Excitment is over, what is next?
US Bail Out/Rescue Plan finally passed. After the unexpected failure on Sept. 29th, the whole world was waiting for this to be passed. The stock market rallied up before the legislation was passed and then went downward once it was passed. Unexpected and completely the opposite of what you would think would rationally happen but that's where the stock market and real estate market differ. Real estate is totally rational and will react to market supply and demand as it should. Everybody is expecting the 700 billion dollar bail out will change the financial world and restore people's confidents level around the globe. Let's see how effective this is going to be in the next few months ahead.
It would be naive to think Canada can escape this global financial crisis regardless who our Prime Minster is or going to be. However, comparing to US and Europe, at least we haven't had to bail out Bay Street nor are there any banks going bankrupt so far! As the politicians and economists said, "Canada is fundamentally sound!" Whether you believe in them or not since there are always 2 sides to every story plus the truth, I'm sure we'll live through this historical moment.
How does the whole financial crisis affect the real estate market? Well, the lending policies have certainly gotten a lot tougher these days. I believe this will be a global credit change to the U.S., Europe as well as Canada. Up to now obtaining financing to purchase real estate has been quite easy with most bamks trying to give you more and more credit but now a lot of the incentives are being taken away and the requirements have gotten more strict. That will eliminate all the buyers with bad credit to get financing, even some with good credit might be affected too. Banks generally do not like to see an individual own too many properties. The general rule is each person can get mortgage for maximum 4 properties in each bank depending on your debt ratio. Well, not too many of us get to that point so most of the time it's fine but for the professional investors this stops them from buying anymore eventhough they have the down payment.
I'm sure we have been watching the media broadcasting bad news with all the housing market. They tend to repeat the bad news all the time but not the good news. Did you know about one project was being SOLD OUT in Delta last week over night with people lined up on the street? Yes, the real estate board statistic shows sales and housing values are both down from before but we should look at this as an opportunity. When the market was red hot, the home buyer or home buyer's parents complained about the unreachable housing prices and how the next generation might not be able to own a home. Now, the Vancouver real estate market has "slightly" turned to and the home owners are complaining their house isn't worth as much! No matter what the market is like, somebody will complain. We all understand to buy low and sell high theory, however, some people still wish to buy low and sell high in the same market.
Unlike buying property which requires significant downpayment, people like to buy stocks with the same mentality as buying lottery tickets. There is always a hope that their relatively small investment will turn into a big win fall. In due course, they are happy even if they win $10 or $100 occassionally and never mark down how much they actually invested over time before they win that little profit. However, the small profits keep giving them hope to win the big ticket. That's why the lottery business and the stock markets is such a huge business. Do you really want to look at your retirement portfolio these days? Although the sales volume is down approx. 50%, we obviously still have serious buyers who are doing their purchases in today's lower prices with a long term plan of 10 to 20 years profiting from higher home prices. The big bonus is having no capital gain taxes to pay on their principle home. The only difference is you need patients to keep it as a long term investment. Who will win in today's market? As always the relatively few that don't follow the herd. The ones who have cash and the courage to use it when they recognize good value and a good deal. If you want to make a "deal", the deal is to be made now when the seller's expectations are at their lowest.
To read all the economic analysis reports, go to my website http://www.tinamak.com/EconomicsAnalysis.ubr. Also, click http://www.tinamak.com/VancouverArchives.ubr to read the Vancouver real estate board statistic.