Déjà Vu

Déjà Vu

Definition: “Already seen”) is a French loanword expressing the feeling that one has lived through the present situation before

 

Well, as the saying goes, “Here we go again”

You would have to be living under a rock to not be aware of what is going on in the world today, but then for those that are faint of heart, being under a rock might be a safe place to hide…but is that the answer?

Of course, it isn’t. I have always been a firm believer that when you have uncomfortableness around you that you need to be proactive in dealing with whatever the issue is. There is no doubt that what we are seeing in the financial world was inevitable and by any stretch of the imagination long overdue. Another old saying of “what goes up must come down” seems to be at play now.

We have experienced an unprecedented upward trajectory in real estate prices caused in part by the historically low-interest rates of the past few years. I have been telling clients, friends, and family for many years that they would be well advised to be cautious about the amount of debt they are acquiring as, at some point, it will have to be paid back and most probably at a much higher interest rate.

I have never been one to borrow a lot of money. I attribute that to a situation that I found myself in back in the early 1980s that taught me a very hard and painful lesson. As I don’t like pain and uncomfortable situations, I made a pact with myself to never allow myself to fall into that trap again. There were a few reasons for my misstep but the most important one was, that I just didn’t know any better in my 20s and no one had taught me any better. Because of this, I made an effort to try to steer my clients, friends, and family away from that cliff. The strange thing that I did not anticipate was the number of people that did not want to hear or talk about it, and I was once asked if I was a doomsday guy. Well, that took me by surprise as I always thought of myself as someone that was realistic about what I thought would happen in the future based on what I was seeing at the present time. Maybe overly cautious but I didn’t see that as a bad thing.

So here we are. The interesting thing to me is that no matter how long you are around, similar times can also have a twist. There is a saying we heard in Thailand that said: “same, same, but different”.

So, what is different this time? In my 42 years in real estate, I have seen a lot of market ups and downs and they all have their own signature depending on who is in power and dealing with world economics. This time historically low-interest rates played a major role. These low-interest rates allowed people to buy far past their real ability and because they were left so low for so long, people got far too comfortable with borrowing and I think fell into the trap that made them think that this may never in, and as we all know, all good things come to an end.

I felt a couple of years ago that it would be wise to start incrementally raising interest rates. Nothing drastic but maybe a .25% interest rate increase every 6 months or so and I truly believed that move would have reined in the economy without allowing it to run rampant and for sure would have started to put a lid on out-of-control spending and would have also helped with affordability as housing was spiraling out of control. To be clear, the out-of-control spending of the average person was far eclipsed by the out-of-control spending by governments everywhere. Yes, I know that we had a pandemic, and some measures were needed but not the shameless squandering of taxpayers’ money without any clear path as to how it could ever be paid back.

On the bright side, we still have historically low-interest rates, and even when we get them up to where policy setters,  think they need to be, the rates will still be low compared to historical interest rates. In 1957 and 2002 we had the same overnight rate as we do today, 2.5% so when you look at that we are really in good territory with the rates, but it is the amount that people owed that is the problem. Years ago, I had a client that made 10 million dollars a year and after taxes netted a little over 4 million, but his daughter had to step in to manage his finances because he was spending more than he made and had gotten himself into a financial squeeze. So, anyone can end up in this position no matter how much you make as it comes down to how much you spend and on what you are spending it on.

So, what do people need to do moving forward? It is never too late to start reducing loan balances which should be at the top of everyone’s list that owes any amount of money. Nontax deductible loans like credit cards and primary home mortgages should be a priority to pay off as quickly as humanly possible. Life and age seem to creep up on us quicker each year and the last thing anyone needs is to be in debt in retirement. As many are seeing today, inflation can make life difficult, so we all need to be responsible for our spending.

Hope you all enjoy your weekend!!!

Brian McCullough, RE/MAX of Nanaimo

#1-5140 Metral Drive

Nanaimo, BC V9T 2K8

Office: (250) -751 – 1223

Email: brian@mmshomes.com

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