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! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

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:

  • LA5H5981sc
President George W. Bush presents the Presidential Medal of Freedom to Federal Reserve Chairman Alan Greenspan, one of 14 recipients of the 2005 Presidential Medal of Freedom, awarded Wednesday, Nov. 9, 2005 in the East Room of the Whiite House.  White House photo by Shealah CraigheadAlan “Bubbles” Greenspan Returns to Gold
      Faking It   Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961   He was in it for the power and the glory... Alan Greenspan gets presidential bling...
  • Slider-gold-img-1The Gold Situation
      A Growing Bullish Chorus – With Somewhat Muted Enthusiasm A few days ago a well-known mainstream investment house (which shall remain nameless) informed the world that it now expects the gold price to reach “$1,500 by early 2017”. Our first thought was: “Now they tell us!”. You won't be surprised to learn that the same house not too long ago had its eyes firmly fixed in the opposite direction.   Da bling be goin' somewhere, fellow rastas and homies! Photo via...
  • William SimonEnd of an Era: The Rise and Fall of the Petrodollar System
      The Transition   “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul   A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
  • Ulpian (1)European Banks and Europe's Never-Ending Crisis
      Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
  • Vote Early Zombie at Sharpstown High SchoolWriting on the Wall
      Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so.   It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh   We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
  • croesus_av_stater_1Gold – Eerie Pattern Repetition Revisited
      Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise.   A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
  • Toscana_Siena3_tango7174The Central Planning Virus Mutates
      Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.   A...
  • tokyo whaleDestination Mars
      Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.   The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
  • London-City-Scene lo rezFat People for Trump!
      Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot.   The protest vote attractor with the funny hair. Image credit: Liberty Maniacs   Trigger warning: In the following ramble, we make fun of...
  • The-Deep-State-Mike-LofgrenAmerica Has Become a “Parasitocracy”
      Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to.   Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
  • TrumpoYellPlanet Debt
      Low Interest Rate Persons   She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems. — Donald Trump   Two low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will...
  • robot tradersA Fully Automated Stock Market Blow-Off?
      Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals.  The bots keep buying... Illustration via...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com