3 key answers for newbie investors

Recently I’ve had several very worried people ask me what my take is on the Ottawa housing market. There have been some seriously scary stories in the news lately and the fear is spreading like a bad flu. It’s scary for all of us to think that maybe our largest asset is not as valuable as we think it is. I thought I’d take this opportunity to address some common questions that are being asked lately.

1. Is the housing market crashing in Ottawa?

I would like to start this one with a “NO.”

Sometimes I feel like standing up on the roof tops and screaming it so everyone can hear me. Ottawa is an extremely conservative town. We have only minor decreases, which does not happen often. As such we also do not experience the staggering increases that you see happening in places like Toronto.

So I may not be an economist but if you have a large bubble that bursts, then you need to make sure that the bubble grows large in the first place. In Ottawa our bubble never gets that large, so the bubble does not have such a catastrophic “pop” when it does burst.

2. Why do I need a pre-approval. I can get a mortgage, it’s no problem, right?

This is the statement that scares me the most. It has the power to make me want to run and hide, at the same time.  It’s a long held belief for some reason or another that purchasing a home is a right. First of all it’s not. Just as purchasing a home needs to be earned so does the ability to invest in real estate as well.

There are many people who cannot buy a home, and even more that cannot buy an investment property. Maybe they have credit issues. Maybe they do not have any stability in their place of employment. Maybe they simply do not have enough money. Either way it happens more often than you think. There are people who make $200,000.00 per year and do not qualify for financing. It happens. There is no way to guarantee it and no way to know until you get a proper pre-approval done.

There are two types of these that you can do. One is called a rate hold. You call the company and in 3 minutes or less they say great and we will guarantee this rate to you, if you buy a home in the next XX number of days. They have not looked into your finances they have just “held” the rate for you. Have you noticed that at no point they have said great we will finance you? No, because they have not had the opportunity to find that out yet.

The next is a pre-approval. This is where your mortgage broker or bank sits down with you, and you fill out a mortgage application. They will pull your credit bureau and you will receive a breakdown of what your payments could be and a price range that will work for you. It’s in your best interest to receive a pre-approval and hopefully avoid some of the common embarrassments with having to let a property go because of financing.

3.Interest rates are going to go crazy soon, aren’t they?

I have an answer for this one. However I wish it was a more eloquent one. Mark Carney, formerly of the Bank of Canada, did a great job in trying to boost the economy with keeping the interest rates low. We have just found ourselves with a new Governor of the Bank of Canada named Stephen Poloz. Both Mark Carney and Stephen Poloz have stated that there are no plans to raise this rate.

There were some questions with the new governor taking over and how that will affect policy at our central bank. All of our fears seem to have since been quashed as Mr. Poloz has made it clear that it will be business as usual for the foreseeable future. The banks put millions of dollars into this same question and hire analysts and economists to try and predict where the markets are heading. To try and predict where this will go is a little like trying to read your future in a crystal ball. Not entirely possible, but sometimes led with an educated guess or two.

My educated guess would have rates changing at some point in the future. However if those rates do increase it will be very slowly, as to avoid shocking the market. Look into my crystal ball and see what The Great and Powerful Muriel sees, Seer of futures and Interest rates...

Anyone buying a home and expecting to stay there, or hold the property for over 5 years will be in a good position. The most important thing to take away from all of this is there is never something that is not recoverable. The economy will fix itself. If the Russian economy could come back after bread costing 1,000,000.00 Rubles, then I think the economy in Ottawa can recover from most things as well. All it will take is little faith, and time.


Muriel Debroy is a licensed Realtor specializing in residential and investment real estate in the Ottawa area and a member of the Century 21 Action Power Team Ltd.

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