Economist Shlomo Maoz: Beware of Real Estate Market

Interest rates around the world are undergoing 'Japanization': they're approaching zero or even negative territory.

Beware of investing your money in homes, says economist Shlomo Maoz.

"Once everyone used to ask me whether they should invest in Ratio [Oil Exploration]. Now they ask me about home prices. They tell me that prices have always gone up. They concluded that if prices went up, they'll continue to do so. People didn't want to buy apartments in Modi'in when they were cheap, but now that they're expensive, it's as if they laid a railroad track into the city. Suddenly, they love taking out mortgages. We have sucker parents who are doing everything they can to pull together money [for their children to buy homes]," Maoz told the investment adviser association's Funder Conference at Ono Academic College last week.

Maoz, known for his firebrand speaking style, isn't one to mince words. He's become an increasingly popular speaker ever since a speech assailing the Ashkenazi elite cost him his job as Excellence Investment's chief economist. "Home prices have increased 7.1% in real terms over the past five years. Over the past decade they increased 1.86%, and over the past 15 years they increased 0.6%. Home prices don't always go up. There are good years and bad years. People have very short memories. You can compare apartments to government bonds - and a government bond has never called me up at night to tell me the water heater exploded. People follow the crowd. Like penguins - don't be a penguin," he said.

The economist noted that interest rates are undergoing a "Japanization" around the world, meaning they're approaching zero or even negative territory. "I hope it won't be like this during times of growth as well," he said. "Interest rates are low. They've been near zero for close to 30 years. The U.S. interest rate is zero. What's more, [U.S. Federal Reserve chairman Ben Bernanke] declared that they'd stay there through 2014. When inflation is 2.3%, then real interest rates are negative ... so anyone with money in the bank is losing in real terms."

Given that Israel's interest rate is zero in real terms, investors are shifting their money into riskier investments. "When they cut interest rates, people headed for the housing market. When that market caught fire, they switched over into the corporate bonds market, while others bought gold for $1,920 an ounce and lost money, or they bought stocks. Others are simply burning through their money and not saving for retirement. We've forgone the sure thing - cash - and switched over to riskier things."