Recurring Thoughts

A friend of mine has been starting to aggressively buy residential real estate in Barcelona.

If you believe the media, you would think he was too early because prices have only dropped here by small amounts, like 0.1%-0.3% per month.

But those published prices are based on ASKING prices.

And as anyone who knows about stock markets would tell you, it takes a BID *and* an ASK to make a market.

And when transactions start dropping a lot, it indicates that the BIDs and ASKs are getting further apart.

And when that happens, markets become illiquid, prices become opaque.

For people like my friend, this process means: opportunity.

He’s been running around making bids for properties at 25%-30% below asking price. Offers like this would have been totally laughed at a couple years ago. Now many of his bids are being accepted, with very little resistance (in the end he’s probably getting around 20% off asking price).

Not all sellers are accepting this, some have gone off the market and are trying to rent their properties instead. But for sellers who have to sell, this kind of drop is what you can expect nowadays.

I’m happy for my friend, who is finding good buying opportunities. But at a higher level, I think it’s a step backwards when markets that had transparent prices become opaque.