Salient to Investors:
Robert Shiller said a housing bubble is emerging in Brazil as home prices have risen as much as twice the increase in rent prices, and housing bubbles are brewing in emerging markets including China, Taiwan, India, Russia, Colombia, Canada and Hong Kong.
Shiller said Brazil prices doubling in 5 years can only be caused by excitement, and people want to think that this is a stable and steady increase, just like in the US in 2005. The S&P/Case-Shiller index rose 16.2% in 2004 and 15.5% in 2005, before leveling off in 2006 and crashing in 2007 and 2008, and rising 19% since an 11-year low in March 2012.
The FIPE Zap index shows that since January 2008, home prices in Sao Paulo have risen 181% and 225% in Rio de Janeiro.
The Institute for Applied Economic Research Mortgage says lenders will have to pass on rising borrowing costs to consumers already struggling with record debt by boosting the reference rate linked to mortgages.
Mortgage lending in Brazil has surged eight-fold in the six years ended June 30. The indebtedness of Brazilians as a percentage of their accumulated income over the past 12 months rose to a record high 44.2% in April.
Teotonio Rezende at Caixa said Brazil’s housing price surge is not a bubble, but reflects pent-up demand after years of hyperinflation that plagued the economy in the 1980s and 1990s. Rezende said between 1984 and 2002, real-estate values depreciated. Rezende said mortgage debt rose to 6.5% of GDP in 2012 from 1.3% a decade ago, and could reach 12% by 2015. In 2009, the IMF says the mortgage debt ratio in Chile was 20%, more than 70% in the US, and more than 100% in Holland and Denmark.
Analysts estimate Brazil will grow 2.2% in 2013 versus 0.87% in 2012.
Gustavo Franco at Rio Bravo Investimentos said there is no housing bubble in Brazil, and expects real-estate investment funds to double in 2 years as middle-class Brazilians continue to buy a home. Franco said space is being occupied in emerging economies and asset values can grow a lot in rapid processes of change and transformation.
Adolfo Sachsida at the Institute for Applied Economic Research said it is clear that the huge increase in credit is creating a bubble in the Brazilian real-estate market.
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