I happen to believe there’s a lot more damage coming before things get better. Of course, as an investor, I’m paying a lot of attention to what’s happening, because it’s a matter of time before opportunities really start to present themselves. While I continue to invest heavily in the Alberta real estate market, I do realize that all markets go through cycles. Right now, Alberta is the best place to be investing, and I think that will remain for at least several more years before the fundamentals start to shift and the risk increases. On top of that, keeping my money in Canada protects me (and rewards me) from the continuing U.S. dollar decline. Since the beginning of the year, the Canadian dollar has risen 14% against the U.S. dollar, with it closing today at just over 97 cents (a value not seen since 1977). With the continuing weakness in the U.S. economy, the declining dollar, the growing credit crisis, and Canada’s continued strength, I do believe we’re going to achieve parity — where the Canadian dollar equals a U.S. dollar. Not only will this be a pyschological breakpoint for many Canadians, it will also mean that U.S. investors who hold assets in Canadian dollars benefit from the exchange rate. For example, U.S. investors that placed money in our Limited Partnership earlier this year have seen an increase in their asset value of 6-12%, depending on when they converted their U.S. dollars into Canadian. That means, ignoring what we actually DO with the money to increase it, our LP investors are already making double digit returns in our LP, because the annualized increase of the Canadian dollar is more than 10% for all investors (more for some who were in earlier). So where do I think things are headed from here? I think we’re going to see Canadian dollar parity, and I think we’re going to see it before the end of the year. Once it occurs, it will be interesting where the psychology takes it. It’s hard to say how long the parity will exist. But, in any case, it’s a tremendous benefit to anyone holding hard Canadian assets, like real estate. Oil closed for the first time ever this week over $80.00. This in itself is a huge psychological breakpoint for investors and economists. I believe we’re going to see continued growth in oil, and we will see $90 oil in the next 4-6 months, and we will very likely see $100 oil for a brief period in about a year’s time. The U.S. economy is going to continue to hurt, and that will drag down the rise of oil. However, I believe the continued growth of developing economies such as India and China are going to replace some of the U.S. demand for that oil, and the net overall global demand for oil will continue to rise, notwithstanding any weakness in the U.S. The credit crisis is NOT over by a long shot. We’re going to continue hearing of lenders and investment firms collapsing because they can’t figure out where to get the funds to keep their musical chair operation going. Previous investors they promised solid returns to can’t be paid back, because the investment firms aren’t able to find other people willing to put money in now that people realize how risky their business models on. Hedge funds have borrowed with incredible leverage to buy baskets of asset-backed securities (such as mortgages, loans, etc.), which means they’re using high leverage to invest in assets that are ALREADY highly leveraged. If you invest in something that is 80% leveraged, and then borrow 80% of the money to invest it, that means their equity in the deal is 4% (20% of 20% = 4%). You can now see why this market is SO risky, and yet most investors had no idea what they were getting into. It’s analogous to buying a house with 4% down, and then suddenly you HAVE to sell, and there are NO buyers will to pay anywhere close to your asking price. Circling back to the foreclosure market in the U.S., and the point of my headline today, what I’m witnessing is a lot of the U.S. lenders acting emotionally, in light of all the foreclosures coming down the pipe. Many of my associates and friends who are working foreclosures have commented that currently, the banks are acting very odd. For the most part, you’d think if any lender had a whole whack of foreclosures coming down on them, they’d want to blow those out as fast as possible rather than hanging onto them. Well, for the most part, I’m hearing that U.S. banks are continuing to be firm and demand what they want out of the houses they are foreclosing on. This means that anyone doing short sales is likely running into a lot of frustration these days, because the banks are simply not taking reasonable offers, that perhaps a year ago, they would have jumped at. I think this is simply the banks getting emotional, and “hoping and praying” that the current storm is going to pass quickly. However, what I DO think is going to happen is that it’s going to get much worse, and we’re then going to see a capitulation — in other words, the lenders are going to start crying “Uncle” — and the buying opportunities are going to be unbelievable for investors. Therefore, if you’re in the U.S. and you’re determined to invest in the U.S., my suggestion is that you should LEARN THE FORECLOSURE BUSINESS, and do it sooner than later. While there may not be endless opportunities right now (which there should be, but the bank aren’t playing), I believe in the next 6-12 months, the floodgates truly will open and suddenly you’ll have too many deals to take. If you’re in Canada, feel blessed about our economy in general, and that overall, Canada’s economic performance is going to continue to lead almost all developed nations. While there is continued weakness in the housing market out east, there is no “crash” or bubble to worry about. It’s easier to find cash flow positive properties out east, and that’s what I would be doing. Slowly trying to accumulate good properties with long term potential, because many markets in the east have great long-term fundamentals. Out west, the market is shifting with a large number of properties on the market. This has led to the media screaming about possible crashes and slowdowns. Don’t let the media (driven to produce head turning headlines to sell papers) fool you. If you look at underlying fundamentals rather than the media headlines, you see that in Calgary, for example, we are on track to have a record of sales activity this year. This means that, even though there are a lot of houses for sale, that doens’t mean it’s because no one is buying. MORE people are buying than last year (the previous record), but there are simply way more houses on the market. That’s what is leading to a slowing of the appreciation down into the low double digits. However, Calgary’s still up over 22% year over year from last year. Similar activity is occurring in other cities like Edmonton. Saskatoon has been named as the fastest growing city in Canada — but watch how long that lasts. I believe their growth is primarily being caused by speculation from Alberta investors, as opposed to sound fundamentals. In a year, we’ll be able to see what the truth really is. However, I would be EXTREMELY careful buying properties in Saskatchewan simply because of appreciation. Their price increases are NOT going to last much longer, and aside from the media gives you the impression of, they are not increasing population dramatically there. If you have 2 people move in one year, and then 3 the next, that’s a 50% increase of the in-migration. However, look at the underlying numbers to see how many ACTUAL people are moving in (hint: the number is less than 1,000… compare that to Calgary, where over 32,000 net people in last year). All in all, it’s an incredibly interesting time to be a real estate investor, and there are opportunities in EVERY market. The challenge is leaving the emotion at the door, analyzing the market, and determining what the best strategy is for THAT market, and for YOU at the time.]]>