The current economic situation has put fear into the hearts, minds and bank accounts of nearly everyone around the world, and word on the street seems to be that the situation is going to get worse before it gets better. (If it ever does!) Just when you were starting to consider giving up or selling out, however, we found some experts to share their advice. We hope this information will put your minds at ease, or at least help to guide you through these challenging times. We spoke with an experienced realtor, a financial planner and a couple of mortgage brokers, and here is what they have to say about planning for, coping with and surviving this economic situation.
REALTY
Vancouver View: Housing prices are starting to fall, finally! When do you expect
the market to bottom out?
Peter Colls: Anyone with a crystal ball would be a very rich man! Generally speaking, the top or bottom of a market doesn’t show up until six months after the fact. If you know your local market and micro-market, there are values to be had. As well, seldom-available property types may not only be available, they could be available at good-to-great value.
VV: What advice would you give to a new homebuyer given the current state of the market?
PC: There is obvious uncertainty out there, but the bottom line is everyone needs somewhere to live. If your job is secure, you can take that worry out of the equation. My suggestion would be not to let the uncertainty of the market hold you back. Right now there is still a moderate amount of business because there is decent inventory from which to choose and active buyers are able to see good value. In the spring the market historically tightens up. The great deal that was on the market this winter could very well be gone come spring. Markets change when they change; an experienced realtor can advise you on such tightening of the market.
VV: What would you say to someone who is having trouble selling his/her home?
PC: The market is the market and there is only one reason any house doesn’t sell-price. Ultimately, if there is value in your home-i.e. location, improvements, condition, exposure-the market will create value. Unfortunately for some, the timeline of current market circumstances may not coincide with immediate need. Â
VV: What are the top three things people can do right now?
PC:
1) Find an experienced realtor you trust who has seen a few market cycles.
2) Find someone who can teach you to become your own expert in your particular niche in the marketplace.
3) Understand the historical annual cycles of our local market and have the confidence to work with that knowledge.
If you are making the right lifestyle decisions for the right reasons, consider this: real estate at long last is not only “on sale”, but offers an almost four-decade low in interest rates as well as good inventory and obviously less urgency in decision-making.
Peter Colls is a RE/MAX Hall of Famer and Master Medallion Club member of the Vancouver Real Estate Board. Peter has sold over $150,000,000 in sales volume. This is the fourth market cycle in his 19-year real estate career.Â
Mortgage
VV: In light of these economically troubled times, what changes can people expect to see or feel with regards to their mortgage applications?
In these economically troubled times, people can expect to see several changes when applying for a mortgage.
There will be less discounting of rates, and an increase in the careful scrutiny of applications. The recent credit crunch means that the lender’s cost of borrowing is higher, and this expense is in turn passed on to the borrower: a typical variable rate mortgage based on the prime rate is now offered at prime plus, rather than the ‘prime minus’ offers we have been experiencing for the past few years.
We are also seeing a tightening of policies for applicants under our “Stated Income Programs”. Stated income refers to cases where the applicant may be self-employed, and their tax returns may not reflect their actual cash flow. Lenders and mortgage insurers are scrutinizing applications more intensely now, requiring full financial disclosure and reasonability of income, and any stated income will need to stand up to this scrutiny.
VV: What are the top 3 things people need to consider when applying for their first mortgage?
Establishing credit. This is what a credit reporting agency relies on when determining the client’s credit score. If a potential borrower does not have a decent credit score, most lenders will not even consider lending money. It is advisable to have at least one credit card and consistently make the appropriate payments on time. Maintaining a reasonable balance in relation to your credit limit also serves to improve your credit score. Securing a loan, making car payments, etc., can be beneficial, since lenders like to see at least three trades reporting. Bear in mind, however, that this can be a double-edged sword: the amount of money that can be borrowed is relative to your income in relation to your existing debt.
Working out a budget. Your mortgage specialist can assist you in establishing a budget, so that you can feel comfortable with your monthly payments. Mortgage financing is reliant on adequate cash flow to service the mortgage debt, as well as meeting other monthly obligations.
Securing a down payment. In October 2008, CMHC discontinued their zero down payment programs, and other insurers soon followed suit. We encourage our clients to accumulate five percent of the purchase price as a down payment. This can be done in several ways: for example, you may choose to access your RRSP, since each individual is entitled to use up to $20,000 from an RRSP towards their down payment. Money given as a gift from a family member or a borrowed down payment is also acceptable.
Your mortgage specialist can customize your mortgage for you, inform you of what your mortgage payments will be, and ensure you are shopping for homes that are within your range of affordability.
Susie Inglis, Denise Devente and Myette Raynes operate with an open-door policy at their three storefront franchises of the Mortgage Centre-Mortgage Evolution. They know how much clients appreciate doing business face to face, and they invite you to come in, sit down and explore your mortgage options with them.
Financial Planner
VV: The big question seems to be should we pull our investments, stick with what we have or consider investing more money?
Dennis Morrison: General consensus among the many fund managers I have spoken with in the last few weeks is that if we are not at a bottom to this downturn we are very close. Because the bulk of the drop in the markets happened very quickly, I have been suggesting to my clients that we wait until we see some return to normal market conditions before we look to rebalance their portfolios. As for adding more money, this would be a great opportunity to dollar cost average (adding some every month) into the market, being careful not to overextend yourself. As always, it is a good idea to get a professional opinion on your current holdings to see if any adjustments are necessary.
VV:Â Should people consider moving their funds around to a more secure type of fund, or does such a thing exist right now?
DM: Sometimes doing nothing is a brilliant move. We have seen swings of over 10 percent in one day, both to upside and downside. Every asset class has been moving in unison during the last few months, so there has been no safe asset class to hide in. This is unusual. If you are properly diversified, hang on-things will improve. They always do. History is apt to repeat itself, and we will most likely be looking back on this event from new highs in the markets within three to five years.
VV: What about those who do not have funds to turn to? Is there anything they can do to create a safety net?
DM: Pay yourself first, the saying goes. The easiest way to do this is not new or exciting, but it works. Try putting $50 a month away with an automated pre-authorized chequing plan or “PAC”. As you get used to the money not being there, slowly increase the amount until you are at 10 percent of your pre-tax income (i.e. 10 percent of a $40,000 annual income equals $333 per month). If you use an RRSP you will receive a tax refund in April, but the funds will be taxable if you use them.
Stocks
VV: Stocks are fluctuating like never before, with extreme ups and downs over the course of a day, or even a few hours. Would you recommend investing in anything right now?
DM: Individual investment recommendations would depend on the individual investor’s risk tolerance, investment objective, net worth and current cash flow needs. The best way to invest during periods of this kind of volatility is to get back to basics and average in over time. (For example, 10 percent of the amount you want to invest per month over ten months.) It is impossible to predict the absolute bottom of a cycle but most experts agree that there will be record-breaking days to the upside when the turn takes hold. Having said that, I believe that the resource sector is in a long-term bull cycle and is temporarily oversold, especially energy.
VV: How much money would you recommend a client invest in order to experience significant gains?
DM: You can only invest what you have. The gains reaped from investing at a low point, like now, should be measured as a percentage of what the investor can afford to put into play. This again would be an individual number for each investor. It does not take that much to get started. For example, most mutual funds have a very low minimum entry of $500 or $50 a month PAC. The old motto was buy low, sell high. We are at a low point.
I will quote the most successful investor in the world:
“Be greedy when others are fearful and fearful when others are greedy.” Warren Buffett
In layman’s terms, if the general public is scared of the stock market maybe it’s time to take a look, as it is most likely historically cheap. Keep in mind that investing in the stock market should be done with the old-school definition of long term-as in a 5-10 year time horizon, not today’s instant gratification definition of long term as being noon this Thursday.
Dennis Morrison of Dundee Private Investors Inc. has been an independent financial planner for over ten years, and received his Certified Financial Planner designation from the Financial Planners Standards Council in 2002.
Hollywood! One of the most competitive cities in the world, it attracts thousands of starry-eyed actors every year to try their hand at making it big in the film and television industry. Only a small fraction of them can ever make a living in La-La Land, however. A small three-storey apartment building near popular Sunset Boulevard in the middle of Hollywood serves as a prime example-the cars parked at this complex have license plates from all over North America, and according to the landlord they change every six months because a majority of them return home. Having staying power in Hollywood requires more than great acting skills and the perfect look.
Vancouver View Magazine:Â How has the road from Vancouver to LA been for you? 
