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> I would bet that the reason housing prices have outpaced inflation is due almost entirely to the popularization of rent-seeking activities and real estate spe

by Canada 14y ago

> I would bet that the reason housing prices have outpaced inflation is due almost entirely to the popularization of rent-seeking activities and real estate speculation (not including the relatively recent distortions due to late 1990s deregulations that led to CDS and other financial "innovations" created to derisk the asset class beyond what was rational). LOL. No. The reason real estate prices are so high is because when the central bank forces down interest rates money pours into investment class assets, driving prices up. Our shadowy banking overlords wisely started tightening up years ago to avoid a US style disaster. CMHC (our equivalent to Fannie Mae) tightened credit to qualify requirements for mortgage insurance. As soon as these changes took effect volume of real estate transactions plummeted and price increases halted. But then they started creeping up again... and the reason has nothing to do with Canadian policy... There is a sizable Chinese community here, particularly in Vancouver. Monetary policy in China is constantly devaluing the RMB, and Chinese citizens are scrambling to unload them. Tons of them are coming over here and buying up tons of real estate. So anyone in Vancouver thinking of using a real estate agent to sell their property: Make damn sure you choose a Chinese one who has mainland Chinese buyers. If you hire a native there's almost zero chance he will directly find a buyer and so they'll be no way to reduce the commission you will pay. I sold my condo a couple of years ago and NONE of the non-Chinese buyers whose offers I accepted were able to clear the conditions because their lenders had cut back on their borrowing limits. I ended up selling to a Chinese family moving here who paid for the $700,000 place with cash.

malandrew 14y ago
True, but this is the reason I said that homes need to cease to function as an investment asset if you aren't living in it. Homes should not function as an investment asset when interest rates drop. It effectively negates the benefit of more affordable loans. "The good news is that the home loan is for your first home is 5% with no money down. The bad news is that now everyone is buying homes whether or not they are going to live in it themselves, so the home you want to buy now costs you double what it did when loans were 13% and you had to 20% down". Only banks win in this scenario. I would guess that a large share of all those homes purchased as an investment asset when rates dropped were put to use in rent-seeking activities. Add to that the vicious cycle impact rising home prices has on rental rates and you have an environment that hurts everyone that can't or shouldn't be buying a home.

by Canada 14y ago

malandrew 14y ago

True, but this is the reason I said that homes need to cease to function as an investment asset if you aren't living in it. Homes should not function as an investment asset when interest rates drop. It effectively negates the benefit of more affordable loans. "The good news is that the home loan is for your first home is 5% with no money down. The bad news is that now everyone is buying homes whether or not they are going to live in it themselves, so the home you want to buy now costs you double what it did when loans were 13% and you had to 20% down". Only banks win in this scenario. I would guess that a large share of all those homes purchased as an investment asset when rates dropped were put to use in rent-seeking activities. Add to that the vicious cycle impact rising home prices has on rental rates and you have an environment that hurts everyone that can't or shouldn't be buying a home.