Steady Course

The accompanying graph shows that sales are bumping along quite nicely compared to the last two years. The normal fall slowing of sales is upon us with a matching increase in inventory – we currently have a 4 month supply of homes based on September/ October sales. But if you compare the number of properties available relative to the spring sales activity, we are in a balanced market situation in terms of inventory. It simply means that until the typical spring market surge arrives buyers have more choice and sellers can expect longer market times for their homes. Prices are steady, not rising.

To understand our current market it is prudent to study the gyrations of the current American real estate market. South of the border mortgages have been lent in ever increasing numbers to unworthy borrowers. Known formally as “sub-prime” mortgages they were dubbed by insiders as “NINJA” mortgages – No Income, No Job or Assets! In 2002 these mortgages comprised 5% of total U.S. residential lending. By 2006 this ratio had increased to 20%. To compound the problem the mortgages were launched with “teaser rates” – for the first 1 to 3 years the interest rate would be 1% or less. Then the rate would balloon to market rates – 5 or 6%, with a matching payment hike of 2 or 3 times the initial payments!

People are losing their properties in droves, walking away because they can’t afford the payments. One in ten houses in Cleveland is vacant, boarded up or repossessed. The city is on the hook for an estimated $110,000,000 to bulldoze houses that have been foreclosed on by the lenders, ransacked by thieves recovering copper plumbing and wiring (copper currently at a record $3.25/lb.), then left as a safety hazard. In Ft. Myers Florida for example 2 ½ years ago there was only a 29 day supply of houses for sale. Today it is hovering around a 29 month supply! In some locales, home owners with 6 month old homes for sale are asking $100,000 less than their builders are trying to charge for yet unfinished product built on speculation – and neither is selling!

In contrast Canada’s sub-prime mortgage market is only about 5%. Moreover, sub-prime here is much different than south of the border. We don’t have “teaser” rates anywhere near the U.S. rates and our qualification criteria for borrowers are more stringent. Our Canadian conservativeness has served us well in this regard. As a result, industry watchers reassure us that what is happening south of the 49th parallel will not spread north. The only fall out from the U.S. turmoil is that there has been a tightening of credit markets, meaning the banks have less money available to lend. Less credit worthy borrowers may have difficulty being approved for a mortgage relative to 6 months or a year ago. Rest assured we are in far better shape than our southern cousins.

So thank your lucky stars you are not trying to unload a property in the U.S. I thank my lucky stars that I am not trying to earn a living selling real estate in the U.S. In California it is predicted that the average realtor will sell only 2.5 properties in 2007 – flipping burgers at McD’s may look like a promotion for many!