CAN Residents learn from US?
I’m often asked how closely the U.S. housing market mirrors our situation here in Canada. From fluctuating home prices to the effect of federal interest rates on both fixed-rate and variable mortgage products, there are some comparisons to be drawn between both countries.
The holiday season is upon us, and with it many Canadians might be hoping they awaken to a magical, crystal-ball in their stockings this month. Since that’s wishful thinking, the real estate analysts at RISMedia think a recent Chicago Tribune article might be the next-best thing.
The article first draws attention to the results of nearly a year’s worth of mortgage-backed securities (mbs) purchases by the U.S. Federal Reserve (a staggering number worth over $1.25 trillion and counting). And that outcome has resulted in the U.S.’s 30-year fixed-rate mortgage hitting a nearly 40-year low. Not surprisingly, that’s gotten a lot of Americans thinking about whether or not to purchase or refinance, when it comes to their most valuable assets – their homes.
With mortgage rates in the States also at historic lows (like in Canada) combined with deflated home prices and an “expanded federal tax-credit that will expire in spring,” some residents there are wondering whether they should take advantage of these factors now – before it’s too late.
The article goes onto explain how each case and each homeowner’s situation is unique and should be essentially approached on a case-by-case basis, so proper, due-diligence needs to be exercised in every case. But if we are to continue learning from our U.S. counterparts, it may cost you more to wait.
On both sides of the border, the general feeling is that interest rates won’t stay this low much past spring of 2010. If that’s the case, we may very well be at that supposed ‘bottom’ that most of the ‘herd’ was and is still waiting to act upon – at least when it comes to interest rates.
Now, granted, U.S. home prices may still have further to fall, over the next several months, in which case the article suggests those Americans who bank on making a move in Q1 or Q2 of 2010 may see “the value of their investment initially depreciate.”
Here in Canada, home prices are expected to remain much more balanced in most provincial markets – and in some markets they may actually see moderate increases – meaning borrowing for something new or refinancing for what you already have will cost you more, whether it’s due to rising interest rates, rising prices for real estate, or perhaps both (beware the double-whammy). In the end, it’s up to you to decide whether it pays to wait or make a move.
What do you think? Send me your two-cents.
January 11th, 2010 at 8:21 pm
Greg,
I’d recommend that you read a post by Fareed Zakaria, aptly titled: “Worthwhile Canadian Initiative”
Undoubtedly there are more than a few comparisons to be drawn between both countries.
But how about the differences? Canada has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors.
In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. USA’s ranked 40th.
Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position.