U.S. jitters

Buy if you intend to stay in the home for a long time

Imran Syed, Citizen Special

Published: Saturday, October 18, 2008

Q: My wife and I are thinking about buying a larger home in Ottawa, but are concerned with the recent financial crisis in the United States.

Do you think that it will spread and do you advise holding off?

A: I'm sure if you are like most people you are concerned about the volatility in U.S. markets and the potential for it to spread across the border to Canada.

As you may be aware, this is a result of the subprime crisis in the U.S. banking sector.

The latest studies indicate that most Canadian banks would have very little, if any, exposure to subprime debt. As well, Canadian banks are very heavily regulated and subject to strict capital reserve and lending requirements. Unlike many of the U.S. banks affected, our banks generate much of their revenue through retail banking profits. Many of the U.S. banks are very active in investment banking.

So even though most of our financial institutions should not be exposed to the U.S. subprime situation, expect a fair amount of volatility as the uncertainty in the market sorts itself out.

At this stage it's hard to predict what the impact will be on residential real estate values.

One leading economist predicted a decline in real estate values, while another mentioned that in most of Canada, although real estate values are high, they are not necessarily over-inflated.

If you are buying this home as your principal residence and plan to live there for the long term, then perhaps, like your long-term stock market investments, short-term price volatility shouldn't concern you.

I do recommend that you consider other factors, including job stability and your debt service ratio before making a final decision.

This article provides general information. Please seek independent advice before implementing any of the strategies discussed.

Imran Syed CFP CFSB is an independent fee-based Certified Financial Planner and can be reached at feebasedadvisor.ca.

© The Ottawa Citizen 2008