After the mobilization at the end of October, housing luxury prices dropped 40%. Prices stabilized at the 15% discount compared to August 2022. Why did it happen and what to expect in the future?

Theory

The housing market can’t be shorted. It is an advantage over the stock market. That means you can’t borrow a house, sell a house and buy it back when the price for this house falls. The problem is that all houses are unique, and the lender expects to get back the same house. The person to whom you sold a house will not sell you a house cheaper than you borrowed it.

The lender may give a set of houses that he will accept from a borrower. Usually, such houses are better than borrowed ones. Such practice is not popular due to the complexity and does not affect the housing market the same way as stocks shorted by institutions for trillions of dollars affect the stock market.

Low liquidity of housing. Stocks are sold fast with a low spread between ask and bid prices. This is because all stocks of a company are the same, information is open, and the stock price is affordable. Also, buying stocks requires a low commission, and the contract is created automatically (in reality it is not so easy and you don’t own shares when buying stocks through a broker, but it is a long irrelevant story).

Buying a house is a long process of finding the right prices by analyzing hundreds of parameters, negotiating, and signing documents with help of a realtor and a lawyer.

To sell a house immediately, seller agrees to sell a house for the bid price, and to buy it, the buyer pays the ask price without negotiations. The spread may be huge, moreover, if too many people sell a house, sellers give huge discounts.

What happened when mobilization started

300k people were drafted in one week. After the announcement of the mobilization, people had three days to leave the country not to be drafted. Plane ticket prices raised from an average of 300$ to 5000$. The last tickets were sold for 15000$ in the economy class. (at that time I was also leaving the country, but I am an EU resident and I paid nearly 500$ to get to Austria by carpooling, plane and bus).

People were scared to get back to Russia. Leavers sold everything they had. They sold houses in one day in exchange for foreign cash. Sellers gave a 40% discount, which was incredible – a luxury house for a price of an economy-class house. Tip: in crisis keep cash to make the best deals.

When all leavers left, the housing prices went up, because there is no need to sell the house fast anymore. That is why the prices bounced. Moreover, the demand for housing dropped, because those who needed a house already bought it, or took a mortgage if it was applicable. Some people who wanted to buy housing may be decided to keep the money in foreign currency to be ready to flee. That is one of the reasons, why the US dollar costs 67 rubbles in cash and only 57 rubles on market (because it is not possible to withdraw money from a bank account, except for SWIFT).

Why prices will continue dropping

There are two reasons for that: Mortgage restrictions and uncertainty. Since the start of the mobilization, the banks stopped giving mortgages to males, except for programmers, who have a right to a 2% mortgage by law. Programmers can’t be drafted by the law.

Due to the risk, that a person will be drafted and won’t be able to pay for a mortgage, banks are not ready to provide the mortgage.

Also, the credits and mortgages, that were taken before the militarisation on the 21st of September, will be automatically discarded if a person dies. That means, the family will keep a house without liabilities, and banks will get huge losses. As for now, the government will not support banks with money and will not compensate for losses. Small banks are f*cked (benefit for big banks).

Eventually, mortgage rates will increase, fewer people would like to take mortgages, and the demand for houses will also fall.

Signal to fall now

40% of newly built houses is not sold. It is bad for construction companies – they should pay off the credits asap, but if there are not enough customers, the manager has 2 variants – sell now cheap and close the credit or keep a small debt, or wait till the best times and pay a lot for a debt. Sometimes firms wait too long and become bankrupt. The banks notice such a situation and increase the credit rates for companies.

The companies stop building new housing if the credit rates are high and the demand is low. Some companies freeze construction. It helps to meet supply and demand, and stabilize prices. If there is no risk of losing the attractiveness of a neighborhood or a city itself, it is the best time to buy housing. However, in times of events like a war, the risk is uncountable and the price may fall even higher.

If the mortgage rate is high, more people would prefer renting apartments instead of buying a house. That drives rent prices up. The problem is that due to the high inflation, the price of a house also rises.

The price for housing also rises when the mortgage rate is low. Then it is much easier to take 30-year long mortgage and get your own housing instead of paying expensive rent and getting nothing at the end of the rent term. Then more people will buy a house with a mortgage. With higher demand comes higher price. So the price for housing rises.

Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, September 13, 2022.

Don’t Quit Your Day Job... dot com

In some countries, government incentivises taking a mortgage. Military servants usually get lower mortgage rates. In UK if a person above 18 buys his first house for less than 500k$, he pays only half of a house price. In Netherlands, government insures mortgages, meaning, if a person is insolvent to pay for a mortgage, government will buy a house from a bank, and return money from mortgage payments to a person. The government will also give a discounted rent for a person (I will check this information, I can be mistaken). Therefore the prices for a condo in Amsterdam tripled (if i don’t mistaken). All of these incentives drive prices for housing up.

Real estate market has a huge problem – it is hard for prices to fall. Not only because of scarcity of land, higher price for materials and labor costs. There are no market mechanisms to make prices fall. In the stock market, it is possible to short stocks – sell the stock that you don’t own, and buy it back when price falls, making the profit in the difference. Short selling works with stocks, because the stocks of one company are identical, their value is always the same.

It is not possible to find 2 exactly the same houses, even Soviet flats have different views, neighbors, and house condition. Therefore, short is not really possible.

To lower the housing price, either the place should loose the attractiveness or the new technologies should make housing cheaper. That what happens in the US market. New housing for the mid-class household became simplier and smaller than before. Remember the housing in Manhattan and Brooklyn of 20th century – the red brick houses with fire stairways on the façade. Compare their quality and design with new housing: the cheap coloured ventilated panels with studio apartments.

How 9/11 affected housing prices

The example of attractiveness loss was on 9/11. Based on the Federal Reserve Bank of New York, most of the employees who worked nearby moved to other parts of New York City or New Jersey. The rent prices for an office in Manhattan dropped from 52.5$ to 50.75$ per square foot. By November 2001, 57 million square feet near Trade Center were traded on market just for 41.81$ (Pearson, Macroeconomics, page 54). but that happened with offices. What about the households?

More people started to buy one-family houses near New York. The prices went up 10-15% comparing with previous year. Even thought, the average price of one-family house in the US has fallen.

Mortgage crisis

After looking at the graph, we see that there was only one fall of housing in the Mortgage crisis of 2008-2009. The crisis basically happened, because banks gave too much mortgages to people, who had a huge risk to become insolvent.

Thousands of people couldn’t pay off the debts. Their houses were put for a sale. The supply of houses was so high, that the prices went down. Construction companies stopped building houses, just because there were not too much people who could afford houses and not so much banks would give mortgages. For construction companies it is very bad – they should sell nearly 70% of housing as fast as possible to pay off the debts. Therefore, a lot of companies became bankrupt and ceased the construction of objects.

Such situation lasts till the supply is covered by demand. Meaning that prices fall to a fair price. When it is happened, the construction continues.

I love buying premium products. I buy everything I need and I afford any hobbies I want. But I don’t become poor after purchasing all of this stuff. And most of the time I only pay 20-30% of the item’s price. How can I afford to buy an iPhone for 300€? How do I get money after buying an expensive camera? Let’s learn about depreciation.

When you buy stuff, look at 3 things: a lifetime of a product, It is hard to break, for how much will I be able to sell this stuff in the future?

Buy 1-year-old stuff

I don’t buy new iPhones, Macbooks, cameras, or bikes (i hope soon I will add cars here). Instead, I buy 1-year-old items. For example, I bought iPhone 11 pro 256 GB just for 600€, while the 12th was priced at 1200€. This iPhone was in perfect condition and was just 6 months old. I keep it already for 2 years and I can sell it for 450€ (Sep 2022). However, I broke Face-Id while swimming and now I have to give a discount and sell it for 300€. The total cost of an iPhone usage was 300€, or 150€ per year or 12.5€ per month.

Some people sell their 1-year-old phones to buy new ones. They sell it for 50%-70% of the price. That means, that to have a new iPhone each year, a person should pay a difference of 600€ between the initial price and selling price, or 50€ per month. But if you wanna have the previous model and keep it for 2 years, the monthly payment is just 12.5€. It is 4 times cheaper to have the previous model. If you keep the old model for a longer time, maybe you can even pay 10€ per month. To clarify, it does not mean that you pay someone € each month, it just shows how much value the phone loses every month.

Depreciation is the value, that an item loses each month or year. It is also treated as the real cost of usage of a good. In theory, you should take the price of a good when you bought it and the selling price after the expected time of usage. Then you subtract these prices and divide them by the number of years or months that you plan to use that stuff. For an iPhone 14, it will be (1200-600)/3 = 200€ per year if we assume that we use a 1200€ iPhone for 3 years and sell it for 600€.

Depreciation can be counted linearly, or more complicated. For easiness, assume that in the first year the item loses the same cost as in the next 2 years combined.

Used items are Inflation-free. That means if the price for new models goes up, the used items will cost the same as before. It is just a rule. For example, in Russia, there is huge inflation in cars. The previous models of a car cost 100k€ 1 year ago, the new model cost 300k€ due to the import restrictions. We could imagine, that if these cars still have the same engine and interior, the price for the one-year-old car should also rise dramatically. However, it is not the case. For example, the used Audi Q7 of 2020 with 50k km costs 70k€, while the new one of 2022 costs 250k€. The only difference between them is the small adjustment in the exterior and interior.

Different countries have different prices. For example, I bought a used camera, Sony a7 II for just 570€. When I came to Russia, it appeared that I can sell it for 1.2k€. So, I can sell it here and get a 600€ profit. It is known as Arbitrage. It is when you profit from the difference in prices without risk.

Buy high quality

Don’t buy low quality. Such items are easy to break, and their lifetime is short. You will not be able to sell it, so you just throw it in the rubbish bin after some time. Keep in mind that cheap low quality items are sometimes made with the child force and in poor worker conditions. And by buying and throwing the bad quality items in the rubbish bin, you are polluting nature.

High-quality items last long, show prestige and are beautiful and comfortable.

Also buy new

Not every item can be bought or used. Don’t buy used headphones, parachutes, or stuff you know nothing about. For example, I want to buy a bike for 2.8k€. It is expensive. I could probably find the one-year-old bike, but I don’t know how to check the bike for quality, or I don’t want to change the details. In such situations, I can either hire a professional or ask a friend for help. Or just buy a new one. The bike, for example, has a lifetime of 7 years on average, and then the depreciation will be 2800/7 = 400€. Of course, a bike can be sold even for 1000€ in 7 years, because we can change details and make repairments each year, but let’s assume that we do nothing. So, the cost of a bike will be 33€ per month. It is not too much for high quality.

What about fashion

Fashion is complicated. The fashion houses know that people want to be trendy, and the style changes each half a year. I don’t know if it is a good idea to buy used clothes, but it is a good idea to buy expensive classical outfits. For men it is easy – just buy suits for 2k€ each and use them for a decade. Buy good shirts, t-shirts, and 8 pairs of shoes for different events. The men’s classics change too slowly. There are also trendy casual outfits that should be changed more often.

For women, it does not work. Fashion for women is much more important. It is a way to show her status and prove to herself that she is the most beautiful. However, some brands like Burberry don’t change their fashion style too often. Gucci can also be worn for a quite long time. I recommend not buying the brand stuff, but quality stuff. Don’t be a crank and don’t buy an item with huge brand logos. Instead, buy something attractive. You will never find a brand on a 5k€ dress and suit.

When buying new clothes, remember how can you combine them with other clothes or whether you already have enough outfits for some occasions. Maybe you just need to buy high-quality t-shirts instead of 20 t-shirts with cheap prints. I have an excel file, where I put all the wardrobe items in my Austrian house. It appeared that I have items, that costs 6000€ in total. But I have only a few things that cost more than 100€. I understood that I have too many cheap clothes up to 25€. And the thing is that I wear such clothes for 1 or 2 years. The expensive items, however, I wear for a much longer time. I also found out that I have 5 suits, and 4 of them cost less than 200€ each.

I hope, after reading this article, you will buy quality stuff for lower prices and will afford anything you want.

Dow Jones Industrial Average (DJIA) is the most important index of American companies. DJIA index includes 30 companies, chosen by Wall Street Journal editors. These 30 companies are large and the most influential companies. The index includes Apple, Boeing IBM, McDonald’s, Disney, and Walmart.

History

In 1896 Charles H. Dow created the Dow Jones index. He included 12 industrial corporations. General Electric was one of these 12 companies and the only company that remained in the Dow Jones Index for 120 years and was removed in 2018 due to the 55% annual loss. In 1929 the list included 30 companies, such as U.S. Steel, General Motors Corporation, Wright Aeronautical, and Standard Oil.

Charles H. Dow published his index in “Customers’ Afternoon Letter”, now known as the Wall Street Journal.
All of the companies are treated as blue chips (the most expensive chip in poker) – the most trustworthy, influential, and expensive companies, that are traded on the New York Stock Exchange.

Today, Dow Jones Industrial Average includes not only industrial but any sector – Salesforce, Apple, Microsoft, Visa, Mcdonald’s, Goldman Sachs and United Health are all parts of the DJIA. In the previous 10 years, 10 companies replaced the old corporations.

How is Dow Jones index counted

Dow Jones index is harder than the S&P 500, where the market cap of the companies is summed up. DJIA takes the share price of each company, sums
them up, and divides the sum by the Dow Divisor. Initially, the Dow Divisor was equal to the number of companies in an index, but then the problem happened: some companies decided to split shares. The companies split because the price of one share is too high, so that investors can’t afford such shares anymore. The Dow Jones adjusts to such situations to keep the index on the same level after such an operation.

Some people think that points in Dow Jones are equal to the dollar. It is not right. Each point is a dollar divided by the Dow Divisor. Let’s see how we count the points.

As of February 2021, the Dow Divisor was equal to 0.152. Basically, 1 dollar equals 1/0.152 = 6.5 points.

Let’s sum up the share prices of each company, we get 4001$. After dividing it by 0.152 we get 26322 points. This is the Dow Jones Index.

You may ask: why the heck do we need that index if it is so complicated with points? Because it shows well the situation in the country as well as in the stock market. It shows well the times of recession, stagnation, and growth.

How to buy

Dow Jones is just an index, but you can buy exchange-traded funds (ETFs), that copy the Dow Jones Index portfolio.

Learn more about other indexes: S&P 500, Russel 2000, Nasdaq 100, and Wilshire 5000.
Source: Investopedia and “Stock market 101” written by Michele Cagan.

(the prices are being updated as well as information till 15th September) Let’s say, we open a coffee shop on the street, where we sell only espresso. How much should the price be? And what difficulties will we face when opening?

One-time purchase

• Coffee machine – 15000€
• furniture – 5000€
• tools and accessories – 500€
• brand development – 1000€
• card terminal – 50€
• certificate and legal procedures

Monthly purchase

• Rent – 1000€
• Electricity – 1000€
• Employees – 5700€
• cleaning, accountant, lawyer, insurance – 500€

Per-cup purchase

• disposable cup – 0.1€
• coffee beans – 0.4€
• card commission – 2%

Certification

To sell Coffee, you need approval from the state. In Vienna, it is WKO (Wirtschaftskammer Organisation, or economic chamber in English). By the way, you don’t need it if you sell beverages in cans or bottles and if you sell simple food, like sandwiches, but you can only have max of 8 guests inside of a cafe. Not our case.

Rent

We rent a coffee shop on the ground floor of the shopping street. Let’s say we pay 1000€ for 20 m2 and expect to have 15 customers per hour on average. You may also find an already equipped coffee shop and just pay an auflösung (price for the furniture and equipment).

If only one employee works in a coffee shop, you don’t need a toilet by the law. Baristas can work at different time and then they will be treated as one employee in WC questions.

The place should have clean water, a sink, air conditioning, heating, and low humidity. If humidity is high, the beans can become bad. If there will not be air conditioning or heating, the employee will not be able to work in a coffee shop by the law. For example, in the UK when the temperature is less than 16 degrees celsius the employee is not allowed to work. In Austria, I found only the maximal allowed temperature of 32.5 degrees. And we will have to pay the employee even though that the shop is closed.

We also need to take insurance that covers all the things inside, especially the coffee machine.

Electricity

Based on https://www.statista.com/statistics/1271527/austria-monthly-wholesale-electricity-price/Statista, the price for 1 Megawatt was 359$ on July 2022, while before it was just 30-50€. The high prices for electricity are compensated by lower rent prices as well as governmental help.

Coffee machine

The coffee machine is the most expensive stuff inside of a coffee shop and is as important as beans. There are two main brands – La Cimbali, La Marzocco. both of them cost from 10000€ to 15000€. La Marzocco is more traditional, while La Cimbali tries to implement new technologies in the coffee machine. La Marzocco attracts coffee lovers, and they are ready to pay a premium for coffee made in this machine.

read about the difference between La Marzocco and La Cimbali

Why is it so expensive? This is due to the pressing mechanism. By the way, Espresso got the name from “press”, the process of pressing the ground coffee and water flowing through it. The pressure a coffee machine can do and the boiling process is the most important in coffee brewing. The machines are made out of thick metal, which makes cleaning easy. These machines last for decades (in the museum of Salzburg I have seen the model of the 1950th that can still work well).

Therefore, the price of the used coffee machine is still high. For example, a woman sells La Marzocco Ep for 5900€, that she bought in 2017 while the new costs €11900. Ps., this model is not produced anymore, and I found only one seller. For such a price, you may buy better models of La Marzocco.

To count the price of usage of a coffee machine or depreciation, we subtract the selling price from buying price, for example, 15000€-10000€= 5000€, and divide the years that we use the machine. Let’s say, 5 years. 5000€/5 years = 1000€, or 83€ per month.

additional coffee machines

Some people like Moka, the 50$ pot with 2 separate levels: water and ground coffee on the lower level. The pot is boiling on the stove. The brown liquid goes to the higher level, which is Moka coffee. When the higher level of a pot is full, the coffee is ready to be served in cups. I, personally, don’t like such a coffee due to the lack of foam and too huge amount of water per gram of coffee. Italians love it and drink it every breakfast instead of tea.

Coffee beans

• Price of arabica – 40€ per kilo
• 10g for each portion, or 0.40€

For coffee shops, we use the finest coffee beans. Usually, they are not sold to households, but to coffee shops.
For each espresso, we need 10 grams of ground coffee.

Coffee beans can be kept 4 months after roasting, later they lose their taste.

Tip: Portuguese love espresso that is made of ground coffee that is left after making the first espresso. They think that there is less caffeine inside this coffee. They ask to pour the coffee into the second cup. For the barista, it costs just a second cup (0.10€) and hot water. The used ground coffee will be anyways in the bin. You may either set a small price for such coffee or even give it for free to get loyal customers.

We don’t count sugar and cinnamon, they cost just a cent per cup.

Cups

We don’t have sitting places. We could use the bar table as in Italy, but we have only disposable (1-time use) cups for simplicity. The average price of bio cups is 10 cents. If you want to have your cups, use 10 cents as the price for cleaning, and use of a cup, which includes the price of buying the cup (e. g., porcelain espresso cup for 9€ each), the risk of breaking and stealing.

We expect 1 customer every 4 minutes (15 cups per hour). We are open daily from 8 am to 9 pm (13 hours per day). 13 hours * 30 calendar days = 390 hours, or 5850 cups per month.

Employees

Baristas are paid hourly. They come 30 min before opening and leave 30 min after closing. They clean stuff and count the inventory. It is 15 hours per day. A person can’t work more than 8.5 hours a day in Austria and must not work more than 40 hours per week (I’ll check this information). We need 4 baristas – 2 for work days and 2 for weekends.

Tip: the less a person earns, the less % of taxes are to be paid in Austria. This is due to the progressive taxes.

First, we pay for social contributions, which is nearly 18%. If a person earns 18000€ of earnings, then an employer pays 3500 of social contributions, you pay 21866$ gross. We pay taxes from income – contributions, 18000-3500 = 14500. Then we deduct 11000 of non-taxable amount 14500-11000 = 3500 and take 20% of taxes which is 700€. But taxes are deducted from the income of a person, not from your payments. The real income of a person will be nearly 17300€.

In our example, we pay for 7-hour work for each worker. All of them work for the salary for barista, which is 12€ per hour. It totals 7*12 = 84€ per day or 1680€ per month for work-day baristas and 672€ for weekend baristas.

We pay 2040€ and 816€ to baristas. In total, it is 2040*2 + 816*2 = 5712€ per month.

Count

Fixed costs per month: Rent (2000€) + cost of use of the Coffee machine (83€) + Salaries (5712€) + other costs (600€) = 8400€ approximately per month

For simplicity, we count furniture in rent, tools, accessories, and payment terminals in other costs

Variable costs per cup = beans (0.4€) + cups (0.1€) + terminal use.

We also need to pay VAT if we earn more than 30000€ in profit. The VAT is the tax per selling of an item, which totals 20% of the final price. But we don’t pay so much. We deduct 20% from the goods that we have bought – 20% from beans and cups, or 10 cents. In the EU the majority of the goods produced and sold over EU are tax-deductible, even the coffee machine is tax-deductible, it is 16.6€ per month. The same with the rent, however, if you buy a place, it is an investment, that is not tax deductible.

To get the break-even, 5850cups*(price*(1-terminal commission(2%))-variable cost(0.5€)) – fixed costs(8400€) = 0. To find the price I created an online program:

I found that with the price of 2€ we are break even and even make revenue of 141$.
We pay pay taxes from profit, 23.1%. Our profit is 108€.

open a program. Change the number and find the best prices and amount of cups to be sold

As you have seen, the coffee shop cannot sell espresso for less than 2€. The next time you go to the coffee shop keep it in mind.

To invest in wine, you should learn about the different types of wine. It is simple after reading a book and degustating wine in winery shops. Usually, it is not expensive, and there is even a festival, where you can try wine for free. But first, read the book.

Wine Folly, Essential wine guide.

photos are fairly used, the information is given for describing purposes. Learn more about the fair use

240-pages book with illustrations. it describes how to keep the wine, to open it, how to drink it, what food is suitable for each type of wine, how to taste wine, and how to define the origin, age, and quality of the wine.

The book shows the characteristics of each type of wine, for example Chardonnay, or  Sauvignon Blanc, or Nebbiolo. The Book provides a bit more information.

Wine Folly, The master guide

It is an alternative to the previous book made by the same authors. The book contains more information and describes each country deeply, starting with characteristics of temperatures, a dictionary of wine names, and characteristics of each vine in such region.

WSET collection

Attention. I did not read these books, just looked through them. After careful reading, I will delete this line and write more about the following books.

This is a collection of 7 books that are used to get a diploma in the wine industry. It explains all the processes to create and keep wine. You don’t need to read all of them, but these 2: “Wines: Looking behind the label”, and “Understanding Wines: Explaining Style and Quality”.

wine-searcher.com

Wine searcher explains in a blog the difference between regions, grapes, and aging.

The website has a database of the quality of a wine based on a region and the year produced for different price categories of wine. This is essential information.

If you want to keep your wine safe, I provide a service of keeping wine in the wine fridge, where I manage the temperature, humidity, and the position of a bottle based on the knowledge I have got after reading a book. The fridge is located in Vienna, Austria.