Considering using a second mortgage to finance a vacation or retirement property in the U.S. Sunbelt? Factor into your calculus new numbers that show sales of existing U.S. homes in July dropped to the lowest level since total existing-homes sales were first tracked. Reversing the old economic adage – that when the U.S. sneezes Canada catches a cold – U.S. housing markets seem to have caught influenza while Canadian markets have a tickle in their throats.
It sure looks like a bottom (or, at least, near-bottom) in the United States, where the Business Insider reports that, “(t)otal housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June.”
In a separate report, the Financial Posit posits several reasons for tanking U.S. home sales, citing everything from the end of a tax deduction for first-time home purchasers, to the spread between the interest rates charged by wary private lenders (i.e. U.S. banks) and those of federally-backed mortgage lenders Freddie Mac and Frannie May. The net result? “(D)espite record-low mortgage rates, people aren’t able to buy houses: essentially all the benefit from those low rates is going to people who already own their homes and are taking the opportunity to refinance.”
The bottom-line, according to the Financial Post, is “that there’s a big gap between buyers and sellers: the market isn’t clearing. Sellers are convinced that their homes are worth lots of money, or will rise in price if they just hold out a bit longer; buyers are happily renting, waiting for prices to come down. And entrepreneurial types, whom one would expect to arbitrage the two by buying houses with super-cheap mortgages and renting them out at a profit, don’t seem to have found those opportunities yet.”
The housing and mortgage markets in Canada and the United States are fundamentally different. Much tighter mortgage rules and lending standards in Canada has meant – despite reports of a cooling real estate market – that we avoided both the worst excesses of the U.S. housing bubble, and the worst excesses of the bubble bursting.
For entrepenurial types in Canada who may be looking at vacation or retirement property in hard hit Sunbelt states, such as California, Arizona and Florida, utilizing a second mortgage to take advantage of opportunities emerging in these bottoming markets may pay dividends when the gridlock in U.S. markets finally unwinds’
