Saturday, June 25, 2005

YOU CAN'T GO HOME AGAIN Economist: "Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?" There is something funny going on in the housing industry. Just one example I know personally. One house bought in 1987 in Amsterdam cost 115,000 guilders (about 52,270 Euros). The house was insured with an index (inflation) clause; so, as the value of the house rose it would be insured for that higher value. But not really, the index clause could not keep up with the price boom. The insurance company had to set a higher insurance value. Which means that part of the hike is not natural, does not line up with the inflation rate. The above house now sells for 235,000 Euros. A 400% price hike in 18 years. That is not normal. In the Netherlands the government has given free rein to builders (who are anxious to tear down 'old' - in fact, not even older then 30 years - housing and replace this with more expensive houses), to house brokers and mortgage banks. The price boom allowed the local authorities to increase property taxes and increase their income considerably. That is why the boom was allowed to happen. Thomas Wolfe's 'You Can't Go Home Again' comes to mind. A Dutch paper has just revealed that the best houses are reserved for the management of the building companies and their relations. The authorities are aware of this and condone the practice. It wouldn't surprise me at all if prices were rigged as well. 1:26:28 PM

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