Mortgage Blog

Rear View or Crystal Ball - What influences your Real Estate Decisions?

August 26, 2016 | Posted by: Kelleway Mortgage Architects

How much does the Rear View Mirror vs the Crystal Ball influence your Real Estate Decisions?

Do you look to the past (rear view mirror) or the future (crystal ball) when making decisions about real estate? Both perspectives are useful to consider but neither will give you a 100% reliable answer. However, by exploring possible answers to both qualitative and quantitative questions you may arrive at a decision with more confidence. That confidence comes from being in a better decision-making position after having sifted through what is important to you and what makes most sense for you financially.

In any real estate market, regardless of its volatility, here are your four main options:

Buy

Sell

Hold

Refinance

Who are your “go to” people who help you decide what to do? When faced with a major decision involving real estate, people turn to those they trust to have the knowledge and expertise they need to gain useful advice. For new homebuyers or next-time homebuyers, those people may be their parents, friends, financial advisor, realtor and mortgage broker. The news media plays in the background to substantiate the opinions of the people they trust. The overall effect is qualitative, an explored observation that is not necessarily measured mathematically to arrive at a meaningful insight.

In comparison, a quantitative approach involves generating and analyzing numerical data to arrive at some useful facts, patterns and possible solution to a problem.

Both approaches rely on what’s happened in the past in order to predict what is likely to happen in the future. However, even the Housing Market Assessment (HMA) report by the Canadian Mortgage & Housing Corporation (CMHC) quotes the following disclaimer:

“The ability of the HMA to detect current problematic conditions relies on the assumption that historical relationships between prices and fundamental drivers of housing markets still hold.”

As mentioned in my articles on:

1) real estate volatility due to housing valuation and employment income, and
2) the impact of newly imposed taxes,

historical relationships do not necessarily still hold in the residential housing market.

That is why it is important to consider both approaches when coming to a decision that is best for you in the following circumstances. Here are some questions to consider.


BUY

Qualitative. For what purpose are you buying a residential property? What do you hope to achieve? Is it to become an owner-occupier (live in the home), a landlord of a rental property (create cash flow), or an investor/speculator (invest in an appreciating asset to sell), or some combination of the above?

Quantitative. What are the costs of buying a residential property and your expected return on investment (ROI)?


SELL

Qualitative. Why do you want to sell? Is your household growing or decreasing in its number of inhabitants? Are those residents likely to contribute to paying the costs of the property or will they be non-contributing financial dependents (e.g., children and elderly)?

Quantitative. How much will it cost you to sell your current property and buy, move and/or live elsewhere? How much will you be financially ahead or behind by selling now?


HOLD

Qualitative. Are you planning to remain where you are and keep renewing your mortgage until it is paid in full?

Quantitative. What are the costs and benefits of remaining on your present path? What will happen to your mortgage payments if interest rates go up or down when it comes time to renew your current mortgage? What is the maximum manageable amount within your household budget that you can pay towards your mortgage?


REFINANCE

Qualitative. Are you planning on making changes to your property such as major repairs or renovations? Or, are you planning to use some equity in your home to use or invest elsewhere?

Quantitative. What is the difference in interest costs and fees with regard to various financing options? How much will you save by using low-interest loans (e.g., LOC) to pay off high-interest debt (e.g., credit cards and other consumer debt)?


As a mortgage broker, it’s my job to help you understand your financial options from both a qualitative and quantitative perspective. Give me a call if you want to discuss what’s best for you and your situation.

What's the Next Step for You?

1)    Keep us in mind and on hand in case anyone you know runs into the same sort of situaltion.
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Glen Kelleway, BSc, AMP, Senior Mortgage Planner & Owner
 

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