Michelle Powell

Wish I had a Crystal Ball

The first month of 2010 is down and out. I wish I had a crystal ball to determine what the market will look like in 2010. The truth is, I don't think anyone really knows.

The general consensus is that interest rates will remain stable until the middle of this year. I think that's so, but they may remain low for longer, depending on the ratio between the U.S. and Canadian dollar. If the Canadian dollar continues to be near to par with the U.S. dollar, the Bank of Canada is unlikely to want to raise rates. As well, the Bank of Canada aims to keep inflation at around 2% which has not yet materialized.

Part of the problem, I think, is that the slow recovery which is underway is difficult to measure due to the fact that it has been helped along by government stimulus. No one seems certain what will happen as governments withdraw stimulus?

At times like this, I try to stick to fundamentals:

Real Estate almost always makes money providing you can pick the time you sell.

Governmental debt is a generally bad thing and the U.S. government is amassing a huge deficit. Unfortunately, it doesn't really have a choice right now. As interest rates rise, so does the cost of servicing the country's debt, since governments must borrow money to finance their spending. This means the government has an interest in keeping rates down.

Households should not purchase real estate at their maximum ability to pay. In other words, don't buy a house you can afford at a 3.5% interest rate but couldn't carry at an 8% rate. Better to buy now and pretend rates are at 8% and use the extra money you have now to pay down household debt so that, when it is time to renew your mortgage, your household will be able to manage increases. If you borrow less, interest rates will not be such a worry.

If you're buying your first home, mitigate your expectations. Find ways to save money in the buying: buy a power of sale, buy a property that hasn't been renovated and renovate yourself. Buy the unrenovated home in the great location, rather than the renovated home in a less reliable neighbourhood. Granite countertops will not make you feel better when you are watching other neighbourhoods appreciate at a much better rate than the one you bought in.

I wish I could offer advice based on an absolute certainty about the economy in 2010, but I haven't got that crystal ball. The best advice I can give is the stick to the fundamentals.

Published Sunday, February 07, 2010 12:44 PM by Michelle Powell