I like perusing the classified ads in La Nación. La Nación is the big, serious daily newspaper in San Jose, Costa Rica. Like all dailies down here it’s a tabloid. By calling it the "serious" paper, I mean there is less rolling girl-flesh in the photo features and the front page lead generally doesn’t involve a shootout or car wreck. There is a smaller, though still extensive, treatment of soccer and bicycle racing than you will find in the competition. A big editorial section features articles by the country’s president, Oscar Arias, and other government and business bigwigs.
One of O’Boyle’s many untested, nonscientific theories (OBUNTs) is that local newspaper classified advertising reveals much that is useful about the economy and culture of the region it serves. Classifieds touch on just about every aspect of life. Dating, occupations, farms, shelter for rent or sale, equipment from trucks to saxophones, money to lend and borrow, education, pets, furniture, massages and haircuts can all be found in the classifieds.
It was this item of cultural and economic irony that caught my eye:
MIAMI, Este es el momento de comprar! Translated not quite literally to American Ad-speak the headline says: MIAMI, Now is the time to buy!
It was an ad for imaginary (not yet built) condos in Miami, Florida. It went on to describe "stable prices, low interest rates and many opportunities for resale." The price is just $250,000. You can reserve your condo, which will be ready in 2010, with just 10% down. And you can pay the 10% in four easy payments. When you are ready to close the deal, financing will be available with as little as 20% down on 30-year terms.
The ad had an odd, haunting familiarity to it. It brought to mind the go-go days of 2004 and 2005 in Key West. But the geography was all wrong.
I was having a disconnect. This is supposed to be the third world country. It is difficult to own a financed, quarter-million-dollar condo for less than $2000 a month. The average wage earner in Costa Rica makes less than half that.
In the traditional formula it is the homeland’s 75 million Baby Boomers who come here for bargains. They come for tummy tucks and bridgework, for poker games and commercial sex. They come to take advantage of the backward locals who think that $100 is all the money in the world.
The Costa Ricans are supposed to sell the family farm for a few beads and feathers. They are most certainly not supposed to be speculating on pre-construction condos in Miami.
Like the recent fall of the dollar against historically laughable Costa Rican monetary chit, the Colón, ads seeking condo speculators in third world countries are a bad sign for the Empire of IOUs.
What has happened to make a Miami condo look like a third world bargain compared to a condo in the real third world? The boom has peaked in the U.S. and migrated south, where it must surely peak soon here as well.
Not unlike Miami, Costa Rican condo projects in and around San Jose and along the beautiful Pacific Coast number in the hundreds. Prices are now higher than those for similar units in South Florida. It has set up the bizarre role reversal witnessed by the Miami condo ad in La Nación. Americans must now attract speculators from the third world.
Don’t expect the imbalance to last long. This historic U.S. real estate bubble, that the Empire managed to export to the world along with trillions of paper dollars, required a unique combination of easy credit and human folly. As American credit institutions and the American public slowly come to their senses, there will be much pain and finger-pointing. But the final return to sanity is unavoidable.
We can expect the gnomes of the Fed to try to keep the game going as long as possible by keeping interest rates artificially low. We can expect the U.S. government, the prime beneficiary of the Fed’s easy money and the world’s largest debtor, to try to keep the game going with reckless borrowing for any purpose it can think of.
But all money created out of thin air has only two possible fates. Either it is repaid, and thus disappears from the world’s balance sheet, or it is repudiated, with the same result.
Someone asked me recently how to know when the bottom is in for real estate. Always eager to offer inexpert opinion, I ventured that we will know common sense has returned when once again owning a home makes financial sense.
By make sense, I mean that when you can own a home for less money than you can rent that same home, it will once again make sense to buy it. Don’t forget to include all the costs of ownership like maintenance, taxes, and insurance.
Until then, renters who buy gold with their savings will be ready the next time it makes sense to buy a house or condo, whenever that might be. In the meantime third world speculators are unlikely to do any better than the many first world speculators who are wondering right now what they were thinking in 2005.