It is clear that the prices of real estate have risen too much in the last few years. As in any market, there is then a correction. The stronger the increase, the more significant the correction. The difference between stocks and real estate as an investment, is that real estate has a real purpose and everyone has to live somewhere.
One must not forget that Luxembourg is a small country and the demographic growth is very strong, which in turn is wanted by the policy. Statistics indicate an increase of 120k people in Luxembourg by 2050. Housing for these people have yet to be built. Abroad, people tend to move from the countryside to the city and the prices of real estate in the countryside fall due to low demand, this phenomenon does not exist in Luxembourg.
If the ECB lowers the interest rates again, I think we will see a similar development in the real estate market as after the financial and economic crisis of 2008/2009.
If the ECB DOESN’T lower the the interest rates, prices will still go up (maybe slower), because there will be a bottleneck on the housing market in 2-3 years.
Housing, especially on one’s own land, is increasingly becoming a luxury good.
I love it how even in this article they seem to generally imply that whatever was to happen, it’s done happening. When prices are going up, the only logical conclusion is that they will keep going up for all eternity. When they’re going down, 12 months is all there is, after that it absolutely has to “return to normal”.
Luxembourg is a bit unique given the size imbalance between population, available land and workforce that wants to live here. That supply imbalance somewhat offsets interest-rate related price corrections, which is why prices have fallen but not by as much.
Although interest rates cause demand to go down, so does supply seemingly so that imbalance is sticky if not actually increasing, because the Luxembourg economy has yet to be really hurt by high interest rates. The financial sector in particular, which contributed the lion share of demand imo, has been surprisingly resilient, not least because public financial markets barely take notice of interests being so much higher, because they already speculate that yields will be falling soon.
But leverage in the system is so widespread, that it is really a race against time. Much like termites, interest rates are slowly but steadily biting into the foundation of economic stability. If they remain high enough for long enough, the Lux. economy and its housing market will face a severe correction. IF.
3 comments
It is clear that the prices of real estate have risen too much in the last few years. As in any market, there is then a correction. The stronger the increase, the more significant the correction. The difference between stocks and real estate as an investment, is that real estate has a real purpose and everyone has to live somewhere.
One must not forget that Luxembourg is a small country and the demographic growth is very strong, which in turn is wanted by the policy. Statistics indicate an increase of 120k people in Luxembourg by 2050. Housing for these people have yet to be built. Abroad, people tend to move from the countryside to the city and the prices of real estate in the countryside fall due to low demand, this phenomenon does not exist in Luxembourg.
If the ECB lowers the interest rates again, I think we will see a similar development in the real estate market as after the financial and economic crisis of 2008/2009.
If the ECB DOESN’T lower the the interest rates, prices will still go up (maybe slower), because there will be a bottleneck on the housing market in 2-3 years.
Housing, especially on one’s own land, is increasingly becoming a luxury good.
I love it how even in this article they seem to generally imply that whatever was to happen, it’s done happening. When prices are going up, the only logical conclusion is that they will keep going up for all eternity. When they’re going down, 12 months is all there is, after that it absolutely has to “return to normal”.
Luxembourg is a bit unique given the size imbalance between population, available land and workforce that wants to live here. That supply imbalance somewhat offsets interest-rate related price corrections, which is why prices have fallen but not by as much.
Although interest rates cause demand to go down, so does supply seemingly so that imbalance is sticky if not actually increasing, because the Luxembourg economy has yet to be really hurt by high interest rates. The financial sector in particular, which contributed the lion share of demand imo, has been surprisingly resilient, not least because public financial markets barely take notice of interests being so much higher, because they already speculate that yields will be falling soon.
But leverage in the system is so widespread, that it is really a race against time. Much like termites, interest rates are slowly but steadily biting into the foundation of economic stability. If they remain high enough for long enough, the Lux. economy and its housing market will face a severe correction. IF.