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Archive for October, 2012

Are we headed for a U.S. style crash?

Wednesday, October 31st, 2012

This article is taken from the Financial post dated Oct 30 2012.

Garry Marr | Oct 30, 2012 10:16 AM

CIBC Deputy Chief Economist Benjamin Tal sounds like he’s getting tired of the comparisons linking the Canadian housing market to a U.S. style crash.

Canada is just not going to have a severe crash, he says in a report dubbed “Should We Worry About a U.S. Style Housing Meltdown?

You could lose a “night’s sleep” if you glance at charts comparing U.S. household debt and prices before their correction with today’s Canadian housing market but Mr. Tal says a closer look reveals vast differences.

“To be sure houses prices in Canada will probably fall in the coming year or two but any comparison to the American market of 2006 reflects a deep misunderstanding of the credit landscapes of the pre-crash environment in the U.S. and today’s Canadian market,” says the economist.

He lays out a number of myths used to compare the two markets, listing everything from the difference in the quality of debt to the false assumption that most Americans had long-term 30-year mortgages before the crash.

“I just think the comparisons are irrelevant,” says Mr. Tal. “There are two different questions. Are we slowing? Yes, we are slowing. But not every slowdown should be a U.S. type crash. Just because it happened there doesn’t mean it happens here.”

The Canadian Real Estate Association said this month that September sales across the country were down 15.1% from a year ago. Many commentators expect prices to fall next but CREA said last month’s average sale price of was up 1.1% from a year ago.

Interestingly enough, Mr. Tal says some of the defences used to explain how the Canadian housing market is different than the U.S. probably are not valid.

For starters the low rate of mortgage arrears means nothing, it was just as low before the U.S. crash. Canada is a recourse country where borrowers in every province but Alberta can go after a homeowner’s other assets but that’s not much different than America where only 12 states are non-recourse states. Mortgage industry deductibility has long been seen as a contributor to the U.S. housing crash but only about 15% of Americans use that tax break, says Mr. Tal.

But the economist doesn’t need those excuses. He says the debt-income ratio in Canada is high but look at the quality of debt which rose quickly in the U.S. with almost 22% of the market considered risky — some of those people with a negative equity position even before prices crashed. In Canada, you must have a minimum of a 5% down payment.

While the 30-year fixed rate mortgage has long been the U.S. standard, 80% of new mortgages in the U.S. went for an adjusted rate mortgage leading up to the crash. Those mortgages had teaser rates for two to three years that were almost 4.25 percentage points below prevailing rates.

“[That teaser] expires and overnight you’ve got two years worth of [Federal Reserve] increases in one day, that’s a shock,” says Mr. Tal.

He says the Canadian market has room for a soft landing which is what Australia experienced recently. “They demonstrated there is such a thing as a soft landing, interest rates went up and prices went down by 7% to 8%.”

So why are we so obsessed with comparing ourselves to the U.S.? Mr. Tal says it’s normal. “It makes sense because it happened in the U.S. and everybody was talking about it and we are going through a significant increase in house prices. I can understand why people do it but it should be based on fact.”

Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Website: www.davedry.com
Blog: blog.davedry.com
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017

Open House in Schonsse 7904 172 Ave. Saturday October 27 2-4 pm

Thursday, October 25th, 2012

Please join me for an open house from 2-4pm

2360 sqft show home condition.


Property details.

Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Website: www.davedry.com
Blog: blog.davedry.com
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017

2 Story For Sale in Schonsee

Tuesday, October 23rd, 2012

• 2,360 sq. ft., 3 bath, 3 bdrm 2 story-MLS®$524,900

Schonsee, Edmonton – Home is where the heart is, and this home is sure to please. Immaculately maintained this two year old home, feels like a show home. Situated at the end of a cul de sac on a generous fully landscaped lot. A Large open kitchen, living room and dining room bathed in deep rich hardwood flooring and finished off with granite counter tops and stainless steel appliances, give ample space for children and adults to do their own thing and still be together, or for more formal family celebrations. A large family room gives a more informal atmosphere, with vaulted ceiling and bow window an ideal space to spend more intimate family time. The master bedroom is complete with his and hers closets and large en suite with soaker tub and stand up shower. With two more large bedrooms, this home will warm your heart. Take a walk through and see for yourself.

Property information

Open house King Edward park Saturday October 6, 2-4 pm

Thursday, October 4th, 2012

Please join me for an open house.

Property details.

 

Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Website: www.davedry.com
Blog: blog.davedry.com
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017

October newsletter and stats.

Tuesday, October 2nd, 2012
Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Website: www.davedry.com
Blog: blog.davedry.com
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017
The data included on this website is deemed to be reliable, but is not guaranteed to be accurate by the REALTORS® Association of Edmonton. Trademarks used under license from CREA.
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