Why is now a very dangerous time?

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Michael: Ozzie one of the numbers that we saw this week coming to us was 72% of our disposable income went to housing. I think it’s related to one of the things that you’ve been writing about, that is the percent of foreign ownership within a market we are talking about. I know you have some examples of that.

Ozzie: Yes,  it’s kind of interesting in the sense that we actually have never been affordable. I think UBC did a study on Vancouver that stated we have always been over 60% for some 23 years. It’s the same whether you’re in Hong Kong, Miami or in any major city where people want to live.  That’s’ where values grow. But one of the things that’s happening again is that we live in the world’s most unreported inflation of all times. We are spending too much money and eventually that drives up hard assets like gold, silver, and in my view real estate always higher.  It has for some 40 years. One of the outcomes is that the easy money we print goes to the rich first, so in the past 10 years they’ve been buying. But when they leave those areas, boy watch out because the price declines maybe 30%.  Right now they are buying downtown London.  According to Wall Street Journal,  64% of buyers in London at over a million dollars last year alone are foreigners buying from 61 countries. In Miami, isn’t that a depressed area? Isn’t that the home of all foreclosures? In Miami, 60% of its luxury sales last year went to overseas buyers and for new condos in Miami it’s over 90%. Hong Kong saw mainland Chinese buy 29% of all the luxury deals in the last six months. In Paris, Russian and Middle East buyers buy up the Golden Triangle near the Champs-Élysées and apartment prices rose 30% last year.  In New York Russian composer Igor Krutoy bought a condo at the plaza for over 48 million. Even for New York that’s one of the highest prices ever, and then RE/MAX last week came up with a study that saw Ottawa increasing its sales over a million by 51%. In fact right across the country the luxury market is doing very well thank you very much, with Vancouver doubling its luxury home sales of ovver two million dollars last year.   

Michael: This is just is a great example of how other variables come on and impact any kind of a local market. What’s interesting about those numbers is how global everything feels.  I read a report in Palm Springs that said half of all sales in Phoenix were Canadian, so the markets are becoming more and more international.

Ozzie: Yes, and I suppose that at the upper end the availability of money, and it’s very cheap money, it doesn’t seem to make any difference. When you go to our west side of Vancouver right now and you casually mention at a cocktail party that an old little house it just went for 1.5 million no one raises an eyebrow.  But Mike it is an eyebrow riser. A million and a half for 3,300 square foot lot?  I mean hello, that can’t last forever.

Michael: I remember the top of the Tokyo real estate market in the late 80s when single parking stalls went for $75,000. Then of course we know the old stories about how the Imperial Palace in Tokyo was worth more than all the real estate in major cities of the world.

Ozzie: Yes, although in Vancouver there’s a dome over a certain area. There’s Richmond,  the West End, the West Side, White Rock and it’ll spill over into Burnaby. But the rest of the market is not participating.  Local markets are actually very normal, a little down in sales actually right across the country. Normal means that we don’t have five buyers wrestling each other to the ground in the living room of the seller, then one pays $100,000 too much for it. Normal is that people have some time to take a look at the property.

Michael: This same phenomenon we’ve seen in Vancouver and Victoria, has it also gone to Edmonton, Calgary and places outside of British Columbia?

Ozzie: According to the RE/MAX report the luxury sector has clearly done very well. They are all over a million. Whatever is considered luxury in a market has done very well. Generally sales right across Canada are down. We are down depending on market between 7 and 12% in absolute sales and that’s true for the lower mainland as well. On Vancouver Island prices are hanging in there, but sales are down. The point I’m trying to make is that in 1995 we all expected that Hong Kong Chinese buyers would flee Hong Kong because of the 1998 transfer to mainland China. When it was realized that wasn’t going to happen they all went back, and we had a three yearmajor downturn in the market. All I’m saying is be cautious. If it’s not normal it may not stay there forever. 

Michael: Let’s talk a little hot property in the lower mainland in British Columbia compared to Phoenix AZ where you’ve just been.

Ozzie:  In Vancouver on the West Side, in Coal Harbour a one bedroom condo will be 500,000- 675,000 or $1,000 a square ft.. In Quinto AZ a one bedroom condo is available for just  $100  a foot. You know nearby in Surrey BC a brand new condominium will start at $149,000. I think that’s affordable particularly when you consider all the things that are going on in the valley with the new RCMP station, law firms moving over and of course the City Hall is coming there. Surrey is growing at a tremendous pace, and as the old saying goes ‘values go where people go’ means that it’s going to be a good investment in the future.

Michael: You say the luxury market is moving in many areas. I think is amazing is how Canadians perspective on real estate is so different from people who’ve been in those hard hit areas in the states, whether it is the Miami Florida area, whether it is Scottsdale or Phoenix. It’s just interesting to compare the psychology because Canadian’s are looking around going “hey everything seems cheap,” and they are going “are you kidding, you want more real estate?”

Ozzie: It’s so true, you hit it on the head. It’s confidence. In Phoenix and I had the privilege of chatting with the mayor and when I look at all the numbers they are actually very positive. If anybody would report those numbers for Vancouver we’d be feeling very strong capital investment, unemployment rate dropping and the vacancy rate dropping. You can buy a very nice 850 square foot townhouse,  two levels with a fire place, for as low as $35,000 and not in a very bad area. I mean it’s mind boggling, yet people have this very poor attitude in Phoenix. Two reasons, one is finance. Financing is almost impossible to get.  The second is strictly confidence. We have in Germany a saying that ‘a market is always somebody’s owl or somebody else’s nightingale.’ Last year I was in a hotel bar in Phoenix and there were some Canadians and some American realtors. The American realtors were miserable and the Canadians were high fiving and saying”what did you buy?” The Canadians were simply looking at a market singing like a nightingale and the others were gloomy as an owl.  The most amazing thing is that we come out of this market in Vancouver and you go down there and say “I have three of this and two of that…”  

Michael: Yes exactly Ozzie thank you for taking the time on the long weekend. You can just got to www. jurock.com and click on the Hot Property button.

A lot of questions are swirling the globe today about why governments are buying gold bullion and what this means when it comes to the US dollar? Should Americans be running to their nearest gold dealer and buying what they can because the end is near? Or is buying gold, or maybe silver and other precious metals, a wise choice as an investment?

In the first quarter of 2011, the Mexican government had amassed nearly 100 tones of gold bullion causing metal experts to turn their heads and take notice. Mexico has not been the only country to build up its reserves of the precious metal. China, India, Russia, Kuwait, Saudi Arabia, all have added gold to their coffers. Why are they doing this? What does gold give them that other investments do not?

There is more to this story than the idea that countries are buying gold to prepare for an impending collapse of the US dollar. Global economics is far too complicated for a one-sided scenario such as this one. Countries like Mexico, China and others are developing and buying gold to diversify their exports to developed markets like the United States and Canada.

With a growing horde of gold, Mexico for example, can manipulate its currency and downgrade it in order to increase exports to the US, its largest trading partner. Britain, Canada, Japan, and other developed countries have smaller gold reserves and rely on their currencies for economic strength.

This is not necessarily the safest way to secure a nation at this point in time because of the debt problem in America. Also, the continuing insistence on the Keynesian policy of printing money to support capital markets and failing financial institutions puts the economy on unstable ground.

Another reason for an increase in gold holdings for a central bank is often due to decreasing confidence in the economy or a negative outlook on the strength of either the local currency, or the US dollar. The US dollar, given its status as the reserve currency of the world, is generally a concern for all countries, and its something that central bankers around the world are watching very closely.

A little history of gold buying may help to understand why countries may want to increase their reserves and what happens to those who do not. During the tech boom of the late 1990s, gold was referred to by names such as, “a thing of the past,” and “a barbarous relic.”

In early 2011, people and governments alike are singing a different tune. In the first quarter of 2011, the central bank in Mexico picked up 93.1 tonnes of gold, increasing their reserves 1300% (up from about 7 tonnes). In Canada on the other hand, despite running one of the most respected mints in the world, the government only holds 3.4 tonnes of its reserves in gold.

It is interesting to look at these figures on a per capita basis. One tonne of gold contains 32,150 ounces. There are about 107 million people in Mexico and about 34 million people in Canada. Given these numbers, Canada has in its reserves approximately 0.0032 ounces of gold for every person. Mexico on the other hand holds approximately 0.03 ounces per person. Both of these numbers seem shockingly small, but it is interesting to note that on a per capita basis, Mexico holds approximately ten times the amount of gold that is currently held by Canada.

Simply put, the current state of gold buying and trading is that developing countries buy the gold and the developed countries sell it and rely on paper money. It is a great historical irony that in the 16th century, Hernan Cortez came to Mexico and stole the gold from the Aztec empire.

Spain continued to loot the country of its gold and silver reserves over the centuries leaving it at the economic mercy of its American neighbours. Maybe now is the time that Mexico reclaims its lost fortune?Courtesy : EzineArticles.com

I happen to own some dollar at the moment, but only because it is so beaten down …

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