Random Musings

As I sit here ready to write this article I am strugglingwith what topic to discuss, what topic is going to mean more to you, theconsumer.  Should I talk about interestrates or the potential changes to mortgage rules, or the fact that a couple oflenders have exited the Mortgage Broker world?  Maybe I should talk about the difference from one mortgageto the next, all valid topics for-sure, but today I am not going to be thatspecific, no this is going to be quite random.  My randomness started by doing some research over my pastfew lunch breaks and coffee shop visits, well o.k., not really research, morelike eaves-dropping.  I have beenhearing a lot of real estate and mortgage related conversations, interestingconversations, by people who obviously have very little experience, whom arespeaking with a great level of confidence, like they have done it a hundredtimes.  Are these people like manyothers?  Are they bombarded withmedia reports about what is right and wrong and what is real or not real?

I have to admit, I am an active tweeter and face-booker, Ilove the articles and the “knowledge” I gain, but like any media outlet it canbe very confusing and overwhelming. On any given day I can read three articles that may start like this:  #1  CMHC reports a decline in housing starts compared to thistime last year.  #2 The CalgaryReal Estate Board predicts year over year growth and property valueincreases.  #3  Is there a Canadian Real EstateBubble?  Are you confused yet?  I am and this brings me to my first musing.

Understand “your”market, not “the” market

In my opinion there is no market when it comes to realestate, there is only your market. National averages, CMHC reports, lender forecasts are all interestingarticles but if you are making the significant decision to purchase a home,sell a home or take a particular type of mortgage after only consulting with a Nationalentity then you are likely missing the boat.  A large change of home price in Toronto or Vancouver candramatically change that national average you are so intently following.  When I hear people say they are notgoing to buy now because we are in a bubble and prices are definitely comingdown I can’t help but want to tell them to stop and get knowledgeable of themarket they want to buy in.  Thatmarket could be as precise and limited to a two bedroom apartment in WestLethbridge.  Yes “your market” canbe that small, and to make your decision on a CMHC report based on overallNational housing information could lead to the wrong decision. 

Walk a Mile

Just recently I participated in the YWCA Walk a mile in hershoes event to raise money for the local YWCA.  I dressed in a skirt (and yes the wind was blowing it up), Ihad on a string top (that was cutting into my ribs) and wore a long wig (I hadto hold the hair out of my face all day) and of coarse I was in bright pinkhigh heels (and yes they hurt my feet and my legs).  I walked the full mile and at the end I knew for that shortmoment what it was like to be a “lady”. What did I take from it? Well first I took great honor in being able to raise funds for a veryworthy cause, but I also took from it an understanding.  The next time I am walking with a womenwho needs to stop due to sore feet, I will gladly stop because I now know whatthey are experiencing.

Is this lesson I learned applicable to real estate?  Absolutely 100% it is.  If your real estate agent, homeinspector or mortgage planner do not own a home how can they possibly know whatyou are about to go through.  Ifyour Mortgage planner is not experienced with owning revenue property how canthey possibly point out things you should be thinking of regarding tax issues,vacancies, cash flows or cap. rates? Taking the advice of someone who read a book or two, or who has friendsthat have done it is not likely the basis for your sound decision!  Taking advice from those who understandwhat you are going to experience is absolutely essential.

The Apex of thespread curve is way tighter than it was a month ago!

What? What on earth are you talking about?  I am talking about the differencebetween variable rates and fixed rates, which one is better for you and whatthis means to your future mortgage product. 

If you were to have looked at a line graph a month ago youwould have seen a big curve representing a fixed rate and a big curverepresenting a variable rate. These curves would have mirrored each other (representing a wide spread)and clearly shown the benefit of a variable rate mortgage.  A month ago many lenders were offeringfive year variable rate mortgages at prime minus .80% (equal to 2.2% at thattime) and offering 5 year fixed rates at 3.79%.  This was a spread of over 1.5% and meant the variable ratewas a safe option for many who understand that the Bank of Canada prime rate isnot likely to increase for many months to come.

Today is a different story with most lenders now offeringvariable rate mortgages at prime minus .20% (equal to 2.80%) and fixed rates at3.39%, this is a spread of only ½% meaning variable rate mortgages are not nearas attractive as they were.  Thespread, or the graph curve is much tighter. 

My final musing:

Crazy rules

I hear so many “rules” when talking to my clients.  You now the one like this:  You should purchase rental propertiesthat yield monthly rent equal to 1% of the purchase price. Well, to put itbluntly if that was the rule there would never be a rental property sold inSouthern Alberta.  This would meanyou would need to earn $3000 per month on your $300 000 home.  Good luck with that!

Keep those conversations going, stay excited about realestate and do yourself a big favor. Seek the help of those who are experts in your market and in yourcommunity.