Over the lst year, the media and the real estate market have been pushing people into home ownership in Canada. The reason being is low interest rates. It is true, interest rates are at the lowest that they have ever been, and they are not expected to go higher for several months. This has spurred on first time home buyers to purchase houses like crazy; however, recent news articles are doing the opposite to market.
The newest wave of real estate articles have been doom and gloom articles that discuss about a mortgage bubble that is growing in Canada that is worse than the US. It states that as people build a dependance on cheap money, when interest rates go up, then people will have plenty of trouble paying their bills with higher interest rates. Another fear element is declining demand, the amount of new home buyers can only create real estate transactions for a certain duration of time before the demand subsidizes. Also, unemployment continues to be a growing problem in both Canada and the US.
These are some of the more immediate threats, while future threats including: global warming, baby boomers, and other major issues stand to destroy the fragility of this economic recovery.
So, what is it? Should you buy or should you continue to sit on the sidelines? Unfortunately, the answer is not the same for everyone. The decision is based on why you are purchasing. If you are purchasing based on speculation or investment, then it may not be the best time to purchase. Your dream positive cash flow property may quickly turn into a negative cash flow investment when the interest rates reset. On the other hand, if you are purchasing for the long-term, then you may be able to achieve the results you are looking for.
The best way to ensure security in your investment is by using hypothetical situations. For example, can you afford the payments at 5%, 6%, 7%, etc. With rates eventually increasing, and real incomes declining, then it may be possible you will see yourself in a cash crunch if you purchase beyond your means.
What would you do if interest rates increased dramatically? Did you plan your mortgage before taking it out?
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