It would be so nice if the only concern that our clients had was whether or not they wanted to move. If they could buy their home with confidence that the property would appreciate over time with the cost of living and if they could know that their mortgage payment would remain the same for many years to come.
People are hearing and reading horror stories in the media and naturally thinking the worst possible scenario is going to happen after watching what has happened to our neighbours to the south. I had a client yesterday asking be if I thought the "bubble" was going to burst. I answered NO! and proceeded to explain to him that the situation in the States is much different than anything we will experience.
My reasons for thinking this are really simple.
- In the States when individuals were faced with a situation of their mortgage being higher than the value of their home they can simply walk away and forfeit their property. At that point they were off the hook. In Canada our mortgages do not release the borrower from any balance owing after sale of the property and the only way to be "off the hook" is to declare personal bankruptcy. People will fight harder not to have to do that.
- Our Court System does not allow Lenders to foreclose and sell the property quickly just to get the mortgage off the books. Instead a duty is imposed on the Lender to sell the property for as close to Market Value as possible given the situation that they must sell. A bargain sale will not be approved by the Courts unless it can be argued by condition of the home to be necessary. Therefore the market will not be flooded by foreclosure bargains which affect the values of surrounding properties as they have in the States.
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Finally we have the CMHC mortgage insurance program in Canada which eliminates the risk to lenders, allowing them to offer borrowers mortgage funding at a much lower interest rate with a smaller down payment. This qualifies a much larger number of buyers and provides a necessary safety net to the financial system, helping to ensure the availability of mortgage funding during times of recession and economic downturns. More qualified buyers equals a healthier market.
So while we may be experiencing a market adjustment I do not think that it will escalate to be the drastic "bubble popping" event that everyone fears. I tell my clients that it is not a good time to think about selling investment properties but it is a really good time to purchase your home or an investment to hold on to for a period of time allowing the rental income to pay the mortgage. Prices are slightly depressed, and if you find a motivated Seller then you can find a very nice property for a good price. History teaches us that the "cycle" of real estate values will continue and over time the home purchased now will go up in value so don't stress over the dips along the way. Current interest rates allow you to lock in your payments for up to 10 years so you can purchase with the assurance that your payments will remain the same for whatever term of mortgage chosen. Sounds pretty stable to me.
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