Part of taking on responsibility, is being aware of dangers and pitfalls, and developing a plan to navigate them should they appear.
And so it is with home ownership. Despite efforts to plan and account for expenses, there are many things that may cross a homeowner’s path that they may have not anticipated- job loss, changes to family situation, or increase in consumer prices. Add to that a factor that many are aware of- but may not necessarily have built in- the eventual increase in interest rates, and there is potential financial disaster awaiting those who may have jumped into the home ownership pool without enough of a buffer to keep them afloat.
Jim Flaherty’s series of mortgage and HELOC changes were intended to sort through the homeowner pool, in a way, and to cut those out who were on the fringe- and representing trouble from the outset.
However, through these changes, and with Canadian household debt increasing, the Canadian housing market has still remained buoyant- and in some areas, absolutely exploded. Housing sales themselves have decreased this year- while the average prices for home nationally continue to increase.
Jeffrey Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada, Inc. told Properywire.ca, that he is seeing the positive effects from Flaherty’s changes, and feels that there has been some material impact on the market. It’s not a case of home ownership being an exclusive club, either; more so it is about matching appropriate product with appropriate consumer responsibly.
“There were two objectives with Flaherty’s mortgage changes. They have been effective in reducing the number of people taking on more debt than they can handle. Some can make payments today, but will be stretched pretty thin if income changes or rates go up. Those that are living on the fringe continue to have trouble, and are living on a tight wire. These mortgage changes have been useful in effectively taking these people out of the mortgage market.”
“The second objective was to encourage people to pay off debt faster, so that people are not carrying debt into retirement with them. People are encouraged to retire debt, so that they increase cash flow- and put out less towards interest payments.”
“We know this is working, because home sales have slowed. This is likely reflective of stronger people entering the market.”
It is important to view home ownership as goal, not as a right, and that certain steps must be taken and displayed in order to reach that goal, and that there is a downside if due diligence is not adhered to , as Michael Kalles, President, Harvey Kalles Real Estate Ltd., Brokerage told Propertywire.ca, “Home ownership is an excellent option for those who are able to afford it, but don’t assume that it is for everyone...For everyone who can afford it, yes home ownership makes sense. Look at what happened in the US. People were getting mortgages when they didn’t really qualify... In that case, it was a poor investment. “
“For those that are able to afford it, home ownership offers the opportunity for people to invest in themselves, take advantage of capital gains, build equity and house their families.”
Kalles is quick to remind too, that it always comes down to assessing and delivering on the client’s best interests, even if that is not what they have indicated: “It’s not about making a quick commission; it is about the best needs of the client.”
Sometimes , even though it seems counterintuitive in a heavily competitive business reliant on winning clients over, it makes good sense to send them away: “If any client has only been approved for, say 600,000- but are absolutely insistent that they look at $800,00 properties, than they are stretched beyond their financial comfort level. “
Schwartz suggests that solutions must be more behavioural than episodic: “People need to understand where their money is going, and look for alternatives to save money- for instance in entertainment, dining out and groceries .These are easy areas to turn a household budget into a surplus rather than a deficit each month.”
“Furthermore, people need to take that money and turn it into savings, and make that process invisible- through payroll deductions or automatic transfer of funds. Take this process out of your hands, and it will happen. If you don’t, it won’t.”