North American Housing Price Report for January

Our North American Housing Price Index registered a modest 1.67% increase from December, supported by a rise at the bottom of the market. The drop from May - when we started the Index - is now 14.46%, representing a massive fall in the North American housing markets, and likely correlated by a similar drop in the valuation of bank mortgage portfolios. On an annualised basis the Index suggests the market is down 21.69%, a truly stunning loss.

In the United States, IRS requirements have made claiming the house purchase tax credit rather arduous. This will put a damper on the 'no-money-down' schemes that were being used to have the tax credit stand in for a down payment. Apparently government-backed loans are now about 90% of the market in the US and essentially all in Canada (where many borrowers are having the nasty surprise of balloon notes coming due without any means to refinance them).

The cumbersome tax credit, along with the spectre of interest rate hikes in the future - thus influencing the interest rate on mortgages - will likely collude to continue depressing house prices across the continent. Simply put, the North American housing market is now stuck wheezing in the cold, heavy iron-lung of the state. The crash may be very prolonged, with Governments desperately attempted to prop up prices which should be falling.

Housing Price Report for November

Our result for the first six months of our North American Housing Price Index is a drop of 10.45%. This is a very serious drop, and has implication for more than just the house owners who need the value of their houses to say up. It also means that, on average: the housing collateral on bank balance sheets is impaired by around 10%; any and all securities of bundled mortgages have seen their value reduced by 10%; any house owners relying on the value of their house to keep up appearances have seen their appearances reduced by 10%.

Prices are showing some sign of improvement in the USA, which is to be expected thanks to the Federal Government's herculean efforts to prop up the industry.The 10% US Federal income tax credit has been extended, and all things being equal, this will tend to keep prices in the USA 10% higher than they otherwise would be. We'll be watching for a sudden fall when the program ends, if ever.

Interestingly enough, though, we are seeing some weakness in the Canadian housing market. This strikes us as rather odd, as the credit available to Canadian Citizens is still growing at a respectable clip. Additionally, the Federal Government has a very direct hand in guaranteeing mortgages in Canada, whereas the U.S. Federal Government only proves a wishy-washy guarantee to bail out banks.

Frankly, it seems that the animal spirits are friskier in the United States than Canada, undoubtedly supported by the U.S. Federal Government's housing tax credit. It is also possible U.S. Citizenry is a bit more credulous of the 'recession is over' propaganda than are the Canadians; it's time for Americans to do their patriotic duty and spend, spend, spend!

Housing Price Report for October

Our result for the first five months of our North American Housing Price Index is a drop of 11.64%. As previously mentioned, we attempted to make an adjustment to not skew the data by the 'higher end' of the market. Because of recent strength in the 'lower end' of the market, the overall index is showing signs of stability.

Is this a sign of the 'bottom' in the housing market? We think not. Sales have been boosted by the much-trumpeted 10% US Federal income tax credit. Just as auto sales 'crashed' after the cash-for-clunkers plan was suspended, so too will housing sales wilt as the tax credit is wound down.

Don't Take the Bait

The bait we are referring to is the 'improved' tax credit for house buyers that was included as part of the USA stimulus program. Look at it like a different shade of lipstick on a pig. Almost everyone who used previous versions of this credit is underwater on their mortgages, or at least looking at some pretty serious depreciation on their house value - much greater than the value of the tax credit. As a rule, taxpayers who attempt to take advantage of this credit will suffer the same fate.

Apparently a lot of people are buying houses - though not nearly so many as a couple years ago. They must think they are getting a good price. While a few of them may be, most are not. Housing prices in general have a long way to fall yet. The only thing that will arrest the decline will be runaway inflation.

Even after the inflation hits, house prices will probably not rise as fast as most goods and services. If you can find a house you like that is priced to be cheaper than renting after you factor in all the costs, then go for it, if you can pay cash or lock in a long-term fixed rate mortgage. That should be your only criteria, tax credits notwithstanding.