Real estate is a popular investment in the US, it always has been. For a good reason: Real estate assets have been good long-term performers.
But there are exceptions to this rule. There’s, for instance, the real estate crash back in Japan in the 1990s. And currently, there’s an on-going real estate crash in Greece.
That’s why, before you rush to pour your retirement money into a real estate trust at American market levels, you should take a vacation to Greece.
| Fund | 12-month Performance* | Max-Performance* |
| SPDR Dow Jones REIT (NYSE:RWR) | 14.4% | 135.17% |
| iShares US Real Estate (NYSE:IYR) | 11.89 | 101.32 |
| SPDR S&P 500 | -2.13 | 92.91 |
*It doesn’t include distributions
Source: Finance.yahoo.com
Besides enjoying the blue sea, the sunshine and the ancient sites and museums, you will learn a quick lesson about real estate markets -- when a depression hits home, prices collapse across the board.
Sure, America is not Greece by any stretch of the imagination. US real estate markets are quite flexible, clearing any excess supply, and helping real estate prices recover after brief declines.
The trouble is that real estate recoveries in recent decades have been built on a secular decline of interest rates that has reflated real estate bubbles, rather than on genuine market clearing.
Simply put, the Federal Reserve has been reflating one real estate bubble after another, creating a grand bubble, as Bank of Japan did back in the 1980s.
That has nurtured a stereotypical belief among American investors that real estate never goes down… and if it does, the Federal Reserve is standing buy to help it recover.
In fact, that's what Greeks believed for decades. Parents would buy real estate for children and grandchildren as a certain bet for the future. People would laugh in the village coffee shop at those who argued that real estate would crash.
But since 2009, real estate prices have been heading south with no end in sight. The Greek Home Price Index has dropped from 100 in 2009 to 59.8 in 2016. A popular asset has turned into liability even in the hottest property areas of the country.
Again, America isn't Greece. Still, a Greek style crisis can happen here, as the Fed is running out of bullets to reflate the grand bubble when it bursts, as was the case in Japan in the 1990s.
