A farm foreclosure sale in Iowa. Circa 1933. (Photo from the Franklin D. Roosevelt Library, courtesy of the National Archives and Records Administration).
By Frank Kirschner
Scores of economic prognosticators are continually trying to determine when the U.S market will level off. Many investors are asking, will there ever be a better time to buy? No doubt about it, there’s never been a better time to buy a U.S. investment or vacation property. There are fantastic opportunities south of the border and inventory is solid.
The market has provided some great investment opportunities for our Canadian neighbours, particularly in Florida, Georgia, Arizona and Nevada, but you’ll find deals at 25 to 40 per cent below previous sale prices in virtually every state in the union. Prices have never been cheaper and mortgage rates never lower.
How long is this bear market expected to last, and why is Canada’s economy gloating in such stark contrast?
Source: Clear Capital
Some analysts expect the current U.S. market to last eight to 10 years. Canada has been a shining example to the world through the melt-down for two reasons: fiscal responsibility and job creation – neither of which the U.S. has experienced in many years. The graph from Clear Capital gives a shocking picture of U.S. real estate trends.
However, the real indicator of future trends lurking in the wings is succinctly identified by industry educator KCM Blog. They explain it this way: “The inventory of future short sales and foreclosures that will be coming to the market is known as ‘shadow inventory’. Future real estate pricing will be determined by the number of these distressed properties that eventually reach the market.”
“These properties sell at major discounts:
* short sales at a 10 per cent discount
* foreclosures at a 35 per cent discount
Source: CoreLogic
“CoreLogic just reported this inventory is declining as more Americans are staying current on their mortgage obligations. See the graph, right.
“There still are a substantial number of distressed properties that must be cleared. They will cause prices to soften in many markets. However, it is comforting that this number is finally beginning to decline.”
It is estimated that more than one in four U.S. homeowners are currently upside down (owing more than their home is worth). Average home prices are down eight per cent from a year ago, three per cent over the quarter, and are currently falling at about one per cent every month, according to Zillow.
If the banks were to unleash all these shadow foreclosures on the market too quickly, or all at once, it would devastate an industry already on life-support, bringing the U.S. to its knees, creating a further foreclosure implosion similar to that which occurred in 1929.
At that time, a stock market crash and a lack of jobs most affected the anaemic economy that was sandwiched between two world wars.
The current U.S. economy is also suffering lacklustre GDP and extremely high unemployment figures. As they say in the south, “If people don’t have jobs, they ain’t buyin’ nothin.”
That’s why Canada stands tall and proud. You’ve been a shining star amidst gloomy skies. How so? You’ve kept your national debt in check; and as a country, you’ve lived within your means. You’ve also realized everyone should put money down on a house, and have ‘skin in the game’. You have stuck to recommended Gross Debt Service Ratios when approving your mortgages. Hats off to you.
Frank Kirschner
So Canada, what’s next? I recommend you check your funds, pick a favourite vacation or investment spot, sharpen your pencils and take action. The U.S. market is “ripe for the pickens.”
Frank Kirschner is a veteran U.S. and Canadian industry veteran based in Atlanta. Visit his Facebook blog: Atlanta Real Estate Cyber Café, click Like; or connect at www.Linkedin.com/in/frankkirschner or email [email protected].
