Very busy on the desk today.
Just found an interesting article on foreclosures and the Condo market.
A couple of years ago I remember seeing a documentary on people waiting in line for days to buy Condos in Florida. It was absolute madness. It was the top of the market.
This article has me thinking that if I had the capital, maybe it would be a good idea to buy some prime real estate in a sunshine state. I could rent it out to vacationers and stay for free when I need a break from the cold. If only….
This will be a slow week on the economic front, as the only economic data out of Canada today is the release of data on the price of new homes in March. Prices rose 0.2% compared to a month earlier, matching economists’ expectations.
Year over year, new home prices are up 6.1%, a healthy number, although the market is appearing to slow down a bit as the increase this year is slightly lower than last year’s.
Overall this is good news. Continued strong sales in new homes will encourage developers to begin new projects, employing laborers and strengthening the economy. Eventually we’ll meet a point where we’d expect to see a decrease in sale prices as inventories of new homes pass the number of people looking to purchase them. This is normal in a market economy and there is no evidence to suggest the type of collapse that happened south of the border.
Canada has long been a fiscally conservative nation. The strong banking sector has steered consumers in a responsible direction under their watchful risk averting eyes. There is no sub prime mess in Canada because the banks would never lend funds out to such high risk consumers. However, this Globe article has me starting to think otherwise.
I recently purchased purchased some property. At the bank I gave my income and financial info to the banker and their computer system spat out my maximum purchase price, which could be increased if necessary. They can increase the number by increasing the term of the mortgage. 25 years, which a generation ago was considered the max mortgage is now the standard. 30, 35 and 40 year mortgages are becoming more popular. One bank is even running billboards advertising a 0 down mortgage. With 0 down and 40 years of payments, almost anyone can afford a little place with today’s interest rates. But what about tomorrow? What happens if Joe with 0 down and 40 years to pay loses his job in 2 years? He’ll quickly discover that he has not built any equity because almost 100% of his payments for those 2 years were interest.
Joe will default.
The same goes for interest rates. If rates spike up, Joe might not be able to afford his payments.
The end result? Not a meltdown like the US, but a serious dent in the real estate market.
Taking a look at this morning’s headlines:
US home foreclosures are up 57%
Oil is at a record high of $112.
Corn & Rice futures are at record levels trading in Chicago.
Now I don’t want to sound like Mr. Negative and scare you, but things aren’t exactly looking too good for the US Economy. The US Dollar stinks, interest rates are low (this is good for people with loans, but foreign investors like high interest rates), and commodity prices are rising.
The most important thing that people should now be paying attention to are JOBS.
