Weekend round-up

Here is a collection of real estate articles from around the world to comment on. What are you seeing out there in your area? Post your links and thoughts.

Real Estate Exchange Becoming a Popular Option in Down Market

US Banking System in Crisis- Why banks are Not lending?

Real Estate Investing Like The Pros

Real estate agents busted for low quotes

Chill felt in Toronto real estate

First Nations housing market

The Government of Canada is introducing a new financing plan that will allow First Nations people living on reserve to build, buy or renovate a house on-reserve.

The plan has three stakeholders; the Canadian Government (a.k.a the taxpayer), Canadian financial institutions and First Nations organizations.

The intention of the program is to create an on-reserve housing market that will encourage investment and home ownership.

Essentially, the Fund is designed to provide an extra safety net for the lender in the event the borrower defaults on the loan and the First Nation does not honour its obligation to step in using its own resources, to remedy the default.

Final thoughts: One item that I am not clear on is the ownership of the underlying land. IMO the land must be part of the home ownership if this is to work.

If First Nations people can only invest in the "house" on the land, then they are paying allot of money for a depreciating asset. Under this scenario the program is a money loser for all except the lender.

There are many challenges ahead for this program to create an "investment" type housing market on a First Nations reserve. Some of these challenges are covered in this post by Grassroots News .

It will be interesting to see how this "real estate market" takes form over the long term. If you have any additional information on this please leave a post.

Vancouver prices continue to rise

With record listings, year over year sales down and prices in some localized markets flat or slightly down, there still seems to be plenty of people who still think real estate prices only go in one direction - up.

CMHC is still bullish on the Vancouver market calling for an overall 8% increase in 2008 and another 5% for 2009. CMHC is hanging its hat on job and population growth despite their speculation that the decline we are seeing is in part, a result of events in the US real estate market causing fear and investors wanting to ring the register and take their profits. They also noted that resales, a measure of investors flipping houses, is also down.

Final thoughts: First, to all those flippers who have taken your profits and are sitting on the sidelines planning your next investment, well done.

To those who are still in the game looking for another 10%, remember this saying: the bulls make money, the bears make money but pigs just get slaughtered.

The predicted 8% an 5% increase for 2008 and 2009 respectively is a possibility however it may also be very optimistic.

Lets not forget following:

Vancouver is the most expensive city in Canada taking 67% of your income to buy the average house.

Mortgage rates haven't fully followed the current rate cuts by the Bank of Canada.

Sub-prime mortgages they say is a small portion of mortgages in Canada but what about zero down and 40 year amortizations. I am certain with the affordability factor the way it has been over the last couple of years there are a behemoth of first-time homeowners with these mortgages. Not to mention, until this credit crisis hit, the lending intuitions in Canada were also like the US and giving away cash.

How about the "real" inflation we are getting hit with, you know the inflation that includes the basic necessities like fuel, food and housing costs.

Finally, I believe this this massive run up in real estate value and record sales in Vancouver is the result of the ability for just about anyone with a heart beat to get a mortgaged over the last 5 +/- years. In other words, the buyers of tomorrow are already strapped with a massive mortgage.

So we are different than the US and we don't have the sub-prime problem but that doesn't mean we won't have a meltdown - Canadian style.

Banks Reluctant To Pass On Rate Cuts

There are signs the Bank of Canada and the U.S. Federal Reserve are running out of room to deliver further interest rate relief to their economies.

Commercial banks in Canada are showing an increasing reluctance to pass on the central bank's rate cuts, and further Fed cuts are expected to run into opposition from members who are starting to fear inflation more than recession.

REM: Real estate may be leveling off to a more "balanced market" however the balance of 2008 will tell the real storey. We could even begin to see a shift in some Canadian markets in the next couple months since the spring is typically the most active months of the cycle. There are a few items I think will impact the real estate market in the not so distant future: recession fears, the impact of the banks holding back on mortgage rate cuts, fears of global inflation impacting Canada and highly leveraged first-time buyers .

Central banks buy time for commercial lenders

Globe and Mail - Update December 18, 2007

Following up on their united pledge of last week to make more money available for terms that extended into the new year, the European Central Bank, the Bank of England and the Bank of Canada flooded short-term credit markets with accessible cash. The U.S. Federal Reserve made its own injections on Monday.

The flood of cash has greased the wheels in many short-term credit markets, ensuring that commercial banks have enough money on hand to tie up loose ends before the New Year and fund Christmas shoppers' annual needs for liquidity.

While much of the intervention had been foreshadowed by the joint announcement last week, the ECB took markets by surprise by going well beyond its initial intentions. It infused about $500-billion (U.S.) into money markets – the largest injection yet for that central bank, and one that was quickly gobbled up by some 390 financial institutions.

The Bank of Canada infused $2-billion (Canadian) into short-term markets, more than the $1-billion it announced as a minimum last week.
When the five European and North American central banks made their announcement last week, many analysts were skeptical that liquidity injections into short-term money markets would do anything substantial to ease the credit squeeze that threatens to undermine economic growth.

But since then, economists have lowered their expectations, and aren't looking to the central banks to solve the credit issues. Rather, they say the central banks' role at this point is simply to make sure money markets are liquid enough to remain functioning while commercial banks sort out their exposure to U.S. subprime loans.

Essentially, the central banks have bought commercial banks some time to figure out their losses, said Stewart Hall, market strategist at HSBC (Canada.).

“Large banks are now awash with cash. The issue is not whether they have enough cash, it is whether they are inclined to lend,” the Bank of England's governor, Mervyn King, said yesterday.

At the core of their unwillingness to lend is fear about losses connected to failing subprime loans.

Analysts believe the exposure will amount to at least $300-billion (U.S.) on the balance sheets of commercial banks, and only about $80-billion of that has been officially acknowledged.

Interbank lending is priced high because lenders don't know where the rest of the losses are hidden, Mr. Luxton said.

REM: Do you really think this is the solution? The word on the street is that this is not a liquidity problem but a solvency problem. Do you agree or disagree?