Not again… Real Estate Prices are Falling!
Real Estate prices are dropping through the ground! We’re in the red,” proclaims the radio announcer on your drive into work:
“Take your spouse and child, buy extra water and food, and hideout in your basement until the meltdown passes,” he warns.
So you arrive at work and wring your hands over and over. You look at your computer and your clock, and you plan your trip to Costco to buy water and food so that you can survive the horrible real estate meltdown in Calgary. “Is my little house in Silverado worth next to nothing?” you think, as you imagine yourself and your family eating macaroni and cheese day-after-day in the kitchen of your lovely three-bedroom home in Bridlewood.
You finish work quickly and begin your drive home, ready to tell your wife that it’s all over. Your life savings are now worth nothing. In fact, you have more debt than ever before. You flip on the radio so you can hear more about the terrifying situation that has befallen the Calgary Real Estate Market, but this time the announcer is calmer:
“Housing prices in Calgary are up, up, up!” he says, “Buy now, and buy every piece of property you can because we’re on the verge of a Calgary Real Estate Boom!”
Your heart lightens and you phone your Calgary Real Estate Agent, and tell him you need to see every revenue property there is because you want to buy three before the day is out.
Is that how we are really living?
Are we living according to what we hear on the evening news or the morning radio?
It sure seems like it to me. I have clients standing on the sidelines because they’ve been injected with fear from their friendly neighbourhood newscaster, even though the same announcer gives totally different forecasts on a day-to-day basis.
Maybe I’m missing something here, but I’m pretty sure that none of those news agencies have a crystal ball with which to be able to see the future with absolute clarity. If they did, you can bet they wouldn’t be newscasters; they would be sunning themselves in the tropics with all the money they earned by predicting the 2006 boom! And that same theory applies to economists.
If they saw the 2006 boom coming, well. I’m pretty sure they wouldn’t be economists anymore.
So who has the truth?
Who out there can tell you that your investment is safe?
I’m sad to tell you that no one can. But I can give some facts that are universally true.
Fact: Home ownership is a need, not a want. People will always need a place to live. Meaning that your home will never be worth absolutely nothing.
Fact: Mortgage rates are at an all-time low. Yes, we have never seen rates like this before! I was browsing this article in the Globe and Mail where Rob Carrick expounds upon our rate situation: “Let’s say prices fall 5 percent over the next 12 months, enough to take the national average house price in December to $327,322 from $344,550.
How would this play out from the borrower’s point of view?
With a five-year fixed-rate mortgage at 3.9 percent and a 10-percent down payment, you’d be looking at payments every two weeks of $823 (includes mortgage insurance and a 25-year amortization) if you bought now.
Now, we flash ahead a year to find that mortgage rates have climbed a full percentage point. You’re now buying a $327,322 house and taking a five-year mortgage at 4.9 percent. The new biweekly payment: $865, which plays out to an extra cost of $5,460 or so over the five-year mortgage term.
Imagine you use your year on the housing market sidelines to build up your down payment by, say, $5,000. This lowers your biweekly payment only modestly to $850, which means a total extra cost of about $3,540 over what you would have paid if you bought a year earlier.”
Fact: You need to live a normal life apart from the falling and rising prices of Real Estate. You have 2 kids and a dog.
Are you really going to stay in your apartment-style condo for five more years to save a few hundred bucks?
The housing market here really has melted down before, and people are absolutely not dying in the street or eating macaroni and cheese every day for dinner.
It’s life, people: booms and busts, ebbs and flows, ups and downs. So get on the roller coaster or sit on the sidelines. For me, I’ll always choose the thrill of the ride.