Thursday, September 6. 2007
Prime summer! With US sub-prime clouds.
Wow! What a summer – blew by fast. And now…
Back to school. Back to rush hour. Back to normal.
Same can’t be said for the financial markets – the roller coaster ride continues.
In July, the Investment Bankers of the world recognized that the sub-prime mortgage paper they’d been filling investment portfolios with for years was iffy. And suddenly there was international turmoil – “Liquidity Crisis” became the official term.
More simply, Investment Bankers, nervous about how they leveraged, overleveraged and hedge funded the heck out of the mass mortgage pool amalgamations took notice. They’d “bet on” inflation and economic stability. They discovered their “bets” weren’t doing as well as expected.
The ensuing loss of values was blamed on a deteriorating US Real Estate Market. True enough the market had gone soft in may geographic areas – but the news spread and like most stories of ill – say it loud enough and long enough and actions will follow stories. True, the US real estate market is not right now a picture of prime health. But it’s a big market, and not all areas have experienced a drastic downturn.
The underlying base was an increase or doubling of the number of properties in foreclosure. Given some of the creative mortgages – notably ARMs or Adjustable Rate Mortgages with artificially low interest rates, that ballooned the missing interest onto the principal balance of the mortgage its not a surprise to see ‘affordability hits’ showing an increase across the market. Combine this with ‘rating agencies’ that now face calls of miss-rating, not understanding the risk etc – Investors lost confidence in almost all manner of mortgage money investing.
The attitude toward over-leveraging because of mortgage tax deductibility has often made the US real estate market more susceptible. Keep in mind, tempting financing, foreclosures and ‘walk-aways’ have always been higher, and an accepted component of the US marketplace.
In contrast, the Canadian economy and the real estate market in Canada both continue to steam along, seeming somewhat oblivious to the challenges and market changes in the US. Both sales volumes and prices across Canadian Real Estate Association (CREA) reporting areas are statistically powerful. In fact, both CREA and CMHC have recently revised their ’07 forecasts upward – to account for sales increases.
Real estate continues to be a solid, proven long-term investment. When the fear in the US marketplace subsides, buyers will again recognize opportunity and value.
Back to school. Back to rush hour. Back to normal.
Same can’t be said for the financial markets – the roller coaster ride continues.
In July, the Investment Bankers of the world recognized that the sub-prime mortgage paper they’d been filling investment portfolios with for years was iffy. And suddenly there was international turmoil – “Liquidity Crisis” became the official term.
More simply, Investment Bankers, nervous about how they leveraged, overleveraged and hedge funded the heck out of the mass mortgage pool amalgamations took notice. They’d “bet on” inflation and economic stability. They discovered their “bets” weren’t doing as well as expected.
The ensuing loss of values was blamed on a deteriorating US Real Estate Market. True enough the market had gone soft in may geographic areas – but the news spread and like most stories of ill – say it loud enough and long enough and actions will follow stories. True, the US real estate market is not right now a picture of prime health. But it’s a big market, and not all areas have experienced a drastic downturn.
The underlying base was an increase or doubling of the number of properties in foreclosure. Given some of the creative mortgages – notably ARMs or Adjustable Rate Mortgages with artificially low interest rates, that ballooned the missing interest onto the principal balance of the mortgage its not a surprise to see ‘affordability hits’ showing an increase across the market. Combine this with ‘rating agencies’ that now face calls of miss-rating, not understanding the risk etc – Investors lost confidence in almost all manner of mortgage money investing.
The attitude toward over-leveraging because of mortgage tax deductibility has often made the US real estate market more susceptible. Keep in mind, tempting financing, foreclosures and ‘walk-aways’ have always been higher, and an accepted component of the US marketplace.
In contrast, the Canadian economy and the real estate market in Canada both continue to steam along, seeming somewhat oblivious to the challenges and market changes in the US. Both sales volumes and prices across Canadian Real Estate Association (CREA) reporting areas are statistically powerful. In fact, both CREA and CMHC have recently revised their ’07 forecasts upward – to account for sales increases.
Real estate continues to be a solid, proven long-term investment. When the fear in the US marketplace subsides, buyers will again recognize opportunity and value.
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