Newsletter – September / October 2008 – Economic Tsunami

Economic Tsunami:The Crest of the Wave

The ripple began 2 or 3 years ago. Then the US subprime mortgage wave hit the headlines 14 months ago. And the crest of the wave is hitting now. September 2008 is the month when the maximum number of US homeowners will have their mortgage rates adjusted upwards. By the end of this month millions more Americans will no longer be able to afford to live in their homes. The last quarter of 2008 will be the time of the maximum number of mortgage payment arrears. Spring of 2009 will be the maximum number of foreclosures. By this time next year, the US banks will own the maximum number of homes. I wonder how long banks hold real estate before they lose patience and just sell.

Test Question: when do you think will be the best time to buy American residential real estate? [Clue: you buy it from a bank… probably at an auction.]

Of course, we Canadians are immune from that virus. Our realtors fondly tell us it’ll never happen here. Our banks were not so irresponsible as the American banks.

I wonder what the British are saying. Their mortgage lenders were not so “irresponsible” as the Americans, but their real estate prices are in a downward spiral too. The Financial Times reports that there have been 10 consecutive monthly declines in the average price of a home in the UK. Prices are off 10.9% this past year. The Brits measure buying activity by keeping track of the number of buyers who are approved for a mortgage. June 2008 was down 65% from June 2007. 65% fewer approved buyers!