How I learned to recycle

I was the king of garbage. I am not proud of it, but it's true. And when throwing out garbage was in fashion, I was the best at it. Every one or two weeks, I would grab a big green garbage bag and digging deep into our fridge, I pulled out leftover food. Then I went around from room to room, filling up the bag. You name it, it went into the garbage.

And then something changed and suddenly I realized that it become practically impossible to throw out your garbage anymore. City workers drove by my house once a week with a big truck that looked a lot like a garbage truck, but they weren't taking the garbage. The garbage started piling up in my garage and I knew that something had to change.

When I started complaining out loud about how ridiculous it was that you couldn't throw out your garbage anymore, my step-daughter broke down into tears one day and started telling me all about Al Gore and global warming. "If you don't change your ways" she said, "soon we will all be under water". Whether I agreed or not, one thing was for sure -- if I didn't change my ways, we were all going to be under garbage.

Eventually I reformed and now I am now the garbage nazi in my house. Nobody is permitted to throw food in the trash -- it goes straight into the green bin. And today as I carried this very heavy green bin down to the curb, it occurred to me how much food had gone to waste in the past week, and I realized that we probably could have fed double the number of people in our house with the amount of food wasted -- time for another family meeting.

Eliminate virtually all market risk with a 15-year fixed rate mortgage

In the past couple of weeks, given the fallout in the U.S. mortgage and real estate markets, a couple of prospective home buyers who were considering purchasing a property this fall, have asked me whether they should hold off on their plan to buy a property. Should they "wait and see", they asked. My short answer is no -- in my opinion, it's still a good time to buy real estate in Canada.

First of all, the mortgage and real estate picture in Canada is very different than in the U.S. Subprime lending is the major cause of the fallout in the U.S, and as a percentage of all mortgages, subprime lending is considerably smaller in Canada than it is in the U.S. -- less than 5% of all mortgages in Canada are subprime vs. 20% in the U.S. Further, many of the mortgages under repayment in the U.S. are so called "teaser rate" mortgages which offer an extremely low payment for the first couple of years. After the teaser period is over, with interest rates in the U.S. up, many borrowers have found that they are unable to pay their mortgages. While they originally thought they would be able to refinance on an expectation of higher property values, they now find themselves unable to do so because instead of house prices appreciating, they have depreciated.

In Canada, most borrowers take 5-year fixed rate mortgages so we do not have the the same exposure to changes in lending rates as our neighbours to the south. Further, the real estate market in Canada continues to perform very well, and when you consider that the average 5-year fixed rate mortgage in Canada over the last 30-years was 10%, mortgage rates are still relatively low. You can get a 5-year fixed rate mortgage at rates as low as 5.74%. With mortgage rates as low as they are and with all the new mortgage products including extended amortizations, zero down mortgages and no income qualifier mortgages for self employed, many people who previously could not afford to buy a home can now do so.

For most people, the greatest single variable impacting real estate affordability is the mortgage rate. While it is unlikely that what has happened in the U.S. will happen here in Canada for a number of reasons -- our economy is strong, employment is strong and immigration continues to drive demand for real estate -- if you are worried that the problems in the U.S. could spill into our economy and impact our mortgage and real estate market, you could virtually emliminate all risk simply by taking a longer term mortgage. Take a 10 or 15 year fixed rate term at around 6%, and you could practically coast through one complete economic cycle. On the other hand, if you decide to put off buying and if interest rates do go up in the medium term (in the near term there is no expectation of higher rates), you could turn around in a few years to find that you have effectively been priced out of the market.