We found this very interesting Forbes article written by investment guru Gary Shilling, circa July 2005. The author brilliantly calls the U.S. housing bubble and its “soon-to-be” bursting (although couple years too soon). Here are the original article’s highlights and our “Brazil analogy” comments:
“Investors remain complacent, apparently convinced that there is no bubble or, if there is one, that it will continue to expand for some time—and even then not burst but rather slowly deflate.”
Our comment: the Brazilian version of this is “we know that there is a bubble, but it will only pop after the World Cup 2014 or Olympics 2016”.

“During speculations, the participants see nothing but shortages and insufficient inventories. During a full-blown housing retreat, the bulls’ argument about strong demographic underpinnings will also be seen as hype, not reality. Indeed, demographics will be rough on housing in the years ahead, at least on primary residences.”
Our comment: the Brazilian version of this is a catch phrase used by every “sell-side” market participant: pent-up demand (“demanda reprimida“) from the last 20 years. This is a jargon used by 11 out of 10 real estate agents to justify the rise in prices.

“Inventories of new homes for sale—or existing homes for sale, either—have yet to move up to alarming rates. But what will happen when housing buying dries up while supply increases continue to roll and inventories come out of the woodwork? Many of the houses bought in recent years as investments and now rented at unprofitable rates will be dumped on the market. Look for mounting inventories to precipitate a downward price spiral.”
Our comment: to put this in perspective of the Brazilian real estate market, we have recently posted the highlights of an interview with FGV-SP professor Samy Dana, in which he says: “The investment rate of return is very low. According to information listed on real estate sites, this ratio (monthly rental divided by property price) is close to 0.35% in several regions. So if the CDI (the Brazilian risk-free asset) pays 0.90% (September rates) and the savings (which has the lowest return rates in Brazil) pays 0.5% (plus TR), why would a rational buyer invest in a market with significant risks and low liquidity, such as real estate? The country looks like a huge construction site and when all developments are ready, there will be an increase in supply and prices will fall. 
“Trying to predict the timing of any bubble’s end is normally a waste of time, but for the demise of housing mania there are some straws in the wind. In some of the nation’s more tony suburbs, high-priced houses aren’t moving. Also, house prices have gotten so high and rents are so cheap that a number of people are renting apartments”
Our comment: like Mr. Gary Shilling, we might be two years too soon in calling the Brazil property “bubble burst”, but it’s never too late to raise the red flag. If history repeat itself (and it usually does), look for a mild correction in 2012 (10%), and a stronger correction (20%) by 2013. And the alternative is that we are very wrong and prices go up by another 20% – although we doubt it.
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