Happy New Year!

Happy New Year!

2018 Here We Go!

I’ve always believed in ‘The 1% Difference‘. My theory is that whatever the challenge, if approached with 1% more effort than average, it will be met with success. If not immediately, then almost certainly over the longer term (thanks to the magic of compounding).

At the gym this often translates into sets of 11, rather than 10, reps. (Yes I realise this is greater than a 1% difference: 1% is the baseline.)

Has this extra rep resulted in an amazing physique? Not exactly, but perhaps it’s allowed me to get away with consuming 1% extra at the dinner table.

And so it goes with your mortgage.

Increasing the payment as little as 1% each year, or ideally 1% each quarter, will allow you to leverage compounding in your favour.

For most of us, the principal portion of our mortgage payment is our only form of savings. So why not increase the principal, even slightly? It will make a difference.

If this sounds familiar, kind of like the last New Year’s Eve email… and the one before that…  you are correct. This time of year, every year, I encourage all 2,774 clients on this email list to make this move. Take this small step, which for the very few who have done so since 2008 when I started suggesting it, is powerful in the long run.

Of all who receive this email, on average one in 500 takes action and tells me about it.

Are you one in 500?

Aside from paying down the mortgage balance faster, you’re also building a buffer against rising interest rates… which leads to the crystal ball portion of the day: property values and interest rates

Predictions for 2018

Property values?

Detached homes will continue to rise in price, albeit at a slower pace on the west side. Expect a year of reasonable (or unreasonable depending on your perspective) price increases east of Vancouver all the way into the Valley, a result of the same old issue: too few houses, and too many buyers.

Multifamily unit values will continue to increase in most areas as well, as new supply continues to be absorbed as quickly as it appears.

Despite media hype around upcoming mortgage rule changes January 1st, the Greater Vancouver market will remain resilient due to higher-than-average incomes which negate the rules for 90% of buyers. Yes, the media like to suggest the average income in Vancouver is ~75K per year, but no, that is not the average household income of the detached home buyer, or even the townhouse buyer. Averages don’t matter in real estate. Supply and demand matters.

Interest rates?

During 2018, variable-rate mortgage holders may see a small increase, not unlike the small increase of 2017. However, despite the routine annual headlines about this being the year interest rates go up, there is in fact little chance they will rise much more than 0.50%, if that. So, before you lock in to a fixed rate from your current variable — inflicting an immediate increase of far more than 0.50% on yourself — keep in mind two things:

  1. When locking in, your prepayment penalty increases by as much as 900% (yes, 900%).
  2. I’m always available for a second opinion, so please drop me an email and let’s talk about the decision before you make it.

Fixed interest rates, which usually track the bond market, have instead been driven up artificially by government policies too complex for media to articulate. Know that Big Brother is protecting you from yourself with all kinds of complex changes behind the scenes, though. And the by-product of these regulatory moves has been a solid 0.50% increase in fixed rates.  In other words, it’s rules brought in by politicians— not the free market — that have resulted in an increase in rates. Interesting times.

Are they done yet?

We hope so.

Will fixed rates rise in 2018?

This still remains a bit of a wildcard, although ‘wild’ is defined as little more than another 0.50% increase in 2018. As with last year’s (and the nine previous years’) prediction, I believe we will end 2018 with fixed rates still below 4%.

The lending landscape will continue to tighten (another sentence typed every year since 2009).

Expect less application of common sense around mortgage approvals, thanks again to the federal government. (You think you can easily port your current mortgage to a new property? Think again. The Fed has made that flat-out impossible for many, as the porting of a mortgage to a new property requires re-qualification under the new rules).

In closing, please beware of letting ‘fast news’ do to your brain what fast food does to your body, i.e., a short increase in blood pressure and a spike in stress for no good reason. Call somebody who will give you an unbiased opinion, I’m not out to sell you a thing. I’m just here to offer you a viewpoint not driven by profit (which the banker urging you lock in cannot say, any more than the journalist angling for your clicks).

Wishing you and yours a remarkable 2018!

Dustan

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