The point: there are two things you can do if there’s going to be a housing market crash, and worrying isn’t one of them.
You’re here, so I’m going to take a long shot and guess that you read about money online, unless you’re here for the outstanding graphics, in which case: I’m sorry.
I’m going to ignore the personal finance bloggers in the room for a minute and just talk to you folks hovering awkwardly in the back. You know who you are: you worry about your money, but you don’t really know what to do about it. You read an opinion here and a post there about the strength of the Canadian banking system, or the lessons of the Great Recession, or how the Dow Jones Industrial Average just hit 15,000, and you wonder how it applies to you. You’re pretty sure that everyone else in the room knows exactly how it applies to them and what to do about it, and you’re fairly certain that they’re laughing at you for not knowing.
Rest assured: we don’t, and we aren’t.
So when you read a post like Nelson Smith’s “F— You, I’m Short Your House, full of intelligent opinion, clear and reasonable calculations, rationally written arguments, and the occasional f-bomb to relieve the stress, you can be forgiven for adding “the Canadian housing market is going to crash, welcome to 2008” to the long list of things you’re worried about.
This is what I want to say to you, the regular people in the room:
It’s entirely possible that 2008: The Sequel will occur in Canada. What Nelson writes about Home Equity Lines of Credit is true: banks have been pushing them for years, and consumers have been eating them up, using them as emergency funds, purchasing vehicles, paying for their kids’ post secondary education, and to consolidate credit card debt. If you can make the interest only payment, you can have it.
Further, Nelson is spot on about how we – as Canadians – patting ourselves on the back for the “prudence” of our lending system can congratulate ourselves only for being Less Bad. Think about this: the business of the bank is volume. Whether a personal banker is paid a salary instead of a commission is irrelevant when performance evaluations (and subsequent payscales) are based entirely on net new money to the bank. The incentives to get big HELOCs approved and – most importantly – drawn down, especially during the spring lending season, are enormous.
It’s also entirely possible that there will be no housing market crash. The economy could change in ways we can’t even imagine, let alone forecast right now. It’s happened before, and I daresay it will happen again.
Here’s what you need to do, in a handy numbered list:
- Get your spending in order. Figure out how much you’re spending, and on what. Examine it in light of your goals, and cut back (dramatically if you have to) anywhere that doesn’t get you closer to the life you want.
- Funnel as much money as you can to paying off your debt: highest interest first, unsecured next, secured against your home next, and your mortgage after that.
here’s a lot of other advice I could give, contingent on any of the thousands of different spending vs. debt vs. investment scenarios you could be in right now, and what your particular goals are, but I’m going to stop there, because these two pieces of advice are universal.
Follow them, and you’ll be better prepared for whatever lateral damage a housing crash can have on your personal economy. If no correction occurs, and if Canada’s banks sail serenely on their way collecting money in their wake, you’ll be laughing along with them.