CBS Parts Ltd

Interest Rate Increases

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usiness news has been showing interest rates increases in both Canada and the USA. I know I quickly rushed a few finance deals before some of the rate rises to help clients out. In Canada the rising rates have tamed the housing market. Surprisingly, the delinquency rates for mortgages are at an all time low, but I smell foreclosures in the air. Prior to myself loaning money to finance equipment, I was from the “dark side” as I call it. I did foreclosures, repossessions, and sued clients for money owed for a bank. I also helped those who needed assistance with alternative solutions and some who just needed some customer service from the bank. I was known for initiating foreclosures very early. The mortgage was not even in arrears yet, but I would notice warning signs like the credit score dropping and maxed out credit so I could predict a foreclosure months before. I would strike early to get every dime owed to the bank with zero loss while other creditors would lose because they were much too late. I had already taken all the money that was available from the sale of the home. With housing, I’m seeing demand for purchasing homes dropping heavily along with prices. Just in February of this year in BC we were seeing bidding wars on homes. Literally 20 different families bidding on the same home and driving the price several hundred thousand dollars higher than asking price, no inspections on the home and no subjects to remove. Now I see homes sitting unsold and no bidders lining up since a few rate increases. When homes are sold they sell at much lower prices than the February peak. The issue now becomes the people who paid over inflated prices for their home. If they bought higher than asking, and now want to sell, they may lose several hundred thousand dollars. Seeing the delinquency rates so low I believe is only temporary because of this. It reminds me of the 90’s when there was the leaky condo phase in BC. Builders used plans designed for California type weather and did not account for the rain forest region weather. The condos leaked and needed huge repairs. People who bought these condos had to pay more money in repairs than the condo was worth. Usually, a difference of a hundred thousand dollars and up. Many went bankrupt and banks foreclosed on these now almost worthless properties. So, my worry now is this will happen again. Just not leaky condos this time, but with homes that people paid too much for as prices slide down. I spoke to a mortgage broker and asked if people are locking in interest rates, and he said no. He said everyone are getting lower rate variable mortgages but confirmed business has slowed considerably. The variable rates are still low now, but if there are more interest rate hikes, then it could become a problem. In the early 80’s interest rates were above 15%. I have always warned the truckers I counsel on financial matters that this will happen in our generation as well. That each generation will experience double digit interest rates so it’s better to have your house paid off before that time comes and have cash on hand that you can put in term deposits and other safe investment options at high rates. This is what I hope will happen, but not everyone plans their finances like this. I always look to the past, and mistakes of the past to plan for the future. Having spoken to some seniors for guidance, they said that there were never mortgage renewals in the past. You signed once and kept the same interest rate and same payment until your home was paid in full 25-30 years later. Unfortunately, now banks want more money and renewals are one of the methods to do so. They charge a renewal fee, get you in to see them so they can try to sell you other bank products and adjust your mortgage to current market rates. As these rates climb, it will be inevitable that some may not be able to afford the payment anymore. It could be a few hundred dollar difference a month which adds to potentially thousands each year. With people paying high inflation for things like food and gas, they may not have the ability to pay that difference, and this is when foreclosures start. I cannot be certain that a lot of people will be foreclosed in the next few years, but at this time I am predicting this could be a strong possibility. Plan well and try to save as much money as you can now regardless. Saving is always good advice, so that will remain constant in your life, even if other things do not. Having a savings buffer could save your family home and prevent losses. If you did buy at an over inflated price, I would suggest you wait until the value of your home eventually does go up again to where your bought at to prevent any losses. History shows real estate will usually increase in value over time, so wait it out before selling. It might take longer, but time will heal the current economic problems eventually.

PASH BRAR

Savings

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