It sounds like this headline is showing up all across Canada. Variations of this headline have been triggered by a new report from the Canadian Centre for Policy Alternatives. In the report they talk about six major centers (two in Alberta!) that are in a precarious position. (links to the reports are at the bottom of the article!)

I was writing an article about this for my weekly Real Estate column at the Chestermere Anchor when I found the following video from Peter Kinch. Peter is one of the top ranked mortgage brokers in Canada, and in the video he presents his view on the subject.

Also of note, he brings up the other report that just came out from the C.D Howe institute report that says there is a low risk of a US style housing burst. Basically the exact opposite of the other report. Also strangely enough, the C.D. Howe report didn’t make much news in the headlines! Anyway here is the video and I will probably have my post about this up some time tomorrow.

**Give the player a couple of seconds to start after you click the arrow!**

Oh, one more quick note, the next Bank of Canada rate announcement is due out on September 8th, if you are keeping track!

Links to the Reports:

C.D. Howe : Not Here? Housing Market Policy and the Rick of a Housing Bust

Canadian Centre for Policy Alternative: Canada’s Housing Bubble, An Accident Waiting to Happen

The Economist magazine just released another article about an upcoming second dip in the pricing of homes in the US. I had previously explained a bit about the new round of Adjustable Rate Mortgages (ARM’s) coming up and bringing with it a new round of foreclosures in a previous posting, but this article also goes into details about some of the federal programs coming to an end.

These programs helped to artificially stabilize the housing market and now that they are set to expire, interest rates are set to rise and the US labor market continues to be so soft it is setting the stage for another substantial drop in values. Consider this another warning for you if you are looking at potentially purchasing an “investment” property in the US due to current low prices. These investments are actually much more speculative and will require much longer time frames to turn into wealth building opportunities.

Another aspect to consider regarding this is the Canadian market is still significantly different than the US market, the next wave of price drops South of the border do not translate into the same occuring here. As evidenced with the global recession while pricing did move downward in Canada, it was no where near as significant as it was in the US. We have already had our government change some of the qualifying and mortgage rules in anticipation of potential future problems. Whether that will be enough only time will tell.

Here is the link to the complete Economist Article – Waiting For the Other Shoe To Drop

"photo by Robbin Lara"

I just read an article on MSNBC the other day about the upcoming batch of foreclosures in the US housing market and it’s still rather scary south of the border. Some of the numbers that stand out are that there are another five to seven million properties potentially going into foreclosure right now, but it could take three more years to have them all processed and on the market.

This doesn’t even take into account the upcoming distressed borrowers who are running into problems due to the economy, layoffs and overwhelming debt. The US foreclosure process can take up to a year and sometimes longer, which can extend the problem even further.

Interestingly, the real story isn’t the statistics that are being released it’s the story behind it. One set of statistics shows that actual foreclosures are slowing down which normally would be a sign of optimism for the markets in the US. The article however, points out that there is a “shadow market” caused by the lag that is occurring from the actual initial default to foreclosure. Initially this was a fairly quick process, but as the numbers have become overwhelming, it is taking longer and longer to foreclose on properties.

Also, these new batches of defaulting borrowers are less likely to be part of the sub-prime mortgage borrowers. The new defaults are the economic victims I mentioned earlier.
You can read the entire article here, New Wave of Foreclosures Threatens Market.

The important realization you have to understand is the US market still has plenty of turmoil to go through. While the Canadian market is seeing an increase in values, a surge in buying and overall stability, the US could have years before it starts to become stable.

With millions of new foreclosures set to hit the books and needing to be sold to the public, what do you think the affect will be on current prices in those markets? If you are guessing there is potential for even further decreases, you won’t be far off. Unlike foreclosures in Alberta, these properties go on the auction block in the US and will sell for pennies on the dollar.

This could create both fabulous opportunities for those with big pockets and longer time frames or nightmares for those who purchase through traditional channels with visions of making big money in the near future. My advice for anyone considering “investing” in the US Real Estate market right now is to have a very long term vision and forget about trying to make money in the current market. If you are considering purchasing a vacation home because the prices are so great right now, give it another six more months and see how much you saved!

In previous articles, I have mentioned it is too early to jump into the US housing market unless you have a very long term plan. This latest article in Business Week seems to concur with my thoughts.

2009 was a record year for foreclosures in the US with an increase in the number of foreclosures of 21% versus 2008 and they believe 2010 will be worse. The majority of this is all related to the adjustable rate mortgages resetting to higher interest rates causing payments to increase on many properties by double or more.

With any equity in the property wiped out, it doesn’t make sense for many homeowners to continue to make payments on a house they owe $100,000 or more above its actual value. With the ability in the US for mortgage holders to just walk away from this loss without the lender being able to come after them, it is exactly what they are doing.

So what does this mean to potential buyers? Well, as more of these foreclosed properties hit the market it will continue to drag prices downward, or at the very least leave prices very flat until all the inventory burns through and demand ramps up. So while that four bedroom home just outside Phoenix with the pool sounds like a bargain now at $200,000, in six months it may be more of a bargain.

You can read the full article here, Foreclosures: An Increase of 21% in 2009 and Climbing