Actually, the burst of the Brazilian housing bubble may already have started but few are noticing.

The chart below compares the FIFE-ZAP housing price index of Sao Paulo and Rio de Janeiro with the share price of four major Brazilian real estate companies: PDG, Gafisa, Cyrela and Brookfield.

Looking at the data above (hat tip to the blog Deseconomia Brasileira), we observe a clear inconsistency since 2011. Companies that manufacture products that go up in prices should obviously experience a similar valuation in their own stock. But we note that, in fact, the real estate stocks experience sharp declines since 2011. The negative correlation and price decoupling is so great that it doesn’t even seem like one is comparing same sectors.

Here it is, all 6 prices since January 2008:

How come that companies that see their product rise in prices by 300% in 5 years experience such a drastic fall in their own stocks? Something’s gotta give.

The stock market is more liquid and leading than the real estate market. The U.S. housing stocks fell 30% from its top (Jan 2007 to Oct 2008) for about two years before “main street” took notice of how big of a burst the housing market was going through, causing falls even more pronounced in the overall American real estate market.

This may be a strong evidence that housing prices in Brazil may be in the final phase of the bubble bursting. The perfect storm is right there: high inflation, rising interest rates (reduced liquidity) and increasing unemployment.

Keep your eyes open…

Source: Bolha Imobiliaria I: Indicios do Mercado

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15 Responses to Next on Brazil’s Economy: The Burst of the Housing Bubble?

  1. Sampa says:

    Prices are going down . Understand above are asking prices , but the mentality in the market changed. Home owners are not any longer the kings on the horse … so they have to go down and people are bidding them to an average of -20% of the ZAP rental / sale price. This would make the above graph show a decline already.

  2. Que bolha says:

    Where’s the correlation? You’ve been saying there’s a bubble for years and that it would soon pop but nothing ever happened. It’s all your wishful thinking.

  3. Thomas says:

    Not so convinced here. The author is comparing asking prices (fipe) v. Prices of stock (which reflect expected profits). My understanding is that the companies valuations went south because of increased costs, less demand, high leverage, funny accounting, poor governance. Insert a well managed, low leverage company like Eztec and the result is a bit different. Ifix perhaps is showing a reversal of interest rates policy more than anything. Honestly, sounds like more fear mongering.

  4. Ellim says:

    Dear “Que Bolha”,

    Are you insane? Don´t you read the news about falling prices in SP, BH, RJ, Brasília, and other major cities?

    Well, Let me help you:

    economia.ig.com.br/financas/casapropria/2013-05-15/creci-sp-queda-de-precos-dos-imoveis-ja-era-esperada-em-2013.html (March, 5th, 2013)

    http://www.valor.com.br/empresas/2994292/pesquisa-aponta-queda-real-de-precos-de-imoveis-em-seis-cidades (Feb, 4th, 2013)

    g1.globo.com/bom-dia-brasil/noticia/2013/07/queda-do-preco-dos-imoveis-usados-chega-quase-15-em-sao-paulo.html (July, 17th, 2013)

    oglobo.globo.com/imoveis/freio-nas-expectativas-rio-registra-queda-de-preco-de-imoveis-usados-4948960

    If the mainstream media is already covering news like these, my friend, then the situation is really bullish.

  5. Ellim says:

    Please, refer to my responde to “Que Bolha” above.

  6. Rodrigo Rodrigues says:

    It took these geniuses years to figure out something that any ten year old could have told them, the good will come to the Individual who waits patiently,like the old saying you make money with real estate when you buy it, not when you sell it( Buy right on the right cycle)The whole global economy is a bubble
    because everything is manipulated in an attempt to take as much of anything from anyone as anyone possibly can at any expense and then pass the risk on like a hot potato. Without any moral/ethical boundaries, trust dissolves and society collapses. We apparently knew this as we evolved, but we forgot along the way,Politics played a key role with the political mileage that comes with promoting home ownership. Minha Casa Minha divida was just an illusion ,While there is plenty of blame to go around, accountability is lacking, with all involved pointing fingers to avoid blame.
    This is a call for greater vigilance of our political system and those who have or have tried to insulate themselves from the consequences of their actions.
    The Brazilian Real Estate market is not only smoke an mirrors, it is a truckload of dynamite heading for a cliff!
    Only an strong job market would lead to a real
    real estate market!
    Where are the high paying jobs? That said, where are the good paying middle class jobs?Nowhere to be found!
    Who can afford these mortgages?
    How much they putting Down?
    So much data is missing.
    Fipe/Zap index ( Yeah Home buyers will get zapped) should not be used as a thermometer or thermostast for detecting overvalued Real estate,
    The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you’ll know it’s pretty safe to buy for yourself because then rent could cover the mortgage and ownership expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:
    Annual rent / purchase price = 3% means do not buy, prices are too high
    Annual rent / purchase price = 6% means borderline
    Annual rent / purchase price = 9% means ok to buy, prices are reasonable
    Annual rent / purchase price = 12.5% Means an excellent to buy , Prices are fantastic

  7. American in Rio says:

    To “Que Bolha”,

    I remember discussing residential housing prices with a friend here in Rio a couple years ago. We started comparing the cost of apartments in Rio and Santa Monica, CA. In both cases the first few blocks from the beach. Not surprising to me, Rio was more expensive. And that was typically for older buildings with poor infrastructure.

    Considering the average incomes in Santa Monica and Rio, it was pretty shocking for my Brazilian friend. And for those who don’t know the area, Santa Monica is home to Tech companies and film industry celebrities.

  8. Enki Ea says:

    Banco Paulista + Banco Rendimento + Banco Daycoval

    Estes banquinhos, juntos são a fonte de recursos do PSDB e de outros partidos em SP e no Brasil.

    A mídia (incluindo este canal aqui) não investiga por que não quer ou está enrolada junto!

    O mercado todo sabe do “esquema” e ninguém faz absolutamente nada.

    Recebem dinheiro vivo e também TEDs (transformados em dinheiro geralmente em 48 horas).

    Dinheiro de traficantes conhecidos, contrabandistas de armas, pirataria / contrabando e até de grupos terroristas, etc.

    O PCC usa os bancos para lavagem de grana e para saques milionários para compra de armas/drogas/corrupção!

    ± 400 milhões de dólares por mês, vem da tríplice fronteira direto para estes bancos em São Paulo. De lá, eles sacam o dinheiro semanalmente e entregam à vários doleiros para manter o mercado negro funcionando. Cobram entre 3% e 5% para sacar dinheiro e 20% para lavagem de dinheiro.

    Cobram um fee de 3%  para aceitar depósitos em dinheiro vivo de qualquer fonte. Sem perguntas, é só pagar!

    Agora o grande negócio deles é o dólar paralelo e os doleiros.

    Eles se utilizam das licenças bancárias para comprar dólares oficiais do Banco Central do Brasil (no valor de $ 10 milhões por dia), e vendem os mesmos dólares no mercado negro (via contratos cambiais fraudulentos). Os pontos de distribuição para o dinheiro vivo (dólares e reais) são variados, como exemplo temos o escritório da SOCOPA na Rua Funchal, 129 – 5 º andar, em São Paulo, Brasil.

    A PROSEGUR faz entregas para qualquer cliente destes bancos, visto que não tem agências tradicionais…

    Quando os volumes são grandes, eles entregam onde você indicar!

    Há muitos envolvidos nisso, entre eles:

    Alvaro Augusto Vidigal
    Alvaro Augusto de Freitas Vidigal
    Marcelo Pereira
    Tarcísio Rodrigues

    Abramo Douek
    Edwin Douek
    Roger Ades

    Salim Dayan
    Morris Dayan
    Carlos Moche Dayan

    Os principais “usuários” do sistema são:

    Nilma Kodama/Neuma Cunha/Kodama (anteriormente envolvida em escândalos financeiros / criminosos – CPI de Santo André)
    Antanos e Joseph Nour Eddine Nasrallah (traficantes / contrabandistas de armas e drogas, juntamente com os irmãos)
    Hwu Su Chi Law (conhecida como Miriam – Esposa de Law Kin Chong – contrabandista)
    Lúcio Funaro (doleiro)
    Flávio Guimarães (ex Banco Socimer)
    PCC
    Políticos em geral (José Serra e família, Mario Covas Filho, família Quércia, família Alckimin, etc)

    Algumas das empresas envolvidas:

    Direct Cash
    Legítima Consultoria
    Siemens
    Alston
    Sitesharing NE
    Esclimont Participações S/C
    Bellagio Investments
    Indústrias Mangotex

    As autoridades de São Paulo (e do Brasil) não se importam ou pelo menos fingem que o problema não existe e os meios de comunicação tradicionais, não relatam este crime diário!

    Este pessoal estrutura empresas fora do país, sonega impostos, lava dinheiro, rouba, corrompe e lucra com o tráfico de drogas/armas e com todos os tipos de crime!!!

  9. Jack Bauer says:

    I think you guys have a biased point of view.

  10. Carioca Canuck says:

    My wife and I were just discussing this very subject. She is from Rio and I am a Canadian. We own property in both countries. Reading Epoca this morning as they are talking about how Brasilian banks are following the US/Canadian leveraged model that created the very disaster which Brasil is now headed towards, and North America is currently struggling with.

    35 year mortgage amortizations, low down payments, government intervention at every level, higher than normal debt ratios, etc. Combine this with the extraordinary consumer credit bubble we have witnessed in the last 10 years in Brasil (credit cards, cheques especial, payday money lenders, etc) and it is no surprise that the fuse has been lit on the bomb, and it is just a matter of time before the entire thing comes crashing down, taking the country with it.

    Our one bedroom condo at Posto 4 in Copacabana that we paid cash for back in 2002 for $60K USD (about R$150K at the time) is now worth R$500K (but it is not for sale as it is our second home)………but, seriously, who can afford that at the 8-9-10% mortgage rates ? KKKKKKKKKKK !!! The entire Brasilian real estate market is a fraud……….the criminals that inhabit the real estate industry have fleeced the populace and left them holding the bag……..

  11. Paulista says:

    Ellim,

    You didn’t get the point.
    RE prices and stock prices have no correlation whatsoever.

    PE prices can go south and stock prices up, depending o several factors not linked to each other. What’s happening right now is that stock prices are going south. RE prices ain’t.

    You can paste as many links as you want about prices going south, and I can find 27x more links about prices going up. That doesn’t actually mean prices were moving on either direction.

    To figure that out, you should contact people at the real state financing departments of major banks, asking them to compile closing prices of financed real-state. Cross check that with registration notaries (cartórios) information.

    Lastly, if asking prices are going up (as suggested by FIPE ZAP), that is a strong evidence that closing prices are moving north also. The market is semi-efficient. If asking prices were too high, demand wouldn’t meet supply and asking prices would go south. Basics micro-economy.

    Or you can read on the way you want to read, and created your own illusion. Just like Alice in Wonderland.

  12. Gostaria de saber daonde voce ve isto?Em algum filme?
    Acompanho as noticas em Sao Paulo e nao vejo como isto pode acontecer em algum banco.Bancos existem falhas mas isto falado acima ja e outra estoria.
    Bolha em imoveis? So porque os Estados Unidos teve este problema,isto nao quer dizer que no Brasil acontecera o mesmo. Nos Estados Unidos,as pessoas compravam 3 a 4 casa para revender e no Brasil as pessoas compram como moradia a casa para se morar e claro pode sim ter algum aumento mas a meu ver esta longe se comparar ao problema ocorrido nos Estados Unidos
    Por ter a copa 2014 no Brasil isto esta acontecendo e so e logo o preco vai estabilizar.Outra coisa e que no Brasil agora existe empregos e nos Estados Unidos muitas pessoas estao cacando emprego enfim e so analizar tudo isto .

  13. As pessoas nao deveriam comprar ou mesmo visitar um pais no caso o Brasil se la existe fraud certo? Ou se nao gostam do pais.Brasil nao precisa disto

    Nao se pode ter 2 medidas.

    Tenho certeza de que o Brasil acolhe muito bem os que vem de fora entao please leave.Sera um favor

  14. Enki Ea says:

    Maria, I’ve worked at one of the above so I’ve seen this from the inside of the institution. These 3 banks are criminal companies. They are used by the politicians of all major parties + PCC and other criminal factions to launder money and to withdraw money with no apparent control from the authorities. Now this is springing also in the Northeast, specifically in Fortaleza. A criminal syndicate from Itú (that is close to São Paulo) is moving all his movements to Fortaleza and he will do the deal there. It started already and guess what? No one talks about it. There is no law nor police in Brazil for that matter!!!!

  15. Patrick says:

    Maria de oliveira… o brasil que funciona é Português, Espanhol, Italiano, Alemão e Norte americano… portanto se vocÊ TEM ALGUMA COISA CONTRA OS EUROPEUS OU AMERICANOS…mude você para cuba ou venezuela … pela forma como escreve sobre os que investem no desenvolvimento do Brasil você tem cabeça de comunista.

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