Summer thoughts on house market

Last week I went to see some friends on vacation at the beach. We noticed how rent prices dropped since a couple year ago. Or better: “official prices” are higher, but many apartments stay vacants until last minute, when they are rented at super-reduced prices.
In my opinion, the reason is quite simple: rent prices became to high, and for that sums one could get nearly a full-inclusive holyday overseas. But also holiday model changed: less people plan holidays with large advance.

From an economic point of view, this has a simple consequence: investing in holiday houses is becoming less profitable. This would mean that houses worth is diminishing. But house prices are still on rise, although there are several “on sale” signs, contrarily to past years. So one may think that “smart owners” foresee that the decline in profits will inevitably impact on property value, so they try to sell now, at possible maximum prices.

These observation we made on the beach are confirmed from national statistics, that show an increasing spread between rent and house prices. Next future therefore is quite foreseeable, since this means that “second houses” bought as investment will lose value, and this should mean at least a slowing in overall house price rises. In other words: a symptom that the housing balloon (in Italy, I think it’s excessive to talk about a bubble), is near to deflate.

Italian translation of this post: Riflessioni estive sull’immobiliare

Banche e Risparmio []