I N T E R N A T I O N A L: US Real Estate Markets: Highest Level In 8 Years! Median Price – All Time High!

The National Association of Realtors (NAR) reports that Total existing-home sales increased to 5.49 million in June. Sales are now at their highest pace since February 2007 (5.79 million). They have increased year-over-year for  nine consecutive months and are 10 percent above a year ago (5.01 million).

Lawrence Yun, NAR chief economist, says that this year’s spring buying season has been the strongest since the downturn.

The median existing-home price for all housing types in June was $236,400, which is 6.5 percent above June 2014 and surpasses the peak median sales price set in July 2006 ($230,400)! June’s price increase also marks the  40th consecutive month of year-over-year gains.

Properties typically stayed on the market for 34 days in June, down from May (40 days) and the shortest time since NAR began tracking in May 2011.

Existing condominium and co-op sales rose 6.6 percent to 650,000 units in June from 610,000 units in May, up 8 percent from June 2014 (600,000 units) and the highest pace since May 2007 (680,000 units). The median existing condo price was $  226,500 in June, which is 5.5 percent above a year ago and the highest since August 2007 ($229,200).

Major Point: Highest sales, highest price – almost right across the US. Reports abound that buying a home is cheaper than rent, money is easier to borrow and their 30 year mortgage at 3% is something we in Canada can only dream about. Yet, we at JREI expected it, nay predicted it (always wanted to say “nay”). “Inflation is primarily a monetary phenomenon” … thus Milton Friedman – a man whose tenets we have followed for over 20 years. (He also created the floating Canadian dollar). The monetary phenomena is visible now in sharply rising hard real estate assets worldwide … but since most of the new money created flows to the rich freely and the rest of us slowly … it is the upper end of real estate – in the best cities that is rising the fastest. As are the best cars, fine paintings etc … anything of real value is bid higher with fiat money. What outcome? The US is still good, but maybe it is time to take some chips off the table … for those of us that went to the US early.

“In a restaurant choose a table near a waiter.” -Jewish Proverb

C A N A D A: Questions, Questions

Q: I haven’t had any updates on Harry Dent’s views lately?

A: If anything Mr. Dent is persistent. Following a few years of crash forecasts, culminating in his book “The depression of 2010,” he is steadfast in his collapse predictions. The stock market collapse will happen, but he moved the dates further out. But overall Harry has not changed his stance. Had you listened to him, you would have sold all your real estate in 2002 and never invested in the US. He was however totally right on interest rates staying low.

Q: I am a very positive person but for some reason I can’t chase that gloomy picture of Martin Armstrong out of my mind as it loomed over the World Outlook conference. October 2015 is the big turning point and we will collapse? Do you agree?

A: I believe that he said that in October all his cycles converge to bring about a change from a society that believes and trusts governments to one that only believes in the private sector and distrusts actively anything coming from governments. So, not a specific collapse but a huge change that could result in collapses in everything eventually. But not necessarily this October .A little of what he said is happening now … Greece … new parties in Spain and Portugal … etc. :His latest is here.

Q: Your forecast on lower oil prices and a lower dollar were right on. Do you expect the US dollar to continue to rise?

A: It wasn’t so much my forecast in as much as I quoted Ace oil analyst Josef Schachter who saw a collapse in oil (still sees it at $40 later in the fall) and Victor Adair – Ace commodity trader – who forecast a strong US dollar for over a year. The two – argues Schachter – go together: Our dollar and the price of commodities – oil in particular. Both of these gentlemen see it continue into the fall. We also have our central banker actively talk down the Canadian dollar. I would not bet against him.

Major Point: Subscribe to Schachter’s outstanding oil letter (www.maisonplacements.com) and listen to Adair’s outstanding comments on Moneytalks – Saturday at 9:45 at AM 980.

Q: Follow up on last week’s gold comment. “Anyhow, you called it. I also remember how you have warned about the Shanghai stock market time and again in the last few years. Maybe you should write a financial letter?”

A: I am happy and honoured to be in my real estate niche. I started this newsletter in 1993 and with all my subscribers help it helped me to a very fine life for me and my family. Thank you all very much and thanks for the kudo …

Q: Ozzie, you always seem upbeat. What worries you?

A: Interesting question. I was asked the same just recently on a ‘sausage fest’ party. I gave it some thought. (After all it originated at a sausage fest!) I do not worry about anything that I cannot change, but clearly, when I recommend you hold some cash in the face of a sharply rising real estate market … I have my concerns.

Biggest worry 1? Collapsing currencies. Mexico down 26% in a year. Aussie dollar crashing … our dollar down 20%.

Biggest worry 2? China! Our commodity boom was driven primarily for years by Chinese rapid expansion. I do not trust their official economic reports. My overseas friends tell of collapsing real estate markets, closing factories. The recent panicky government multi-billion dollar support of the stock market also tells of the fight between keeping control and living in a Western style market place. Something will have to give. We see much lower consumption ahead and generally when the Chinese economy hick-ups … ours has a heart attack.

Comments: 

1. Quite a few comments on ‘run up in prices’ from last week. Please note: This was not a forecast, just a report on what happened in the past in answer to a question.

2. Questions on whether we “are in a boom, followed by a bust”.

3. A lot of comments on “Central Bank trashing the dollar” and “Banks keep almost half of the rate reduction”

4. Surprising number of responses to my “Iran and Obama” rant. 11 agree – some at length. One not.

5. Talked to a “guy in the know“. According to him, there is a Chinese Billionaire consortium wanting to build hotels and major developments outside of Vancouver. Likely Fraser Valley or even the Sunshine Coast. Money under discussion? $11 billion!

Why It Is Easier To Pay Off A Mortgage Today Than It Was 20 Years Ago

In 1980 – 1985 interest rates fluctuated between 10% and 20%. In 1993 the 5-year mortgage rate stood at 13.5%.

Today the best mortgage rate clocks in at under 2%!

Think about it: A 1.95% mortgage (Variable Prime – .75%. Net rate 1.95 %”) –

Prospero has a 5 year term at % 2.05 with a $1000 cashback.

So let’s look at past rates

1980: 10%

1993: 13.5%

Today: 1.95%

Comparing these rates we find out the ENORMOUS DIFFERENCES IN INTEREST PAID IN THE PAST COMPARED TO TODAY. Let’s see what it means?

Chart

Major Point: Much lower payments result in a much faster payoff. You paid over $68,000 in 5 years at 13.5 percent and paid off only $3,656. Today at 1.95% you pay only $25,200 and pay off over $16,300!

More than half of your payment goes into your own pocket. So even of markets do not rise at all you create a substantial equity and quickly! BTW that $1,138 mortgage payment in 1993 got you only a $100,000 mortgage. Today you could borrow close to $300000 for that payment!

Hot Property

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Best Mortgage Rates

Mortgage rates lower than ever … but do you qualify?

With the recent reduction in the prime rate by .15% to 2.7%, variable rate mortgages are now at around 2% and 5 year fixed rates still sit around 2.59% – 2.69% with most lenders. The net mortgage rates for variable haven’t been this low since 2011 when the prime rate was 2.25% and the discounts off prime were anywhere from Prime -.6% to Prime -.9% during the year.

There is no question – borrowing money has rarely been cheaper. But, do you qualify for a mortgage?

Government will keep close tabs on the mortgage guidelines to ensure housing markets don’t grow out of control while interest rates are at all-time lows. Although it has been 2 years since any official rule changes from the government  , many lenders and mortgage insurers are tightening the screws.

“There have been many small rule changes that have made it more difficult to qualify, and most of these changes are not widespread announcements but rather quiet adjustments behind the scenes,” says Mortgage Expert Kyle Green of Mortgage Alliance (778-373-5441,  Kyle@GreenMortgageTeam.ca).

“One recent example is we have a client who has a 627 credit score putting 5% down who works for the RCMP, so good employment. However, even though insurers have minimum credit scores of 600 or 620, we’re now getting told that the mortgage insurers are turning down nearly all applicants putting less than 20% down with credit scores below 650.”

It isn’t just home buyers with poor credit who are running into challenges either. “One issue we’ve been running into a lot is investors who purchased investments with partners. If they go to purchase another investment without those partners, lenders will only use a portion of the rental income according to your ownership. So if you have 50% ownership of an investment that produces $1,000/mo in rental income they will take 50% of the rent, THEN apply their normal rules which is often to use 50% of that rental income, apply it to your income and only 40% of income is used to service the debt.”

So:

$1,000/month – $500/mo used (50% ownership)

$500/mo – $250/mo (50% “add to income” method used by most lenders)

$250/mo – $100/mo (~40% of income used to service debts)

So if you had a rental you own 50% that rented for $1,000/mo and mortgage, property taxes etc. are $1,000/mo, the lender considers this a $900/mo loss!!! This requires about $30,000/yr in income just to service this loss.

“It is more important than ever to ensure you properly plan out your portfolio. There are ways to avoid the issues many are running into with proper understanding of mortgage rules. Don’t just deal with an order taker at the branch, make sure you have a broker or banker who understands how to build a rental portfolio,” adds Green. Indeed! Good advice.

Mortgage
Alliance

Posted
Rates
1 yr 
2.29%
3.50%
2 yr
2.09%
3.35%
3 yr
2.14%
3.79%
4 yr
2.49%
4.09%
5 yr
2.49%
4.64%
7 yr
3.29%
6.35%
10 yr
3.79%
6.75%

 

July 27, 2015