Are Your Feet Dirty?

Even if you wipe them off you can be sure there is still some stuck in between your toes.

This week-end was the first significant snow fall of the season and I thought talking about sand between your toes might take your mind off all the cold to come.

Thinking about better times sure makes us feel better. No matter how hard we think it will not change the reality.

Truth is real estate values have escalated dramatically over the past 20 years. Truth is the traditional way things have been done have added to that increase. Think about it. If a house has been sold 4 times in the last 20 years, each time agents charged 5% on that house, how much of the increased value of that house is because the home owner selling it had to make up for the portion he was paying out?

Here we are now with average houses pushing the $300,000 mark here in Waterloo Wellington and people are finding it difficult to get mortgages. Truth is the whole sub-prime fiasco came from the fact that house prices had gotten so out of control that people could not afford the standard 5% down 25 year amortization program. The lenders started increasing the amortization period and lowering the minimum deposit. Even that was not enough.

Truth is, as a home seller in today's market, if you decide to give up 5% of the selling value of your home it works out to be a much bigger chunk of your equity. If you are lucky enough to have paid off half your mortgage you are giving up 10% of your equity ($300,000 -50% = $150,000, $300,000 x 5% = $15,000, $15,000 is 10% of $150,000).

If we are heading into a recession then why would you hand over 10% of your equity? People have just lost thousands in equity in the stock market and mutual fund arena and it makes the news daily. People throw away 10% of there equity in their house daily and it doesn't even show up on the radar.


Maybe it's not our toes in the sand after all?

M