Thursday, July 29, 2010

Rise of the Renting Class

My last few posts have been about renting, but if you go back to previous posts, you'll note that I've often commented that your potential home purchase must make sense from the standpoint of what it costs you to own vs. what it costs to rent. I maintain that if you can own for about the same as renting, that's when it's a no-brainer to rent. One minor quibble with this article--toward the end it mentions that homes appreciated only one percent per year from 1975 to 2008. While that may be true, it doesn't take into account the fact that most people have a mortgage on their home. In other words, if you bought a $100,000 home and ten years later it was worth $110,000, that might be 1% appreciation on the value of the home. But more than likely, you put down 20% when you bought it, so your $20k investment has returned $10k in appreciation. That's a 5% return per year, not a 1% return.

FORTUNE -- Modern America has long paired the "American Dream" with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.

The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929. As secretary of commerce, amid the Red Scare, Hoover trumpeted homeownership, believing that if one had an equity stake in the country, they'd less likely fall under the spell of Communism. What followed during the Great Depression were a spate of federal measures to help troubled homeowners, at a time when half of all mortgages were in default.

Massive government programs supporting ownership still exist today, but record home foreclosures and spiraling prices have forced a redefinition of the American Dream -- one that includes renting.

In today's weak housing market, ownership has ceased to be an investment vehicle that millions used to trade up into the houses of their dreams in the boom years. And it's not an ATM machine for constant refinancing, either. Instead, for the past four years, ownership has been a culprit of distress. In June, one in every 411 housing units received a foreclosure filing, according to RealtyTrac Inc. Between 2006 and 2009, home prices fell more than 32%, according to the S&P/Case-Shiller Home Price Index.

Renting on the rise

With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 study of the Joint Center for Housing Studies of Harvard University. The rise was most dramatic in the Midwest, where growth of renter households swung upwards by 15.4% between 2004 to 2009. The South added the biggest number of renter households with a 1.2 million increase from 2004 to 2009, the study states.

All that has made Capitol Hill rethink its definition of the American Dream. As recently as the Clinton and George W. Bush administrations, the mantra of homeownership was almost synonymous to civic duty, but top policymakers now say that homeownership isn't necessarily good for everyone.

In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," Bostic said. "You're not going to hear us say that."

Owning a home wasn't always as easy as the liar loans of 2000's made it. When the economy went bust during the Great Depression, legislation intended to stimulate plummeting housing starts and defaulting mortgages laid the foundation for a bigger role of government over the housing market. Hoover signed the Federal Home Loan Act, and in 1933, Franklin D. Roosevelt created the Home Owners' Loan Corporation to provide low interest loans.

And the government was just getting started: a flurry of legislation was passed over the ensuing decades, helping veterans, minorities and the populace as a whole secure mortgages. But it appears the pendulum has swung.

"The government shouldn't blindly encourage homeownership," says Joe Gyourko, real estate finance professor at University of Pennsylvania's Wharton School. "If the government does anything the government should encourage people to make the right decision."

Gyourko says that he's not entirely against the idea of homeownership. After all, as a father of two, the 53-year-old professor owns a home. But he stresses that ownership should be looked at more broadly -- beyond any kind of long-term investment or cost benefit over renting.

Owners don't pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.

As far as buying a house as a smart long-term investment, Gyourko says that's not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.

The post-crisis role the federal government decides to play in the housing market remains to be seen. In response to plunging home prices and record foreclosures rates, the Obama administration is pursuing an overhaul of policies that could put much less focus on homeownership. The administration could also scale down government support of home loans and put more focus on affordable rentals, but it isn't clear what direction officials will take.

The issues with Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the mortgage-finance giants seized by the government in September 2008 amid huge problems with bad loans, remain a touchy topic with lawmakers.Their combined bailout, according to some estimates, could reach $1 trillion -- a figure some might pin as the ultimate cost of generations of policies geared to favor home ownership.

Many blame the agencies' loose lending practices for contributing to the financial crisis. Republicans wanted the mortgage giants' fates to be addressed in the recently approved Dodd-Frank bill overhauling the nation's financial regulations, but that didn't happen.

However lawmakers define the government's role in the housing market, consumers have already begun redefining the American Dream: One where it has become socially OK to mail in a rent check rather than a mortgage coupon.

View original article here: http://money.cnn.com/2010/07/28/real_estate/housing_debate_rent-vs-buy.fortune/index.htm

Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.

Wednesday, July 21, 2010

Bankruptcy can save your house from foreclosure

By Les Christie, staff writer

NEW YORK (CNNMoney.com) -- Slick TV commercials and online ads tell delinquent borrowers that they can save their homes by filing for personal bankruptcy. But is it true -- or just too good to be true?

True!

Bankruptcy can bring foreclosure proceedings to a halt, end harassment from debt collectors, and give borrowers time to make up missed payments and reorganize their finances. In some cases, bankruptcy can also help mortgage borrowers save their homes permanently.

It's not, however, going to help every troubled homeowner. If, for example, the homeowner's biggest problem is not enough money, bankruptcy is not going to solve that.

"It's the best tool there is for people behind in payments but who have ongoing income," according to Binghamton, N.Y., attorney Peter Orville, "those who had been making payments and who could be making payments again."

Halting the process

The first thing a bankruptcy filing accomplishes is to stop the foreclosure process. Lenders can't foreclose or even try to collect debt until permitted to do so by the court.

But first, you have to decide what type of bankruptcy to file for. There are, basically, two types to choose from: Chapter 7 and Chapter 13.

A Chapter 7 bankruptcy delays foreclosure. but eventually it usually results in the liquidation of most assets, according to attorney Stephen Elias, author of "The Foreclosure Survival Guide." Borrowers almost always lose their homes in a Chapter 7.

Some bankruptcy attorneys, like New York-based David Pankin, prefer Chapter 7 because it gets rid of all unsecured debt, leaving only secured debt, such as mortgages, exempt. In this scenario, borrowers still owe their mortgage payments but they can likely afford to make them because all the other debts have been discharged.

But for most experts, Chapter 13 is usually more effective at helping people keep their homes. It gives them time to repair their finances, usually three to five years, during which the court agrees to an income-based budget with monthly payments made to trustees.

The trustees pay the bills, first paying off the secured debt. After that, the trustee pays off unsecured debt, starting with back income taxes.

Next in line comes unsecured debt like credit cards and medical bills. By then, there's usually little cash left and these bills are paid at less than the full rate, often as little as five cents on the dollar.

Borrowers, if they kept up on their payments, can emerge from bankruptcy with their homes still in their possessions.

One thing courts cannot do is "cram down" loan balances on primary residences. That is, reduce mortgage debt to what the home is worth. Neither can they lower interest rates, in most cases, nor lengthen the term of the loans.

They can, however, "strip off" second mortgages, like home equity loans or lines of credit, when home values fall below the first mortgage balances, according to Elias.

"This allows the judge to get rid of the second mortgage," he said. "If there's not enough equity to secure the second, it becomes unsecured debt."

That can be a huge advantage for borrowers. Homeowners may have, for example, a $200,000 first mortgage balance and another $50,000 on a home equity loan. If the home value has dropped to less than $200,000, the judge could rule that all $50,000 of the second is unsecured. Then, it can be paid off at the same pennies-on-the dollar as other unsecured debt.

But there are other downsides. Bankruptcy can lop as much as 240 points off credit scores. And bankruptcies can remain on credit reports for 10 years, said Pamela Simmons, a California real estate attorney, while all other black marks disappear after seven years or less.

Fending off deficiencies

There is also a potential tax advantage to filing for bankruptcy rather than going to foreclosure, according to Simmons. When a home is repossessed and the lender forgives the portion of the mortgage balance above its market value, a tax liability can be triggered. Any difference between what people borrow and what they repay is considered income.

Congress is temporarily allowing that unpaid debt to be forgiven -- but only for money specifically spent on the home purchase or on home improvement.

Millions of people, however, refinanced mortgages or took out home equity loans and used the money to fund vacations, pay college tuition, buy cars or boats or simply to live the good life. That money is taxable.

Simmons had a recent client who was allowing his lender to foreclose on him and called her about the timing, asking whether he had to vacate by the day of the auction.

In passing, she asked him how much he owed on the house. He said he bought it for a million but had taken out another $2 million, most of which had not been spent on the house. When she told him he would owe taxes on it both to Uncle Sam and the State of California, he was dismayed

She rushed him into her office and they did the paperwork so he could file for bankruptcy.

"If they discharge that deficiency in bankruptcy, you don't owe tax on it," said Simmons.

Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.

Monday, July 19, 2010

I wonder if that girl still lives there and what her house is worth?

Once famous for a girl and a poem, Nantucket Island has become a high-priced destination for Wall Street types. Unfortunately, the island's real estate, like so many locations, is now under stress.

Original article here:

FORTUNE -- In the past decade, Nantucket Island has served as a barometer for the fortunes of Wall Street. The glass cracked after years of unsustainable pressures. But almost by magic, the barometer is rising once more even as something new and unexpected has come to the summer paradise: foreclosures, short sales, failed auctions, and a skinnier municipal budget. And while financiers can cut and run, it's the locals who are being hardest hit.

"It's two different markets," says Brian Sullivan, a broker for Maury People Sothebys. There's Wall Street, and everyone else. You can see that on Yahoo's real estate listing for distressed properties on Nantucket: nearly two-thirds are listed for under $1 million, the price sector dominated by the island's 12,000 year-round residents. But the banks have basically turned their backs on small borrowers, so anyone who does want to buy will have a hard time getting a loan. "They want to lend to people borrowing $1.5 million and up," says Sullivan.

The tight financing explains part of the problem of foreclosures, a word that hasn't been whispered on Nantucket since the savings and loan system blew up in the early 1990s. In the first six months of 2010 foreclosures accounted for 20 of 163 sales -- twice the 2009 rate.

"If you could breathe, you could get a mortgage," says David Callahan, co-owner of Jordan Real Estate, of the salad days. That's how one home bought for $356,000 ended up selling on the auction block for $425,000. But that didn't help the owner, according to Callahan, a small businessman in construction. He had used the home as a piggy bank, borrowing "half a million dollars" for all kinds of "toys." As in so many places across the U.S., optimism triumphed reason, bringing disaster to the weakest links in the economy.

Jobs for residents simply evaporated when Wall Street vacationers pulled back. No one expected building permits to plunge as they did last year to 43, the lowest number since the town began keeping records in 1972.

Brokers like to say the market has re-priced by about 25%. Other barometers show a much more dramatic drop in value -- with some properties now selling for close to half the value the town assessor had derived for tax purposes. That also hasn't happened since the savings and loan crisis, when homes sold soon average for as 72% of assessed value, according to data assembled for Fortune by Rob Ranney, an appraiser for Denby Real Estate.

"Assessments are a snapshot of the market in the rearview mirror," says Deborah Dilworth, town assessor. They tell you were prices have been. It's been a long way from there to here. Just take a look at Brian Sullivan's real estate blog which compares recent sales to assessed values - now based on 2008 sales. There's the house at 66 Squam Road, bought for $1.08 million, assessed at $1.86 million; the home on 1.2 acres at 47 West Chester, picked up for $900,000, but assessed at $1.86 million.

At least those properties are selling. The island has seen failed auctions, the most spectacular for Point Breeze, a 19th century hotel, that went belly up after an investor decided to renovate at just the wrong moment. That's how TD Bank got stuck with a $40 million note. An auction in February attracted just one bidder for $5 million; the bank kept the property.

Like a bad crab, some sales seem OK until you crack them open. That's the story of 15 Top Gale Lane, a prime waterfront home. Once owned by commercial real estate developer Scott Lawlor, who never got to move into the newly built structure, because as Callahan puts it, he was a little too long on real estate.

Lawlor had alreadylost the John Hancock building in downtown Boston after his company defaulted in 2009 on a note then worth $525 million, but was scrambling to keep on top of mortgages in Nantucket and Greenwich, Ct. The home was unsurprisingly bought by a financial executive who prefers to remain anonymous for $19.2 million. Scarce trophy properties on the waterfront maintain their values even when sellers are anxious to move on.

Vultures on the island

It's bargain hunters in the rest of the market who are feared, courted, and rebuffed. No one wants to sell too cheaply and yet they long for buyers. Jacquie and Bill Colgan of Summit, NJ, were determined bargain hunters. And they got their whale -- a 10,000-square-foot bank-owned house for $1.175 million -- about half it's true worth, says John Merson, a local investor whose renovated 18th century home is about 60% rented this summer. People like the Colgans are a mixed blessing for Nantucket.

They will give the house a much needed facelift, ridding it of mold, renovating, and fixing the landscaping. And they envision the home as a multi-generational gathering place for years to come. But they are importing their own crew of workers to repair the house. The locals are just too expensive, even now, says Jacquie Colgan.

Thanks to the rising fortunes on Wall Street, sales in the first six months of 2010 have more than doubled to $246 million; of course, 2009 was amazingly anemic. But optimism is rising. Sullivan estimates that a recent bump in high-end transactions will translate into meaningful work for locals in the next 8 to 15 months. Last year, he said things were so grim, he saw no way out.

But now Wall Street vacationers are spending money freely once again, especially since July 4th weekend, when the super rich seemed to have finally returned, wallets open,. That week, ex-Goldman Sachs (GS, Fortune 500) honcho Jon Winkelried finally signed a contract to sell his property for just below the new asking price of $29 million -- an island record and a figure that has some island residents shaking their heads in wonder: What year is it, again? Of course, when Winkelried put the waterfront property up for $55 million in 2008, that was an asking price no one took seriously then, either.

And then there's this, says Sullivan: The 14-mile-long island has only about 8% of land available for private construction. The laws of tight supply and strong demand will eventually kick in to restore the economy to health.

So it seems the party lights are going back up, at least around the prized Nantucket waterfront, restoring some of the glow to the "faraway land" - one translation for Nantucket and a name ripe for fantasy literature. But the party is mostly cash only. And it's strictly B.Y.O.B. -- bring your own bug spray. The town has stopped spraying for mosquitoes last year. (Assessor Dilhurth, insists the spraying program was eliminated because it didn't work, not as a budget casualty.)

But here's the point: The pullback came amid the worst economic downturn in island memory and has affected every line item for the town -- from the fire department to sand purchases for the winter icy roads when Wall Street SUVs remain parked in clapboard garages. Echoing the problems of local and state governments nationwide, there's even a municipal hiring freeze to help manage the budget.

The year-round residents are happy to see the twinkle slowly return to the waterfont. But for now inside Nantucket, patches of darkness prevail for those mowed down by the excesses that took place on another island about 200 miles west-southwest of here. And in the darkness, the mosquitoes buzz. To top of page

Friday, July 16, 2010

New Changes to FHA loans

This is big news on any level--a great percentage of the loans our buyers are currently using are FHA loans. This reduces the seller's maximum contributions from 6% to 3%, which should go into effect around August 15th.

Click here for the official release.

The highlights are as follows:

For the next 30 days, HUD is seeking public comment on the following policy changes, each of which are designed to mitigate risk to the Mutual Mortgage Insurance Fund while promoting sustainable homeownership for FHA borrowers:

1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

2. Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.

Wednesday, July 14, 2010

The Big Thinking In Condos Now Is To Get Small

Fascinating article, not just because people are buying such small spaces--I get that and am still trying to find a place to build the 9-Tsubo House--but because financing condos is the bane of our real estate existence in historic downtown Savannah. I'd be curious to know which lenders are making these loans. We have plenty of spaces that would make great mini-condos here in downtown Savannah, though, so once the financing environment becomes a little easier, maybe we'll join the trend.

Alexandra Gorbokon, a 26-year old public relations executive, has made an offer on her first home, a condo in downtown Chicago. She’s looking forward to eliminating her one-hour commute to and from the suburbs and filling her newfound free time with a better gym habit, enjoying her new neighborhood, and serving on a board in her building.

She’s a little less excited about squeezing her stuff into her new home’s tiny 600 square foot space. But she acknowledges that, at her age and with her modest $150,000 home price limit, living in a small space is a minor tradeoff for access to an urban lifestyle.

“I’m a little concerned about the size. I think it’s easy to grow out of this sort of space,” she says. “But I wanted to live in the city while I was still young.”

Gorbokon’s attitude about real estate is typical of her generation’s, says John McIlwain, a senior fellow for housing at The Urban Land Institute in Washington D.C. McIlwain says many new in-city condo and apartment buildings are offering smaller footprints to satisfy not only downsizing Baby Boomers but, especially, members of Generation Y who are moving out of dorms and parents' places and setting up their own households. Generation Y, he says, views a home’s location as more important than its size. They may also see living small and in-city as an environmentally responsible lifestyle.

“For Gen Y, the home is a place to live out of, not to live in,” he says. “They don’t think of this as a sacrifice. It’s just their lifestyle.”

The 'new small'
So with this renter and buyer in mind, numerous condo and apartment developers around the country are designing new homes with square footages resembling — and even far less than — Gorbokon's new home.

“Based on our experience, while anything under 1000 square feet is considered small nationally, the ‘new small’ might really average out at somewhere around 500 square feet,” says Janel Laban, executive editor for the interiors blog Apartment Therapy, which runs an annual “Small Cool” decorating contest. “Quality of life, which is often strongly affected by location, trumps size every time.”

A brief survey of completed and forthcoming buildings shows that with small-space projects, the more expensive a city, the smaller its definition of “small.” While mellow Portland, Ore., boasts 520-square foot homes, San Francisco’s “small” ranges from 250 to 350 square feet. Vancouver, British Columbia is smallest of all: There, a building called Burns Block will next year start leasing 30 “micro-lofts” with 270-square feet of space and prices starting around $700 per month. The tiny lofts might offer more room than a basement or converted spare room. Vancouver recently passed rules allowing homeowners to rent out accessory units as small as 195 square feet, according to The National Post.

Cubicle living
The 98-unit Cubix condominium building in San Francisco’s trendy SOMA (South of Market) district has sold about 66 of its tiny loft units, which start at 250 square feet and top out at 350, to a mix of young adults as well as to a surprising number of buyers in their 30s and 40s, says Jim Hurley, a broker with Vanguard Properties who is the project’s sales manager.

“The mix of buyers isn’t skewed as young as you’d think,” Hurley says, noting that many buyers wanted second homes or split their lives between a job in San Francisco and a home elsewhere. “The demographic has been surprisingly broad.”

Ranging in price from $200,000 to $250,000, the tiny units are stylish — with concrete floors, stainless steel appliances, stone bath surrounds, and energy-efficient passive ventilation. The Cubix compensates for its units’ small size with a transit-friendly location, community amenities (like Cubix’s rooftop “glass house” common area), and proximity to services (Whole Foods is nearby). Hurley says one new resident just completed her MBA, happily ditched her car to live downtown, and uses nearby regional train transit, public buses, car-sharing, or her own two feet to get around.

Shoebox Lofts
In Portland, Ore., small is a little bigger. The cheekily-named Shoebox Lofts, set to begin construction later in 2010, will share themes seen at Cubix and other small-footprint developments. The Shoebox’s layout includes two buildings linked by a courtyard, along with ground-floor retail and amenities such as bike storage and repair space. Because the building is set on a major bus corridor and in-city bike route, it won’t offer car parking but, instead, biker-friendly features like storage and a “bike repair” room. It’s within walking or biking distance to the city’s artsy Mississippi and Alberta areas.

The 17-unit project’s 520-square foot units will offer 16-foot ceilings and prices below $200,000, says developer Jon Gustafson. Portland-based di Loreto Architecture designed the spaces with a minimalist urban feel, says project designer Chris LoNigro. The look includes concrete floors, steel-joisted ceilings, and floor-to-ceiling “garage door” windows partially shaded with exterior wooden screens.

“It’s definitely a different lifestyle choice,” Gustafson acknowledges. “I wanted the spaces to be open so the owner could decide how to live in them.”

“This sort of smaller space we’re building is going to be important to the diversity of a lot of neighborhoods in the future,” he says, noting that other condo builders offering larger units can’t help but price them for twice as much. “It’s a place to get started.”

Also forthcoming: Two small-footprint developments in the Bay Area, each comprised of 300-square foot modular-built housing units from Zeta Communities, which has designed and is manufacturing what it calls SmartSpaces from a facility in Sacramento. The two projects — a 22-unit San Francisco condominium complex and a Berkeley apartment community — are currently “on hold” given the market, says Zeta Communities spokesperson Shilpa Sankaran.

“The demand is there,” she says. “There’s a high percentage of people in the San Francisco area who are single and can live in these units.”

Trend toward downsizing
The push to introduce smaller-footprint homes is reflective of the reversal in home size that’s taken place in recent years, says Stephen Melman, a spokesman for the National Association of Home Builders in Washington D.C. Melman, citing census data, says that the median size of newly-built condominiums peaked at 1,472 square feet in 2007, but fell to 1,355 square feet in 2008. (2009 data aren’t yet available.)

Indeed, buyers of smaller condos reason that, when and if they tire of a small space, they can rent it. Condominium associations of micro-unit buildings sometimes anticipate that owners of these units will, eventually, move up and out and may want to sublet. Cubix will let owners sublet units, but for 30 or more days at a time so as to prevent excess turnover or vacation renting, Hurley says.

“I made a big down payment and sought out permission to rent my place down the line,” says Gorbokon, the Chicago buyer, who, like many builders of small-footprint spaces, is planning ahead for a future where there will be plenty of demand for small spaces among those seeking big-city living.


View original article here: http://www.msnbc.msn.com/id/38097923/ns/business-real_estate/

Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.

Friday, July 9, 2010

Why Canada's Housing Market Didn't Crash

Wow--responsible lending. What a concept.

They saw a housing boom, they saw a recession, and yet the Canadian housing market is still cooking with gas.

Why?

Fundamental differences in Canadian banking, borrowing and home buying.

I spent the day in Toronto a few weeks ago and was really interested to see how a few miles can span such a huge difference in collective attitude.

Lloyd Atkinson is an economist and also an empty nester, who just sold his large family home in Toronto and downsized to a condo overlooking the city. He sold his home in one day.

"In the U.S., the whole idea of owning a home, there is almost a national obsession," Atkinson says. He knows because he's an American citizen as well. But he also knows that the banking system in Canada does not allow for the type of irresponsible buying and borrowing that we saw in the U.S. at the height of the recent housing boom (2004-2006).

For one, there are just six big Canadian banks that own the bulk of the mortgage market, and they don't securitize and sell off loans at nearly the rate U.S. lenders do. They hold nearly three quarters of their loans on the books, and 80 percent of Canadian loans carry mortgage insurance.

Canadian banks also had and have no such thing as the Alt-A, or low-doc, no doc loans that fueled bad borrowing and consequent defaults. At the height of the Canadian housing boom barely 5 percent of loans were considered "subprime," while a full third of U.S. loans were either subprime or Alt-A.

"Nobody stopped a Canadian bank from lending in the subprime market, they chose not to," says CIBC's Benjamin Tal. "It was not the government, it was not monetary policy; there were no regulations whatsoever regarding how much you can lend in the subprime market. Canadian bankers decided not to do so, because it was too risky."

Finally, the biggest difference is that if a Canadian borrower goes into foreclosure, the bank can and will come after that borrower's assets until the balance is repaid.

There is no easy way to walk away.

These are full recourse loans.

Canada certainly sees ups and downs in its housing market, and all you need do is look at the downtown Toronto skyline to wonder if there isn't perhaps a Miami-like condo boom going on right now. But experts say the booms and busts are far more measured there. The condo buildings going up are all presold, and there is not nearly the speculative condo investment there that we saw in Miami.

"There is an element of conservatism that runs right through the Canadian housing industry, from the banking, financing element, to the homebuilders and even in the resale of homes," says Phil Soper, CEO of Brookfield Real Estate Services - Royal LePage. "The innovation has safety valves."

This cover of Toronto Life Magazine this month shouts, "$1.05 Million" with the subheading, "We're in a bubble. Now what?"

Bubble it may be, and the air is coming out a bit now, but every one of the realtors, economists, and homeowners I interviewed said no way, no way would the Canadian housing market crash as the U.S. market did. Benjamin Tal put it best: "This was not a made in Canada, this was a made in the U.S. recession, and in many ways Canada was a second hand smoker here."

View original article here: http://www.cnbc.com/id/38017232

Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.

Friday, July 2, 2010

Then and now

Well, the skinny lot infill and renovation on Duffy Street are nearly complete. The blue house closed on Wednesday, with some touchups still being done, and we have a client visiting today to finalize their contract on the new house--that would be the one that was formerly a 25-foot-wide space in the first photo. That's the color of the siding, not the house, so our client today will choose the final color. Just a little bit of a difference from nine months ago, don't you think?




























Blogger Matthew Allan is a specialist in Savannah Real Estate, focusing on Savannah's downtown historic districts, including the Landmark Historic District, Victorian Historic District, Thomas Square Historic District, Starland Historic District, Baldwin Park, and Ardsley Park Historic District.