US subprime crisis

In a previous post, I mentioned my desire to become a real estate agent. I want to be able to access some key information and networks that will allow me to maximize the potential in a home that I buy or a home that I buy for someone else. I think it will be a key part of being able to get some deals completed. This doesn't come without consequences.

With the housing market in the US taking a huge hit, many Canadians are concerned about the economy north of the border taking a dive as well. Canadians are stretched financially with 40 year mortgages with no money down. There is a real risk that the market does take a hit as banks have been generous with their loaning policies. To me, this indicates that it may not be the best time to enter the market as a real estate agent. The markets are too volatile.

There are two reasons I believe that there will not be a crash in Canada. First, the banks are still loaning money at rates affordable to them in Canada. Even though they are taking on bigger risks, they are protected with rights to the underlying assets. Mumble jumble to you? Simply put, in the US, the banks borrow money at rate A, but loan out at rate B. Due to the intense competition, rate A is higher than rate B thus the banks are poised to lose money. In Canada, rate A is still lower than rate B.

Why would the banks do this in the US? To make it simple, they want to do business with you. Customer loyalty translates into extra revenue in forms of fees and surcharges. However, when the economy started to slow down in the US, people lost their jobs are were forced to try to sell their homes. Subsequently, the price of homes dropped because there are more sellers than buyers.

My second reason for why Canada will be better off than the US is that our economic fundamentals are better. What does this mean? Well, first off, Canadians are continuously paying off their national debt. We are saving billions of dollars in interest charges while the US is poised to sink $700 billion more this week. This is not including the future interest costs.

Next, we are running surpluses in Canada. Albeit, they have been smaller in recent months, but, nonetheless, our revenues exceed our expenses. Given the slowdown in the US economy, we are poised to feel a slight pinch from our biggest trading partner. What does this mean for the housing market? Well, it means that if we needed a bailout package such as the one in the US, we are in a much better position to fight off a recession. Therefore, people will be better suited to keep their jobs and not be forced to sell their homes. I could be wrong, but I think I make sense.

Therefore, given all of the housing market volatility, I am still poised to become a part-time real estate agent. I have an interest in this kind of stuff and I want to be able to help people as much as I can. This is merely a hobby for me, and not a career. My approach as a real estate agent is that I have information available, but I'm not going to force a sale down your throat. I don't need you to buy a house to put food on my table. I'm an accountant, but I like investment decisions.