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Your Saskatoon home is not your second income


CNN runs a program on Saturday afternoons called Open House, which touches on topical issues surrounding homeownership. This week’s program carried the title, Open House: Mortgage Meltdown and focused on skyrocketing foreclosure rates across the United States.CNN reported that 1 in 1,000 American homes face foreclosure. Some markets report much higher numbers, like Denver, where 1 in 365 homes face foreclosure actions.


Of course, after several years of aggressive price increases in many U.S. cities, the housing market south of our border took a turn for the worst. The second and third quarters of 2006 were particularly tough and many people saw substantial amounts of their home equity washed away. Some will tell you that the worst is over and year-end numbers seem to indicate that things are turning around but even if it is over, a significant amount of damage remains.I’m hearing stories every day about people who are buried in their homes with a much higher level of mortgage debt than they can realistically sell their homes for. The foreclosure numbers speak for themselves.


In my opinion, one of the biggest contributors to financial hardship is our willingness to continuously borrow against the equity which we’ve built in our homes. The problem is particularly bad in the U.S. where lenders are constantly beating the drum to “cash out your equity,” or “consolidate your debt.”People have financed their homes to the absolute max and in some cases, beyond the property’s resale value. When interest rates creep up as they have in the U.S. it suddenly gets very difficult to manage that debt.


Yesterday, a story published in the Star Phoenix with the headline, Mortgage market robust going into 2007 spoke of all the new mortgage options available in Canada which will “stimulate buying activity in the new year. ”40-year mortgages! Interest-only mortgages! 100% loan to value mortgages! Yay! Most of these wonderful opportunities come with the ultimate risk of living in the poor house. We shouldn’t be looking for ways to slow our opportunity to build equity.


In recent years, Saskatoon has experienced higher than normal appreciation in housing prices. All indicators suggest that this trend will continue for some time. However, we are wise to remember that price increases above the norm don’t often continue forever. At some point, it stops, and often prices will decline after long periods of growth. We would be wise to make every effort to retain as much of our home equity as possible, avoid “cashing out” and other “attractive” financing opportunities that allow us to treat our homes as a source of income, or discourage us from the opportunity to be free of debt.


I'm always happy to answer your real estate questions.


Norm Fisher

Royal LePage Vidorra

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