Personal Finance

Another real estate bubble?

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  • Dec 17th, 2013 5:22 pm
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Poll: Are we in a 2nd real estate bubble?

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Newbie
Jun 29, 2009
12 posts
Calgary
VivienM wrote:
Aug 30th, 2009 7:46 pm
I consider 2002 to be the start of the boom. Certainly in the U.S., less so here. But still...

Do you have a graph with 50-100 years of data? I think that would show my point much more clearly.

See, my theory is essentially this: the savings from low interest rates, 35 year amortizations, etc. are capitalized into house prices. (For those of you who are former economics majors, you'll no doubt remember the argument that farm subsidies only benefit the owner of the farm at the time the subsidy is introduced because the subsidies are capitalized into the land price. This is what I'm talking about.) As a result, while mortgage payments haven't hugely changed, the purchase price of houses has been going unusually high. I think the American experience supports this argument...
Well, here's 50 years:
http://www.investmenttools.com/median_a ... htm#median

If you draw a line, we're roughly where we should be. I don't really see much of a boom that hasn't been corrected for already.

I think that we will see the purchase prices come more in line with our salaries again, but I see this happening through inflation (inevitable after the massive injection of funds) and an increase in our salaries. I don't have a crystal ball,but this chart shows the kind of trend I want to invest in. I'd love to pick the exact bottom, but the chart's current prices look like an opportunity to me.
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Aug 27, 2004
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jjgallow wrote:
Aug 30th, 2009 8:28 pm
Well, here's 50 years:
http://www.investmenttools.com/median_a ... htm#median

If you draw a line, we're roughly where we should be. I don't really see much of a boom that hasn't been corrected for already.
That's American. Where's the 30% crash on the equivalent Canadian graph?
jjgallow wrote:
Aug 30th, 2009 8:28 pm
I think that we will see the purchase prices come more in line with our salaries again, but I see this happening through inflation (inevitable after the massive injection of funds) and an increase in our salaries. I don't have a crystal ball,but this chart shows the kind of trend I want to invest in. I'd love to pick the exact bottom, but the chart's current prices look like an opportunity to me.
Well, I think inflation may be the 'best' way out of this mess. Better to inflate incomes so that they roughly 'fit' nominal car/house prices and debt levels...
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Jun 19, 2006
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VivienM wrote:
Aug 30th, 2009 8:43 pm
Well, I think inflation may be the 'best' way out of this mess. Better to inflate incomes so that they roughly 'fit' nominal car/house prices and debt levels...
Yeah, but where the h*ck does income inflation come from, unless there are corresponding improvements in productivity in the economy?

That's the question I ask everyone, especially in that 'other' forum on RFD, when they think that its "okay" for Engineers to be underutilized, underpaid, and under-appreciated, relative to their actual contributions to society. Where will the income growth come from, in real terms, without growth in productivity and efficiency? How will [North] Americans be able to compete and grow their incomes, when most run-of-the-mill jobs these days can be outsourced, thus suppressing income growth?

The root of this entire mess has been the failed transition from an engineering, researching, producing, and exporting economy, to one that is based on 'services', blowing bubbles, fraud, etc.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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pitz wrote:
Aug 30th, 2009 8:56 pm
Yeah, but where the h*ck does income inflation come from, unless there are corresponding improvements in productivity in the economy?
Nominal income inflation. Not real. :)
pitz wrote:
Aug 30th, 2009 8:56 pm
That's the question I ask everyone, especially in that 'other' forum on RFD, when they think that its "okay" for Engineers to be underutilized, underpaid, and under-appreciated, relative to their actual contributions to society. Where will the income growth come from, in real terms, without growth in productivity and efficiency? How will [North] Americans be able to compete and grow their incomes, when most run-of-the-mill jobs these days can be outsourced, thus suppressing income growth?
Who said anything about income growth in REAL terms?!? The fundamentals for that are lacking.

What I'm saying is this. If somebody making $80K nominal income today has a $400K mortgage at 3% interest, when that house should be worth $240K at a proper rate of interest, then if their nominal income rises to $133K along a rise in interest rates? Then the ratio of income to mortgage debt is back on track.

Same thing with cars. A car SHOULD NOT be financed at 0% or 1.9% or whatever. That's a marketing gimmick that covers up the fact that the sticker price is way too high. But if you have massive inflation, you can get the current sticker price to be in line with incomes again...

The problem, of course, is how the hell a central bank can produce that kind of "targetted inflation". I don't think anybody has tried inflating their way out of an asset bubble yet...
pitz wrote:
Aug 30th, 2009 8:56 pm
The root of this entire mess has been the failed transition from an engineering, researching, producing, and exporting economy, to one that is based on 'services', blowing bubbles, fraud, etc.
i.e. the Great Wall Street Fraud, or "globalization" or whatever other nonsense they call it. An idea that, sadly, hasn't really died... but should.

The idea that we can get foreigners to manufacture stuff in exchange for pieces of paper (dollars) that are mostly useless to them (since we export less and less that they might want to buy from us with those pieces of paper) is not going to last.
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VivienM wrote:
Aug 30th, 2009 10:01 pm
Nominal income inflation. Not real. :)
Nominal inflation just jacks interest rates up. Who cares if houses are $100k, if interest rates are 25% because inflation is that high? They work hand-in-hand, if central banks paper the world over with money, the interest rates on that money will be commensurately higher, because a lender will not lend unless they get to maintain their purchasing power.
What I'm saying is this. If somebody making $80K nominal income today has a $400K mortgage at 3% interest, when that house should be worth $240K at a proper rate of interest, then if their nominal income rises to $133K along a rise in interest rates? Then the ratio of income to mortgage debt is back on track.
But how does that happen without inflation in the rest of the economy? That's what I can't wrap my head around.
The problem, of course, is how the hell a central bank can produce that kind of "targetted inflation". I don't think anybody has tried inflating their way out of an asset bubble yet...
I think sending a cheque to every engineer in the country for a few million dollars, towards a start-up project of their choice, under penalty of disbarrment if they embezzled the funds, would've been a 'targetted' way of doing it, and creating large amounts of employment in the process. The only way, IMHO, to restart the economy, is to ensure that the smartest people have money to invest with. The current schemes of bailouts are just benefitting the exact same people who made such critical mistakes investing in the first place!
The idea that we can get foreigners to manufacture stuff in exchange for pieces of paper (dollars) that are mostly useless to them (since we export less and less that they might want to buy from us with those pieces of paper) is not going to last.
Yup. Which is going to suppress incomes even further, making housing prices look even more ridiculous than they already are. The 'system' will just collapse upon itself.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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Jun 25, 2009
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I'm not sure if this is an asset bubble, prices are definitely propped up by low rates

unemployment will pick just after rates are rising, not sure how home prices will react.
pitz wrote:
Aug 30th, 2009 8:56 pm
Yeah, but where the h*ck does income inflation come from, unless there are corresponding improvements in productivity in the economy?

That's the question I ask everyone, especially in that 'other' forum on RFD, when they think that its "okay" for Engineers to be underutilized, underpaid, and under-appreciated, relative to their actual contributions to society. Where will the income growth come from, in real terms, without growth in productivity and efficiency? How will [North] Americans be able to compete and grow their incomes, when most run-of-the-mill jobs these days can be outsourced, thus suppressing income growth?

The root of this entire mess has been the failed transition from an engineering, researching, producing, and exporting economy, to one that is based on 'services', blowing bubbles, fraud, etc.
I don't know if I should debate you anymore or just feel sorry for you now... I can't tell you apart from the crazy guys on the street that keep rambling about the same thing over and over

you really ought to see a shrink or consider a career change. this seriously isn't healthy behavior. years of posting and 6700 of the same posts with flawed logic. get a hobby or something?

outsourcing is more efficient lol, you're just a contradictory mess. what's the point from a business point of view in paying someone here 3 times what they could be paying abroad. stop trying to sound smart by googling and get some proper education and treatment. some one else said it best, this thread has too much misinformation
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Aug 27, 2004
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pitz wrote:
Aug 30th, 2009 10:16 pm
Nominal inflation just jacks interest rates up. Who cares if houses are $100k, if interest rates are 25% because inflation is that high? They work hand-in-hand, if central banks paper the world over with money, the interest rates on that money will be commensurately higher, because a lender will not lend unless they get to maintain their purchasing power.
And that's fine. I'd much, MUCH rather buy a house at $100K and 10% interest than pay $300K and finance at 3%. It's much healthier for the economy...

High interest rates encourage down payments, paying down debt early, etc. Low interest rates, combined with high prices, encourage the opposite (e.g. why put any money down on a 0.9% car loan?).

Honestly, when the interest rate on a prime LOC is 2.25%, and the inflation rate is expected to be 2%, why bother paying off your debt? You're only paying 0.25% real interest...
pitz wrote:
Aug 30th, 2009 10:16 pm
But how does that happen without inflation in the rest of the economy? That's what I can't wrap my head around.
No, I'm suggesting inflation in the rest of the economy, except cars/houses/etc the high prices of which are being propped up by low interest rates. So yes, inflation on your toothpaste, cable bill, and whatever.

How else do you get out of this? If somebody borrowed $400K to buy a house, and it goes down to its real price of $240K, that person is out $160K. Since they don't HAVE the $160K and end up defaulting, well, that blows up the banks, as is happening in the U.S.

Same with cars. Why is it that automakers are using low interest offers, even on USED CARS now (look at the Germans), to prop up outrageously inflated prices? And how do you stop them from doing that?
pitz wrote:
Aug 30th, 2009 10:16 pm
Yup. Which is going to suppress incomes even further, making housing prices look even more ridiculous than they already are. The 'system' will just collapse upon itself.
Yup. At the end of the day, you can't import without exporting. Basic econ 101. Thankfully, we in Canada have natural resources, so this won't blow up AS BADLY here as south of the border, but...
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Jun 19, 2006
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Kid A wrote:
Aug 30th, 2009 10:36 pm
I don't know if I should debate you anymore or just feel sorry for you now... I can't tell you apart from the crazy guys on the street that keep rambling about the same thing over and over
Well I suggested one way a 'stimulus' could have been implemented, without benefitting the people who created the 'mess' in the first place. I guess it would be entirely debateable whether 'engineers' would put the money to work on useful projects, or if they'd just morph into bankers themselves -- but at least there would be a much greater possibility that engineers would invest the money into developing something useful. No possibility with bankers, of course.
you really ought to see a shrink or consider a career change. this seriously isn't healthy behavior. years of posting and 6700 of the same posts with flawed logic. get a hobby or something?
Weak minds always resort to personal attacks at the first possible opportunity. Guess that makes you weak :) .
outsourcing is more efficient lol, you're just a contradictory mess. what's the
If outsourcing is so efficient, why is the economy a mess?? Answer me that? Because outsourcing has been running full blast for most of the past decade, yet...
point from a business point of view in paying someone here 3 times what they could be paying abroad. stop trying to sound smart by googling and get some proper education and treatment. some one else said it best, this thread has too much misinformation
I have not provided any 'misinformation' whatsoever. I think you need a bit of an attitude adjustment, "Kid", before you come back to troll here.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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VivienM wrote:
Aug 30th, 2009 10:40 pm
And that's fine. I'd much, MUCH rather buy a house at $100K and 10% interest than pay $300K and finance at 3%. It's much healthier for the economy...
The devil is in the details however. The average house that is 'worth' $200k, should only be 'worth' $100k, based on income, consumer prices, etc.

100% inflation ought to do the trick, right?? But think, what happens if we were to get 100% inflation over, even the next 5 years? That's 20%/year.

So if inflation = 20%/year, what do you think interest rates will be? I suspect 25-35%/year. (if not more, because the risk premium would also expand!).

We have to either accept this scenario as being the one that will unfold, *or* we accept the scenario of mass foreclosures, massive equity loss, etc.

Alternatively, the other scenario would be to actually, and meaningfully, grow the economy. I would suggest this would involve shutting down as much of the financial sector as possible, and re-directing those efforts towards R&D, engineering, and manufacturing.

I just don't see how the housing market, alone, can be 'fixed', without disrupting interest rates and asset prices everywhere else, since everything, in some form or another, feeds into, or is fed from such. If house prices fall enough -- you'll have people looting houses for their parts (ie: copper pipe, etc.). If prices rise too much on houses compared to consumer goods -- people will build more. Finding an equilibrium is going to be an incredibly nasty process.
No, I'm suggesting inflation in the rest of the economy, except cars/houses/etc the high prices of which are being propped up by low interest rates. So yes, inflation on your toothpaste, cable bill, and whatever.
Yeah, which has so many nasty effects, I can't even begin to list them. For instance, in an inflationary environment, firms have very little incentive to invest in machinery, because of high capital taxes. Nobody saves in a hyperinflationary environment (wasn't this collapse 'caused' by a lack of savings). Living standards take a dump (Zimbawbwe! Argentina! Germany!). Its a self-reinforcing cycle (which, in Germany, was only broken by Hitler's reindustrialization projects).

If we had a government with any balls, they'd be looking at this, and demanding the immediate mobilization of scientists and engineers, towards creating things that we could use for exports, factories to produce enough goods to keep inflation at bay, economic activity to keep the people employed. Instead, they're just handing dumptruck fulls of money to the people who created the problems in the first place.
Yup. At the end of the day, you can't import without exporting. Basic econ 101. Thankfully, we in Canada have natural resources, so this won't blow up AS BADLY here as south of the border, but...
Yeah. Its going to be nasty, that's for sure. And there will be huge winners and losers. There might not even be a mortgage industry existing after everything is said and done.
"I worked with several H1B employees that were/are borderline ********. One of them wanted to spray an electrical patch panel with solvent to see if it would make the “network go faster”". <--- lol (source)
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T.O.
Interesting discussion in this thread for sure.

Pitz, when do you expect this "blow-up" to occur?
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Feb 1, 2006
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smolek wrote:
Aug 31st, 2009 8:22 am
Interesting discussion in this thread for sure.

Pitz, when do you expect this "blow-up" to occur?
Pitz has been saying that prices MUST correct since he started posting here three years ago. Like Garth Turner, he'll be right sooner or later. ;)

He also said the TSX fundamentals supported a 20,000+ level back a few months before the market crashed. I recall that he was heavily leveraged into equities, and posted after the crash that he had suffered heavy losses.

He's a smart guy, for sure, but not so great in the prediction department. Just goes to show how hard it is to accurately predict anything economically.
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Bullseye wrote:
Aug 31st, 2009 8:47 am
Pitz has been saying that prices MUST correct since he started posting here three years ago. Like Garth Turner, he'll be right sooner or later. ;)

He also said the TSX fundamentals supported a 20,000+ level back a few months before the market crashed. I recall that he was heavily leveraged into equities, and posted after the crash that he had suffered heavy losses.
Yeah, but he's happy about it. :)
pitz wrote:
Aug 28th, 2009 12:16 am
I personally am glad that my stocks, and the stock market has gone down. Because I'm literally taking my dividends and my other earnings right now, and buying things for 50% off, in most cases! *And* those pesky people in government aren't begging to confiscate a portion of my portfolio in the form of capital gains tax! Yet the productive capacity of my portfolio is unchanged (in fact, despite this economic crisis, dividends have grown!).
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do u guys see interest rates going up? it seems more probable than house prices dropping (as a previous poster mentioned as this will cause defaults).
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ashs wrote:
Aug 31st, 2009 10:46 am
do u guys see interest rates going up? it seems more probable than house prices dropping (as a previous poster mentioned as this will cause defaults).
Interest rates WILL go up. It's just a matter of when. Early 2010? 2011?

And that may lead to both defaults and decreased home prices, but it really depends on how much interest rates will increase, and whether or not the banks bring back prime-X types mortgages.
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I think too the rates will go up. With budget in deficit and no tax increase in sight, money printing is the only way out. I'm actually anxious to see rates up :) . With my mortgage (35 year) locked at 3.89 and lot's of extra cash now, I want to save a lot during the next five years. So far I put all extra money into various mutual funds, majority into TD Dividend Income, which is mostly bank's stock.

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