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North America Property Sectors : A Company and Industry Analysis (August 2008)
Mergent, Aug 2008, Pages: 32
This report updates the previous North American property report, focusing on the markets in Canada and the United States
Current Environment - Key Points
- The deepening subprime mortgage crisis in the US caused the asset values of funds with high subprime mortgage loan exposure to further drop sharply in early 2008
- Fears of a US recession caused most leading US property companies- share prices to tumble over the six months to May 31, leading to weak first quarter earnings
- The long-running Canadian housing boom came to an end during the six months ended May 31, 2008, as the US subprime mortgage crisis deterred many Canadian buyers from entering the property market
- Hit by the deteriorating property market, share prices of most leading Canadian property companies were down over the six months ended May 31, with most property companies- first quarter earnings mixed
- Poor equity market conditions led to a drop in the number of the initial public offerings in the US and Canada, with only a few property companies listing
- Fewer M&A deals were recorded in the US and Canada due to rising pressure from the subprime mortgage crisis
Industry Profile - Key Points
- Private builders play an integral role in the US property market, mainly by boosting the country's construction spending
- Stable income growth has raised homeownership rates across the US since the early 1960s, but high interest rates lowered homeownership rates in 2006 and 2007
- In 2007, demand for office and retail spaces in the US was well-supported by strong tenant demand from local and foreign companies, with New York City the top prime office and retail market in the country
- Strong construction activity in the natural resources rich provinces has contributed largely to the Canadian property market growth in recent years
- Healthy economic growth raised demand for Canadian commercial properties in 2007, with improving vacancy rates and higher rental rates
- Fears around the deteriorating subprime mortgage market led to a few US mortgage REITs to file for bankruptcy protection in mid-2007
- Many Canadian REITs were privatized in 2007, as the Department of Finance released draft legislation affirming previous proposals to tax most income funds
- Rising concerns over the subprime mortgage meltdown led the US Government to implement a series of measures to buoy the weak property market
Market Trends and Outlook - Key Points
- With the collapse of the subprime market, more Americans are falling behind on their mortgage payments - and the situation is likely to get worse before it gets better
- Concerns over environmental problems, coupled with rising energy costs, are enticing more companies to invest in sustainable design and construction
- With property values in California dropping, opportunities are growing for first-time buyers to enter the market
- Although -For Sale- signs in neighborhoods are discouraging many Americans, foreign investors are optimistic about the long-term growth in the US property market
- Weak property market conditions are expected to recover somewhat in the second half of 2008, although rising subprime mortgage foreclosures are expected to continue to dampen the overall market
- Alberta's booming housing market cooled off in early 2008, affected by the US economic downturn
- Affected by the combination of rising interest rates and property prices, Canadian housing affordability remains low
- Despite slowing property market growth nationally, the booming oil and gas industry in Saskatchewan is buoying the provincial property market
- The Canadian property market is expected to slow this year, as a sharp slowdown in the US economy is likely to weaken Canadian economic growth.
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