{"id":4205,"date":"2016-12-02T11:11:43","date_gmt":"2016-12-02T19:11:43","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=4205"},"modified":"2016-12-02T09:53:52","modified_gmt":"2016-12-02T17:53:52","slug":"how-to-prepare-for-the-housing-crash-that-may-not-actually-happen","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2016\/12\/how-to-prepare-for-the-housing-crash-that-may-not-actually-happen\/","title":{"rendered":"How to Prepare for the Housing Crash That May Not Actually Happen"},"content":{"rendered":"<p style=\"text-align: justify;\">Imagine for a brief moment all the people who have predicted a housing crash in Canada for at least half a decade actually turn out to be right at some point.<\/p>\n<p style=\"text-align: justify;\">Now take it a step further and picture yourself as the homeowner who bought at the top of the market and is now under water \u2014 namely you have more mortgage than your house is worth.<\/p>\n<p style=\"text-align: justify;\">The question you might be asking yourself is, \u201cNow, what do I do?\u201d For starters, don\u2019t panic.<\/p>\n<p style=\"text-align: justify;\">\u201cFirst off a home price is going to fluctuate potentially many times up and down during the life of a mortgage term. It really only becomes relevant if you are planning on selling,\u201d says Janet Boyle, vice-president of real estate and secured lending with Scotiabank. \u201cIf the mortgage is potentially larger than the value of the home, what that means is the customer would have a deficit to pay with their financial institution. I would suggest those scenarios are few and far between.\u201d<\/p>\n<p style=\"text-align: justify;\">We have seen negative equity in houses before. Ask anybody who bought a home in the United States just before the housing crash about it. Or somebody in Toronto in the late 1980s, when the market fell 25%.<\/p>\n<p style=\"text-align: justify;\">Even today, Calgary prices have dropped 4.6% from the peak they reached in Oct. 2014, according to the Teranet National Bank House Price Index. Conceivably some people could be underwater on property if they bought at the top with five per cent down, once mortgage default insurance costs are factored in. Vancouver prices are down 0.6% from a September peak and, if you believe the skeptics, headed for a major decline.<\/p>\n<p style=\"text-align: justify;\">Sean Cooper, author of Burn Your Mortgage, thinks changes in government regulations that include increased taxes for foreign buyers and tighter mortgage regulations should have people thinking about the state of the market. \u201cMy head would be spinning if I was a homebuyer right now,\u201d said Cooper. \u201cI\u2019m not saying (interest) rates are going to double digits but having them at this level isn\u2019t normal.\u201d<\/p>\n<p style=\"text-align: justify;\">He says the solution to eliminate some of your worries is take advantage of low rates to pay off the biggest debt of your lifetime when it is not growing rapidly. \u201cBut others see it as an opportunity to pile on more debt,\u201d he says.<\/p>\n<p style=\"text-align: justify;\">Cooper says lower debt makes a decline more tolerable once you remember it\u2019s only a \u201cpaper loss\u201d if prices go down. \u201cAt the end of the day, you owe the bank (the same) money,\u201d he says. \u201cI don\u2019t see banks calling in a mortgage because if they sell, they\u2019d just be piling on their losses.\u201d<\/p>\n<p style=\"text-align: justify;\">Scotiabank\u2019s Boyle says being underwater shouldn\u2019t really be an issue during the term of your mortgage \u2014 discounting the psychological stress you may be feeling because your home is now worth less than you paid for it. If you borrowed say $800,000 for your $900,000 home and it\u2019s now worth only $700,000, nothing is going to change as long as you keep making payments.<\/p>\n<p style=\"text-align: justify;\">What if you need to renew because your mortgage term is up? That\u2019s where it gets a little tricky. You can just stay with the same financial institution and not worry about re-qualifying for your mortgage, but if you switch financial institutions you would have to qualify under the more stringent rules that went into effect last month.<\/p>\n<p style=\"text-align: justify;\">Those rules force consumers with loans backed by the federal government to qualify based on the current posted rate, now 4.64%, as opposed to the rate on the contract.<\/p>\n<p style=\"text-align: justify;\">\u201cFor some people they would be getting a better rate now than five years ago,\u201d said Boyle, adding customers can still negotiate, though they might not have the same leverage without the ability to switch institutions. \u201cIt\u2019s expected in the Canadian market that a customer will negotiate. I think depending on their mortgage and features they are looking (for), there is an opportunity to have a discussion with their advisor in the branch about the rate.\u201d<\/p>\n<p style=\"text-align: justify;\">Another consideration is the type of mortgage you have. If it\u2019s structured as a home equity line of credit, it can be called at any time. The reality is banks won\u2019t do that and have every incentive to renew your mortgage, when it comes due.<\/p>\n<p style=\"text-align: justify;\">And what about so-called \u201cjingle mail,\u201d when a homeowner simply walks away from a mortgage, dropping the keys in the mail? Non-recourse mortgages, which don\u2019t allow a bank to go after your other assets, were common in the US market crash, but only Alberta and Saskatchewan have similar laws in Canada.<\/p>\n<p style=\"text-align: justify;\">Angela Lock, a Calgary-based licensed insolvency trustee at Grant Thornton Ltd., says she has not seen evidence of people walking away from mortgages during the current cycle.<\/p>\n<p style=\"text-align: justify;\">But if they do, there is still a price to be paid.<\/p>\n<p style=\"text-align: justify;\">\u201cIt\u2019s worst than a bankruptcy,\u201d says Lock. \u201cIt\u2019s just horrible for your credit rating. In a bankruptcy it stays on your credit rating for six years after the date you are discharged. In a foreclosure, it\u2019s the same amount of time but they can renew it on your credit rating and it could stay on there forever.\u2019<\/p>\n<p style=\"text-align: justify;\">Brad Henderson, chief executive of Sotheby\u2019s International Realty Canada, said while some markets may look like prices are falling, the numbers are misleading.<\/p>\n<p style=\"text-align: justify;\">\u201cI would say that Vancouver is not losing value, the average price of a home sold is decreasing, not the average price of homes. More lower value homes sold leads to the former,\u201d said Henderson. \u201cIt is the underlying fundamentals that are more important to value. I also believe that people are still waiting on the sideline to see how many of these policy measure play out. Ultimately, I believe the government policies will only have an effect on the margin.\u201d<\/p>\n<p><a href=\"http:\/\/business.financialpost.com\/personal-finance\/how-to-prepare-for-the-housing-crash-that-may-not-actually-happen\" target=\"_blank\">How to Prepare for the Housing Crash That May Not Actually Happen<\/a> by Garry Marr | Financial Post<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Imagine for a brief moment all the people who have predicted a housing crash in Canada for at least half a decade actually turn out to be right at some &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2016\/12\/how-to-prepare-for-the-housing-crash-that-may-not-actually-happen\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-4205","post","type-post","status-publish","format-standard","hentry","category-real-estate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to Prepare for the Housing Crash That May Not Actually Happen &#8226; 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