|Home Equity Bubble Bursts|
Oct 03, 2010 Frank Simon victoria-mortgages.com
If you've owned your own home for a number of years, you've built up some equity as your mortgage is paid down.
You've come to rely on this equity to eventually sell your home, pay-off the mortgage, and retire.
Or maybe use your equity to pay off those pesky 19.9% credit cards or 10% car loans.
Yup, the last number of years have been great for equity accumulation.
But something happened on July 1 of 2010.
The demand for housing stopped.
The home equity bubble burst.
Interest rates were at their lowest in history, yet mortgages couldn't be given away.
The dreaded HST happened in Canada's two largest housing markets, both at the same time.
After years of a booming housing market, it all came to and end with a thud.
ALL BECAUSE ANYBODY THAT EVEN REMOTELY HAD PLANS TO BUY A HOUSE HAD NOW DONE SO.
There's no demand for housing left.
The real estate pundits politely talk of a housing bubble or correction.
After all, doesn't "bubble" sound much better than "CRASH"?
But when there is no demand, prices go down.
Sometimes they come crashing down rather quickly...not gently with bubbles.
Houses that sold in days will now take weeks or months to sell, unless the price is drastically reduced.
All this makes people uncomfortable.
It creates confusion, and even uncertainty.
Economic Uncertainty Stinks
People HATE uncertainty.
We do not like house prices going down, when they've increased for years.
When there is an EXPECTATION of increased prices...and it doesn't happen.
They hate when the Bank of Canada increases interest rates for three consecutive months to "eliminate excessive stimulus", when in fact we see NO excess stimulus in our neighbourhood.
When there is talk of inflationary pressures, yet the inflation rate goes down.
When house prices decline which actually creates a DEFLATIONARY environment.
Do the Minister of Finance and the Governor of the Bank of Canada even live in this country?
Victoria mortgages the same as Vancouver and Toronto?
Whether you have Victoria mortgages, or your home is in Langford, Colwood, Vancouver, Toronto or Calgary, your house price is going down.
So now what to do you ask?
Scenario 1. High equity + large debts. I advise you to pull out as much equity as possible, as quickly as possible. Pay off those high interest debts with a low interest mortgage. Refinance the existing mortgage or take out a Home Equity Line of Credit (HELOC). Do it now, before your equity totally disintegrates.
Scenario 2. Low equity. My advice to people that entered the market with 5 or 10% downpayments is to hold on to your hats & adopt a very long term perspective. There is a good chance that your house has declined in value to the point where you are in a negative equity position. House prices will rebound in a number of years down the road, so be patient.
Scenario 3. Don't own a house. My advice is to keep saving for that downpayment, but do nothing for the next 18 to 24 months as house prices continue to decline.
As always, if I can be of help any where across Canada, just give me a call at 250-818-9776 begin_of_the_skype_highlighting 250-818-9776 end_of_the_skype_highlighting.
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