# US Real Estate Price Declines



## sags (May 15, 2010)

It appears that after the home tax credit mini-rally in the US, home prices have again begun to decline.

http://www.theglobeandmail.com/repo...rices-stokes-recovery-worries/article1850746/

How long will Canadian and US home prices travel in opposite directions?


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## kcowan (Jul 1, 2010)

That is the $64000 question. We have seen markets stabilize or grow less rapidly. So we might just have a long period of stagnation in prices while the fundamentals catch up. This would shake out speculators and probably reduce new condo sales.

As for a precipitous drop, I don't see it because we never had liar loans and other sub-prime junk. So our biggest exposure is that the rates rise and mortgage resets cause a spike in foreclosures. Who can forecast interest rates?


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## JAV (Mar 14, 2010)

kcowan said:


> That is the $64000 question. We have seen markets stabilize or grow less rapidly. So we might just have a long period of stagnation in prices while the fundamentals catch up. This would shake out speculators and probably reduce new condo sales.
> 
> As for a precipitous drop, I don't see it because we never had liar loans and other sub-prime junk. So our biggest exposure is that the rates rise and mortgage resets cause a spike in foreclosures. Who can forecast interest rates?


Where is the job creation and income growth going to come from in order to bring the market back to fundamentals? The "recovery" is stagnating and the outlook for US growth is muted. Southern Ontario will continue to hurt. A price correction seems likely.

As an aside, are sub-prime mortgages still bringing down US housing?


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## Berubeland (Sep 6, 2009)

We did have liar loans and still have them to a certain extent, one thing is for sure when the Big 5 Banks start meeting with the Bank OF Canada to tell them to change the rules stating that they can't tighten their lending standards without it being anti-competitive for them (They would lose business to the other banks) We should all be pretty concerned.


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## kcowan (Jul 1, 2010)

JAV said:


> As an aside, are sub-prime mortgages still bringing down US housing?


From what I recall, they peaked in 2008, so they are still happening but the rate is reduced. It is ARM Resets and Ait-A renewals that will peak in 2011. Will the homeowners be able to qualify at renewal time?

Of course the US still offers 30-year terms so that should offset things somewhat compared to our 5-year terms.


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## sags (May 15, 2010)

kcowan said:


> From what I recall, they peaked in 2008, so they are still happening but the rate is reduced. It is ARM Resets and Ait-A renewals that will peak in 2011. Will the homeowners be able to qualify at renewal time?
> 
> Of course the US still offers 30-year terms so that should offset things somewhat compared to our 5-year terms.


Speaking of 30 year vs 5 year terms, I read an article awhile back from the Windsor, Ontario area.

A couple had purchased a home in Windsor. They both had good jobs and qualified for the mortgage. They paid the mortgage faithfully every month. During the 5 years, the economic situation in Windsor went badly. Home prices began a big decline in value. 

The couple held onto their jobs and at the completion of 5 years, they expected a renewal notice to come from the bank. 

When it didn't arrive, they called the bank and were requested to come in to the local branch. Once there, they were advised that the bank wanted to have their property appraised in order to renew the mortgage. The appraisal came in at 50,000 below the outstanding mortgage balance. The bank refused to renew the mortgage unless the couple came up with the 50,000 shortfall.

Since they didn't have the money, and couldn't use equity in their home to borrow it, they eventually lost their home.

Is there no law in Canada to protect home owners, in this type of situation?


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## I'm Howard (Oct 13, 2010)

I have allways been confused by people reluctant to borrow monies for the stock market but willing to go into major debt for a House??

RE will maintain its value in most major areas that, unlike Windsor, are not dependant upon one major industry.

The cost of home ownership will be less available because all other costs like gas and food will go up, leaving less monies available for Home ownership.

Property Taxes will continue to climb, as will other costs associated with ownership, so inspite of low rates, people will have less cash to spend on Home ownership.


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## kcowan (Jul 1, 2010)

sags said:


> Is there no law in Canada to protect home owners, in this type of situation?


CMHC protects the lender but the lender must foreclose and declare a loss to get paid. The only thing that can protect the borrower is common sense. In this case, they seemed to be cautious by having $50k of equity. But RE declines can happen in any 5 year period.


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## Ihatetaxes (May 5, 2010)

Glad my wife and I have stayed in our modest home that is almost mortgage free despite being tempted by the beautiful luxury homes we see for sale in our city. I hope prices continue to drop in Florida so we can pick up a great deal down there in the next couple of years.


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## Arlen (Jan 4, 2011)

Due to gloomy conditions of the world's economy the real estate prices are declining in USA as well as in almost all countries of the world and this all due to the capitalistic economic system.


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