US Economy effect on Canadian real estate

[tj3311]

I'm not sure if this has been directly discussed in this forum somewhere, but a June 9th article in the Financial Post resparked questions I have concerning the US economy and its effect on Canadian real estate. The article can be found @ http://business.financialpost.com/2011/06/09/america-at-tipping-point-shiller-warns/



Does anybody have any thoughts on what a double dip US recession will do to some Canadian markets? Surely Canada being a significant trading partner it would have an effect on some areas, such as Ontario (who according to RBC have recently seen growth partly driven by stronger US demand) more so than others such as the western provinces.



It's quite obvious that the US economy is in trouble...how are other REIN members approaching this issue?



Looking forward to hearing your thoughts/insights,

Taylor

 

[Mike Milovick]

Hi Taylor;



I saw the same article.



I also noted another FP article day earlier regarding US defaulting on its treasury bonds in August. And now another article today with China saying the US already has.



Sounds like a "World on Fire" scenario is quickly re-developing. Financial Crisis Part II. Or maybe even this time - The Big One.



For what its worth, I don't think you can do much in this environment - except possibly re-finance at current interest rates and hold on to cash to ready yourself for buying opportunities. And maybe weather the storm.



Some analysts have said that current environment has "no where to hide" implications for investors everywhere.



Just my thoughts. I hope I am wrong.

 

[Rickson9]

Although it would be extremely unfortunate for Canadians if a double dip in the U.S. negatively impacted Canadian markets, as an investor, I am somewhat saddened to say that I would be in a very good spot. I have been looking to invest in Canada for a long time.





As an investor looking to buy, I always hope prices fall. I continue to look for more U.S. real estate. Returns have been good and if another shoe drops I can see them becoming great.
Unfortunately for my U.S. real estate agent he has seen his commissions per sale drop to ridiculous levels. Commissions per condo are $2,000 with most of it paid by the Seller. 75% of real estate agents before the crash are doing something else.





A U.S. default would be amazing for investors, but bad for the low and middle class. Speaking for myself, my investments continue to increase in value and deployable cash is building up too fast so I would appreciate the opportunity.




In short, I would appreciate anything that would cause Canadian markets to collapse - U.S. double dip or otherwise.





Best regards.

 

[Thomas Beyer]

[quote user=tj3311]It's quite obvious that the US economy is in trouble...how are other REIN members approaching this issue?


by not buying there .. but rather HERE AT HOME !!



and keeping stock market exposure minimal ..



related thoughts by others (incl. me) here: http://myreinspace.com/public_forums1/f/62/p/21962/108900.aspx#108900



Having said that it is a chance for the US, Europe and other nations to clean up their act such as too many and grossly overpaid civil servants, reduce union rights such as re-instate the right to work in any occupation without the requirement to join a union, have a fairer tax system that taxes rich and very rich, restrict dumping of cheap products by nations that pollute the environment and steal nations knowledge (aka China), curb entitlement mentality as it relates to job security, health, education and pensions .. and prepare for less government and more private initiatives ..



Free societies will survive and thrive again .. but after much conflict, possibly violent conflict as evidenced in Greece, Spain, Egypt etc. ..



Well located real estate, properly levered, well managed in the right location will continue to be a great investment and outperform the often manipulated and volatile stock market .. especially in stable and GROWING economies such as Canada !

 

[tj3311]

My apologies Mike, I didn't see your post in the other forum...but I'm glad I'm not the only one who saw this. (Thanks to Thomas for pointing that out). With regards to whether the US will default on its debts, I have heard that the Federal Reserve has been essentially "printing money" (and I use this term loosely) in order to pay the interest on its debts for the past several months. Historically when a country has reached this point it has never avoided default...so it may just be a matter of time before this occurs.



Mike, I agree with the "no where to hide" situation to a certain extent, but again if you plan ahead you can be in a position to really take advantage of a downturn. Some of the wealthier people can and do take advantage of these situations as it may be that you're buying while others are selling, and not competing with many other investors. I guess it may just boil down to what is the best way to put yourself into a position to take advantage of these events. There are obviously many directions you can go with this, as far as whether to buy stocks, precious metals, hold onto cash, etc but I like to focus on the effects in relation to real estate.



Thomas, you make some good points about the US and their political problem "manifesting itself in a fiscal imbalance"...I'm sure many people in the past few years have been realising that some of the decisions being made by their government are absolutely bizarre (eg. bailout money with no limits on bonuses to executives stands out as a somewhat recent example). And with regards to cutting of spending/decentralization of services, I agree that this will happen as they will need to stop the leaks, this will not come without a period of growing pains though. I have been living in UK off and on for the past 2 years and they are currently going through this as they have cut over 500,000 government related jobs in the past few months and significantly reduced subsidies of certain institutions (most notably for education/university).



We could go on and on about the repercussions of a double dip recession in the US but specifically relating this to real estate in Canada...how much weight should a Canadian real estate investor give to the situation in the US when evaluating his properties/purchases/etc? Is it better to look at the economic fundamentals of the region specifically not really giving this much thought or is a smarter approach to take a broader view and include these considerations with your regional analysis?



Thomas I've read a little about the extent of your investments...how do you approach this?



Taylor

 

[Thomas Beyer]

[quote user=tj3311]Thomas I've read a little about the extent of your investments...how do you approach this?


watching the "US movie" and investing in W-Canada, primarily AB and SK land development and multi-family !

 

[housingrental]

No one knows the future. However, my guess is it's a great time to shift a good chunk of your portfolio into cash.



Time will tell

 

[Thomas Beyer]

[quote user=housingrental]it's a great time to shift a good chunk of your portfolio into cash.




cash .. or GICs or T-Bills = return free risk !



FOR SURE your money will erode in value due to inflation.



Any hard asset .. ideally with income .. will do better ! An oil company .. an apartment building .. farmland .. gold .. silver .. a pipeline company .. a piece of land in a demand location .. a trailer park .. a commercial strip mall in a good location .. a restaurant catering to average folks .. many of these REAL assets/firms will do well even in a weak economy ..



stick with CANADA .. ideally W-Canada where the GDP growth is highest, the in-migration is highest, the unemployment the lowest, the debt the lowest, the tax the lowest and the air the cleanest !



It's cheap in the US for a reason: poor economy, high debt, over supply, grid-locked government, weak banking system ...



Don't buy where it is cheap .. buy where the economy is strong & jobs are created & debt is being reduced & governments work to support business activities ! AB .. SK .. and to a degree BC and ON !!

 

[housingrental]

Hi Thomas



In your above post you are assuming that:



Deflation for certain asset classes is not possible



That all of those above investments will always do well in an inflation environment



Neither of the above assumptions hold true in all cases



Some similar points of debate in :



http://myreinspace.com/public_forums1/f/61/p/21949/109004.aspx#109004



Lets focus on that thread