May 14, 2015

Investors Are Seeking A Safe House For Their Wealth

CBC News reports from Canada. “B.C. Premier Christy Clark is ruling out a tax increase for foreigners buying homes in Metro Vancouver, as an online petition calling for a restriction on foreign investment gathers nearly 18,000 signatures. Clark said the government is trying to tackle the growing challenge of home ownership in Metro Vancouver, but is ruling out applying an additional tax on foreign buyers. ‘That is good for first-time owners, but not for anyone who is counting on the equity in their homes to maybe get a loan or use the money to finance some other projects,’ Clark said.”

“The average two-storey detached home is now selling for more than $1.27 million in Vancouver. But any sudden change could have unintended consequences for those who already have invested in a home, the premier said. ‘By moving foreign owners out of the market housing prices will drop,’ she said.”

The Province. “As concern mounts about foreign investment and money laundering in Metro Vancouver, Vision Coun. Geoff Meggs says he believes ‘there is a really serious’ issue in regional housing, but senior governments must initiate any response. Meggs was interviewed after The Province reported that politically connected Vancouver developer Michael Ching, also known as Muyang Cheng, 45, faces charges of corruption and graft in China. Cheng, who is the son of former Hebei governor Cheng Weigao, denies all of China’s charges. He is fighting against China’s campaign to repatriate him.”

“The Province shared with Meggs information forwarded by a Province reader, from an article recently published by a firm of Chinese-speaking realtors. ‘The new leadership in China is enforcing policies that hammer down on financial corruption (and) the already lively real estate market in Vancouver is further taking giant leaps forward as a result of the Chinese anti-corruption policies,’ the article in Greater Vancouver Estate Guide says. ‘Experts predict that with the increasing strictness of the anti-corruption policies in China, it will continue to cause cash to flow into the Vancouver housing market.’”

“The article concludes that whether wealthy investors are seeking to live in Vancouver or find a ’safe house for their wealth … tapping into the patterns of these trends will help both buyers and sellers make the right and easy choice.’ The firm that published the article claims that 80 per cent of its clients are from Mainland China, and these are the only buyers that can afford to bid currently on homes in Vancouver and West Vancouver.”

The Richmond Review. “Some residential blocks have been entirely rebuilt with mansions in Richmond, but at issue for some is not all the houses are lived in. ‘I’ve talked to people who have three and four houses in their immediate area that are vacant. It’s like living in an Alfred Hitchcock movie. It’s not a neighbourhood,’ said Coun. Carol Day.”

“Brian and Linda Cooper live in the Blundell neighbourhood next to a mansion built a few years ago. It’s sold at least three times—and has even been renovated once—but it’s never been lived in. Plenty of other new homes are sitting vacant nearby, said Linda Cooper. ‘The neighbourhood’s gone. I’m so happy that my children grew up in a neighbourhood where there was no gates,’ she said. ‘Our kids all walked to school, they all got to know each other. Now I swear I have not seen children in our neighbourhood for years.’”

“An idea from Coun. Harold Steves could help slow the pace of demolitions in the first place. ‘The houses are going down, just dropping like flies,’ he told his council colleagues. ‘I think we need a program where we put a huge fee on house demolitions and have those houses saved again.’”

The Globe & Mail. “Consumer advocates are raising concerns about the escalating use of home equity lines of credit, warning that many people are finding it hard to resist the temptation of such a huge and easily accessible borrowing option. For many people, home equity lines of credit have replaced credit cards as their top source of borrowing. Outstanding balances on lines of credit soared to $266-billion in March, 2015, from $100-billion in 2005 and just $35-billion in 2000, according to Statistics Canada.”

“Crucially, they have also climbed as a proportion of all personal loans outstanding – now accounting for 59 per cent of Canadians’ non-mortgage personal debt, up from just 30 per cent in 2000.”

“Laurie Campbell, CEO of Credit Canada Debt Solutions Inc., which provides counselling to people with debt problems, says home equity lines of credit allow many people to borrow far more money than they used to be able to with credit cards or other loan options. Many banks require customers to pay only the interest on their credit lines, so the principal can grow rapidly over time.”

“With house prices so high, lines of credit can easily run into hundreds of thousands of dollars, making it hard to hit a debt wall. But that doesn’t mean everyone is making wise choices about how to use the debt, Ms. Campbell said. She said she was pushed to take a line of credit when she moved her investments to a new financial institution, but turned it down. ‘I was kind of made to feel like I was really missing out by saying no,’ she said.”

From Reuters. “While prices stayed at record highs in Toronto and Vancouver and in the nation as a whole, corrections were underway in some other major cities, so the flat readings in Toronto and Vancouver could herald the start of a broader market cooling. ‘Excluding the recession year 2009, the monthly change is tied with that of April 2013 for the smallest April advance in 17 years of index data,’ the Teranet-National Bank Composite House Price Index said.”

“Finance Minister Joe Oliver, speaking to reporters, reiterated the Conservative government’s position that the market is not over-inflated. ‘We’re monitoring the residential market as we always do, and we don’t believe we’re in a bubble. If there is a decline, we think it would be a soft landing, but I’m not predicting that,’ Oliver said.”

“The Teranet–National Bank House Price Index rose 0.2 per cent in April from a month earlier and stood 4.4 per cent higher than the same time last year, a notable slowdown from March, when prices rose 4.7 per cent for the year. But in 9 of the 11 cities that make up the index, prices are still below their peak levels, and ‘a price correction…is underway,’ in eight markets across Canada, wrote National Bank senior economist Marc Pinsonneault. ‘It remains that the big picture is not one of generalized strength, despite the stimulus provided by historically low mortgage rates,’ he wrote.”

“Prices fell for the month in Ottawa-Gatineau, Victoria and Hamilton. Halifax, Quebec City, Montreal and Winnipeg have all also seen price declines in the past few months, though April marked a slight rebound. Home prices have also fallen nearly 2 per cent in over the past six months in Calgary, although they ticked up slightly for the month in April. Prices were still 3 per cent higher than they were a year ago.”

“Ottawa’s housing market has been the hardest hit over the past year, with prices falling more than 6 per cent over the past eight months on the back of a glut of new housing supply and the federal government belt-tightening, along with the uncertainty that comes with an election year. The capital city was the only market to see an outright price decline over the past 12 months, with prices 2.3 per cent lower than they were last April.”




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103 Comments »

Comment by Ben Jones
2015-05-14 03:05:52

“It’s time to stand up and protect our community—Vancouver is not for sale,” states the petition. “The housing needs of Greater Vancouver residents are more important than the profit margins of foreign speculators.”

‘Realtor Lorne Goldman estimates 25 per cent of his clients are foreign. While countries like Australia have put limits on what foreign investors can buy, Goldman wonders whether similar restrictions in B.C. “could backfire.”

‘Some fear such limits could stall the city’s real estate market, a sentiment shared by B.C. Premier Christy Clark.’

Comment by Ben Jones
2015-05-14 04:15:21

‘Metro Vancouver residents are running out of options when it comes to buying a home, and Premier Christy Clark is not about to help.’

‘With housing prices climbing dramatically – up 12 per cent from 2014 as of April – those fed up with the unaffordability of Vancouver have been asking for help from municipal, provincial and federal leaders, but to no avail.’

‘Clark is satisfied with the current market and worries that if taxes on foreign real estate investors are implemented, “housing prices will drop.”

“That’s good for first-time home buyers but not for anybody who is depending on the equity in their home to maybe get a loan or use that to finance some other projects,” she said Tuesday.’

Comment by oxide
2015-05-14 05:12:02

So the only reason they are allowing foreigners to continue to buy up the cities is to enable existing homeowners to take cash-out refi’s? :shock:

In the US, my understanding was that the Fed propped up house prices to keep banks whole and to keep buyers above — or at — the water line. But I don’t think that propping prices to keep the re-fi retail engine running was ever the intent (not the primary one).

Comment by Combotechie
2015-05-14 05:19:16

The cashed-out money gets spent and this spending puts money into the local economy and keeps it humming along.

A true miracle.

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Comment by AmazingRuss
2015-05-14 08:34:27

Ultimately it’s going to be the Chinese that get destroyed when the wheels come off… Just like the Japanese in the 80s.

Wonder what they’ll do when they figure out they’ve been swindled out of all that money we sent them for wal mart crap over the past 30 years?

 
Comment by redmondjp
2015-05-14 10:40:27

But you’re missing the bigger picture here. This is about asset preservation. 50% of something is better than losing it all.

And west-coast big-city North American real estate is seen as a safe bet compared to keeping their yuan in-country. Even if it does decrease in value in the future.

The problem is, everything is global now, including the real estate market. That means the highest bidder wins. In my own neighborhood, I am literally surrounded by people from every corner of the world now. They pool their money and bring over multiple generations and live together in a big, expensive house. I can’t compete against them financially.

 
Comment by tresho
2015-05-14 11:19:02

I can’t compete against them financially.
Actually you can compete, just find a similar number of people who would work with you & who have assets they are willing to pool with you, just like the Chinese do. They don’t have to be related. Unlikely that this would be possible though.

 
Comment by Housing Analyst
2015-05-14 13:30:43

There is no “safe bet” for Dumb.Borrowed.Money. Especially depreciating assets like houses.

If you think the rug got pulled out from under the japanese in the late 1980’s, you’ll be shocked at the size and scope of this collapse.

 
Comment by GuillotineRenovator
2015-05-14 16:34:36

“I am literally surrounded by people from every corner of the world now. They pool their money and bring over multiple generations and live together in a big, expensive house. I can’t compete against them financially.”

Enjoy, man, enjoy. Utopia.

 
Comment by Professor Bear
2015-05-14 20:51:12

“Wonder what they’ll do when they figure out they’ve been swindled out of all that money we sent them for wal mart crap over the past 30 years?”

Massive real estate investing losses seem like a fair exchange for all the cheap crap they sent over here.

 
 
Comment by aNYCdj
2015-05-14 05:55:46

i guess greed and stupid overtake common sense at this point. and people stay.

At least my trusted fair honest auto mechanic 38 years same location when someone stupid offed him a ridiculous amount of money for his corner shop property and he sold it almost a year later and it still hasn’t been demolished, just a lot of ugly green plywood surrounding the property….

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Comment by Blue Skye
2015-05-14 05:58:50

Perhaps the government sees residents as farm animals, bringing in a revenue stream through real estate taxes.

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Comment by Prime_Is_Contained
2015-05-14 13:16:29

So the only reason they are allowing foreigners to continue to buy up the cities is to enable existing homeowners to take cash-out refi’s? :shock:

Real reason: no one is going to re-elect a mayor who was foolish enough to prick the bubble and take THEIR equity away!

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Comment by Professor Bear
2015-05-14 20:46:20

No doubt Clark herself is a homeowner sitting on a large home equity wealth gain.

 
 
Comment by snake charmer
2015-05-14 07:20:13

What’s remarkable about Ben’s aggregation of articles for today is that Canadian political leaders appear even more feckless and hapless than our own. That’s quite a feat. Even the Finance Minister comes off sounding like David Lereah.

Comment by rj chicago
2015-05-14 07:44:20

Canadian political leaders appear even more feckless and hapless than our own…

Snake - that is a stretch given the utter irrelevancy of our elected officials - I haven’t in my near 60 years on this earth ever seen it this bad and there have been several really bad periods since the late 50’s.

Comment by Blue Skye
2015-05-14 16:03:14

In the 50s our parents and grandparents were still very afraid of credit. In the 60s my father impressed upon me continuously that if I wanted to buy something, I needed to save for it, two-bits at a time.

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Comment by Ben Jones
2015-05-14 08:15:09

A letter to the editor:

‘A story by Business in Vancouver, a sister publication of Burnaby NOW, is raising quite a ruckus.’

‘BIV’s story said a wave of land speculators led by mainland Chinese buyers is snapping up old Burnaby rental apartment buildings, driving per door prices above $350,000. The buyers, of course, hope to flip these parcels of land to developers who want to build high rises. The land rush is centred around four transit-linked Burnaby town centres, where, according to BIV, at least three dozen apartment rental buildings have been bought for demolition in the past year.’

‘This really shouldn’t be a surprise. Foreign speculation on B.C. real estate is not news. What differentiates this story from previous ones is that a broker actually provided some details and figures.’

‘Ben Williams, a broker with Burnaby-based London Pacific Property Agents Inc., told BIV that, “At least 95 per cent of recent (new) condominium sales in Metrotown are by buyers of Chinese descent.”

‘Many of those foreign owners of the new condos are putting them up as rental stock, but these will not be rented for $1,000. The average investor condo in Metro Vancouver rents for $1,400. And with a vacancy rate of 0.7 per cent it’s a good business to get into.’

‘Burnaby MP Stewart Kennedy called for a study on the whole deal in an effort to get a handle on what policies or rules could be put in place to ensure that the market is not driven entirely by foreign ownership.’

‘The city has no real jurisdiction over such things, and can really only try to help those who have been evicted when their old apartment buildings are razed.’

‘Stewart’s gesture is, unfortunately, just that. It is a cry into the dark. It is clear that both the federal and provincial government have no intention of doing anything about this issue. It might, after all, slow down the cash flow. And that, as we know, for the political leaders in power, is all that matters.’

http://www.burnabynow.com/opinion/editorial/don-t-hold-your-breath-for-foreign-ownership-changes-1.1932334

Comment by AmazingRuss
2015-05-14 08:54:44

A 350k loan makes for a 2k PITI… so they’re only losing $600/month… unless they pay cash, which yields 4.8% assuming no maintenance or other costs.

The fleecing of the Chinamen has begun in earnest.

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Comment by Housing Analyst
2015-05-14 09:20:41

It’s what the US does best. Fleece.

 
 
 
 
 
Comment by Housing Analyst
2015-05-14 03:09:57

Costa Mesa, CA Sale Prices Dive 5% YoY As Housing Correction Ramps Up

http://www.zillow.com/costa-mesa-ca-92627/home-values/

Comment by redmondjp
2015-05-14 15:34:19

you know this thread is about Canada, right? Does Costa Mesa have a sister city up there or something?

Comment by Housing Analyst
2015-05-14 18:45:53

It’s about California. It goes like this…

Santa Clara, CA Sale Prices Dive 10% YoY As Foreclosures Drive Inventory Higher

http://www.zillow.com/santa-clara-ca/home-values/

See that?

Comment by redmondjp
2015-05-15 09:07:49

See what? That you can’t even stay on-topic? Or present ANY data beside that from shillow and movoto?

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Comment by Housing Analyst
2015-05-15 11:51:46

It’s all about the price bout the price bout the price….. they’re fallin’.

Bellevue, WA List Prices Plunge 12%

http://www.movoto.com/bellevue-wa/market-trends/

 
Comment by Prime_Is_Contained
2015-05-15 13:32:12

It’s all about the price bout the price bout the price….. they’re fallin’.

Has the wishing price for your $50K pickup started to fall yet?

 
Comment by Housing Analyst
2015-05-15 18:37:23

Slashed 30% and still not a buyer in sight.

 
 
 
 
 
Comment by Housing Analyst
2015-05-14 03:24:14

“The Province shared with Meggs information forwarded by a Province reader, from an article recently published by a firm of Chinese-speaking realtors.

Housing is rife with fraud, graft and corruption. It’s a guaranteed nightmare for the uninformed.

Comment by Ben Jones
2015-05-14 04:07:24

Yeah, for the “law and order” Canadians, they sure seem to turn a blind eye when it comes to making money. I posted an interview with a Vancouver broker recently (Business in Vancouver), where he said they all know it’s dirty money and everybody just wants it to continue.

‘Questions are being raised about the industry watchdog that’s supposed to discipline realtors in B.C. Nearly two years ago CTV News investigated a Metro Vancouver realtor named Marco Vincenzi. He was suspended after getting caught altering documents.’

‘Now, CTV News has learned that Vincenzi has had his license suspended again and that’s raising questions about whether the Real Estate Council of B.C.is doing enough to protect people buying and selling their homes.’

‘Consumer reporter Lynda Steele first met Janet MacKenzie in the spring of 2013. She’d been trying to buy a Yaletown condo, listed for sale with a reduced commission.’

‘Her realtor, Marco Vincenzi apparently didn’t want to lose money on the deal, so behind the scenes, he was altering documents, changing offer prices, and submitting offers without MacKenzie’s permission.’

‘When she complained to the Real Estate Council of B.C., it determined after a 16-month-long investigation, that Vincenzi had committed “professional misconduct”. He was fined $1,250, ordered to take a remedial course, and given a 120 day suspension.’

‘So MacKenzie was furious to learn that just weeks into his suspension, Vincenzi was accused of practicing real estate again. This time the Real Estate Council took 18 months to investigate, before ordering Vincenzi be suspended for the lesser term of 60 days.’

“It’s like the definition of insanity. Is he going to obey it this time? I don’t know. It doesn’t seem like it’s enough, and it doesn’t seem to be protecting the public interest,” said MacKenzie.’

Comment by Professor Bear
2015-05-14 05:50:02

The idea of holding your economy hostage to foreign money laundering at the expense of housing needs of local citizens seems like bad governance.

Californians can relate.

Comment by Ben Jones
2015-05-14 05:54:39

‘The (Reserve) Bank’s proposing to impose 30 percent LVR restrictions on residential property investors from October.’

‘Green Party Co-Leader Russel Norman believes the measures will have some effect. “Forty percent of demand in the Auckland housing market’s coming from investors, so placing high deposit requirements on those investors should have some dampening effect. But I suspect we’ll still see the Auckland housing market continue to bubble away.”

‘Norman admits it’s a funny country we live in, where foreign property investors will face less constraints in Auckland than their domestic counterparts. “That shows you the incredible weakness of the central government in New Zealand, that the central government won’t intervene to place some constraints on foreign buyers.”

‘When it comes to mortgages in regional New Zealand, Labour’s advocating for the market to dictate. While the Reserve Bank has made it tougher for those who want to invest in housing in Auckland, the rules have been eased slightly for the regions.’

‘Labour’s housing spokesperson Phil Twyford believes LVRs should go completely from the regions. “Of course it’s unwise for people to take on mortgages with very low deposits that they might have trouble servicing, but in general the banks in New Zealand are pretty good.”

‘Twyford argues the banks should be allowed to dictate how much of a deposit is needed within those regions - something that would’ve been easier had LVR restrictions been lifted. “But I have to ask why they don’t go the whole hog and exempt the regions from LVRs completely, when in places like Palmerston North or Gisborne or Dunedin, they don’t have a housing crisis.”

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Comment by Ben Jones
2015-05-14 06:00:12

‘A big fall in Auckland house prices could do “enormous damage” to the economy, according to Reserve Bank Governor Graeme Wheeler. The central bank has announced new rules from October that will force residential property investors in the Auckland Council area to have a deposit of at least 30 per cent.’

‘The new rules are aimed at reducing demand and slowing house prices, with investors accounting for more than 40 per cent of house sales in the past year.’

‘Wheeler warned of big risks to the banking system after a 60 per cent rise in Auckland house prices since 2008. And Auckland investors were expecting house prices to rise another 75 per cent in the next five years.’

“That’s a phenomenal increase in house prices that are anticipated,” Wheeler said. “So there are a whole range of reason why there are major financial stability risks, around Auckland,” he told the Parliament Finance and Expenditure Select Committee.’

‘Meanwhile, Wheeler said they were concerned about the risks for the banking system if there was a big fall in prices. Wheeler said: “We don’t use the words housing bubble or rock star economy.”

‘But he had seen what could happen if prices slumped. A quarter of 50 million United States mortgage holders were “under water” owing more than the value of their homes and 40 per cent of mortgage holders in Ireland were also in “negative equity”.

‘If house prices fell sharply in New Zealand after an economic shock, with a severe downturn and rising unemployment, people here could also get “locked in” with negative equity in their homes. “It can do enormous damage, to an economy,” he said and could spill over beyond just Auckland.’

 
 
Comment by snake charmer
2015-05-14 07:34:12

I’m surprised that resistance has been this long in coming. But at some point the number of citizens getting a windfall from foreign corruption is going to be dwarfed by the number of citizens who do not benefit at all.

This is really going to challenge democracies which have re-conceptualized themselves as serving money and power rather than people. Which is to say, almost all of them.

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Comment by snake charmer
2015-05-14 07:23:10

“Practicing” real estate? They make it sound like a profession equal to law or medicine. He’s a salesman for God’s sake.

Comment by scdave
2015-05-14 07:39:52

like a profession equal to law or medicine ??

Medicine maybe but Law ?? Oh please…..Have you seen some of the snake-oil lawyers on TV ??

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Comment by Califoh20
2015-05-14 08:05:48

One day you can drop out of High School and sell shoes at Payless. The next day you can sell real estate. No brains needed.

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Comment by toast on the coast
2015-05-14 14:18:56

One of the top agents in Long Beach, CA was a shoe saleman at Nordstom.

 
Comment by A Dollop of Crow
2015-05-14 15:59:29

“No brains needed.”

Mostly true but Realtards are well served by a base level of animal cunning without the hindrances of fairness and compassion.

So we might say nothing but the reptile brain needed.

 
Comment by oxide
2015-05-14 17:36:49

Nordstrom’s shoe department is famous for their salesmanship, so it’s not a big leap. They aren’t exactly Sears.

 
 
 
 
 
Comment by Ben Jones
2015-05-14 04:18:00

‘Online comparison shopping is changing everything from how we buy a new television set to how we select a mortgage, and it’s causing some mortgage lenders to get creative in order to compete. “Lenders are stripping away features of mortgages to get their rates lower,” says Steve Pipkey, co-founder of Spin Mortgage.’

“The majority of our phone calls are about rates these days, whereas before it might have been more about, ‘How can I get my money out fast?’ or ‘What’s the quickest way to refinance my home?’” says Bob Aggarwal, president of Canadalend.com.’

‘Brokers say the push for low rates is not a bad thing, but it has led to some confusion. While mortgage contracts used to be fairly standardized, many of them now contain various conditions and clauses, and in some cases it’s hard for consumers to decipher the difference between various products.’

“If you’re online trying to figure out what the rates are and why, good luck to you,” says Pipkey. “Some banks and brokers are better at disclosing the fine print than others.”

‘In some instances, in exchange for a lower rate, lenders are adding steeper penalties for paying off a mortgage early. By chasing those five extra basis points, buyers put themselves at risk of having to pay thousands more in penalties later on down the road, says Pipkey.’

‘Prepayment privileges also allow borrowers to pay more than their regular mortgage payments without penalty in order to get out of debt faster. But some lenders may reduce how much money borrowers can repay in exchange for a rate reduction.’

‘Pipkey says it’s not surprising that lenders are lowering their rates given how competitive the mortgage market has become. “Mortgage originations are down and lenders are fighting for market share in the face of compressing margins,” he said.’

 
Comment by Ben Jones
2015-05-14 04:21:29

“The trend in total housing starts declined further in April after local home builders scaled back production of multi-family units,” said Goodson Mwale, CMHC’s senior market analyst for Saskatchewan, noting the declining trend in multi-family starts began in November 2014.’

“Given elevated new home inventory and moderating economic fundamentals, housing starts in Regina are expected to decline in 2015,” Mwale said.’

‘In Saskatoon, the slowdown has been much more dramatic in 2015, as total starts plummeted nearly 80 per cent to 116 in April from 561 in April 2014. For the year to date, housing starts in the Bridge City are down 40 per cent to 695 from 1,161 in the first four months of last year.’

‘Saskatoon home builders, which posted 3,521 starts in 2014, have scaled back production of both single-detached and multi-family units, said CMHC, which forecast Saskatoon to have 3,085 total starts in 2015. “Rising new home inventory and moderating economic fundamentals will prompt a slower pace of housing starts this year,” Mwale said.’

 
Comment by Combotechie
2015-05-14 04:31:22

“Laurie Campbell, CEO of Credit Canada Debt Solutions Inc., which provides counselling to people with debt problems, says home equity lines of credit allow many people to borrow far more money than they used to be able to with credit cards or other loan options.”

That’s because, in this insane world, as prices of houses go UP seemingly the RISKS goes down.

“Many banks require customers to pay only the interest on their credit lines, so the principal can grow rapidly over time.”

These people are just plain stupid.

“With house prices so high, lines of credit can easily run into hundreds of thousands of dollars, making it hard to hit a debt wall.”

Really, really stupid:

“With house prices so high” means that “lines of credit can easily run into hundreds of thousands of dollars”. And this does what? It makes it “hard to hit a debt wall.”

Got it.

Comment by David Lereah
2015-05-14 04:40:25

Wrong!

If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years. It’s as if you had 500,000 dollar bills stuffed in your mattress.

 
Comment by Combotechie
2015-05-14 04:57:59

The article also reveals that:

“Mr. Hoyes, of Kitchener, Ont.-based Hoyes Michalos & Associates, has studied insolvency trends in Ontario. “The easier it is to get credit, the more you get,” he says. “And that drives up insolvency rates.”

Stunning!

“The easier it is to get credit, the more you get. And that drives up insolvency rates.”

 
Comment by Ben Jones
2015-05-14 05:15:26

‘hard to hit a debt wall’

And this is a debt counselor.

Comment by AmazingRuss
2015-05-14 08:44:14

If you debtcelerate fast enough, you can make the jump to light speed and warp right through the wall.

 
 
Comment by rj chicago
2015-05-14 07:47:12

With house prices so high, lines of credit can easily run into hundreds of thousands of dollars, making it hard to hit a debt wall….

In other words…..Bug meet windshield with attendant results……

 
 
Comment by Ben Jones
2015-05-14 04:49:08

‘You know what the rich are doing with their money? They’re putting it on the wall and then taking it off again. Art sales are through the roof with a recent, top tier contemporary art auction at Christie’s generating more than $1 billion alone.’

‘Evan Beard, of the Deloitte Art & Finance Group says financial institutions are well aware of the trend and the profit potential it presents. “It’s a big trend in the industry,” he said to Mike Santoli of Yahoo Finance.’

‘And it’s developing in many ways. “First there are private bank loans,” Beard said. They typically make these kinds of loans for relationship enhancement purposes. “Also auction houses are extending credit to buyers,” Beard added, “on the hopes that when the artwork is put up for sale, it will come through them.”

‘And then there are true art loans. “In these cases the value of the loan is based on the underlying value of the actual collateral.” In all cases, the loans allow ultra-high net worth individuals who collect art to free up capital and put the money to work elsewhere.’

“An example of these loans at work involves a hedge fund manager who wanted to buy the American stock exchange,” Beard said. “He looked at the interest rates on real estate loans and decided it would be cheaper to take a loan utilizing his art as collateral because the interest was lower.”

Comment by Combotechie
2015-05-14 05:13:46

“Also auction houses are extending credit to buyers,” Beard added, “on the hopes that when the artwork is put up for sale, it will come through them.”

And when the sale comes through them, the auction house, the auction house gets to enjoy a cut of the action. And this cut of the action can then subsidize the cost of the extended credit.

“And then there are true art loans. ‘In these cases the value of the loan is based on the underlying value of the actual collateral.’”

Translation: The VALUE of the loan is based on the underlying PRICE of the actual collateral. So there is a great incentive to get the price up because getting the price up:

1. Increases the value of the collateral (their word, not mine), and

2. It increases the cut the commission house gets to extract from the sale.

Plus,

3. “In all cases, the loans allow ultra-high net worth individuals who collect art to free up capital and put the money to work elsewhere.”

So it’s a win and a win and a win. Wins all around. Wins forever and ever.

Comment by Ben Jones
2015-05-14 05:17:05

I was listening to the radio the other day. They mentioned Uber had done some kind of funding round that raised their “value” to $50 billion.

Comment by snake charmer
2015-05-14 14:06:20

How’s the grilled-cheese food truck company doing? I read that Wes Clark, who ran for President not too long ago, serves on its board of directors.

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Comment by Combotechie
2015-05-14 06:56:27

I’m going to add number 4:

4. If an auction house can gain a reputation of boosting values (aka prices) of art items (or any other types of items) then this auction house will attract a lot of business from owners of art who want to cash out, and this added volume will translate into more income for the auction house.

Comment by Combotechie
2015-05-14 07:03:15

The built-incentive in all this craziness is to establish a trend of forever rising prices.

And the really crazy part is: This incentive even goes for the buyers! This is because the attractiveness of the purchase is tied to the illusion of forever rising prices.

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Comment by Ben Jones
2015-05-14 07:19:06

‘This incentive even goes for the buyers!’

Of course. The idea of paying over asking simply validates what a smart move it is, as tomorrow the buyer will be the one holding the winning hand. Now we are told Auckland houses are going up $900 a day.

 
Comment by Combotechie
2015-05-14 07:32:52

An auction house process has often been compared to other price-discovering processes (such as the stock market) but there are several differences:

In the stock market price-discovery is driven by actual sales, meaning prices are driven up (or down) by a series of sales. But in an auction house prices are driven up (but never down) by bids. In an auction house there may be many bids, but there is only one sale.

It takes a lot of chunks of committed money to make a series of sales to drive up the price of a stock but it only takes one chunk of committed money to complete the one sale in an auction house.

Plus, as hinted at above, prices in the stock market have the action of lots of sellers to put pressure against a price rise - and even force priced down - but in an auction house market there is only one seller - all the bidders are buyers, potential buyers, and all these potential buyers put pressure to force prices up, never down.

 
Comment by Karen
2015-05-14 09:35:26

To tackle another aspect of this fraud, why do “ultra high net worth” individuals need to take out loans on their artwork to get cash to invest in other things? Don’t they, by definition, have tons of money?

We’re always hearing these days about how investors are chasing yield, having a hard time finding things to invest in that produce a good return. So how could these very wealthy people have found enough things to invest in that they’ve already spent and tied up their millions (or billions) of dollars and now they need to take out loans to use for investment purposes?

Obviously, I am not a sophisticated, high net worth individual, because I am having trouble understanding this.

The average investor cannot find investments that produce a decent return, at least not without a lot of risk.

The wealthy cannot find enough liquid assets to put towards all the wonderful investment opportunities they see around them.

Is the emperor wearing no clothes?

 
Comment by redmondjp
2015-05-14 10:57:04

It’s not hard to have a great quantity of illiquid assets (on which you have to pay taxes, maintenance, etc) and to be “cash-poor”. It takes a lot of monthly cash outlay when you live rich. Low interest rates affect their income as well.

 
Comment by Combotechie
2015-05-14 11:08:01

I ran across this many years ago so the details are fuzzy, but it goes something like this:

A person creates some “art” but needs to establish a “value” to this art so he auctions it off at a high-end auction house.

To make sure that a high value (also known as a high price) is connected to this art he sets it up so that he, the seller, bids up the price and becomes the highest bidder. So he, the seller, ends up buying what he sold, and he pays the auction house a hefty fee for the opportunity of doing so.

HOWEVER, now that he has established a value that is connected to this work of art that he has created he - presto! - has also established a similar value to other comparable works of art that he has created.

Now, all he has to do is to DONATE these pieces of art to museums, or whatever, and thus he will be able to take a TAX DEDUCTION for the value of the donated works of art.

 
 
 
 
Comment by Professor Bear
2015-05-14 05:35:44

‘You know what the rich are doing with their money?’

Debt-funded asset purchases, like stocks, real estate, and collectibles, to shield themselves from coordinated currency devaluation?

Comment by Double Flip Triple Gainer
2015-05-14 06:28:10

Ahhh the geniuses of the world with no concept of the difference between nominal and real interest rates.

Comment by rj chicago
2015-05-14 07:55:11

Ben, Double Flip, PBear -
Help me out here please….
I am getting the impression from mostly the R.E. posts by Ben and the bond posts by PBear that the market distortions / risk transparency is so bad - we will never really know the true value of ANY asset going forward including the requisite stores of wealth like R.E., Stawks, Bonds, land, metals, alternative investments (art and the like).
My question for you guys is this…..will we ever see true market values again with the certainty that what I purchase for a buck is actually valued at a buck - or will we need to just see the whole damn thing implode and revert back to feudalism ala Middle ages Italy, France, Germany and England?
I question my circle alot about this and no one seems to have a definitive answer - most say it is what it is….just keep investing and the system will take care of itself. Deal is - another market downturn or a R.E. implosion and I have to question if I can even begin to maintain my modest standard of living. I know that HA is really against investing in RE - get that and agree to a degree but you gotta live someplace right? And I get that HA and others on this site are advocates of storing cash - but that seems to be a loser as well. So….
Am I like so many others out here in real ville just f….ed?
Insight on this would really be appreciated.

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Comment by AmazingRuss
2015-05-14 08:50:52

My strategy is to wait for the next implosion in stocks/housing, then go all in with my cash, ride the government orchestrated reflation until the next implosion is imminent, then get out, and repeat. The only assumptions required are 1.) There will be an implosion and 2.) The government will do whatever it takes to reflate it.

That’s the best I can come up with.

 
Comment by rj chicago
2015-05-14 10:12:13

Thanks Russ -
My original question still stands however. Is there anywhere that one can go to get some honesty in the market and see where price is legit? Have we passed the rubicon such that the market is so distorted real price discovery is near impossible these days - all the manipulation, escalation, trade up where there is NO market just baffles me.
I agree with you - go to cash at some point - wait - hunker down and let the field clear. I am averse to ‘timing’ any market given the fraud going on and yet I still want to invest, need a place to live etc. But with the in your face lying going on and the prices of houses for ex. that I think those on this site would agree are WAY outta whack with salaries, market sustainability, quality for price etc. I want some assurance that there is a modicum of honesty going on. Living in real ville as it were is not easy.

 
Comment by Double Flip Triple Gainer
2015-05-14 10:21:30

RJ- I think what you are truly hitting on is the concept of the risk free rate of interest. So much economic theory is based on this concept…it is crucial to how bonds and options and basically any risk asset is priced.
Well the current economic universe hasn’t a darn clue what the real risk-free rate is. Why were so many European debt instruments pricing at negative rates? Why are bond yields moving in crazy patterns causing millions to be lost in a matter of minutes thanks to the effects of low-yield convexity? Why are stock markets exploding higher in light of lesser and lesser growth? The simple answer is because unprecedented central bank intervention has left everyone without a clue as to the true value of anything.
As for your own investments. I think staying in cash and in UST’s is the best bet. This just isn’t an option though for high net worth individuals. They have too much money to just be sitting in a few insured bank accounts. Thus they are willing to pay interest to Switzerland while loaning them money. They are chasing insanely valued art. They are buying up grossly overpriced real estate. They just haven’t a clue what to do, because there is no longer such a thing as a risk free interest rate. Everything is risky, and very much so.
The price reset will come. And I think it will happen sometime in the next 3-5 years. And I think those that hold no debt will be in fabulous shape. And I think the world economy can return to a healthier place. But it will be unprecedented and insane. This time truly is different.

 
Comment by tresho
2015-05-14 10:22:12

go to cash at some point It seems the value of cash is also being ruthlessly manipulated.

 
Comment by Rental Watch
2015-05-14 11:58:30

These kinds of cycles have been going on for a long time, and my understanding is that they are largely connected to financial manias (often driven by cheap and/or plentiful credit).

You just need to recognize that such manias exist, and they distort markets.

One way they distort markets is they increase the value of assets (lower acceptable yields = higher asset values).

However, that is not the only distortion.

Another distortion is that lower yields artificially reduce property rents. The mechanism for this is pretty straightforward. If you can sell a property for a lower yield, then you need to achieve lower rents given the market construction costs.

So, taken combined, as yields rise, you should expect in the near-term asset values will fall, but in the medium-term, rent growth should be more pronounced.

 
Comment by rj chicago
2015-05-14 12:11:59

Thanks for the inputs guys - this really helps -
RW and Double Flip - both you guys have unclouded the mirror a bit more for me. Thank you…..I have come to understand that this is why I keep coming back here - there are intelligent minds here trying to figure this stuff out as well - much appreciated.

I even like Rally’s comments - keeps me on my toes.

Double Flip - I just read an article expounding on what you mention by Alex Pollack via David Kotok at Cumberland Advisors……Linky here: http://www.libertylawsite.org/2015/05/13/the-central-bank-of-switzerland-announces-a-huge-loss-would-the-fed-ever-be-this-honest/

The Swiss have taken a big hit with the neg return on invest - True value is getting uglier by the day. Yet at least SNB is somewhat honest about what they are doing - unlike our Fed.

 
Comment by Prime_Is_Contained
2015-05-14 14:33:57

This time truly is different.

Agreed; this time truly _is_ different—because we have never had such an attempt at blatant manipulation, such a tsunami of liquidity full _intended_ to distort asset prices.

 
Comment by oxide
2015-05-14 17:45:46

I think those on this site would agree are WAY outta whack with salaries,

And I don’t agree. You guys are stuck in the 50s. You have to take into account two salaries and low interest rates. As I have said, two $50K teachers can afford a $300K house. And if one of them only makes $25K at Costco, you can cover half your PITI if you rent out the basement.

 
Comment by Ben Jones
2015-05-14 19:27:20

‘if you rent out the basement’

Luckily, the rest of us can wait and see if Oxide-nomics works before sticking our heads in the debt noose.

 
Comment by Housing Analyst
2015-05-14 20:17:45

DebtDonkey Logic.

 
Comment by Professor Bear
2015-05-15 00:31:25

“Is there anywhere that one can go to get some honesty in the market and see where price is legit? Have we passed the rubicon such that the market is so distorted real price discovery is near impossible these days - all the manipulation, escalation, trade up where there is NO market just baffles me.”

I’ve been watching markets for nearly thirty years now, of which about the last two decades featured the Housing Bubble, the Great Recession, and the QE Era, which included a deliberate effort to relate asset prices, particularly housing, to pre-2008 levels, on the assumption that peak bubble prices were “normal.”

On objective grounds, “normal” went out the window after 1996, at the onset of bubble-era asset price inflation. Whether and when this mania ends is anyone’s guess, but it’s not over yet. However, significant cracks have recently appeared, such as the advent of negative sovereign bond yields and the subsequent ongoing slow-moving crash, the collapse of commodities prices, and falling China housing prices, all of which lead me to believe the final stage of the episode may have already begun.

 
Comment by Professor Bear
2015-05-15 00:43:33

“The simple answer is because unprecedented central bank intervention has left everyone without a clue as to the true value of anything.”

And the answer to your question about duration of the mania is tantamount to the question of how long this period of extraordinary central bank intervention to obliterate fundamental market-based pricing will continue.

Keep in mind Stein’s Law:

Anything which cannot go on forever will end.

Then ask yourself whether the situation at hand could go on forever ( I think not).

 
Comment by Housing Analyst
2015-05-15 06:07:03

“On objective grounds, “normal” went out the window after 1996, at the onset of bubble-era asset price inflation.”

Exactly. There is the anchor point.

IIRC, wasn’t that when NAFTA and China’s entry into the WTO occurred?

 
 
 
Comment by snake charmer
2015-05-14 07:39:06

That’s possible. The number of articles enthusiastically endorsing the abolition of physical cash is starting to scare me.

Comment by redmondjp
2015-05-14 12:35:59

Yup. The ‘666′ cashless global financial system is coming soon. I’m sure that all of the major players (Davos, CFR, Bilderbergers, Tri-Lateral Commission, etc) are already working on setting it up. They are not dumb and are fully aware that our existing system can’t last forever.

That reminds me, it’s time to watch ‘Eyes Wide Shut’ again . . .

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Comment by Ben Jones
2015-05-14 04:59:25

‘Vancouver is expensive. Anyone who lives here knows that. Whether you rent or own, the struggle is real. But unlike many of us who just vent our frustrations to friends, family and coworkers, Eveline Xia decided to take her dissatisfaction to Twitter last month, starting a conversation with the hashtag #donthave1million.’

‘It hit a nerve with young professionals from across Metro Vancouver, tweeting out their own anger about how out of reach Vancouver real estate has become.’

‘But a month later, she feels the conversation has been hijacked. A group of realtors and mortgage brokers decided to help out in their own way. They bought the domain donthave1million.com and using the Twitter user name @donthave1mil. Their website says they are giving away $1 million in real estate services to Vancouver-area buyers, including up to $20,000 in free services to the winner of a monthly draw.’

‘Realtor Luis Ayala, who is part of the group, said “this is our way to help out the community,” adding that he knows just how difficult it is for first time buyers in the market. “I don’t see what we’re doing differently, for example, from a dentist looking to help out certain families by offering them a donated service.”

Comment by Blue Skye
2015-05-14 06:14:42

“Xia, on the other hand, said the turn of events is “completely twisted” and hopes people continue to talk about the issue of affordability.”

The realtors hijack a slogan and invert the meaning of it to “help” buyers. How does it work exactly, a realtor giving free services to buyers? Doesn’t the seller pay their fee?

 
 
Comment by Ben Jones
2015-05-14 05:01:19

‘Finance Minister Joe Oliver, speaking to reporters, reiterated the Conservative government’s position that the market is not over-inflated. ‘We’re monitoring the residential market as we always do, and we don’t believe we’re in a bubble. If there is a decline, we think it would be a soft landing, but I’m not predicting that,’ Oliver said’

I’ll just let that one hang out there.

Comment by rosie from the north
2015-05-14 07:44:41

I mentioned before that the Conservative government is seeking re-election in October. They cannot, will not allow the housing sector to implode until the election is over. CMHC insures mortgages up to 1 million, with 5% down in Canada. Credit is cheap and plentiful and a lot of it is insured through CMHC. Canadians owe 163% of their income on average. Housing is in the manic phase in Vancouver and Toronto. These 2 markets are disproportionally large, when compared to the rest of the country. Vancouver residents are blaming foreign money. Foreign money is not the main cause of this mania, they are. Elsewhere it has flatlined or is dropping. Joe Oliver is an asshole that does exactly what PM Harper says. Gotta keep the bubble talk to a minimum.

Comment by Ben Jones
2015-05-14 07:55:11

Yeah, I doubt the Chinese are bidding this up:

‘$459,900 160 BELGIAN Green FORT MCMURRAY AB’

‘NO CONDO FEES, NEW cork flooring, RV parking! In the quiet street of Belgian Green (with a park in the middle), you find this fantastic 1520 sq ft, 2002 mobile on a large lot that is immaculately clean. You will be impressed from the moment you walk in the door. There are 3 bedrooms and a den all with new flooring. Pride of ownership is evident. The kitchen, dining and living space is open concept and nice and bright with a sky light over the sink. The stainless appliances and stainless backsplash will inspire the cook in the house. In the master bedroom there is a walk in closet and another closet; it also has a 4 pc ensuite with a jetted tub. Outside the lot is large with room for RV parking and future garage. The hot water tank is 2015. There is nothing to do here but move in!Open House May 17th 2-4 PM Watch the You Tube Video!’

http://www.remax-fortmcmurray-ab.com/160-BELGIAN-FORT-MCMURRAY-AB/FM0056431/FMREB_IDX?AGENTID=0

What’s up with the 4 trash cans on the street side of this trailer, I mean manufactured home?

Comment by Blue Skye
2015-05-14 08:48:17

One can for trash, one for recycle. The second two must belong to the guy who rents the RV…

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Comment by oxide
2015-05-14 11:47:57

The recycle might not be mixed. Many counties have separate cans for paper and other mixed. That said, who the heck would pay $459K for a single-wide? If I worked the oil patch in the freakin’ Arctic, I’d do what that couple in the Caribbean did: shack up, save up, and go Oil City as soon as I put a few large together.

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Comment by Ben Jones
2015-05-14 12:04:44

‘who the heck would pay $459K for a single-wide’

Someone expecting to sell it for $525K?

 
Comment by Prime_Is_Contained
2015-05-14 14:44:44

I’d do what that couple in the Caribbean did: shack up, save up, and go Oil City as soon as I put a few large together.

The sad thing is that as old-school as that couple sounded (they _saved_??!?), they are still in for a beating as they bought near the peak of a bubble. Hope they never want to sell, or the needs of their family never change, cause that would leave a mark.

 
 
Comment by rosie from the north
2015-05-14 13:25:56

Black- garbage, Pale blue- paper cardboard, Dark blue- glass plastic, Small blue- compostables. We only throw money away up here, everything else gets recycled. Kind of funny when you think of the moon scape Ft. McMurray has become since the oilsands were developed. But everyone has to do their part.

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Comment by snake charmer
2015-05-14 07:49:36

“Brian and Linda Cooper live in the Blundell neighbourhood next to a mansion built a few years ago. It’s sold at least three times—and has even been renovated once—but it’s never been lived in. Plenty of other new homes are sitting vacant nearby, said Linda Cooper. ‘The neighbourhood’s gone. I’m so happy that my children grew up in a neighbourhood where there was no gates,’ she said. ‘Our kids all walked to school, they all got to know each other. Now I swear I have not seen children in our neighbourhood for years.’”
___________________________/

Rather than living in a community of people, you now live in a community of investments and wealth protection strategies. Fun, isn’t it?

 
Comment by Califoh20
2015-05-14 07:57:13

How do we know the Chinese currency is worth anything at all?

Comment by AmazingRuss
2015-05-14 08:56:03

As long as we can make money selling off our country to them, who cares?

Comment by Califoh20
2015-05-14 09:18:19

China uses fake money to buy real property in the USA.
USA uses real* money to blow up and rebuild Iraq.

Which country is smarter? Who wins? Who loses?

*as real as it gets

Comment by AmazingRuss
2015-05-14 10:35:25

Jesus wants us to blow up Iraq. We will be rewarded in heaven.

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Comment by Prime_Is_Contained
2015-05-14 14:47:07

If they would let the market decide rather than pegging it, then you could express your opinion on that directly—as well as monitor the aggregate opinion of all those who do choose to participate in the market…

 
 
Comment by Prime_Is_Contained
2015-05-14 13:45:57

That Vancourver group has a valid point, IMO. A city provides the density of services and jobs that it does (which is what attracts many to larger cities, a virtuous cycle) due to the population density.

So those who are buying a property only to leave it sitting empty are harming the rest of the city’s population.

Rather than limit foreign ownership, though, I would prefer to see the harm caused by empty units reflected in the property tax structure.

How about we just charge double the normal rate for empty housing units?

If the number of empty units gets crazy high, then the cost of living there for everyone who actually does live there would be really low.

Comment by redmondjp
2015-05-14 15:47:12

You know, that’s a great idea! Require the building owner to prove occupancy (and they already have the personal data that they need from the rental application), subject to spot checks, in order to get the lower tax rates.

This could really work.

 
Comment by Rental Watch
2015-05-14 18:54:36

Let me ask you a question:

If you emptied out NYC…it was completely vacant. But property taxes were still being paid on the vacant units–not at double the rate, but at the same rate.

Would NYC be better off financially? Or not?

I don’t see how they would be worse off.

Let’s do a slightly different exercise.

Let’s say you increase the number of housing units in NYC by 10%, but you increase the population by 0%.

Is the City better off? Or worse off.

You would need to plan for the growth and spend some money to make sure that the city services could handle 10% more…BUT,

They would have 10% more property taxes, and

They wouldn’t need as many policemen, teachers or sanitation workers per housing unit.

Of course, restricting foreign ownership would lower prices…simply supply/demand logic there.

Comment by Housing Analyst
2015-05-14 20:13:47

Supply/demand logic?

25 million excess empty houses and demand at 20 year lows,

 
Comment by Prime_Is_Contained
2015-05-14 20:37:23

By reducing available rental stock, I would argue that empty units are hurting people that actually live there, by driving up rents.

Wouldn’t it be nice if they were compensated for that increased expense in some fashion?

 
 
 
Comment by Colorado Renter
Comment by Rental Watch
2015-05-14 18:59:42

OK, I don’t get it.

They say that the increase in average rents is because there is a different mix of rentals…in other words, on an “apples to apples” comparison, perhaps the rental increases aren’t as high as the data reflects, but then they say this:

“Silverstein also said rents are being pushed up by new developments that are amenity-rich in a way that projects of past decades aren’t.

Metro Denver apartment dwellers, however, aren’t accustomed to seeing rent increases bite them hard in the pocketbook and have seen long stretches of flat rents.”

The second paragraph seems to say that people are are living in the same unit are experiencing big rent increases. But presumably, the unit they are living in didn’t magically become amenitized overnight.

So what is it?

Supply/demand pressures? Or different mix?

Or perhaps a bit of both…

Comment by Colorado Renter
2015-05-14 19:58:38

The other thing that’s funny about that article, is that they claim the high rents in downtown Denver are partially due to empty nester baby boomers selling their houses in the burbs to live in lofts downtown. I’ve never heard of anybody doing that, and can’t imagine who would find that lifestyle enjoyable at that age. Heck, I’m 38 and can’t stand being downtown with the drunken ’20s bro crowd!

 
 
Comment by Housing Analyst
2015-05-14 20:05:30

And well below half the cost of buying at current grossly inflated asking prices.

Denver, CO List Prices Nosedive 9% As Foreclosures Drive Excess Inventory Higher

http://www.movoto.com/denver-co/market-trends/

 
Comment by Anonymous
2015-05-15 18:25:59

Damn, guess I can’t afford to move back to Denver now that I’m on my pittance of a pension!

Comment by Housing Analyst
2015-05-15 18:36:19

Give it time. The correction is well underway.

 
 
 
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