If you’re thinking of buying property in the United States, buy now because prices won’t stay in the basement much longer, says a BMO economist.
“While there’s little urgency, now is likely a good time to buy U.S. real estate in regions with relatively low foreclosure rates, as conditions should improve enough to put a floor under prices this year,” said Sal Guatieri, senior economist, BMO Capital Markets.
Almost two in 10 (16%) Canadians would consider buying a home in America, according to a BMO survey. Just under half (44%) of these potential buyers cite affordability as the attraction, while one third see the property as a long-term investment.
Mr. Guatieri says that while the U.S. housing market remains soft, prices are likely to stabilize in 2013.
Single-family homes sales, while up 6% in the past year to the first quarter, remain 8% below their 20-year average. But Mr. Guatieri predicts that U.S. demand will improve on firmer job growth, improved affordability and easier lending standards.
“With mortgage rates at record lows and resale prices down 34% from the peak, only 12% of gross median family income is needed to finance the purchase of a typical house – nearly half the long-term norm,” he said. “In fact, it’s cheaper to own than rent in many regions.”
While Canadians with their eye on a select location in the States should act now, extreme bargain hunters can afford to wait, says Mr. Guatieri.
In the 15 states with a foreclosure rate above 4% — such as Florida, New Jersey, Illinois and Nevada — prices fell 3.5% in 2011. A one percentage point rise in foreclosure rates is associated with one-half percent decline in home values.
Mr. Guatieri said the flood of foreclosures is far from over as banks process the backlog of delinquent mortgages stemming from allegations of improper foreclosure documentation. Some estimate this so-called “shadow inventory” could be as many as 3 million homes, more than the total of houses on the market now.