Difference between place to live and investment
Ray Turchansky
Province
Signs outside this Virginia home illustrate the messy U.S. housing situation caused by subprime lending. The U.S. Mortgage Bankers Association predicts almost three million foreclosures in the U.S. in 2007-08. AFP file photo
The U.S. housing meltdown and cooling of the red-hot housing markets in parts of Canada have many investors thinking now is the time to jump into real estate.
It might be a little early to act.
In a recent presentation to the Canadian Pension & Benefits Institute, economist Gary Smith of Alberta Investment Management trotted out the S&P Case-Shiller index, which measures the difference between a home’s current and previous selling prices.
The index showed that, in the U.S., during the 21-month period to last September, average home-resale prices fell 25.5 per cent in Canadian dollars in Detroit, 23.4 per cent in San Diego, 20.6 per cent in Phoenix and 20.5 per cent in Las Vegas. Prices were down in 15 of 20 major American cities. Only Seattle bucked the trend, with prices slipping just 0.3 per cent in Canadian dollars and actually rising 16.7 per cent in greenback terms.
Given falling prices, a strong Canadian dollar and historically low mortgage rates, this seems like a good time to buy that vacation property in Arizona.
Or, with house prices falling in Vancouver and Edmonton while flatlining in Ottawa and Montreal, it’s tempting to purchase that rental property you’ve always wanted.
Analysts think both the U.S. Federal Reserve and the Bank of Canada will lower interest rates at least once and maybe as many as three times during the first half of this year. Then rates may stabilize or even creep up a bit.
The U.S. Mortgage Bankers Association predicts that 1.35 million homes will have entered foreclosure during 2007 and 1.44 million will do so in 2008.
In Vancouver, the price of an average single-family home has stalled at about $750,000.
Calgary‘s average dropped from $505,900 in July to $452,300 in October, but rebounded to $462,100 in November. Toronto is at nearly $400,000, while Edmonton prices have dropped from $426,000 in May to $376,300 in November. Ottawa‘s average is about $275,000; Montreal‘s $245,000. An Edmonton realtor said that back in May “listings were gold,” but now “buyers are gold.”
Hendrickson Financial notes that “it is evident that home buyers in Edmonton and Calgary who bought in the spring of 2007, with less than five-per-cent down payments, already have less equity in their homes than the balance owing on their loans.”
Portfolio manager Harland Hendrickson adds: “We firmly believe that we will see real-estate prices continuing to move down in Edmonton as well as in all North America over the next year or two, at least. This is not the time to be holding onto investment real estate.”
Buying a home to live in, he says, is another matter.
Looking forward, Royal LePage expects house prices to rise 3.5 per cent in Canada during 2008, led by Regina at 15.4 per cent and Winnipeg at 11.4 per cent. Increases of only four per cent are expected in Vancouver and Calgary, and one per cent in Edmonton.
If you’re buying to invest in a second property, the optimum time may be next summer or fall.
— Edmonton Journal