In an interview with Motley Fool live, recorded on July 7Brad Dillman, Chief Economist of Cortland, a multi-family real estate investment, development and management firm, discusses some important global trends that give investors a good idea of how global real estate is doing.
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Brad Dilman: But essentially, the low interest rates that emerged from the Great Recession had a similar impact around the world. That is, they have led to astronomical appreciation in asset prices, especially in real estate. You can look at markets like Australia where the cost of living has increased tremendously. In parts of Europe it has been similar, and of course the dynamic in China has been noted by many people. Japan has really been on this path for 30 years already, where there was its very important real estate bubble if I remember correctly. I think it was the emperor’s palace. This area of Tokyo was worth more than the state of California, at least on paper at one point. They’ve been through that rodeo before.
Other parts that only really know it now with low rates since the Great Recession and their impact. The real key is how much these low rates really reflect the underlying economy versus how much are they the result of monetary policy so that the economy can be stabilized and governments can pursue the interests that they have and to the extent that they are deviating from the actual underlying demand, say, the supply demand of a large number of funds and which has created distortion and prices based on those rates of interest, meaning things like drastic fluctuations and the value of real estate or other long-term fixed income assets. It was an important dynamic.
Another that has certainly flown under the radar has been the impact of this drastic increase in the cost of living, including housing, and birth rates around the world, which have fallen over the past 10 to 15 years. When we look around the world and see shocking dynamics that, from the perspective of someone growing up in the 80s and 90s, aren’t things we really thought would ever happen.
Things like the entire western hemisphere having a replacement birth rate and only a few parts of the world having significantly higher replacement birth rates. That’s a really important dynamic when you think about where exactly is the global economy going, where is global real estate going? What is that going to mean for the way people are going to consume housing, because that’s been quite a change over the last 15 years. We’ve seen it here in the United States too.
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