Fire Sale! – Astonishing drops in US Real Estate prices

Posted by Michael Campbell - Money Talks

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Michael Campbell’s CKNW Mid-Week Update

Sean: Michael, what do you think about some of the financial numbers in the US?

Michael: Well you know one of my big themes here is that I’m surprised at the degree that people in the media, callers or people in the public don’t get that it’s not business as usual any longer. There’s been a real sea change and we have so much evidence that is mounting here but I think people are in a wishful thinking mode and don’t think we are anywhere like they are in the states right now where their housing market brought us into the initial stages of this problem. Housing was a catalyst for the sub prime, and the sub prime led to the credit card problem that led to others. Well the US is not out of that mess right now and it has huge implications. People say “What’s it got to do with me? Well try our lumber industry for example. The numbers we got about US housing stats and new home sales were ridiculously low again, less than half of what the average had been over the last 20 years. It’s devastating. Nobody’s buying lumber out of the states right now.

Sean: The slowest three month period for home sales ending in July, and for new home sales in 47 years. That’s half a century Michael.

Michael: That’s what I mean so it’s just clearly not business as usual. We can go into Las Vegas right now Sean and we could find 200 separate condos under $30,000.

Sean: Wow.

Michael: $30,000! Now this is anecdotal, this part, but I know somebody who went down to Phoenix and a condo was listed at about $325, 000, it dropped down to $265,000.  They ended up buying this three bedroom condo, I call it a four star compared to four and five stars, a four star condo for $62,000.

Sean: Holy smokes.

Michael: It’s incredible what’s going on down there and the numbers have this week had another impact. We had very miserable sort of Monday and Tuesday in the markets. When you look at these home sales that was resale homes that people had been living in and I figure a 27 year low for those. The dismal numbers for new home sales, for brand new homes on the market went straight down and now it’s an L. It’s no V recovery, it’s been an L.

Sean: It’s unbelievable, takes an average of 12.5 months now to sell your home in the states, about four times longer than the norm. I guess there’s nobody to buy them right now.


Michael: That’s the problem and there’s certainly no hurry when I think it was 22% of all sales in July were bank related foreclosures. Down there ,not to get too technical, it’s called a short sale in the real estate market down there. That means the bank has to allow your purchase because it’s less than the mortgage owed. So a fifth of their market is that kind of sale.

Sean: Unbelievable.

Michael: Hardly something to get people juiced up. A strong housing market is really important in terms of employment numbers and now they are not hiring construction people. So not only is it impacting up north of the border with our lumber industry but then the whole home decoration market, the home hardware, the home depot, that sort of thing gets impacted also. We’re not buying new paint to put a rosy coat on it if we’re not buying homes out there.

Sean: Is this a permanent change in real estate Michael?

Michael: That’s a great question, The key component here is are we recognizing sort of sea changes happening around us. For example, I’ll digress for a second, very clearly you’re getting a sea change in the role of government in Europe right now. It’s not going grow. It’s in fact going to be less. I think the US is about to face that dilemma here in the next couple of years. Again it’s all just financial constraint. It doesn’t matter what political party is in there. We’ve got tons of pensions problems. These are real changes that are going impact you for the rest of your life for example. Now what about the real estate market? Well in the States I think some of these weak markets are literally a decade or two from recovery, that’s how bad it is.

Sean: 10 to 20 years.

Michael: I think you’re looking at a generation. When you look at Phoenix and the amount of supply. Miami is in that kind of strait; I think Dallas is in that kind of strait, Detroit and some of these areas. You know the old guy who said well my retirement’s in my house?  Well that isn’t going to be much of a retirement in some of those centers in the states.

Sean: So if you’re Canadian want to go snap up a condo in Phoenix as a vacation place, you can enjoy it but don’t expect to flip it and make a profit in  a couple of years?

Michael: I know a lot of people are talking that way Sean, the sort of  wonderful dream. I know myself I keep looking at Hawaiian real estate and still haven’t bitten the bullet because I’m waiting for lower prices.  I think people have to look at this seriously.  First of all, there’s a lot of different rules for foreigners owning in the States. Beyond that  I’m not looking for a quick flip. The very markets that are down, that provide some of those huge discounts over the last few years  haven’t showed signs of recovery yet. I think that’s the real problem, they’ve showed signs of a bottom but not any kind of meaningful recovery so I’m not keen on flipping. I think if you want to, if you can see yourself spending six months down in one of those places, do the math. Check out your maintenance fees, your insurance cost that sort of thing. Do the math and see if it’s worth it to you. But don’t sit there deluding yourself that you’re going make that money back over the next two or three years.

Sean: So it’s yeah L shaped not V shaped.  Thanks as always Michael, we’ll talk next week.

Michael: Okay Sean, thank you.