How Should Economic Concerns Affect Your Real Estate Strategy?
My, how quickly things can change.
Last month, hardly anyone around here was talking about the economy. Environment, yes. But economy? No. Suddenly, the economy has risen to the top of our consciousness and everyone seems a little on edge. That’s as true here in the Collingwood and Blue Mountain area as it is everywhere in the country and naturally, this raises important questions when it comes to real estate strategies. Should I buy now? Should I sell now? What will happen in six months? Will prices go up or down? These are all good questions and ones that I imagine most REALTORS® are being asked daily.
First, I stand by my predictions for growth in the market in 2008. I won’t be swayed by fear mongers who want to sell newspapers. Let me stray for a moment to give you a classic example of how any fact in open to twists and biases.
Earlier this week, John Manley’s report came out about Canada’s continued involvement in Afghanistan. The first newspaper I picked up said something like, “Report Urges Canada to Stay in Afghanistan and then in the smaller print of the article, it said we should stay but under certain circumstances such as having our allies commit to sending more troops. The next paper I picked up said something like, Report urges Canada to pull out of Afghanistan and then in the body of the article in goes on to say that Canada should pull out IF certain conditions are not met but otherwise, it should stay. Same report but two entirely different spins on it.
The media reports on the economy are much the same. One article says “x” but on the next page, another article says, “y” How is one to know?
While everyone has a different take on the details, there seems to be consensus that the Canadian economy will slow for the first half of this year and then rebound in the second half. On his way out the door, David Dodge agreed and stated that he is not worried that Canada will see a recession. And why should we? Our economy is still performing well, as is our currency and position in world markets.
When the economy slows as it surely has already and, when growth projections are adjusted downward eliminating risks of inflation, naturally interest rates come down, just as they did last week. It is widely expected that we’ll see another rate drop of around 50 basis points in March and perhaps a further drop in April.
So, what does all this mean in terms of strategy?
Well, if I were a home buyer, I would not wait to buy. (I hear you now saying, yeah, spoken like a typical real estate agent.) I mean it. Is it wiser to buy in the first half of the year while rates and prices are low or, would you prefer to wait until the second half when prices and interest rates are rising again? It seems obvious yet it is usually only the astute investor that rides these cycles correctly while everyone else waits on the sidelines.
What about interest rates? The key is to take a variable rate mortgage product. Here is what my friend Michelle Reichart of Invis says, “A variable-rate mortgage will allow you to monitor rates while having the option to convert to a fixed-rate mortgage at a later date.” For homebuyers wanting to go with a fixed rate, this is the mortgage strategy preferred by most borrowers (72% according to a 2007 study by the Canadian Association of Accredited Mortgage Professionals), as it offers stability in a shifting interest rate environment. I agree that this is the strategy to employ.
If you are considering selling, there are more variables to consider such as your location, price band, reasons for selling and so on. If you are just testing the market, forget it. Nobody is going to pay you top dollar right now. If you really want to sell and maybe trade up, now is a good time if you are in a location and price band that is active. Very generally though, I would suggest that sellers hold on a little. As I said at the outset, things change so quickly. January and February are typically slower market months anyhow although, the competition is also less. Let’s just wait until the stats start rolling in for the first month so we can gauge what’s really happening in the marketplace. That’s my suggestion for today. It may well be different next week. Stay tuned.
What do you think?
When it’s time to buy or sell real estate in the Collingwood, Blue Mountain or Georgian Triangle area, contact Marg; an experienced and competent Broker who’s ready whenever you are.