sep 30, 2019 8:28 am

here is some interesting data on the real estate market in santiago. among other things, land prices are going up faster than house prices. they blame lot of that on poor urban planning restricting the supply. but there is a lot of other interesting data in there too.

https://www.latercera.com/pulso/noticia ... as/840369/
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Re: Housing market situation

Post by admin » Mon Sep 30, 2019 8:49 am

at46 wrote:
Thu Sep 26, 2019 1:53 pm
The New York Times is touting the Chilean property market. https://www.nytimes.com/2017/12/13/real ... chile.html
I use to do interviews with them. I stopped wasting my time with New York times real estate section years ago.
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41southchile
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Re: Housing market situation

Post by 41southchile » Mon Sep 30, 2019 11:27 am

at46 wrote:
Thu Sep 26, 2019 1:53 pm
The New York Times is touting the Chilean property market. https://www.nytimes.com/2017/12/13/real ... chile.html
That article is a few years old quite a bit changed since then I'm sure.
I can't decide for you. You'll have to make up your own mind.

at46
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Re: Housing market situation

Post by at46 » Mon Sep 30, 2019 11:52 am

41southchile wrote:
Mon Sep 30, 2019 11:27 am
at46 wrote:
Thu Sep 26, 2019 1:53 pm
The New York Times is touting the Chilean property market. https://www.nytimes.com/2017/12/13/real ... chile.html
That article is a few years old quite a bit changed since then I'm sure.
Oops, sorry I missed that. The article felt so parochial I chuckled to myself - they have no idea how things have changed.

Baltimore
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Re: Housing market situation

Post by Baltimore » Mon Sep 30, 2019 12:09 pm

1) Most chileans don't invest in anything other than real estate, they don't trust/understand other things like bonds or stocks because "you can at least touch a house".

I have a former classmate that now has 12 apartments for rentals. He makes a good salary working for a mining company. As soon as he saves enough for a 20% down payment, he buys another one. Rent from the first N-1 apartments count as extra income, so he basically doesn't run out of room to borrow more money. The only investment analysis involved is: "Can I pay the mortgage with the rental price if I put 20% down? If yes, buy"

2) Lots of chileans see the purchase of a house or some property as a milestone of adulthood, not as an investment. I can't tell you how many of my friends and members of my family have bought properties by only looking at whether they can get a mortgage or not. If they qualify for a mortgage they get it, if not, they try to come up with a larger down payment by borrowing money from close relatives.

Comparisons to fundamentals, such as price-to-rent ratio, are unheard metrics for 99% of the population. This is something I really miss from the US, real estate firms or platforms that offer tools such as:
https://www.zillow.com/rent-vs-buy-calculator/
https://www.realtor.com/mortgage/tools/ ... alculator/

Whereas in Chile, the real estate firms or platforms give you these tools:
...none


3) There are tons of cash available due to low interest rates, lots of money coming from other investment vehicles finding a safe haven. I don't buy the thesis that poor urban planning is pushing up prices, zonal restrictions have been lifted before with a null effect on prices.


Screen Shot 2019-09-30 at 11.19.11 AM.png

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