What would it mean to you if the "Canadian housing bubble," so widely speculated about in the media, burst? The point is, regardless of what lies ahead, you have the power to take steps to protect your real estate if you always know what your options are.
If everyone talks about bubble bursting long enough, won't this become a self-fulfilling prophecy? All that talk about future interest rate increases drove the "before it hits" buying and price increases. Now, pundits blame consumers who have little power over those who have a lot of power. British Columbia and Ontario governments chose to go from GST to HST in a recessional economy. Hasn't that thinking compounded the "before it's too late" buying in already over-heated markets? Makes you wonder what consumers would have done without "the window of opportunity is closing" media hype, government policies and marketing campaigns.
Instead of just worrying about pending disaster—real or imagined—figure out what your personal worst-case scenario would be and replace worrying with action. Global influences, weaknesses in government policy and self-serving corporate interests on global, national and regional scales may have an impact on what happens on your street, but increase your stability and security so you're ready to meet challenges head on. Global influences, weaknesses in government policy and self-serving corporate interests on global, national and regional scales may have an impact on what happens on your street, but increase your financial stability and security and you can anticipate challenges.
Begin bounce-back strategizing before there is anything to bounce back from. In other words, continually strengthen financial weakness and remove vulnerability. Face fears and take action. What can you do to avoid, or at least lessen, the financial or other consequences you fear? Higher monthly payments? Job loss? Not making a big profit when you sell? Don't just worry. Use anticipation as a positive force and reduce stress in the process.
Search out constructive, unbiased advice and creative solutions for potential problems that have you concerned. Do you need debt counselling, a career review or another type of financial overhaul? Don't be shy about tapping into the wealth of usually free real estate and mortgage knowledge held by local real estate professionals. Real estate in the US and Europe has been hard hit for many reasons and on many fronts. There are many lessons-learned and creative solutions to draw on when there is time to act.
No one knows what is coming next even though some are better at making their educated guesses sound like facts. Collect insights and analysis from diverse sources, inside and outside Canada, online and off, instead of relying on regurgitated information from friends and media.
Here are 5 forward-thinking realities to include when you're determined to strengthen your resilience, protect your real estate and amplify your bounce-back ability in the face of economic uncertainty:
1. Local, Not National Media and pundits should talk about "the Canadian real estate market" as a "them" not an "it." Real estate markets are local reflections of various economic, political and social factors on real estate value. A market may encompass a few streets or a section of town. Even when real estate is hot, there are local markets where prices stay about the same and even some areas where values drop for local reasons. Some neighbourhoods are always "hot" and others are far from it for reasons that matter to locals. Within any neighbourhood, all locations are not considered equal. One end or side of a street may hold greater value than the other. How would you rate your location? For instance, homes on busy roads or backing onto commercial properties like malls may be more sensitive to economic ripples than the choicest addresses in an area. If you're not sure, check with local real estate professionals. If you feel financially vulnerable, learn what selling now would accomplish. Whether you take this step or not, the knowledge will help with informed decisions if changes do occur.
2. When, Not If Real estate is cyclical. What goes up, comes down and then goes up again. Timing is always the issue. Prices will decline—that's real estate. The questions from your perspective are "When?", "By how much?" and "For how long?" There'll always be lots of opinions, but only hindsight reveals the true answers. Decide what would be bad for you and why. Then, with appropriate professional financial and real estate advice, consider available strategies. For instance, if the value of your home drops, but you don't want to sell or refinance, maybe all that happens, relative to your real estate, is that market-value property taxes decline. Even if prices decrease, as your mortgage is paid off, your equity or accumulated value in the home increases, so concentrating on a speedy pay-off may provide a financial advantage to offset pricing.
3. Not buy "high," but sell "high" If you flaunt proven investment principles like "buy low, sell high," why do you expect to do as well financially if you bought high and may have to sell low? If you leap into the market at its peak or get pushed over your limit in a multiple-offer battle, wouldn't you expect to be more restricted in your resale options? Those who decide that the joys of ownership—home, a roof over your head, sharing with your family—carry important value may be willing to wait until real estate prices improve. Hunker down and concentrate on value-added improvements over time.
4. Learn about money, don't just spend it Mortgage interest is the cost of the money you borrowed, not the real estate. Learn everything you can about cutting this cost. An increase in interest rates does not change your monthly payments of principal, interest and taxes in the middle of your current term, unless it's a variable rate mortgage. Did you check on the cost of moving from variable to fixed when you signed up? If not, why not? Ignorance can be expensive. Understand mortgage rules. Pay off your mortgage more quickly and cut interest costs. You'll also end up with a great credit rating which should entitle you to better rates on renewal.
5. Not liability but financial resource Stop thinking like a caretaker and start acting like an investor determined to succeed in the business of owning real estate. Operate a business from your home, take in boarders or rent out a portion of the property and you're using your home to create income, gather tax advantages and cut costs. You may only need home-based income for a while, but never forget that there are choices as a property owner.
Stay frozen in the bubble-bursting headlights and that inaction may be a bigger problem than economic conditions. Be prepared to do well and use your knowledge of real estate as an investment. Don't have that knowledge? Yes, you do—just ask your local real estate professionals.
So is it one bubble or many small ones?
This article was published in Realty Times
Written by: PJ Wade, May 4, 2010
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