Hello everyone and welcome to this edition of Profitable Practice. For those of you that have been following my articles, you’ll know I always try to focus on investment real estate advice that will benefit you for years to come. In this article, I would like to discuss the current state of the actual real estate market as it looks for spring 2013 as well as mortgages and rates.
So let’s get right to it. The market….it’s horrible….or is it? If you want to compare today’s real estate market to the last 10 years, then today’s outlook is not good. But I think that is very unfair. The last 10 years were incredible and something that cannot be viewed as normal; other than for the last 10 years. The average increases year over year ranged from 7 to 10 per cent, which is remarkable. If you were a real estate investor with the proper leverage in place, your returns would have exceeded 30 to 40 per cent annually. But that was yesterday and yesteryear.
So what does the future hold?
The latest forecasts allow me to say I told you so. The national prediction is a 2 to 3 per cent increase with some of the major markets out performing those numbers. The “I told you so” comes from our Simple Seminar®. For those of you that have attended or have read my previous articles, you will always hear me say … Be Conservative. Real estate markets can fluctuate and if you always use a 2 per cent market increase year over year in your forecasts, you will be safe.
Where will the markets end up?
We should see volume (the number of sales) cool off as they already have, but values should remain stable. The main thing that has remained consistent is mortgage rates. This in itself has made our strong market remain solid and it looks like it will remain so for the near future. I will get back to rates in a minute. Of course, the other factor which drives all markets is the first time home buyer. Real estate markets are driven by the first time buyer purchasing from the first time seller who is moving up to the next level, with that seller moving up as well. This sequence normally ends when families move into their final home for many years and then start the downsizing process, which we will see many baby boomers do in the years to come. The entire process is driven from the first time buyer, and this is where interest rates come into play.
Where will interest rates go?
If Mr. Flaherty had his choice, he would make them go up substantially. One of the large banks recently published their five-year rate at 2.99 per cent and Mr. Flaherty immediately went to the media and declared that he did not encourage competition in mortgage rates. Wow, I am not sure if he understands the difference between good and bad debt, but home ownership encourages responsibility, employment and forced savings. Over the last few years, the borrowing restrictions have tightened which makes sense. Canada never wants to follow the path of the United States in lending, but that said, the restrictions in place are definitely able to safeguard both the lenders and consumers. Ultimately it looks as if rates will remain low for the next 12 months, which allows borrowers an excellent opportunity to buy or invest in real estate. However, there is one rule that has recently become more apparent and this has directly affected real estate investors. The number of mortgages you may have or the dollar value of the mortgages has changed. Some lenders will limit you to five mortgages or one million dollars in mort- gage amount. Needless to say, this is making it difficult for investors to build real estate portfolios. The lenders want to move investors over to their commercial departments so they can get higher interest rates and have investors put more money down. I understand they are trying to limit their risks, but when professionals like you have strong income and good equity, this rule is ridiculous. We have found that one of the top five banks will allow more exposure – which is good news. If you are interested in whom that is, please feel free to contact me.
In closing, I would like to say that I feel the market is going to remain stable. This is actually the way it should be. Decent properties available that can sell in realistic time frames with affordable interest rates will stabilize a market. They say slow and steady wins the race and this market will produce winners for a long period of time. I would be happy to answer any questions you have, so feel free to contact me anytime. Until next time, take care and enjoy the spring!
Bottom Line: This article analyzes the current real estate market for investment purposes.
Todd C. Slater is the President of The Simple Investor Real Estate Group Inc. Todd has been one of Can- ada’s top realtors as well as host of Realty TV for 4 seasons. With his innovative approach to managed real estate investment properties, Todd educates and provides investors with solutions and opportunities for investment real estate. He can be reached at firstname.lastname@example.org or visit www.thesimpleinvestor.com