ryans
New Member
Completely agree, Condo George!! Price per floor premium is a big deal.
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Baby, we got a bubble!?
- Thread starter simuls
- Start date
DearSummer
Banned
Don't forget the fact that you don't know what you're buying since it ain't built. It certainly wouldn't be the first time these development companies executed the old "cheapening" trick. Oh those glossy brochures we showed you in the show room? Ya, that's not what your condo will actually look like.
Condo George
Active Member
445 sq ft at 832 bay on the high floors forget it you missed the point CN
Condo George
Active Member
By The Canadian Press
TORONTO - Real estate company Royal LePage says big cities Toronto, Vancouver and Calgary are driving increases in national average home prices, while smaller cities had more moderate gains.
Royal LePage says the average price of a home in Canada increased between 3.9 per cent and 5.2 per cent in the second quarter of 2014 and prices are expected to go up steadily for the rest of the year.
According to the survey, the average price of detached bungalows rose 5.2 per cent to an average price of $406,454. Meanwhile, standard two-storey homes rose 5.1 per cent year-over-year to $440,972, while standard condominiums posted gains of 3.9 per cent to $258,501.
The survey says the shortage of detached single-family houses led to significant price increases in Toronto and in Calgary, new listings couldn't keep up with strong demand.
In Vancouver, which last year was seeing year-over-year price declines, is now posting mid-to-single digit increases. The Montreal market recorded lower price gains than its large metropolitan counterparts, but real estate demand has gone up following the election of a Liberal government in the province's April election.
In contrast, smaller city markets are seeing more moderate house price gains. In Ontario, regions outside Toronto such as London posted year-over-year price increases of 2.2 and two per cent for detached bungalows.
"Chronic supply shortages are driving price spikes in Canada's major cities, masking otherwise moderate home price appreciation nationally," said Phil Soper, president and chief executive of Royal LePage.
"While a widening affordability gap in Canada's largest urban centres is characterizing the national market Canadians read about daily, year-over-year house price increases in most regions of the country are presently tracking below the historical average," Soper said Thursday in a news release.
Looking ahead, Royal LePage is projecting that the national average house price will increase at 5.1 per cent for the full-year.
In Winnipeg, the price of a standard condominium rose by 5.3 per cent year-over-year to $209,023 and detached bungalows appreciated by two per cent to land at $311,015.
Regina posted year-over-year increases across housing types surveyed. Standard condominiums posted the highest year-over-year gains of 2.7 per cent to $211,000. Meanwhile, the average price for standard two-storey homes increased 2.6 per cent year-over-year to $372,500 while detached bungalows increased by 1.1 per cent to $333,500.
In Edmonton, condominiums showed the strongest gains, with the average price increasing 7.8 per cent year-over-year to $236,429, while standard two-storey homes posted an increase of 3.8 per cent to $372,112. Detached bungalows remained flat, dropping 0.2 per cent year-over-year to $350,401.
In Halifax, the price of a standard two-storey house was $327,300 , dropping 1.8 per cent from $333,167 in the second quarter of last year.
In Fredericton, the price of a standard two-storey house was $215,000, down 2.3 per cent from $220,000 year-over-year.
Charlottetown saw its price of a standard two-storey house stayed unchanged at $205,000 year-over-year.
TORONTO - Real estate company Royal LePage says big cities Toronto, Vancouver and Calgary are driving increases in national average home prices, while smaller cities had more moderate gains.
Royal LePage says the average price of a home in Canada increased between 3.9 per cent and 5.2 per cent in the second quarter of 2014 and prices are expected to go up steadily for the rest of the year.
According to the survey, the average price of detached bungalows rose 5.2 per cent to an average price of $406,454. Meanwhile, standard two-storey homes rose 5.1 per cent year-over-year to $440,972, while standard condominiums posted gains of 3.9 per cent to $258,501.
The survey says the shortage of detached single-family houses led to significant price increases in Toronto and in Calgary, new listings couldn't keep up with strong demand.
In Vancouver, which last year was seeing year-over-year price declines, is now posting mid-to-single digit increases. The Montreal market recorded lower price gains than its large metropolitan counterparts, but real estate demand has gone up following the election of a Liberal government in the province's April election.
In contrast, smaller city markets are seeing more moderate house price gains. In Ontario, regions outside Toronto such as London posted year-over-year price increases of 2.2 and two per cent for detached bungalows.
"Chronic supply shortages are driving price spikes in Canada's major cities, masking otherwise moderate home price appreciation nationally," said Phil Soper, president and chief executive of Royal LePage.
"While a widening affordability gap in Canada's largest urban centres is characterizing the national market Canadians read about daily, year-over-year house price increases in most regions of the country are presently tracking below the historical average," Soper said Thursday in a news release.
Looking ahead, Royal LePage is projecting that the national average house price will increase at 5.1 per cent for the full-year.
In Winnipeg, the price of a standard condominium rose by 5.3 per cent year-over-year to $209,023 and detached bungalows appreciated by two per cent to land at $311,015.
Regina posted year-over-year increases across housing types surveyed. Standard condominiums posted the highest year-over-year gains of 2.7 per cent to $211,000. Meanwhile, the average price for standard two-storey homes increased 2.6 per cent year-over-year to $372,500 while detached bungalows increased by 1.1 per cent to $333,500.
In Edmonton, condominiums showed the strongest gains, with the average price increasing 7.8 per cent year-over-year to $236,429, while standard two-storey homes posted an increase of 3.8 per cent to $372,112. Detached bungalows remained flat, dropping 0.2 per cent year-over-year to $350,401.
In Halifax, the price of a standard two-storey house was $327,300 , dropping 1.8 per cent from $333,167 in the second quarter of last year.
In Fredericton, the price of a standard two-storey house was $215,000, down 2.3 per cent from $220,000 year-over-year.
Charlottetown saw its price of a standard two-storey house stayed unchanged at $205,000 year-over-year.
CN Tower
Banned
You have no valid point here George. Your point is to mislead the forum members with your self interested propaganda. Your strategy is to take broad based good news and to extrapolate it to your own personal circumstances while turning a blind eye to the market realities before you, that is lower prices for finished product vs pre construction product.
I just showed you a similar unit (same area, comparable amenities, same developer, same blandness) that can be purchased now at a significant discount per square foot to what your fantasy building is asking for units to be delivered in 5 years. That to me is a huge red flag that something is off.
CN Tower
Banned
George Condo,
I still think you are awesome though. Were I in need of a sales & marketing point man you would undoubtedly be he. No offence intended. We're just shooting the sh*t here buddy.
I still think you are awesome though. Were I in need of a sales & marketing point man you would undoubtedly be he. No offence intended. We're just shooting the sh*t here buddy.
Condo George
Active Member
CN you said that me and my friends take you for a fool for buying at $800 a ft when compared to 832 Bay. I don't expect you to buy anything really its up to you if you want me to by your side or not. you compared a 10th floor unit to $800 a ft which is the price per sq ft at the 60th floor at Wellesley. Instead you should compare a 10th floor unit at 832 Bay with a 10th floor unit at 11 Wellesley which I think is a better tower and location. So its not me that thinks you a fool but you made yourself look like an amateur investor when you said this and not taken into account floor height premium. The other thing is I am in this market not only to sell but to invest, so I don't know if you and some here have been hoping for a big drop in the last 3 yrs that did not happen and are now sore about it, I share news relating to an upside year over year, so whats the big deal its good news its promotes positive vibes and right now things are positive so why not share it. If you want to invest or wish not too its up to you. I personally wanted you and others to know here that your intial statement that $650 at 832 Bay and I expect you to pay $800 is to me misleading because you didn't compare the 10th floor to the 10th floor at Wellesley which is the same price per sq ft in both towers, so in other words you didn't know what you were talking about. I think this type of negative mindset will hold you back from your true potential in business and other things but its your life so if you want to take this path go ahead. What I was saying about a 445 sq ft on the high floors at 832 Bay at $389900 is that its actually higher than Wellesley but you don't see that. I really think you can learn from me but again its up to you.
Last edited:
interested
Senior Member
Condo George:
Like most pendulums, the real estate pendulum will overswing in both directions.
I personally don't know if/when real estate will correct. I suspect it will. Psychology plays a huge factor, at least if past is any indication of the future. When/if the mindset is that real estate is overpriced, it may well drop and drop far further than logically expected.
Of course, until that happens, those who believe in real estate will state how wrong those who thing it is overextended until the turn occurs and then the other camp will gloat stating they were right. The reality is neither is really right but to think that it can keep going up is not in keeping with history....though it may be different this time
Like most pendulums, the real estate pendulum will overswing in both directions.
I personally don't know if/when real estate will correct. I suspect it will. Psychology plays a huge factor, at least if past is any indication of the future. When/if the mindset is that real estate is overpriced, it may well drop and drop far further than logically expected.
Of course, until that happens, those who believe in real estate will state how wrong those who thing it is overextended until the turn occurs and then the other camp will gloat stating they were right. The reality is neither is really right but to think that it can keep going up is not in keeping with history....though it may be different this time
Ex-Montreal Girl
Active Member
Potential Canadian Housing Bubble A Concern For 7 In 10 Lenders: Report
Meanwhile ...
http://www.huffingtonpost.ca/2014/07/08/housing-bubble-canada_n_5567389.html
Potential Canadian Housing Bubble A Concern For 7 In 10 Lenders: Report
Huffington Post, July 8/14
Seven in ten Canadian mortgage lenders are concerned the country’s real estate sector is headed toward an unsustainable bubble that could burst at any time, according to a new survey.
The poll by analytics company FICO found that risk managers at Canadian banks are worried not only about real estate, but about other forms of consumer debt. Home equity loans and credit cards topped the list of areas of concern.
Mortgage lenders are just the latest group to sound the alarm bell about a runaway housing market that has yet to show signs of cooling despite government moves to rein it in and official warnings about the risks of taking on too much debt while interests rates are low.
The Bank of Canada has singled out high rates of household debt as one of the biggest threats to the economy. When interest rates inevitably rise, carrying costs for mortgages and other forms of debt could become unaffordable for some Canadians and leave them underwater on their mortgages.
Canada’s household debt to disposable income ratio sits near a record high of 163 per cent, meaning Canadians owe $1.63 for every dollar they earn.
Nearly four in ten Canadian lenders said they expected the number of mortgage delinquencies (payments that are 90 or more days late) to increase over the next six months. That’s more than the 22 per cent of U.S. lenders expecting an increase. Still, a majority of Canadian lenders, 55 percent, said they expect delinquencies to stay the same.
Meanwhile, nearly a majority — 48 per cent — of Canadian lenders said they expect credit card delinquencies to rise over the next six months, 10 percentage points higher than among U.S. lenders.
Even as several studies suggest loan growth is slowing, 60 per cent of Canadian lenders expected the amount of credit requested by consumers to rise, and 57 per cent said they believe the average credit card balance will rise over the next six months.
The online survey included responses from 203 managers from banks across the U.S. and Canada, of which 54 were Canadian.
Meanwhile ...
http://www.huffingtonpost.ca/2014/07/08/housing-bubble-canada_n_5567389.html
Potential Canadian Housing Bubble A Concern For 7 In 10 Lenders: Report
Huffington Post, July 8/14
Seven in ten Canadian mortgage lenders are concerned the country’s real estate sector is headed toward an unsustainable bubble that could burst at any time, according to a new survey.
The poll by analytics company FICO found that risk managers at Canadian banks are worried not only about real estate, but about other forms of consumer debt. Home equity loans and credit cards topped the list of areas of concern.
Mortgage lenders are just the latest group to sound the alarm bell about a runaway housing market that has yet to show signs of cooling despite government moves to rein it in and official warnings about the risks of taking on too much debt while interests rates are low.
The Bank of Canada has singled out high rates of household debt as one of the biggest threats to the economy. When interest rates inevitably rise, carrying costs for mortgages and other forms of debt could become unaffordable for some Canadians and leave them underwater on their mortgages.
Canada’s household debt to disposable income ratio sits near a record high of 163 per cent, meaning Canadians owe $1.63 for every dollar they earn.
Nearly four in ten Canadian lenders said they expected the number of mortgage delinquencies (payments that are 90 or more days late) to increase over the next six months. That’s more than the 22 per cent of U.S. lenders expecting an increase. Still, a majority of Canadian lenders, 55 percent, said they expect delinquencies to stay the same.
Meanwhile, nearly a majority — 48 per cent — of Canadian lenders said they expect credit card delinquencies to rise over the next six months, 10 percentage points higher than among U.S. lenders.
Even as several studies suggest loan growth is slowing, 60 per cent of Canadian lenders expected the amount of credit requested by consumers to rise, and 57 per cent said they believe the average credit card balance will rise over the next six months.
The online survey included responses from 203 managers from banks across the U.S. and Canada, of which 54 were Canadian.
interested
Senior Member
^^^
ExMontreal Girl:
Thanks for showing the other side. And mortgage lenders have a vested interest to be quiet.
The reality is that if the governments had not lowered interest rates with QE I suspect the prices would be quite a bit lower today.
The whole theory of continued price increases is propagated in my view on continuing in a low interest rate environment. This may happen for years yet as governments try to mitigate the damage when they unwind the QE. This just lulls many into a false sense of security that the party will continue "forever".
Any black swan event, a rise in interest rates, or major event could affect the psychology and literally stop/turn the real estate market on a dime as it were.
I worry that we as a society are mortgaging our children at the expense of living beyond our means today. Higher real estate prices are just one example of this.
ExMontreal Girl:
Thanks for showing the other side. And mortgage lenders have a vested interest to be quiet.
The reality is that if the governments had not lowered interest rates with QE I suspect the prices would be quite a bit lower today.
The whole theory of continued price increases is propagated in my view on continuing in a low interest rate environment. This may happen for years yet as governments try to mitigate the damage when they unwind the QE. This just lulls many into a false sense of security that the party will continue "forever".
Any black swan event, a rise in interest rates, or major event could affect the psychology and literally stop/turn the real estate market on a dime as it were.
I worry that we as a society are mortgaging our children at the expense of living beyond our means today. Higher real estate prices are just one example of this.
TheKingEast
Senior Member
Precisely why my next property is far less than what I can afford and cheaper than the average price/sqft currently. I have no idea how people are rushing to pay $800/sqft for tiny boxes in often poorly built, glossy towers.
interested
Senior Member
From the National Post on line quoting the New York Times:
I believe this article summarizes my feelings and why those who are smug about real estate should appreciate that this is a phenomenon involving multiple asset classes and in no way should be construed as smart investing in my view. People have in their chase for yield and returns failed to assign reasonable risk assessments and are failing to appreciate the amount of risk and the relative small returns they are getting for it. I unfortunately just don't see how this is going to end up well in the long run.
Welcome to the Everything Boom, or maybe it should be called the Everything Bubble
Neil Irwin, The New York Times | July 8, 2014 | Last Updated: Jul 8 8:48 AM ET
More from The New York Times
Frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next.
Streeter Lecka/Getty Images; Fotolia; Mark Lennihan/APFrustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next.
Twitter
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Comments
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In Spain, where there was a debt crisis just two years ago, investors are so eager to buy the government’s bonds that they recently accepted the lowest interest rates since 1789.
In New York, the art deco office tower at One Wall Street sold in May for US$585 million, only three months after the going wisdom in the real estate industry was that it would sell for more like US$466 million, the estimate in one industry tip sheet.
5 reasons not to watch for a stock market correction
We say forget the correction predictions. Keep a diversified portfolio of quality companies. The market will go up and down, but, over time, it goes up far more than it goes down. Keep reading.
In France, a cable-television company called Numericable was recently able to borrow nearly US$11 billion, the largest junk bond deal on record – and despite the risk usually associated with junk bonds, the interest rate was a low 4.875%.
Welcome to the Everything Boom – and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.
The phenomenon is rooted in two interrelated forces. Worldwide, more money is piling into savings than businesses believe they can use to make productive investments. At the same time, the world’s major central banks have been on a six-year campaign of holding down interest rates and creating more money from thin air to try to stimulate stronger growth after the financial crisis.
We’re in a world where there are very few unambiguously cheap assets
“We’re in a world where there are very few unambiguously cheap assets,” said Russ Koesterich, chief investment strategist at BlackRock, one of the world’s biggest asset managers, who spends his days scouring the earth for potential opportunities for investors to get a better return relative to the risks they are taking on. “If you ask me to give you the one big bargain out there, I’m not sure there is one.”
But frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next. How long will this low-return environment last? And what risks are being created that might be realized only if and when the Everything Boom ends?
Safe assets, like U.S. Treasury bonds, have been offering investors paltry returns for years, ever since the global financial crisis. What has changed in the last two years is that risky assets, like stocks, junk bonds, real estate and emerging market bonds, have also joined the party.
Related
Enjoy the hot market, but prepare for the cold
Make sure to do these things before selling a winning stock
Want to buy shares of U.S. companies? At the current level of the Standard & Poor’s 500 index, every dollar invested in stocks buys about 5.5 cents of corporate earnings, down from 7.4 cents two years ago – and lower than just before the global financial crisis in 2007-08.
Prefer a more solid asset? The price of office and apartment building has risen similarly; office space in central business districts nationwide costs US$300 per square foot on average, up from US$147 in early 2010, according to Real Capital Analytics. In Manhattan, an investor in an office building can expect rent payments after expenses to add up to a 4.4% return, known as the capitalization rate, lower than in 2007, the top of the last boom.
AP Photo/Richard Drew, File
AP Photo/Richard Drew, FileTrader Peter Elkins is reflected in one of his screens at his post on the floor of the New York Stock Exchange.
Advertisement
What about overseas investments? Spain and other Southern European countries that were the nexus of the European debt crisis are not the only places where bond rates have plummeted (even Greece was able to issue bonds at favorable rates earlier this year). Emerging markets, which generally have higher interest rates because of higher inflation and less political stability, are offering record low interest rates as well. Bonds issued by the governments of Brazil and Malaysia, for example, are currently yielding a relative low of around 4%.
The high valuations now are not as extreme as those of stocks in 2000 or houses in 2006; rather, what is new is that it applies to such a breadth of assets. In 2000, when the stock market was, with hindsight, a speculative bubble, other assets like bonds, emerging market investments and real estate looked reasonable.
In the most pleasant outcome, global economic growth would pick up
The Everything Boom brings obvious economic risks. In the most pleasant outcome, global economic growth would pick up, causing today’s expensive assets to begin looking more reasonably priced. But other outcomes are also possible, including busts in one or more markets that could create new ripples in a world economy still not fully recovered from the last crisis.
There are two principal reasons behind this low-return environment, though people might dispute which is the cause and which is the effect.
Global central banks have been on an unprecedented campaign of trying to stimulate growth through low interest rates and of buying assets with newly created money. If the Federal Reserve keeps its short-term interest rate target near zero until next year, as most officials of the central bank expect, it will have maintained the zero-interest-rate policy for seven years.
The Fed held US$900 billion in assets in August 2008; now that number is US$4.4 trillion and counting, with the third round of asset-buying set to expire at the end of the year. Central banks in Britain, Japan and the eurozone have pursued similar policies.
AP Photo/Susan Walsh
AP Photo/Susan WalshFormer Federal Reserve Chairman Ben Bernanke speaks during a news conference at the Federal Reserve in Washington, Wednesday, Dec. 18, 2013.
In a view widespread in the capital markets, the low returns are a byproduct of those low rates. The Fed and other central banks have siphoned off trillions of dollars’ worth of the supply of global investments, and private investors are having bidding wars for whatever is left.
“Interest rates are so low,” said Peter J. Clare, a managing director and co-head of the U.S. buyout group at private equity firm the Carlyle Group. “There are few other attractive places where investors can direct their money, so it drives investor money into equity markets. It’s just the most basic of supply and demand equations: When there’s more demand, it drives up the price and pushes valuations where they are today.”
But while central banks can set the short-term interest rate, over the long run rates reflect a price that matches savers who want to earn a return on their cash and businesses and governments that wish to invest that savings – whether in new factories or office buildings or infrastructure.
In this sense, high global asset prices could be the result of a world in which there is simply too much savings floating around relative to the desire or ability of businesses and others to invest that savings productively. It is a reassertion of a phenomenon that the former Federal Reserve chairman Ben Bernanke (among others) described a decade ago as a “global savings glut.”
But to call it that may not get things quite right either. What if the problem is not too much savings, but a shortage of good investment opportunities to deploy that savings? For example, businesses may feel that capital expenditures are unwise because they won’t pay off.
Bernanke himself has been wrestling with the possibility that the original framing of a global savings glut got the problem in reverse.
“I may have made a mistake in trying to assign a name,” Bernanke, now at the Brookings Institution, said in an interview. “A glut means more than is wanted. But it doesn’t necessarily arise because people want to save more. It can be because they invest less.
“It’s entirely possible that if you look at the world, you have slow-growing advanced economies, China cutting back on capital investments, that the rate of return is just going to be low.”
If this analysis is correct, investors have an unpleasant choice: consign themselves to returns lower than the historical norm, or chase obscure investments that might offer an extra percentage point or two of return.
The New York Times News Service
I believe this article summarizes my feelings and why those who are smug about real estate should appreciate that this is a phenomenon involving multiple asset classes and in no way should be construed as smart investing in my view. People have in their chase for yield and returns failed to assign reasonable risk assessments and are failing to appreciate the amount of risk and the relative small returns they are getting for it. I unfortunately just don't see how this is going to end up well in the long run.
Welcome to the Everything Boom, or maybe it should be called the Everything Bubble
Neil Irwin, The New York Times | July 8, 2014 | Last Updated: Jul 8 8:48 AM ET
More from The New York Times
Frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next.
Streeter Lecka/Getty Images; Fotolia; Mark Lennihan/APFrustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next.
Google+
Comments
More
In Spain, where there was a debt crisis just two years ago, investors are so eager to buy the government’s bonds that they recently accepted the lowest interest rates since 1789.
In New York, the art deco office tower at One Wall Street sold in May for US$585 million, only three months after the going wisdom in the real estate industry was that it would sell for more like US$466 million, the estimate in one industry tip sheet.
5 reasons not to watch for a stock market correction
We say forget the correction predictions. Keep a diversified portfolio of quality companies. The market will go up and down, but, over time, it goes up far more than it goes down. Keep reading.
In France, a cable-television company called Numericable was recently able to borrow nearly US$11 billion, the largest junk bond deal on record – and despite the risk usually associated with junk bonds, the interest rate was a low 4.875%.
Welcome to the Everything Boom – and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.
The phenomenon is rooted in two interrelated forces. Worldwide, more money is piling into savings than businesses believe they can use to make productive investments. At the same time, the world’s major central banks have been on a six-year campaign of holding down interest rates and creating more money from thin air to try to stimulate stronger growth after the financial crisis.
We’re in a world where there are very few unambiguously cheap assets
“We’re in a world where there are very few unambiguously cheap assets,” said Russ Koesterich, chief investment strategist at BlackRock, one of the world’s biggest asset managers, who spends his days scouring the earth for potential opportunities for investors to get a better return relative to the risks they are taking on. “If you ask me to give you the one big bargain out there, I’m not sure there is one.”
But frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next. How long will this low-return environment last? And what risks are being created that might be realized only if and when the Everything Boom ends?
Safe assets, like U.S. Treasury bonds, have been offering investors paltry returns for years, ever since the global financial crisis. What has changed in the last two years is that risky assets, like stocks, junk bonds, real estate and emerging market bonds, have also joined the party.
Related
Enjoy the hot market, but prepare for the cold
Make sure to do these things before selling a winning stock
Want to buy shares of U.S. companies? At the current level of the Standard & Poor’s 500 index, every dollar invested in stocks buys about 5.5 cents of corporate earnings, down from 7.4 cents two years ago – and lower than just before the global financial crisis in 2007-08.
Prefer a more solid asset? The price of office and apartment building has risen similarly; office space in central business districts nationwide costs US$300 per square foot on average, up from US$147 in early 2010, according to Real Capital Analytics. In Manhattan, an investor in an office building can expect rent payments after expenses to add up to a 4.4% return, known as the capitalization rate, lower than in 2007, the top of the last boom.
AP Photo/Richard Drew, File
AP Photo/Richard Drew, FileTrader Peter Elkins is reflected in one of his screens at his post on the floor of the New York Stock Exchange.
Advertisement
What about overseas investments? Spain and other Southern European countries that were the nexus of the European debt crisis are not the only places where bond rates have plummeted (even Greece was able to issue bonds at favorable rates earlier this year). Emerging markets, which generally have higher interest rates because of higher inflation and less political stability, are offering record low interest rates as well. Bonds issued by the governments of Brazil and Malaysia, for example, are currently yielding a relative low of around 4%.
The high valuations now are not as extreme as those of stocks in 2000 or houses in 2006; rather, what is new is that it applies to such a breadth of assets. In 2000, when the stock market was, with hindsight, a speculative bubble, other assets like bonds, emerging market investments and real estate looked reasonable.
In the most pleasant outcome, global economic growth would pick up
The Everything Boom brings obvious economic risks. In the most pleasant outcome, global economic growth would pick up, causing today’s expensive assets to begin looking more reasonably priced. But other outcomes are also possible, including busts in one or more markets that could create new ripples in a world economy still not fully recovered from the last crisis.
There are two principal reasons behind this low-return environment, though people might dispute which is the cause and which is the effect.
Global central banks have been on an unprecedented campaign of trying to stimulate growth through low interest rates and of buying assets with newly created money. If the Federal Reserve keeps its short-term interest rate target near zero until next year, as most officials of the central bank expect, it will have maintained the zero-interest-rate policy for seven years.
The Fed held US$900 billion in assets in August 2008; now that number is US$4.4 trillion and counting, with the third round of asset-buying set to expire at the end of the year. Central banks in Britain, Japan and the eurozone have pursued similar policies.
AP Photo/Susan Walsh
AP Photo/Susan WalshFormer Federal Reserve Chairman Ben Bernanke speaks during a news conference at the Federal Reserve in Washington, Wednesday, Dec. 18, 2013.
In a view widespread in the capital markets, the low returns are a byproduct of those low rates. The Fed and other central banks have siphoned off trillions of dollars’ worth of the supply of global investments, and private investors are having bidding wars for whatever is left.
“Interest rates are so low,” said Peter J. Clare, a managing director and co-head of the U.S. buyout group at private equity firm the Carlyle Group. “There are few other attractive places where investors can direct their money, so it drives investor money into equity markets. It’s just the most basic of supply and demand equations: When there’s more demand, it drives up the price and pushes valuations where they are today.”
But while central banks can set the short-term interest rate, over the long run rates reflect a price that matches savers who want to earn a return on their cash and businesses and governments that wish to invest that savings – whether in new factories or office buildings or infrastructure.
In this sense, high global asset prices could be the result of a world in which there is simply too much savings floating around relative to the desire or ability of businesses and others to invest that savings productively. It is a reassertion of a phenomenon that the former Federal Reserve chairman Ben Bernanke (among others) described a decade ago as a “global savings glut.”
But to call it that may not get things quite right either. What if the problem is not too much savings, but a shortage of good investment opportunities to deploy that savings? For example, businesses may feel that capital expenditures are unwise because they won’t pay off.
Bernanke himself has been wrestling with the possibility that the original framing of a global savings glut got the problem in reverse.
“I may have made a mistake in trying to assign a name,” Bernanke, now at the Brookings Institution, said in an interview. “A glut means more than is wanted. But it doesn’t necessarily arise because people want to save more. It can be because they invest less.
“It’s entirely possible that if you look at the world, you have slow-growing advanced economies, China cutting back on capital investments, that the rate of return is just going to be low.”
If this analysis is correct, investors have an unpleasant choice: consign themselves to returns lower than the historical norm, or chase obscure investments that might offer an extra percentage point or two of return.
The New York Times News Service
Ex-Montreal Girl
Active Member
I never thought about that, Interested. Good point. Mortgage lenders OF COURSE have an interest in seeing prices go nuts even though they may make less interest -- or appear to. And we as a society have already mortgaged our children's future a long time ago. For example, instead of building infrastructure to reach out to subdivisions, we should have been going dense in town and repairing/replacing our infrastructure here. When everything starts to go, it's gonna be like Blade Runner out there.
As for TheKingEast's point about living well within one's means, I don't know how old you are but that was taken for granted in my youth. I can remember working as a salesgirl while in school in a nice women's boutique and customers would "lay-away" purchases. They'd put down $20 or whatever and, every payday, put down some more, and the item, which we would be holding in the back of the shop for them, would eventually be theirs.
Then the banks created, as they were then called Chargex (Visa) and MasterCharge (MasterCard), and all hell broke loose. We never had to save or wait for what we wanted to buy.
Oh well. I suppose China can hold the mortgage for all of Canada.
As for TheKingEast's point about living well within one's means, I don't know how old you are but that was taken for granted in my youth. I can remember working as a salesgirl while in school in a nice women's boutique and customers would "lay-away" purchases. They'd put down $20 or whatever and, every payday, put down some more, and the item, which we would be holding in the back of the shop for them, would eventually be theirs.
Then the banks created, as they were then called Chargex (Visa) and MasterCharge (MasterCard), and all hell broke loose. We never had to save or wait for what we wanted to buy.
Oh well. I suppose China can hold the mortgage for all of Canada.
interested
Senior Member
^^^
I am old enough Ex-Montreal Girl that I believe you buy what you can afford to purchase as opposed to what you can afford to carry.
I am constantly amazed watching my kids friends....they only worry about making the payments. I have tried to instill in my kids that you don't have to have everything "today" and the difference between "wants" and "needs".
Unfortunately, every example out there says live beyond your means including governments. It is clear that people would rather delude themselves into thinking there won't be a day of reconning. Well, one day the bond holders....
"China" in your example will simply say enough and then we will go through a Greek like scenario...hopefully not as bad.
I still recall Paul Martin "slaying" the deficit" and the pain of that decade plus. We seem determined to have learned nothing from the past.
So sorry for the long winded answer. The point is....I am "old"...or at least "old enough".
Incidentally, I am an "ex-Montreal guy".
I am old enough Ex-Montreal Girl that I believe you buy what you can afford to purchase as opposed to what you can afford to carry.
I am constantly amazed watching my kids friends....they only worry about making the payments. I have tried to instill in my kids that you don't have to have everything "today" and the difference between "wants" and "needs".
Unfortunately, every example out there says live beyond your means including governments. It is clear that people would rather delude themselves into thinking there won't be a day of reconning. Well, one day the bond holders....
"China" in your example will simply say enough and then we will go through a Greek like scenario...hopefully not as bad.
I still recall Paul Martin "slaying" the deficit" and the pain of that decade plus. We seem determined to have learned nothing from the past.
So sorry for the long winded answer. The point is....I am "old"...or at least "old enough".
Incidentally, I am an "ex-Montreal guy".
KA1
Senior Member
I would like to add my 2 bits to the comments made by ex-Montreal girl and 'ex-Montreal guy(ex-Montreal senior citizen?
.In the early sixties I used to live in London, England. We used to get paid every week.
In January of a year, banks will start 'Christmas club' -- encouraging individuals to start savings for the next Christmas on weekly basis. At that time, it did not make any sense. As a matter of fact, it used to sound funny. Now, looking back, it all makes sense.