Tide of Money

BALTIMORE – Another indecisive week in the markets. China did not blow up. Energy company debt did not melt down. And investors did not panic in the face of a slowing world economy, falling corporate earnings, and central bank absurdities.

This morning, all is well. But nothing fails like success. Throw a lot of money at any market, and you are asking for trouble. Today, readers are urged to check their real estate holdings.

 

vancouverVancouver at dusk…

Photo via fourseasons.com

 

Last year, more than one-third of the houses sold in Vancouver went to Chinese buyers. All over Canada, the story was similar… though not as extreme. Houses are being sold to people who may or may not intend to live in them.

That was great, if you were selling a house. A tide of money rushed in… House prices rose. But tides go both ways. They come in… and go out. And if you are counting on your house to hold its value… watch out.

Housing is normally more stable than the stock market because tides in the housing market are slow and relatively weak. As Nobel Prize winner Robert Shiller explained in his book Irrational Exuberance, contrary to popular belief, there is no continuous long-term uptrend in house prices.

As Shiller puts it, most of the evidence “points to disappointingly low average rates of real [inflation-adjusted] appreciation of most homes.” This makes sense. People do not readily “flip” or speculate with their homes.

 

1-January-1977-to-2016-REBGV-Price-ChartReal estate prices in Vancouver, long term. The word you’re looking for is “insane”. Then again, if one looks at various charts of money supply growth across the world (including Canada’s domestic money supply), it becomes clear that it is not the real estate market that is insane. It is the guys supervising the printing presses who are – click to enlarge.

 

You can sell a stock with the push of a few buttons. But moving a household is a pain in the neck. It involves packing up, organizing a mover, settling up on utilities, saying goodbye to neighbors, and so forth.

But when the guy next door is not really next door, his house is not really a home. It’s a floating, speculative hedge. And if you never move in… moving out is a breeze. All it takes is a change in taxes, regulation, or the markets… and you’re outta there.

 

Super Luxury

Real estate hotspots have seen a lot of phantom buying over the last 10 years. In London and New York, for example, you find entire apartment buildings where no one is home. You can tell. Just look at them in the evening. Often, only the elevator shafts and hallways are lit. The apartments are all dark.

Both cities are now seeing softness in upper-end property prices; perhaps the tide has turned. Top Manhattan apartments sell for more than $4,000 a square foot. At this level, a 1,200-sq-ft two-bedroom apartment sports a $4.8 million price tag. “Super-luxury” space… one small step down from the top… sells for nearly $3,000 a square foot.

 

2-Monthly_Manhattan_development_site_sales_volumeMonthly Manhattan development site sales – a sudden slowdown from the heady pace of 2015.

 

The law of supply and demand works in real estate as in other markets. But it is slower to express itself in bricks and mortar. As prices rise, developers (who were burned badly in the last building spree) keep their eyes warily on the market. First, they don’t believe the higher prices will last. Then, prices go higher… and memories fade. Eventually, builders become confident again.

It takes years between the time a decision is made on a major new apartment building and the time the doors open – time in which prices can rise even further. But when the new product is put on the market, the tide goes out like a crowd leaving a football game. The exits jam up with eager sellers.

That appears to be happening now in New York and London. Sales are slow. Markets are crowded with empty units, advertised at fulsome prices.

 

Bargain or Bomb?

Meanwhile, over on the other side of the country, in Silicon Valley, the poor wizards of the Internet are having a hard time making ends meet.   Palo Alto is proposing giving housing subsidies to people who, almost anywhere else, would be considered rich. Here’s the report from London’s Daily Mail:

 

People earning $250,000 a year should qualify for subsidized housing in Palo Alto, according to a new proposal. City officials have outlined an eight-year affordable housing plan – with 587 units for reserved for the area’s uniquely wealthy middle class as real estate prices balloon…

With house price averages an eye-watering $3 million, even those earning $250,000 a year are spending two-thirds of their monthly salary (about $14,000) paying off their mortgage.

 

If the newspaper was trying to impress its readers with a lurid picture of urban excess – a photo the “tear down” house sold recently for $2.7 million – it probably missed its mark.

 

3-London House PricesLondon house prices – another extremely extended market (note the tiny 2008 crisis blip- that was all it took to bring down nearly the entire financial system!) – click to enlarge.

 

Londoners are used to excess in their property market. In 2014, one apartment overlooking Hyde Park was reportedly sold to an unnamed Russian for $237 million. At 16,000 square feet, that is perhaps the most expensive ever: Each square foot cost nearly $15,000.

A bargain? Or a bomb?   We don’t know. But we offer the same advice we gave readers 10 years ago: If you were planning to sell an appreciated property “sometime in the future,” this might be the future you were waiting for.   Sell it. Buy something cheaper. Put the difference in gold.

 

4-London House Price to Gold RatioLondon house price relative to gold – not quite as hot, since they haven’t gone anywhere since 1998. In other words, nominal house prices largely reflect monetary inflation – click to enlarge.

 

Charts by: Real Estate Board of Greater Vancouver, The Real Deal, Sharelynx

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

4 Responses to “Time to Sell the Family Home?”

  • wmbean:

    My friend is in the same situation so many retirees were in California in the seventies before Prop 13. He can’t sell without being hit with a big chunk of tax on the proceeds and he can’t afford to buy a replacement in a great many parts of California. For me, my place cost me 50K on a VA loan and with a little remodeling I could sell for 50% more than I paid with no tax bite. Eventually CALPERS will fail when outflows exceed inflows. As it is, it will take more and more tax money to keep the retirees living high off the hog while the ordinary folk foot the bill. Very soon my friend will be locked into the situation where he eventually loses what “worth” he has in his house. It makes a big difference where you live, especially retirement. Paradise ain’t cheep.

  • FreemonSandlewould:

    Finally! A actual point from Bill Boner.

  • wmbean:

    Ah, houses, quite an interesting development of late. My friend in Santa Cruz bought a two bed bungalow in the mid eighties for about $150,000, if I recall correctly. It was an older property built in the late forties with a detached garage. Now he recently had his bubble burst because he wanted to turn the two car garage into a mother-in-law suite. His house is worth about 685K at the moment but his tax based is $245,000. The building permit would set him back $35,000. As it stands, the house is in need of remodeling and repair. The only reason he can afford to live there is that his mortgage is paid off. Out side of basic repairs, anything he does will raise his property tax to the point where he can’t afford to retire in the next year or two.

    Me, I bought a three bedroom bungalow (1950 model) in 2013. Got a VA loan at 3.75%. Been doing some improvements and remodeling. Payment is still below $400 a month. Texas is cheaper than many other states. But that is the problem, isn’t it. Northern California is a nice place to live but who can afford it? Meanwhile, Forth Worth ain’t a bad place to live. As it stands, if you live on Social Security you can’t even afford to be homeless in California.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Great Debasement - Precious Metals Supply and Demand
      Fiat Money Woes Monday was Labor Day holiday in the US. The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week.   Assorted foreign fiat confetti against the US dollar – we have added the Argentine peso as well, as it demonstrates what can happen when things really get out of hand. [PT]   So, naturally, what is getting play is a story that Bank of England governor Mark Carney said the dollar’s influence...
  • Hong Kong - Never the Same Again
      Freedom Rock Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not...
  • Suffering the Profanity of Plentiful Cheap Money
      A Case of Highway Robbery What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?   USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it...
  • Don’t Be Another Wall Street Chump
      The Future and the Past Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:   “Past Performance Is Not Indicative of Future Results”   “Buy and hold”... “The market goes always up”... “No-one can time the market”... “Buy the dip” “With what? You...
  • A Wild Week - Precious Metals Supply and Demand
      Paying a Premium for a Lack of Default Risk The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.   The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]   Silver made a round trip down from $18.35 to...
  • Will the Nikkei Win the Next Olympic Games?
      Listless Nikkei On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?   Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]   Let us examine whether and in what way such major sporting events impact...
  • The Weird Obsessions of Central Bankers, Part 3
      Inflation and “Price Stability” We still remember when sometime in the mid 1980s, the German Bundesbank proudly pointed to the fact that Germany's y/y consumer price inflation rate had declined to zero. It was considered a “mission accomplished” moment. No-one mentioned that economic nirvana would remain out of sight unless price inflation was pushed to 2% per year.   CPI, annual rate of change. During the “stagflation” period of the 1970s, Congress enacted the...
  • The Weird Obsessions of Central Bankers, Part 1
      How to Hang on to Greenland Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:     Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius). Evidently the mad Danes running the central bank of this Northern European socialist paradise were...
  • The Weird Obsessions of Central Bankers, Part 2
      The Negative Interest Rates Abomination Our readers are probably aware that assorted central bankers and the economic advisors orbiting them occasionally mention the “natural interest rate” (a.k.a. “originary interest rate”) in speeches and papers. It is generally assumed that it has declined, which is to say, time preferences are assumed to have decreased.   This is actually an understatement...   Although interest is generally associated with money, the...
  • Why Are People Now Selling Their Silver? Precious Metals Supply and Demand
      Big Moves in Silver Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.   The recent move in silver [PT]   To those who believe gold and silver are money (as we do) the rising price...
  • Fiat Money Cannibalization in America
      An Odd Combination of Serenity and Panic The United States, with untroubled ease, continued its approach toward catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.   S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]   Stocks smiled down on investors from their...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!