Many Canadian economists have
speculated that the Canadian economy is at risk of being in a recession. This
would appear to be very scary news considering that it has been widely reported
that Canadians are carrying record levels of debt.
The question many have had is will
this end up having a negative impact on the real estate market?
Look at urban centres like Toronto
where it was recently reported that the average sale price of a single detached
home has exceeded 1 million dollars. Will these markets stay hot?
Some speculate that urban centres
may cool off while the “burbs” will heat up. One thing is for sure, when the
economy falters and Canadians are struggling to maintain their housing payments
with their other bills like payments to debt, some will look at downsizing.
This may include moving a little bit further away to be able to buy more for
less.
When Canadian families are
struggling financially there may be less lower income families coming into the
housing market, but folks moving to put cash flow back into their households
can more than offset this.
In a strained economic environment
you have to be even more diligent when pre-qualifying new clients. Why?
1. Pre market-crash of
2008 - mortgage financing rules were more lax so there are a high volume of
people walking around who took out mortgages at 90-95% the value of their
homes, amortized over 35 years and so have less equity.
2. People in debt
generally turn to debt consolidation as a first measure before making the
difficult decision to sell their home. This can result in 1 very large mortgage
refinance or perhaps 2 or 3 additional mortgages behind the first mortgage.
3. When people have
financial problems they can fall behind making monthly payments to things like
property taxes, condo fees, income taxes and other bills leading to property
liens – the homeowner may not even know is one has been registered.
What do the above 3 scenarios have
in common? They can all result in there not being enough equity to pay you!
You can mitigate this occurrence
by doing a basic preliminary background check on new listings:
1.
Validate that your client
is the legal homeowner
2.
Look at the sales
history of the property
3.
Estimate the value by
reviewing comparable sales
4.
Review financial
encumbrances like mortgages
5.
Check for liens
An unstable or underperforming
economy doesn’t necessarily mean a negative impact to the real estate market
but what it does mean is that you have to be agile to adapt in conditions that
may emerge as a result.
If you would like to be able to
access a tool that enables you to perform the due diligence discussed in this
article and more please visit www.geowarehouse.ca.
