Headlines in the Montreal Gazette shouted “Montreal home prices climb”,

while the national trend actually indicated the contrary.

There has been a country wide decline in home prices to the tune of 4.1%,

yet in Montreal we have witnessed an increase of 3.2%. Can it be that Montreal has managed to escape the effects of this wonderful recession the rest of the country seems to be experiencing? Is Montreal recovering quicker than the rest of the country, not to mention our neighbours to the south, or are we the poster kids for PT Barnum who has been erroneously credited with saying “there is a sucker born every minute”.

The facts are that PT Barnum never said it, and Montreal is still mired in a recession which has blanketed the entire country.

At first glance the fact that properties have risen in price is an amazing feat, considering the state of our economy, but there is another side to this equation. Although it is true that the prices of homes sold in Montreal have gone up, the fact of the matter is that the total of properties sold has declined. As you can see there are many ways to look at statistics, for example, if I were to say that 20% of all car accidents are caused by drunk drivers, you could say that conversely 80% of all accidents are caused by sober drivers. Without looking at the other side of the equation you would automatically deduce that you are safer to drive while inebriated.

Getting back on topic, why has Montreal seen a rise in home prices? Possible answers could be that Montreal’s market was previously under valuated, or the rise in property taxes brought home prices along for the ride, because our informed buyers check out the city evaluations prior to any purchase. I prefer to think that our vendors and their over priced homes have proven that there is indeed a sucker born every minute.

As a mortgage broker, a phenomenon that I have been experiencing lately, has to do with the amount of people that are approaching me to help refinance their mortgage, or to procure a second mortgage and in many cases regardless of the source of these loans. Refinancing in mid term even with an “A lender” incurs major costs in penalties. Banks will charge between 3 and 6 months interest in penalties, should you decide to break your mortgage contract. Some individuals are willing to seek out the aid of a private lender who will charge upwards of 14% on a second mortgage, not including setup and application fees that would add an additional 2-5% on top of the already high rate.

Common sense would dictate that you step back and look at your financial situation with an unprejudiced eye. You need to determine whether you are better off to pay exorbitant interest rates which you most likely can’t afford to pay, (If you could afford it, you would not be in this situation in the first place) or cut your losses and sell your house now before the debt buries you, and you have to settle for a greatly reduced price out of desperation.

I am not trying to preach doom and gloom. On the contrary I want you to wake up and realize that you could live just as well, and in many cases better, in a smaller property, or even a rental. When your financial situation improves you can once again consider a bigger and better house. Life is too short to put material possessions above the needs of your family.

What has caused this drastic change? In the case of the banks, there are several institutions that were hurt by losses in the sub prime market, which in itself could cause them to tighten their purse strings. We won’t even mention the markets dropping, causing people’s portfolios to shrink by 20 – 30 % or the investment scandals that have rocked our world recently.

The above mentioned catastrophes were horrible but let’s be honest with ourselves, the average Joe was not affected by these events, particularly not in Canada. In Canada the banks when it came to handing out mortgages were infinitely more prudent than their U.S counterparts and did not use the presence of a pulse, as a primary requisite for the procurement of said loans. In fact how many average individuals do we know who have lost fortunes in the stock market? I would venture to say that there weren’t many. As the old joke goes, when a person was asked, if they were to find $1,000,000.00 on the street would they return it to its owner, and their response was, yes if it belonged to a poor person. The fact is that the average Joe does not have a great fortune to lose, and the wealthy individual, should he lose 20-30% of his $100,000,000.00 portfolio will still have what to live on.

What has really caused this apprehension in the economy? Why are we holding onto our money, not willing to spend it and thus causing the entire structure of our economy to collapse. Everything snowballs and if we don’t spend our money, the stores won’t be able to sustain themselves, and so it goes on and on. There is an old expression that goes, “Ignorance is bliss” but today, thanks to all the media, such as radio, television, newspapers, and of course the new frontier the internet, there are no more secrets, hence no more bliss. The medias are forecasting doom and gloom and with the proliferation of information we are creating a self fulfilling prophecy.

The governments have tried to lower interest rates with an end to stimulate the economy but the fear is not enabling us to open our wallets. We can liken this to the fable of the wind and the sun making a wager as to who can remove the traveler’s coat. The wind blew as hard as it could in an effort to blow the coat off, but it only intensified the man’s resolve to hold onto his coat even tighter. The sun eventually came out, and its warmth caused the traveler to remove his coat. We don’t need fear mongering coupled with the lowering of interest rates to stimulate the economy. We need the ray of sunshine and upbeat reports to cause us to remove our hands from our pockets.

In our economy we have two opposing views of the market place, the vendor and the purchaser. In the housing market you have the purchaser who eyes the situation and thinks to himself, “Great, the interest rates are going down and the sales of houses have slumped, now is the time to get a bargain”. The vendor on the other hand looks around him and says “Wow there aren’t that many houses for sale on the market, and interest rates have gone down, so I can probably ask a higher price for my house and get it”
We need everyone to meet at a common ground and realize that today it’s up to us to stimulate the economy and not some artificial external force.