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The Chicken Little Theory
The sky is not falling...
For those little tidbits that make it into the media about things like; Recession…Housing "bottom-out"...and the like; remember this – the market is filled with much more than one person's comments and expectations out of the market. Even after reading this, I don't suspect you will keep this as gospel either.
What I want to touch on in this newsletter is the fact that we are experiencing a nice "settling down" in a crazy housing boom. According to the Canadian Real Estate Association (CREA), we are officially bidding farewell to a housing boom.
"Canada's six-year housing market boom is officially over. Aside from a few choice Prairie locales, sales are melting faster than this year's snow pack," Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.
The findings come after a full quarter of data that is now available. The acid test will be the feedback after the spring market wraps up. Is this good news? Bad news? Indifferent news?? Whatever the market is, one thing is for sure - there is always a "market". The fact of the matter is that there are peaks and valleys in the housing market…much like other markets! We find ourselves in a spot where things are cooling down. The important thing to remember here is that unlike our US neighbour, our market is NOT going in reverse; we are cooling…or "slowing". Better yet; we HAVE slowed. We slowed down, that's not in question – and we slowed down fast. But there is no bottom that fell out; there is no…panic, most would say.
Sure, sellers that NEED to sell their homes will sometimes find themselves in a tighter position these days...but isn't that part of the gamble when we deal in real estate. I mean, there are no guarantees in real estate. When things are good, they're great aren't they? But when things don't go as well as we'd like them to, what do we do?? Does it automatically mean there is a fall-out? No…I don't think so. In my opinion, a cooler market means less stress in many cases.
So what's around the corner then? That's a good question. Anyone with a crystal ball...please feel free to step in and take over here. Truthfully, the forecast is not bad at all. Probably the most important thing to be reminded of here is that things are heading back to normal – with the increases of home values returning to what is considered more "normal". For a professional opinion on home value however, I must advise you to contact your local realtor on the market of your house...I remind you that the above information comes from economists that study these conditions as their full time job.
When it comes to financing and interest rates, I may be able to lend a hand...
It's quite hard not to suggest a variable rate mortgage for ANYONE looking for a mortgage right now. The Bank of Canada assisted us with making it very easy to advise a variable rate over the fixed rate mortgages. But how long will that last? It is noteworthy to mention that the variable rate mortgage (now more than ever) is the type of mortgage where you have to watch what's going on out there. The word is that the fixed rate market isn't likely to budge too much further down than what we're seeing right now. This means that by the end of this year, we could very likely see the fixed rate market inch its way back up. There are rumblings that (if things go as predicted), by the end of the 2009 year, we should be seeing an average 5 year fixed mortgage of around 6.50%. Is this terrible? No...it's not by any means. Let's remind ourselves of the historical average of the last 35 years; around 11%!
So when we hear that interest rates are going up, we tend to fear the worst. This can perceivably be an end to an era, yes, but is there a need to panic about interest rates skyrocketing overnight? This is highly unlikely at this point. When people get into trouble, it's USUALLY when they are blindsided by a surge in interest rates. Of course, depending on your household income – an increase of 1% on your current mortgage balance may affect you to a detrimental point. If that's the case, consider this a warning. Why would I place a warning you ask? The increases in values of homes (in western Canada in particular) over the past 3 years alone have really taken off. The struggle to get into ownership for a home (especially for the younger crowd) has seen the 40 year amortization mortgage as the most popular mortgage out there. In relying on the 40 year amortization, it wasn't a matter of being greedy by extending the length of time of the loan so that you could qualify for more home…it was a mere matter of being able to qualify to own a home. Here's perhaps the clincher; we must remember that the salaries to most jobs were not as expedient as the rising values in the city! So if we're qualifying on high priced homes during a historical low interest rate period...what is around the corner for many, many
The good news out of this prediction is that if interest rates climb with inflation as they are predicting, we won't see again what happened to us in the early 80's…where interest rates went from about 12% to 19% in a year and a half! For those of you that lived through that…we can hear your wince.
The sky is not falling in terms of interest rates from what I can see. Quite the opposite…we're heading back to normalcy…and some might say that they embrace normalcy.
If you have any questions…feel free to let me know.
Sincerely,
DAN
MASS, AMP Broker/Agent
Canada First Mortgage
direct:
403.294.0033 cell: 403.710.1505
fax: 866.902.4910
email:
dan@canadafirstmortgage.com
website:
www.canadafirstmortgage.com
193 McKenzie Towne Gate SE
Calgary, Alberta, Canada
T2Z 4G2
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