Sunday, November 25, 2007

U.S. Real Estate Market vs Canada

Many of my clients and potential buyers are inquiring as to what impact the U.S. sub-prime mortgage fiasco will have on the Canadian real estate market. As President of the Georgian Triangle Real Estate Board for 2008, I just returned from the National Association of Realtors annual conference in Las Vegas where I participated in a number of forums pertaining to this matter.
As is often the case, media coverage of the sub-prime mortgage collapse is somewhat over-stated and real estate Boards and Associations in the U.S. are actively trying to counter the exaggerated "negative" press. The basic facts are as follows: The sub-prime mortgage debacle is the result of a "perfect storm" set of economic factors all converging at the same time. The economic destruction caused by the fall-out of sub-prime mortgages is serious and will cost in excess of $400 billion, more than the U.S. savings and loans mess of a few years ago. The situation stems from thousands of mortgages having been processed on behalf of borrowers with no or bad credit histories. In addition, over 90% of appraisers in the U.S. reported that properties were over-valued yet despite this, mortgages were granted and often for as much as 105% of a property's value. The situation was further aggravated by the fact that many of these sub-prime mortages were interest only loans and or were with issued with "zero" money down.
It is estimated that only 1 out of every 195 properties are affected, not a bad ratio. In excess of 35% of American homes are "mortgage free." The states most impacted by this situation are Florida, California, Ohio, Indiana and Michigan. Florida no doubt contains the greatest number of properties that are secondary homes which are often the most vulnerable and first to be sold when values start to fall. California is notoriously expensive with $400,000 and $500,000 mortgages not uncommon even for modest homes. The three northern states hardest hit were already experiencing depressed real estate markets much the result of huge job losses created by the restructuring of the Big 3 auto makers. By all accounts, the U.S. real estate market in 2007 will be their 5th best year on record and barring the onset of a major recession, it is forecasted that 2008 will see continued improvement to their domestic housing market with normal conditions resuming in 2009. Canada's economy continues to out perform that of our U.S. neighbours and consumer confidence remains high. Although interest rates have increased, home ownership in Canada is still very affordable. The Canadian Real Estate Association forecasts that national home sales will increase by 8.1% in 2007 and many provinces will enjoy record sales for the year. The Georgian Triangle is no exception. Sales through the the local real estate Board's MLS® system in 2007 will exceed $500 million. Much of the real estate activity in our area is being driven by the influx of people relocating to our area for recreational and retirement purposes and this trend is only just beginning. In his book Boom, Bust, Echo, author David Foote demonstrates that "real estate is affected far more by demographics that it is by economics." No where is this more evident than in the Georgian Triangle and while nothing is certain, the U.S. sub-prime mortgage market should have little or no impact on area real estate values and or sale.

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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.