Royal LePage - Your Community Realty, Independently Owned and Operated, (905) 731-2000
Jim Reid, Broker, (905) 731-2000
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INSIDE THIS ISSUE 1. Property Strategies 2. Mortgage Strategies 3. Marketing Strategies 4. Outlook Canada |
Market Facts YTD Unit Sales Down 15.4% YTD Selling Prices Down 6.2%. |
PROPERTY STRATEGIES
Prices have peaked, equity is maximized and interest rates are low. Is this the best time to leverage the equity in your real estate portfolio?
Most homeowners will likely choose to ride out this economic cycle. But, for those with more than 25% equity, it may make financial sense to consider selling now to stop further equity losses and to set yourself up to re-invest when the economy begins to recover.
If you are planning a retirement downsizing within a few years, it makes sense to cash-in now. The higher value of the large home now will help you afford to downsize in the GTA, and then hopefully buy a second property elsewhere after the market falls further.
A one-year lease may also be a good strategy, once you have your equity safely stashed in liquid GIC's or government bonds.
Early on in my business career, I paid a high price to learn about "cover-your-downside". Sometimes it makes good sense to take a 5-10% loss you can afford now, rather than to risk a greater loss you can't afford later.
Our homes have real value that will likely deflate for a while. The not-so-negative side of this is that we just won't be living "rent-free" for a while as happened when our homes were inflating for 12 years.
Due to the economic uncertainty, there are many excellent real estate investment opportunities emerging at a rapid pace.
For those of you with $75k to invest, a good tenant will carry a $250-275k condo for you. In five years, they should have paid off $20k of your principal, plus you'll have earned any appreciated value on the property.( I've heard of some unbuilt condos having trouble obtaining their construction loans, so be wary of those investments.)
If you have a young family and a reliable income, you may want to get that cottage or chalet in a few months. Get out of the costly car lease(s), buy cheap used vehicles, don't buy the new computer or mega-TV, max your available line-of-credit and start looking.
Also, the Caribbean is beginning to get ready for the retiring Baby Boomers. Financing that wasn't there five years ago is now in place. If this is a serious option for you, call me for countries and projects to consider.
MORTGAGE STRATEGIES
During the 3rd week of October, the variable interest rate offered by mortgage brokers jumped from 4.15% to 5.25% and five year fixed rates climbed from 5.44% to 5.70%. In other words, the variable rate mortgage cost rose 26.5% and your fixed rate mortgage cost rose 4.8%.
This appears to be a sign that many lenders are experiencing a shortage of short-term funds. Normally, this would be a sign to consider locking in your variable rate mortgage at the fixed rate asap as the fixed rates may be heading up soon.
But, the central banks have quickly responded by cutting rates and making more funds available as they don't want to see mortgage businesses going broke due to lack of access to lendable capital. They are hoping to re-write as many mortgages as possible with more secure lending criteria. Thus, rates may actually decline for a while.
Also, the prime lending rate dropped to 4.0%. This is the rate for most lines-of credit. Thus, one could make a case to maximize your line-of-credit and then pay down your more expensive mortgage principal.
In turn, by having a smaller principal, this may allow you to reduce your monthly mortgage payment if your cash flow becomes really tight.
Of course, don't increase your line-of-credit balance by more than you can pay off within twelve months or less.
As long as you have at least 25% equity against the current bank's appraisal amount, and your mortgage term expires within two years, you might want to consider a renewal at these low interest rates. Don't hesitate to get a competitive rate from a mortgage broker. This influences the bank to give you their lowest rate. They might even waive the appraisal fee. Now is the time to get your financial house in order.
MARKETING STRATEGIES
During the financial crises of the early 1980's, the president of a major jewellery retail chain complained that sales were down because there was 20% unemployment in his key markets. Bert Gerstein, a competitor of his, and member of the board of the CIBC replied, " Well, you can have those customers and I'll take the other 80%"
Don't get discouraged by the present market chaos. Even though situations and circumstances are changing, there will be plenty of opportunity to sell property or do business.
Since there will be fewer buyers and more sellers, it will be important to make sure your property really stands out from all the others. There are many ways to achieve this and still get a fair market price.
In normal times, only 66% of the homes get sold by their original realtor. During this slowdown, only 40 % will get sold. You want to be in the 40%!
Whether you spend $200, $2,000 or $20,000, or even do all the work yourself, it is essential that you do the right things to prepare your property to sell it.
If you might be forced into selling, at least get caught up on your home maintenance as soon as you can. As for any updates or upgrades, don't assume you know what is best.
As a professional realtor, I'm constantly viewing properties that sell and those that don't. Call me before you spend a dime!
OUTLOOK CANADA
Politicians and the media are saying Canada's economic decline won't be as severe as the USA's. But don't forget that Americans own close to 60% of our industrial capacity and buy 79%, ($355 billion) of our exports.
Our problem will be to help keep our exporters alive by helping them find new markets and develop new products for these markets.
At the family level, it will be prudent to take steps to protect your family's cash flows during these uncertain times. Make and review your budget, consolidate debts, reduce cell phone and cable TV plans, cut down the fast-food costs, downsize your vehicles, etc.
My concern is that foreign controlled businesses may just fire thousands of people instead of cutting back to a 3 or 4-day workweek. Our public service and industrial unions may not accept wage reductions. They enjoyed inflation adjusted wage increases, but they may not accept deflation adjusted wage reductions! The traditional policies will protect a few senior level decision makers but they will cause enormous family upheavals, undermine our economy and cause costly public and private sector imbalances.
Also, consumers don't feel that they caused this financial crisis. Thus, we can make strong arguments that creative new government policies should protect our home equity and family cash flows. For example:
1. RRSP Tax Free Redemptions - Families should be able to reduce outstanding debts and mortgages from their RRSP accounts.
2. Mortgage Liquidation - Borrowers should not be held liable for amounts owed in excess of revenues from a power-of-sale.
3. Interest and Payment Suspensions - Individuals who lose their jobs should have their loans suspended until they start work again or until after the recession/depression.
4. MVA Equity Tax Credits - any decline in property market value assessments should be offset by equal tax credits.
Policies such as these will help families through the next two years. Let your politicians know how you want them to act.