Although he doesn’t blog that often, Don Campbell usually write pretty good stuff. One post from the beginning of August was about four hot topics around real estate, and I thought I’d add my thoughts.
#1 Zero-Down Mortgages and 40-Year Amortizations
I mentioned it just this week, that the few banks offering 40-year amortizations were pulling it, and the market is tightening even more. This is due to the current stock market crisis, however it will ease as the crisis fades and real solutions take hold. There’s also a lot of money going into savings accounts and ‘secure’ investments that the banks need to lend out to make money. Don mentioned that very few investors took advantage of these products, so it’s really not an issue. I’ll second that. Any time I’ve applied for a product like this, it’s been for a property that will cash flow with a 25 or 30 year amortization; I’m just trying the other product to free things up a little more. Benjamin Tal mentioned the same thing when he spoke earlier in the summer.
#2 Prices are Down for the first time in 6 years!
The sky is falling! Reality check from Don: No one buys ‘average Canadian real estate’. There are always going to be fluctuations, and that’s why we always plan long term, understand and focus on the unbiased economics. My family’s also been investing in real estate and managing properties since 1972, and we’ve seen the ups and downs. Newbies think that year after year is normal. Anyone can make money in years of 40% growth. I can make money in a flat market. How? Cash flow.
#3 What’s next for Interest Rates?
I just got Peter Kinch’s newsletter, and pointed out that the Bank of Canada doesn’t meet again till October 21st, 2008, after the federal election, and Mr. Carney will have time to review economic numbers and reports. It’s balancing the impact of lowering rates to stimulate the economy and raising rates to stem inflation. Either way, as Don points out:
The good news underlying this situation is that it can only be a gradual increase when they do it, and will provide investors lots of time to lock-in their variable mortgages in the future. -Don R. Campbell
I also heard from my broker this week that a number of variable rate products aren’t avaialbe for the longer amortizations, or higher ratio mortgages. This is a good thing, as it keeps the market stable, although it will slow the rate of investment, and thus of growth in some areas of the market.
#4 There seems to be inflation on the horizon. What does inflation mean to Real Estate Investors?
In a recession, buy hard assets. That means real estate. (Or gold, etc) Why real estate?
- Property values will follow inflation
- Rents increase, even in rent controlled municipalities
- Wages increase more rapidly
I’m not concerned about negative impacts of inflation on my real estate, becuase I’m holding long term. It’s always a bumpy ride though, and we’re definitely in for some bumps.