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US Sub Prime ‘Meltdown’: How will it affect Kitchener Waterloo?
November 6, 2007 by Benjamin Bach · Leave a Comment
Last week I had the pleasure of speaking to this year’s MBET class from the University of Waterloo. The MBET program fascinates me - it’s a Masters in Business, Entrepreneurship and Technology - very cool and very applicable; graduates have been known to start companies while they are still in the program.
One of the students asked me a great question. He asked how I felt the ‘credit crunch’ and sub prime mortgage ‘meltdown’ was going to affect prices here in Kitchener Waterloo. Specifically, he asked if I felt prices would drop in response to what was happening in the states.
I started with my standard disclaimer, borrowed from Jeff Brown, that my crystal ball is as cracked as everyone else’s, but in my opinion, the growth in our region was being driven by solid fundamentals, not creative financing and serial refinancing (which has led to some issues south of the border).
Kitchener Waterloo has solid job growth, positive net population migration, great companies (anyone heard of RIM?), two great universities and Canada’s top college (Wilfirid Laurier University, University of Waterloo and Conestoga College), central location on the 401, within a day’s driving distance of 60% of Canada’s population, and 40% of the US population, etc. Kitchener Waterloo is also the World’s Most Intelligent Community.
When I got home from the event, I read a release from the Canadian Real Estate Association (CREA) issued to Realtors that was saying much the same thing (from a national perspective). Here’s a sampling of the report:
Q: What is a sub-prime mortgage?
A: It’s a mortgage given to a home buyer with less than perfect credit, or a home buyer who lacks the paperwork to prove an income that can support the mortgage payments. While these mortgages may not seem like a good idea to begin with, lenders in the United States with liquid assets, or investment money were making loans to almost anyone who asked, and charging a little more interest for these “riskier” loans. The assumption was that constantly rising house prices in the U.S. would compensate for any lending mistakes.By June 2007, more than 21% of U.S. mortgages were sub-prime compared with only 5% in Canada. According to the Canadian Bankers Association a record low number (0.24%) of Canadian mortgages were in arrears by July 31/07.
Q: How is all this affecting the U.S. housing market now?
A: Consumers in the United States are finding mortgages have become more expensive and tougher to get, and that has had an impact on housing sales. The number of sub-prime mortgage lending has all but disappeared, so that has eliminated a level or layer of consumer who was previously active in the real estate market. In essence, tougher credit terms are slowing purchases and that’s slowing the economy and hurting the stocks of companies involved in lending, or in housing. That includes home renovation, builders, and furniture retailers – the impact reaches into various aspects of the economy.The bottom line:
Unlike the U.S., the Canadian housing market has not been artificially driven by bad lending practices. Our long-term fundamentals are solid. Canada has a growing population. Our energy and commodities are in high demand, and job creation is strong. Consumer confidence remains high.
CREA has some great research on their website www.crea.ca
Kitchener Waterloo’s Favourite Real Estate Agent (Gold Award, Kitchener Waterloo Record Readers Select Awards 2007 - 2008) wants to show you how Real Estate Investing can make you wealthy. Benjamin works with people from across Ontario and Canada, helping them build wealth through smart real estate investments.
Call or email Benjamin Bach today to learn how you can start your Real Estate Investment portfolio.
Benjamin is a Sales Representative with Keller Williams Golden Triangle Realty in Kitchener Waterloo and would love to answer any questions about buying or selling a rental, income or investment property.
You can reach Benjamin at Benjamin(AT)BenjaminBach.com or call him at 519 570 4447
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