Million Dollar Starter Homes
link In Vancouver, logic has left the housing market – Canada – Macleans.ca.
But it’s not just Vancouver, it’s a phenomenom that is being experienced the world over from Vancouver to Dubai, from Shanghai to London. These are some of the hottest spots for real estate prices in the world today. Investment and speculation in real estate has been the surest way to building wealth for as long as the baby boom generation has known.
In the days pre 1970, real estate price increases were fairly moderate, for the most part, in line with the cost of living. In fact, it was a detriment in many cases to own real estate because there were costs involved; maintenance, taxes etc. At least in the North American experience, as the baby boom demographic pushed it’s way into real estate in earnest, supply and demand for the favored areas gradually drove prices up and houses became for most people, the single largest store of wealth for this generation. There is no doubt that valuations in real estate are correlated with the wealth of the local inhabitants, but it can cut both ways as residents in Las Vegas, Arizona and Florida have recently found. Wealth tends to beget wealth and so prices can really climb when a local economy is hot. Of course access to favorable financing is another significant factor as the multiplying effect of this tool excerbates demand for product and therefore prices.
People of course need a place to live, but in the areas mentioned above, the notion of buying a house as shelter is but a quaint notion. The entire objective and major consideration for buying real estate in Vancouver, is as a means for hitching a ride on a fast moving train. No rational person who makes a nominal salary of $75,000 per year, perhaps netting $50,000 after tax, will try to carry a mortgage on a $900,000 house. According to a recent listing on Vancouver’s west side from an article in Canada.com:
“…At an asking price of $889,000, the Second World War bungalow in the 3100-block West 10th Avenue in Vancouver seemed like a bargain to realtor Terry Flahiff yesterday.With the average price of a detached home in Greater Vancouver nearing $921,000 last month, Flahiff’s listing could be considered a bargain…”
It’s interesting that the news headlines have just recently finished with Bernie Madoff’s collapsed ponzi scheme and have now turned their focus to the questionable products manufactured by Goldman Sachs. Naturally, the media are chomping at this and the clamor for more regulation is now building. Surely people must be protected they will say. In reality, the largest ponzi scheme running, for the longest time and with the most institutionalized support is the real estate market. While Madoff’s and Goldman’s activities affect a directed segment of people, the promotion of real estate is directed at the mass of the population. Everyone is programmed to believe that real estate is the surest way to riches. That’s a difficult premise to refute given the past 40 years of experience.
But as the people in Nevada and Florida, once the poster states for real estate speculation found out, when the music stops via interest rate upticks, the damage is devastating. Ponzi schemes work by constantly finding new buyers to support the earlier buyers. Eventually, you run out of those.