Can U.S. Real Estate Market Impact Toronto?
The big press in Toronto is not about the U.S. real estate market, but rather about the U.S. mortgage market! The sub prime mortgage market in the U.S. has taken a hit - and why not when you lend to people with 'no money down', bad credit, or no proof of income!! I doubt if most common people would make many loans under those circumstances but apparently the professionals in the U.S. lent billions.
In Canada, the sub prime market is much smaller and thankfully Canadians are more conservative. What has hit our markets is that some of our so called prime short term loans ABCP (asset backed commercial paper) in Canada sponsored by banks and non-bank companies such as Coventree is bundled debt which includes car loans, credit card debt, and finally admitted too - a little sub prime mortgage money! Everyone now wants out. This lack of liquidity is causing everyone to get nervous. Central banks have poured billions into the market to stabilize the situation. Is this just a minor short term issue or the start of a market correction?
We know that a weak U.S. real estate market will not impact our real estate market directly. After all you can not ship properties for sale from Florida to Toronto!! But money is another commodity that knows no borders. A financial problem in the U.S. can impact our economy. And a recession in the U.S. can impact our economy, which would in turn impact our own real estate market.
What do you think? U.S. problems are just a minor correction and our real estate market will carry on? Or this is a major problem which will impact our real estate market in 2008?
In Canada, the sub prime market is much smaller and thankfully Canadians are more conservative. What has hit our markets is that some of our so called prime short term loans ABCP (asset backed commercial paper) in Canada sponsored by banks and non-bank companies such as Coventree is bundled debt which includes car loans, credit card debt, and finally admitted too - a little sub prime mortgage money! Everyone now wants out. This lack of liquidity is causing everyone to get nervous. Central banks have poured billions into the market to stabilize the situation. Is this just a minor short term issue or the start of a market correction?
We know that a weak U.S. real estate market will not impact our real estate market directly. After all you can not ship properties for sale from Florida to Toronto!! But money is another commodity that knows no borders. A financial problem in the U.S. can impact our economy. And a recession in the U.S. can impact our economy, which would in turn impact our own real estate market.
What do you think? U.S. problems are just a minor correction and our real estate market will carry on? Or this is a major problem which will impact our real estate market in 2008?
posted by RemaxCondosPlus at
11:32 AM
4 Comments:
1) Banks offering 40-yr amort.periods now, no money down, etc.
2) Plenty of natural resources here
3) Immigration-friendly
4) Increasing trade outside US
5) Poor transit infrastructure limits supply & increases demand for prime property in Toronto
U.S. problems can affect us, but to the extent they have in the past.
CORRECTION to post above...
Sorry, that should be not to the extent it has in the past.
Now if oil prices take a dive, we're in real trouble...
what about the ABCP (asset backed commerical paper market)? Some of the paper in Canada has sub prime mortgages packaged in it. Will tahat spook buyers? or this just a temporary thing?
The run up in prices in recent years is attributable not to rising incomes, but the ease with which buyers can get credit. Banks in Canada and the US have been tripping over themselves to lend money to home buyers, and if they can't afford the mortgages offered (even with interest rates at 35-year lows) they up the amortization period (to 40 years, recently)
A correction is inevitable as:
1) US financial institutions realize they screwed up and have HUGE bad debts. They won't be so eager to lend money for real estate, and will draw little distinction between Canada and the US. Bottom line: they won't offer such big mortgages to buyers, prices stagnate or (gasp!) decline.
2) Interest rates trend back towards 'normal'. How many people will be engaging in bidding wars when they are pre-approved at 8%? (the long-run average mortgage rate)?
'Corrections' in markets are just that - accounting for past mistakes.
If you don't believe me, just read the Economist or the New York Times, who hire writers and thinkers much smarter than I.
[this is a separate anonymous poster]
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