Saturday, May 07, 2005

Bubble Development Team Heads To Russia

This South Coast article shows we didn't get here by accident. " Q: Is a system of mortgage financing being developed in Russia? A: Mortgage professionals in the United States have formalized an arrangement to help foster development of an affordable housing market in Russia."

I don't think these "professionals" know what affordable means. "'The real estate finance system in the U.S. is very efficient and greatly contributes to the strength of this country's economy,' said Jonathan Kempner, president and chief executive officer of MBA. 'We hope to share with the NMA those best practices and strategies that will help enhance their mortgage system, thus creating the same homeownership opportunities for Russian citizens that Americans enjoy today.'"

Then the focus turns to bubbles. "The 1970s farmland buying bubble was inflated with high expectations of rapid inflation, soaring agriculture exports, rising commodity prices and accelerating farm income. Contract sellers and optimistic lenders floated land prices higher on a tide of debt." Sound familiar?


At 12:00 PM, Anonymous Anonymous said...

Why shouldn't the Ruskies have the same chance to go bankrupt as the rest of us? After all, they're more used to hard times.

At 12:24 PM, Blogger Ben Jones said...

The incredible thing is, how could the US market be held up as some kind of success story. This is the fading bubble psychology in action. Thanks for the comment.

At 1:20 PM, Anonymous Big Lebowski said...

Hey Ben, i`m posting this comment from Moscow, Russia.

I`m sitting in my rented apartment, wearing my underpants and body hair only, and enjoy reading your blog. :-)

We need no foreign bubble specialists here for a one reason -- we have some native gurus, and they are doing their job quite fine.

Typical 2-rooms (NB: not bedrooms. 2 rooms. kitchen does not count) apartment was priced near 30-40k$ back in 2000. Current price is near 100-110k$.

I`m talking about affordable districts, but Moscow historical centre is completely different story.

4 rooms apartment near the Kremlin could be easily priced at 600-500k$, and we`ll be sold in no time. Oil barons do the trick.

Penthouses go for 1m$ - no less

PS: And yes, the median salary in Moscow is ~500-700$/month.

At 8:16 PM, Anonymous Anonymous said...

on one hand Russia is different, because it exports lots of oil, which has been a great source of cash, may be it will continue to be so; inflation is also 4x of that in the US, lending risk is probably 10x; on the other hand, Russia is no exception, this bubble will crash hard much harder than in the US or UK or Australlia or any other developed county that is not in the RE bubble. It may go down to a pre Greenspan's 1% interest rates era that started it all in early 2001. While in Boston it may crash by some 50% or less (that will be real pain BTW)in Russia it might collapse by 70% or more. In Russia there may only be less than 1% currently left who can actually afford to pay $100k for an appartment and the whole thing reminds me of the MMM's bubble and other houses of cards, built by the mafia, in the 1990s that burned everybody who'd been speculating in it. Just imagine a world wide recession and a price of oil collapse that would follow, which is not out of the question.
In this case Russia could experience another default on its debt, Real estate would cost only 1/4 of what it is now, which would bring it back to the pre RE boom levels and make it somewhat affordable once again. Markets, at least free markets, tend to punish excess and revert to the mean, unless of course we are in a new economy LOL.


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