Invest For Growth Has Been Exposed As Gambling
Reuters reports on Canada. “Demand for condominiums is soaring in big cities like Toronto and Vancouver, prompting some analysts to worry about a potential bubble. At the same time, crude-producing provinces like Alberta are in a slump. Canadian housing starts jumped in February from January as hot Ontario and British Columbia markets outpaced the energy-producing West, where a crude slump has hit confidence, the national housing agency said. BMO Capital Markets economist Robert Kavcic noted that housing starts in British Columbia hit their highest level since 1990 while Vancouver recorded the most condominium starts on record.”
“‘We’ve long been defenders of the Canadian housing market against the rabid bears, but activity in Vancouver at least is making that case a lot tougher to make,’ he said.”
Perth Now in Australia. “Soaring property supply across Perth is putting pressure on sellers to be realistic in their pricing, agents and industry figures report. New statistics from CoreLogic RP Data released this week reveal there are now 21,726 properties on the market, an increase of 12.3 per cent in the past 12 months. Perth now has the third-highest number of listings of any capital in the country, narrowly behind Sydney, which has 24,000 properties on the market.”
“Harcorts chief executive Paul Blakeley said buyers were ’spoiled for choice,’ which meant sellers needed to be price sensitive if they wanted to achieve a quick sale. ‘The thing everyone is looking to come down is the number of listings,’ Mr Blakeley said. ‘Sellers can’t really afford to hold out for their dream prices.’”
Bloomberg on Hong Kong. “Hong Kong residential home sales plunged 70 percent in February from a year earlier to a 25-year low, as falling prices and economic uncertainty deterred buyers. Property prices have declined 10 percent from their September highs amid uncertainty over the economy at home and in China. ‘The newspapers keep on saying the market is going down and buyers think they can get a cheaper house half-a-year later or one year later, and so are waiting,’ said Thomas Fok, a property agent at Centaline Property Agency in Hong Kong’s upscale Mid-levels West district where he hasn’t made one sale this year.”
Fortune on China. “China has more than 50 million, maybe 60 million, vacant homes, the founder of a Chinese home sharing startup told Fortune’s Most Powerful Women’s conference. Melissa Yang runs Tujia, which has been called the Airbnb of China, but the comparison is misleading for several reasons, not least because Tujia manages 10,000 of its properties. A credible estimate from a real estate insider like Yang, whose site hosts 400,000 properties, is jarring. ‘But this number will only come from me,’ Yang said. You won’t find it publicly from any Chinese government figures.”
The Bangkok Post on Myanmar. “Myanmar has experienced dramatic changes economically and politically over the past few years. As foreign investors rush to set up shop in the newly open market, office space in the country’s commercial capital is among the most expensive in the world. In a country where most people earn about two dollars a day, annual rents in Yangon climbed to as much as US$100 per square metre per month in 2013 — more expensive than downtown Manhattan and about four times the going rate for the best business addresses in Bangkok.”
“But last year the property boom came to a halt, office rents slid and residential sales paused. Andrew Tan, managing director of Yangon-based Consult-Myanmar Co Ltd, said some sectors were approaching equilibrium after a lot of speculative investments over the past three years. ‘The real estate market will see a consolidation this year, especially in the condominium sector and high-quality retail space rents,’ he said, adding that some properties would be sold at a loss in the short term. Many of these are apartments priced above $500,000 each — way above the ability of the local market to absorb.”
“In addition, there is now an oversupply in the market, especially in the residential sector given that high-end buyers represent only 1-2% of the total population. A top-end condominium in Yangon currently costs around US$4,000 or 140,000 baht per square metre (sq m), comparable to Bangkok prices. A recent Colliers International report found that take-up rates during the first half of 2015 were at an all-time low of 49%. Total unsold inventory at the end of last year stood at 6,654 units — double the figure for all of 2014.”
The Guardian on the UK. “Prices for luxury flats in some parts of London are likely to fall as an oversupply of properties erodes the premium being paid for new-builds, an investment firm said. The latest warning of a bubble at the top of the property market has been sounded by LCP, which advises investors on the residential market and runs property funds. It said new-build properties had been selling at a premium of as much as 25%, but oversupply in some parts of the market was likely to start eroding this.”
“On Friday it was reported that buyers of asking prices for some off-plan flats in the Battersea power station development were being slashed, with one reduced from £6m to £4m in the past year. Henry Pryor, a buying agent for wealthy clients, said developers had exhausted the market for overseas buyers. The transaction friction is too high thanks to changes wrought by Conservative chancellor George Osborne and the overdue death of the ‘invest for capital growth’ strategy which has been exposed as just gambling, as I have said all along,’ he said.”
“‘You can’t accept a 3% gross yield in property. It needs to be over 6%, even in this age of artificially low interest rates, because the carry cost is too high. Take out voids, dilapidations, letting and management costs and you are soon looking at negative net yields. This may be OK in the fantasy world of central banks but in property this results in capital values falling, he said.”
“The Financial System Is A Larger Threat Than Terrorism”
http://www.zerohedge.com/news/2016-03-08/financial-system-larger-threat-terrorism
“Central banks, neoliberal economists, and the presstitute financial media advocate negative interest rates in order to force people to spend instead of save.”
“spend instead of save”. By making it harder to get a return on invested capital (aka money) which translates to making it harder to get money and harder to keep money this policy will force people to “spend instead of save”. Got it.
“The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money.”
“people hoarding their money”. The economic policy that is not deemed to be a failure is nevertheless enticing people to “hoard their money” because people hoarding money (aka people saving money) really does make sense in an economic environment where money is hard to get and hard to hang onto.
“The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own report that 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money.”
See? Money: Hard to get, hard to hang onto. Something that is hard to get and hard to hang onto is going to be (choose one):
1. Squandered, or …
2. Saved
If you are one of these economists then you will choose number 1. If you are most anyone else you will choose number 2.
IMO these economists need to get out a bit more.
3. Created from thin air in unlimited quantities and handed out to insiders
“3. Created from thin air in unlimited quantities and handed out to insiders”
Bahahahahaha … what’s not to like?
A reminder: When money is hard to get and hard to hang onto you end up with a money velocity chart that looks like this:
https://research.stlouisfed.org/fred2/series/M2V
If using a velocity chart of M2 doesn’t work for you then here’s a chart that shows the velocity of M1.
https://research.stlouisfed.org/fred2/series/M1V
The two charts aren’t identical but they rhyme and the message is the same.
Sarasota, FL Housing Market Implodes; Prices Crater 16% YoY As Price Declines Accelerate Statewide
http://www.movoto.com/sarasota-fl/market-trends/
I checked the link. It shows an increase of 12.1 %, not a drop of 16%. How are you coming up with the 16% drop YoY?
I checked the link. It shows an decrease of 16 %, not a increase of 12.1%. How are you coming up with the 12.1% increase YoY?
3100 days on movoto
Never mind. Mobile site does not show the correct figures. Had to look at it on my desktop
“‘We’ve long been defenders of the Canadian housing market against the rabid bears, but activity in Vancouver at least is making that case a lot tougher to make,’ he said.”
As long as the Canadian gov’t allows Chinese citizens to continue to launder their ill gotten gains, the Vancouver bubble will expand infinitely!
‘the _____ bubble will expand infinitely’
Yeah, right.
‘with one reduced from £6m to £4m in the past year. ..a buying agent for wealthy clients, said developers had exhausted the market for overseas buyers…the overdue death of the ‘invest for capital growth’ strategy which has been exposed as just gambling, as I have said all along.’
Here’s one where the Chinese money ran out:
‘In a country where most people earn about two dollars a day, annual rents in Yangon climbed to as much as US$100 per square metre per month in 2013 — more expensive than downtown Manhattan and about four times the going rate for the best business addresses in Bangkok. But last year the property boom came to a halt.’
I never heard of Yangon before. You have to hand it to Yellen and pals, they really have reached out and touched every corner of the world.
Some things grow to their possible extents and then continue in equilibrium. A credit expansion must continue to grow or die. If it has reached every corner, it is game over.
“Exposed”…..
And there is such ease and simplicity at exposing gambling and fraud. The degenerate gambler simply avoids discussion of the losses that are always there with massively inflated prices. Avoidance is synonymous with losses, fraud and crime.
“‘You can’t accept a 3% gross yield in property. It needs to be over 6%, even in this age of artificially low interest rates, because the carry cost is too high. Take out voids, dilapidations, letting and management costs and you are soon looking at negative net yields. This may be OK in the fantasy world of central banks but in property this results in capital values falling, he said.”
Wah, wah, wah cries the “buy to let” crowd.
London’s Burning! (The Clash 1977)
London’s burning
London’s burning
All across the town, all across the night
Everybody’s driving with full headlights
Black or white turn it on, face the new religion
Everybody’s sitting ’round watching television
London’s burning with boredom now
London’s burning, dial 99999
I’m up and down the Westway, in and out the lights
What a great traffic system, it’s so bright
I can’t think of a better way to spend the night
Then speeding around underneath the yellow lights
London’s burning with boredom now
London’s burning, dial 99999
Now I’m in the subway and I’m looking for the flat
This one leads to this block, this one leads to that
The wind howls through the empty blocks looking for a home
I run through the empty stone because I’m all alone
London’s burning with boredom now
London’s burning, dial 99999
Here we go rocking down the West London motorway
And on your left you’ll see the tower blocks
Built in 1963
With hard cash payments from the GLC
And over there you’ll see Westbourne Park
You don’t wanna go there
When it gets dark
London’s burning with boredom now
London’s burning, dial 99999
Actually, it’s just 999, which is their equivalent of our 911
I bet they have a few more pets dialing emergency services in their country than we do!
“‘You can’t accept a 3% gross yield in property ??
Sure you can Mugsy if its a “true yield” and provides what is considered a “safe” investment…A Walgreens for example on a 20 year lease with a corporate guarantee…
Don’t forget your dilapidations.
Don’t forget your dilapidations ??
Walgreens pays for 100% of all operating costs, maintenance & repairs…Thats the essence of a NNN lease with a credit tenant…
Who pays for all operating costs, maintenance and repairs in a owner occupied SFR?
Sorry Mugsy…You said “gross”…I missed that….I thought you suggested “Net”…
That was from the story Ben Posted hence the quotation marks.
“China has more than 50 million, maybe 60 million, vacant homes…..”
HA says we have 25 million vacant in the US, so China, with 4x the population has only half the problem we do…..HA, HA, HA!
Data my friend. Data.
Davis, CA Housing Market Implodes; Prices Crater 8% YoY As Housing Demand Falls To 30 Year Low
http://www.zillow.com/davis-ca/home-values/
How do you get that 8% drop. I cant see that on the zillow site linked.
Me? I don’t. Zillow does.
It looks like HA found a new victim for his data doublespeak!! Ignore him Viky, he never makes logical sense! HA!
Study the data Jingle_Fraud. Study the data.
San Diego, CA Housing Prices Crater 9% YoY
http://www.zillow.com/san-diego-ca-92130/home-values/
“China has more than 50 million, maybe 60 million, vacant homes…..”
That is a lot of poisonous drywall.
It’s gonna kill me if I have to vote Trump, but I’ll do it if he is the nominee. I’ll support whoever the nominee is to stop Hillary.
Posted this in wrong area, sorry.
Are you perchance a Utah Republican?
Or a angry white male…
That’s a synonym for Trump voter.
Honolulu, HI Housing Market Implodes; Prices Crater 9% YoY As Demand Collapses
http://www.zillow.com/honolulu-hi/home-values/
Revive the A shares, benefits to the people!
‘The order came down from the highest levels of China’s government, in a handwritten message from President Xi Jinping to officials charged with fixing the country’s crashing stock market: Make sure to protect the interests of small and mid-level investors. Xi’s command — scribbled across a report on probes into short sellers and other “malicious” traders — was shared at a July meeting between regulators and law enforcement officials, according to a person with knowledge of the matter, who asked not to be named because the meeting was private. In the ensuing months, policy makers would escalate an unprecedented campaign to prop up shares and punish speculators accused of exacerbating the rout.’
‘It’s safe to say that the results aren’t what Xi envisioned. Not only have Chinese stocks lost $728 billion since July, but the government’s handling of the crash has undermined its credibility among both international money managers and the individual investors it sought to protect. The intervention shows how Xi’s brand of populism clashes with his pledge to create a market-based economy, risking more policy misfires as he tackles challenges from reforming state-owned enterprises to allowing the yuan to trade more freely.’
“If they can’t get stocks right, how are they going to get the trickier puzzle of SOE reform right?” said Michael Every, the head of financial markets research at Rabobank Group in Hong Kong, who correctly predicted the tumble in Chinese equities. “The government’s attempts have been a total failure, leading to a huge drop in confidence among investors.”
“I used to appreciate the CSRC’s efforts to support the market,” said Huang, who liquidated his stock holdings in late January after recording a 50 percent loss. “Eventually, I decided I was wrong. I overvalued the government’s capabilities.”
‘Keeping the wealth of China’s middle class intact also furthered an official goal of creating a consumer-led economy, while the government’s credibility was on the line after senior officials joined state-run media in promoting equities before prices collapsed.’
So Bloomberg actually remembered the Chinese government completely set up this stock bubble? It took months to do it, but they stampeded millions of people to give their money to the SOE. It’s no mystery, no populist policy gone awry. They conned these people. Listen to this stuff:
“The CSRC took an unnecessary and improper role of guaranteeing the equity market will rise,” said Zhu Ning, deputy dean of Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance.”
Let me tell ya Zhu; nobody can guarantee that. And if you think that for one minute you are a GD fool. And apparently we’ve got a lot of GD fools on this planet.
‘Fang Tao, a 28-year-old employee at a sportswear company in Shanghai, has yet to be convinced China’s leaders can pull it off. “It’s like the government is using our real money to try out their immature reform,” said Fang, who lost 30 percent of his investment in stocks last year.’
“Take out voids, dilapidations, letting and management costs and you are soon looking at negative net yields.”
House owners suffer from dilapidations.
‘We’ve long been defenders of the Canadian housing market against the rabid bears’
Speaking only for myself, this guy has completely missed it. I am not a bear. This isn’t an us versus them thing. What I am saying is, outside of the merits of owning real estate or other things, what we have is a massive distortion:
‘For more than 15 years it’s been a sellers’ market when it comes to real estate in the Northwest Territories capital, but there’s been an upswing in listings in the last few months. Since Jan. 1, according to Century 21 Prospect Realty, there have been 45 new listings in Yellowknife, compared to 20 in the first two months of last year.’
“There is a sense that there will be more action in the market, more listings coming onto the market this year, because of some of the news that we’ve heard in terms of the diamond mines and the executives being moved to Calgary and the closure of Snap Lake,” said Adrian Bell, agent of record for Century 21 in Yellowknife.’
I spent an afternoon and a night in Yellowknife in 2001. I looked at the house prices and they were nuts even then. On that long drive from the southern tip of Texas to Anchorage, I saw signs of the great mania the entire way.
I have come to the conclusion that the housing bubble is just a part of a larger sequence of events and government “policy” for lack of a better word, and the actions and reactions of millions of individuals to those events. Look at all the currency pegs. We used to joke about a plunge protection team (and it was a conspiracy theory). It was considered an undeniable truth the the Fed didn’t control long term interest rates!
QE was unimaginable when I started this blog. The government backing 90% of house loans too. Now we casually read of negative interest rates. And the dollar amounts keep getting bigger. It’s not bears versus bulls.
When Nixon went to China, Beijing was a dump and Detroit was a hub. What’s happened is bigger than house prices in Yellowknife.
‘This may be OK in the fantasy world of central banks but in property this results in capital values falling’
Under what conditions do falling cap rates not lead to deflating prices?
do falling cap rates not lead to deflating prices ??
Falling CAP rates are a reflection of “increasing prices”…Higher price = lower CAP…
Don’t forget that it is a ratio.
Well…. in theory but in reality falling cap rates reflect falling income. Falling income as a result rising vacancy rates and falling demand for housing both result in cratering cap rates.
Simply put, nothing cash flows at current grossly inflated asking prices of resale housing.
Rising prices in a bubble are a reflection of artificially suppressed interest rates coupled with speculators piling in to capture bubble price gains. Falling cap rates are an artifact of the bubble which ends with bubble collapse, manifested in price deflation.
cap rates are ??
They are NOT in the realm of evaluating single family homes thats for sure…Anybody using CAP rates to establish a value of a single family home is a moron IMO…The “market approach” and at times the “replacement cost approach” are the two value approaches used for single family homes…
NNN properties are the realm of CAP rates although you can apply them in a gross lease environment IF you can get an accurate and complete picture of the operating cost now and going forward which I submit is very hard to do with any degree of accurancy…
Interesting.
Are you listening Jingle_F and Rental_F?
“QE was unimaginable when I started this blog. The government backing 90% of house loans too. Now we casually read of negative interest rates. And the dollar amounts keep getting bigger. It’s not bears versus bulls.”
Thanks to a protracted period of macroeconomic intervention which fundamentally undermined the market’s ability to set asset prices, is the world economy looking ahead to an economic Lost Generation of malaise lasting for decades, similar to Japan’s post-1990 experience?
‘The newspapers keep on saying the market is going down and buyers think they can get a cheaper house half-a-year later or one year later, and so are waiting,’
Hong Kong buyers = smart buyers who wait till the price is right
American buyers = sheep who willingly overpay
Santa Monica, CA Housing Prices Crater 5% YoY
http://www.zillow.com/santa-monica-ca/home-values/
“A credible estimate from a real estate insider like Yang, whose site hosts 400,000 properties, is jarring. ‘But this number will only come from me,’ Yang said. You won’t find it publicly from any Chinese government figures.”
Is this elusive number presumably far larger than 50 - 60 million units?
As others have observed, both TARP and QE have basically re-inflated a multi-sector bubble burst. We’re right back to 2007, but the underlying conditions are different. The “bubble” at this point is a government-induced “inflation”. The result is that housing has become unaffordable unless one either owns a property (with anchored tax base) or occupancy in a rent controlled apartment.
This inflation, however, isn’t showing up in the numbers. Some people are struggling with more and more money going to housing but it appears that inflation is tame on a macro basis. The postmodernists appear to be right–our experience of inflation is totally individual. The “data” that the Fed is looking at just isn’t relevant. And we’re only going to know inflation has really hit when the few remaining unions start pushing for wage increases (as individual EEs aren’t having any luck extracting more from a lackluster recovery).
I don’t see a “bust” in this housing market as it is fueled by cheap, but closely regulated money. Only the high end–where speculation and overbuilding are both occurring–is likely to see a sharp drop. Otherwise, it’s going to take a structural change (such as the Baby Boom die off) to alter the trajectory.
Inflation is coming. And when it gets here, it’ll hit us on the back of the head.
“Inflation is coming”
Just as surely as darkness is coming at sunrise.
What we’re experiencing isn’t “inflation”. Price fixing, market bottlenecking and rigging as it relates to housing is on in full force. When resale housing prices fall to a level under replacement cost($55/sqft, lot labor materials and profit) is when we’ll know housing is fairly price. Until then, housing prices have a very long way to fall.
There is no inflation.
Inflation = when the government inflates the money supply
Rising prices (in some or all sectors) = the distortions caused by government inflation of the money supply coupled with other policies which direct the new money in one direction or other
Inflation=wage pressure pushing prices and subsequent increase in dollar volume in circulation by the money changers.
What we currently have is price fixing, market rigging and supply bottlenecking.
Inflation https://mises.org/library/inflation
“If the supply of caviar were as plentiful as the supply of potatoes, the price of caviar — that is, the exchange ratio between caviar and money or caviar and other commodities — would change considerably. In that case, one could obtain caviar at a much smaller sacrifice than is required today. Likewise, if the quantity of money is increased, the purchasing power of the monetary unit decreases, and the quantity of goods that can be obtained for one unit of this money decreases also.
When, in the 16th century, American resources of gold and silver were discovered and exploited, enormous quantities of the precious metals were transported to Europe. The result of this increase in the quantity of money was a general tendency toward an upward movement of prices in Europe. In the same way, today, when a government increases the quantity of paper money, the result is that the purchasing power of the monetary unit begins to drop, and so prices rise. This is called inflation.”
The fed can print and warehouse 500 quadrillion……. and it has zero effect.
Inflation begins with wages.
“The fed can print and warehouse 500 quadrillion……. and it has zero effect.”
Simply not true. Where on earth do you get the idea wages cause inflation? Labor is a commodity like any other.
The only reason QE has not been causing bigger price inflation is because commercial banks have been parking their excess reserves at the Fed instead of lending them out.
It’s simply reality. Inflation begins and ends with wages, always has, always will.
You’re confusing “QE” imposed market distortions resulting in fixed prices at grossly inflated levels with inflation.
QE is not inflation. It’s market rigging that always ends in tears.
It’s interesting that there is considerable disagreement–just on this blog–over what causes inflation.
There is ample historical evidence of inflation occurring without an increase in the wage level.
Granted QE = inflation, but why is the Fed trying to stimulate inflation by using QE? (Not trying to be rude; just trying to understand that contradiction.)
And finally, how do we account for rising price levels, especially among coastal urban households? Individuals are seeing exorbitant increases in the cost of housing. Isn’t that inflation, albeit one limited to a specific sector?
Ah, finding the answer to some of my own questions form the Mises page Karen posted above:
“Therefore, when inflation starts, different groups within the population are affected by this inflation in different ways. Those groups who get the new money first gain a temporary benefit.”
That “temporary benefit” is leading to the extreme wealth disparity we are now seeing.
“There is ample historical evidence of inflation occurring without an increase in the wage level.”
Then its not inflation.
I’m sure the residents of San Francisco and Vancouver are relieved to learn there is no inflation. Whew!
Fixt for you.
“I’m sure the residents of San Francisco and Vancouver are relieved to learn there is no
inflationhousing fraud. Whew!”Jake I’m not confusing anything. Asserting that inflation “begins and ends with wages and always has, always will” is baseless. Saying it’s so doesn’t make it so.
Labor is a commodity. An increase or decrease in the price of one commodity or another does not cause inflation.
I could just as easily assert that the price of apples causes inflation.
A rise in price of any good or service is simply that. A rise in the price of that good or service.
The one good that everyone trades for and wants is money. And an inflation in the amount of money by central banks (in the US, the Federal Reserve) is what causes a general rise in prices. At different times, this distortion, this price rise, can appear more in some commodities than others.
Because of government policies and subsidies, it has appeared greatly in real estate, college education, and medical care over the last few decades.
For example, more government loans for education = more money being thrown at universities = rising prices.
Demand, backed by the money to pay for it, will cause prices to rise, at least temporarily. These temporary distortions will continue if there is a restricted supply and/or fraud, as is the case with many of the sectors I mentioned above.
Oil prices rose because there was a lot of demand, most of which centered around China. Now that there is less demand, and plenty of supply, prices are going down. It wasn’t wages of oil field workers that caused the price of oil to rise.
It’s not baseless, it’s a reality. Label labor what you like but commodities don’t buy commodities. Labor does.
What inflation isn’t is changes in the money supply or Fed Res action. Fed Res action is in response to wage pressure or lack thereof.
Rising oil prices wasn’t inflation nor was it induced by wages. It was a temporary distortion due to inelastic demand combined with speculation and deliberate manipulation. That’s not inflation.
Dominican cane fields got wiped out by a bug and sugar spiked for 18 months. That’s not inflation.
Education and medical services hasn’t experienced inflation just because the price has been driven to unaffordable levels. Has demand exceed supply? Not that I can identify. Has the marketplace of buyer and sellers of medical and education services been interfered with? Absolutely. That’s not inflation.
I detect some socialism going on. And a whole lot of providing cover for it.
http://www.theglobeandmail.com/report-on-business/rob-commentary/the-report-on-business-cartoon/article25118934/?service=mobile
Canada: Registered Retirement Savings Plans are intended for retirement. But it turns out that thousands of Canadians have cashed in some of those funds well before reaching that stage in life.
Thirty-four per cent of us have withdrawn money from RRSPs in advance of retiring, according to a new BMO Financial Group study.
The top reason was to buy a home, with 25 per cent of Canadians withdrawing for that purpose. Twenty-one per cent withdrew to pay off debt; another 21 per cent withdrew to help cover living expenses. Fifteen per cent, meanwhile, withdrew funds to cover emergency costs like those for a car crash or house flood.