Could there be a situation where prices increase, but asset values decrease?
On today’s episode we will examine this very question. In an inflationary environment, the cost of construction goes up. In fact we’ve seen very real increases in the cost of construction over the past several years. In 2014, you could routinely build new B class apartments for $88 per square foot. That’s exactly what I was building for in 2014. Today, prices are closer to $120 per square foot. It amounts to an average 9% increase per year over the past 4 years. This is during a time when government is telling us that inflation is running close to 2.5% over that same time period.
The price of any item is not determined exclusively by the intrinsic cost, but in fact by people’s ability to pay. We’ve seen real estate prices fall all over Europe. Could this happen in North America?
