Carolyn Ireland, The Globe and Mail
Most people who have cottages or camps have loads of good memories and great photos. Eventually they often have loads of cash, too.
In many parts of Canada, buying waterfront property has proven to be a profitable venture for the past couple of decades. Prices for recreational properties on the shores of lakes, oceans and rivers have soared.
But traditionally, financial pros have not been enthusiastic about buying a cottage as an investment. Vacation properties are discretionary purchases - a want not a need, in other words - and therefore they suffer more than city houses do in a real estate downturn.
Properties aren’t as liquid as stocks nor as diversified as mutual funds.
Also, maintenance costs, taxes and toys can be hugely expensive.
And, of course, you have to sell the place to realize your gain. Try breaking that news to the grandchildren.
But Aurele Courcelles of Investors Group has taken a different tack from those killjoys. He says there are lots of ways to maximize the gain on a cottage.
The results of a recent study commissioned by Investors Group show that 68 per cent of Canadians do not have a mortgage on their cottage or camp. More than four in ten said their cottage mortgage is less than half the size of the mortgage on their home.
Mr. Courcelles, who is director of tax and estate planning at Investors Group, says that creative-thinking owners who sell the cottage to reap the profit can claim the principal residence exemption at tax time.
Traditionally, people have used that exemption to shelter the gain on their city house. But Mr. Courcelles points out that some people rent in the city so they don’t need the exemption there.
Also, sometimes people realize a greater gain on the value of the cottage than the gain on the value of the city property. It makes sense to look at the options, he says, but use the exemption carefully.
“You can’t double up.”
He also points out that cottages have one big advantage over other assets in that you can rent them out.
People who rent out the cottage for a few weeks a year can use that cash to pay down the mortgage or they can funnel the money into other investments.
He warns, however, that the idea often seems more appealing to people before they actually buy the property.
Renters and owners tend to collide over timing because everyone wants to be at the cottage in the same short stretch of high summer.
Also, once people fill the cottage with their own belongings, they often don’t want strangers living there, Mr. Courcelles adds.
“I know people that intended to rent it out and then that emotional aspect comes in,” he says. “The people I know rent it out to people they know.”
The rental income is taxable he adds, but it won’t work against claiming the principal residence exemption on a capital gain as long as the owner uses the cottage for a substantial amount of time and only rents it out a small portion of the time.
Mr. Courcelles says some people inherit a cottage and therefore become owners mortgage-free. But taxes can become unmanageable for some, he cautions.
He also recommends that anyone who is considering taking on debt to buy a cottage be very realistic about the added costs of things like taxes and maintenance.
His own cottage is near Winnipeg. Lots of people in Manitoba own cottages on islands, he says, and they can only get there by boat.
“You not only have to buy a cottage, you have to buy a boat. And boats are not cheap.”
And, to add another wrinkle, real estate is susceptible to market downturns. Anybody considering the cottage as an investment has to take a long-term view.
“It’s certainly not as liquid as marketable securities. There’s no doubt,” he says. “You have to comfortable with the fluctuations.”
From a purely steely eyed view of generating wealth, many financial pros argue that there are better places to invest your cash.
But Mr. Courcelles is ready to say, if you really dream of owning a cottage, it can be a pretty good financial move.
Friday 31 August 2012
Thursday 30 August 2012
Itemizing Up-Front Closing Costs
Rob McLister, CMT, Canadian Mortgage Trend
When you buy a new home, lenders like to see proof that you can cover the closing costs.
To satisfy this condition you typically have to demonstrate your ability to pay an additional 1.5% of the purchase price at closing, on top of your down payment.
But not everyone knows what closing costs entail. TD recently released an interesting survey that touches on this. It found that 13% of first-time buyers “overlooked some of the one-time fees associated with buying a home, such as inspection fees and land transfer costs, and 6% didn't budget for anything beyond the down payment and monthly mortgage payment.”
When you buy a new home, lenders like to see proof that you can cover the closing costs.
To satisfy this condition you typically have to demonstrate your ability to pay an additional 1.5% of the purchase price at closing, on top of your down payment.
But not everyone knows what closing costs entail. TD recently released an interesting survey that touches on this. It found that 13% of first-time buyers “overlooked some of the one-time fees associated with buying a home, such as inspection fees and land transfer costs, and 6% didn't budget for anything beyond the down payment and monthly mortgage payment.”
That’s partly a failing of the mortgage advisers counselling those borrowers.
“It’s incumbent on professionals to help first time buyers go through the process and point out some of the other expenses,” TD’s Director of Mortgage Advice Farhaneh Haque told us in an interview a few weeks back. And of course she’s right.
In all, the list of closing and move-in expenses can be over a dozen items long. To help homebuyers keep track of these costs, CMHC has an up-front expense checklist.
Here are a few things to consider:
If you don’t know what amounts to budget for, ask your mortgage planner to walk you through this list and fill in the blanks. That way you’ll have a set budget with no surprises on closing day.
One thing we’d add to CMHC’s list is provincial tax on mortgage insurance premiums (if you’re putting down less than 20% and live in Manitoba, Ontario or Quebec). That tax needs to be paid out of pocket on closing.
“It’s incumbent on professionals to help first time buyers go through the process and point out some of the other expenses,” TD’s Director of Mortgage Advice Farhaneh Haque told us in an interview a few weeks back. And of course she’s right.
In all, the list of closing and move-in expenses can be over a dozen items long. To help homebuyers keep track of these costs, CMHC has an up-front expense checklist.
Here are a few things to consider:
- HST/GST if the home is brand new or substantially renovated (sometimes this can be included in the mortgage to avoid the upfront cost)
- Appraisal, if required
- Home inspection if required by lender or opted for by purchaser
- Deposit - while this does come off your down payment you need to make sure you have it upfront before closing, most deposits are required at time of offer or subject removal
- Land registration
- Legal fees - these can vary depending on your area and whether you use a lawyer or notary
- Default insurance on your mortgage (CMHC fees) typically included in mortgage
- Property tax adjustment if buying in the second half of the year
- Property transfer tax if you're buying in BC and are not a first time home buyer
- Title insurance - required by some lenders
- Home insurance
- Moving costs - truck, boxes, movers, etc
- Applicances if the home you're buying is brand new and doesn't have them
If you don’t know what amounts to budget for, ask your mortgage planner to walk you through this list and fill in the blanks. That way you’ll have a set budget with no surprises on closing day.
One thing we’d add to CMHC’s list is provincial tax on mortgage insurance premiums (if you’re putting down less than 20% and live in Manitoba, Ontario or Quebec). That tax needs to be paid out of pocket on closing.
Wednesday 29 August 2012
The housing market: How we got here
Advice, Marty Douglas
I was listening to talk radio on my commute to work and the half-hour segment was concerned with renting versus owning. The panellists were the president of the Greater Vancouver Real Estate Board and a producer with the radio station, who happens to be a committed tenant. Quite frankly, as the discussion developed I found myself siding with the tenant.
On the call-in segment of the session, one caller lamented the dearth of assistance programs for first-time buyers. He particularly singled out the IHOP program of the seventies. Now before you start to write to REM’s editor, I know the International House of Pancakes wasn’t supporting homebuyers – but it made for a good laugh. At least in my car. On my commute. Alone.
Presumably he meant the AHOP or Assisted Home Ownership Program created by a federal government that just couldn’t resist jamming housing down the throats of Canadians so we could emulate the USA and become the best housed nation in the world. My advice: Be careful what you wish for.
Whether it was fixed-rate mortgages or subsidized payments, folks lined up to buy because they’d be fools not to. Waiting lists trailed from desk drawers. With five per cent down, in some cases provided by sweat equity, and house prices limited in my community to the mid-20s and then 40s towards the end of the decade, people were counting on equity gain at the end of the five-year term. Didn’t happen.
Sound familiar? Sound like the housing crisis in the USA today? When folks had to relocate for work or lost their job, a glut of housing came on the market and subsequently followed the foreclosure path. Mortgage insurance companies had so much inventory, they were at risk and certainly could have flooded the market. I recall MICC owned most of Fort St. John.
It was not unusual for listing salespersons or bank managers to find house keys dumped through office mail slots. I recall one house stripped of its plumbing and shag carpeting as the departing owners desperately sought to regain something of their equity and exact revenge.
To the survivors, equity gains did come. But timing is everything. Chart 1 shows a summary of average house prices every fourth year in the Comox Valley on Vancouver Island beginning in 1977 at $42,000. By 1981, $82,000.
Then, oops! Nothing like world events and government policies to ruin a plan. Wage and price controls, Trudeau’s National Energy Policy and 21 per cent interest rates followed. By 1985, buyers saw prices drop to $58,000, a 29 per cent decline in price. (Compare that to today’s forecast, courtesy of Royal LePage, of declines in Vancouver of six per cent. Imagine your five per cent equity against that price drop. The phrase ‘underwater’ had not yet been invented.)
But by 1989, prices were off and running again to $80,000. Unfortunately, there wasn’t a bell to signal the bottom – or the top – of the market. Apparently, the time to buy was between 1985 and 1989 because in the next four years prices reached $140,000 in 1993 and then $157,000 in 1997.
But guess what. Peak housing. And still no bell!
By 2001 the average price in the Comox Valley had slipped to $143,000, a nine per cent decline. Time to buy again? You betcha. The average price soared to $253,000 by 2005 and $337,000 by 2009, more than double in eight years. Today, in 2012, our average price is $353,000 and if you had purchased and stayed in the same home for those 35 years, your equity gain would be a modest 740 per cent. Mind you, the long green shag and canary yellow appliances with matching fixtures are likely a tad shop worn. And the non-slip daisies in the bottom of the tub? Hey, they were kind of cute!
How did this happen? Interest rates, two-income families and divorce.
Matching the rise over time of housing prices was the almost lock-step decline in interest rates. From the double digits of the ’70s and ’80s, decade by decade, rates declined, slipping below 10 per cent in 1995, never looking back, to our posted rate of 4.99 per cent today – and we know significantly lower rates are available.
Pop quiz: If the cost of borrowing is lower, you can borrow (a) more or (b) less? And so we did. At the same time, someone in banking suggested all of spousal income should count towards mortgage qualification. What the heck, the baby was almost walking at 12 months, day care abounded and many spouses returned to work.
Cars, boats, vacation homes and bigger screen TVs followed until one spouse got a little tired of watching Extreme Bass Fishing and suggested the other take a hike. Not together. And they kept the TV. And the house. Not that they didn’t deserve it.
And so we reduced our household size dramatically and needed to build – condominia – and plenty of them. Immigration to a better country and inter-provincial migration following the job markets fuelled local demand. Developers have responded to demand. According to some, that response is now approaching saturation and another decline in prices is likely. Peaks and plateaus, peaks and plateaus. All we know for sure is current prices are likely on a plateau in many areas of Canada. We know it’s flat. What we don’t know is how far it is across.
You can find Marty Douglas on Twitter – http://twitter.com/41yrsrealestate – Facebook and LinkedIn. He is a managing broker for Coast Realty Group, with offices on Vancouver Island, the Discovery and Gulf Islands and the Sunshine Coast of B.C. Marty is a past chair of the Real Estate Errors and Omissions Corporation of B.C., the Real Estate Council of B.C. , the B.C. Real Estate Association and the Vancouver Island Real Estate Board. mdouglas@coastrealty.com.
I was listening to talk radio on my commute to work and the half-hour segment was concerned with renting versus owning. The panellists were the president of the Greater Vancouver Real Estate Board and a producer with the radio station, who happens to be a committed tenant. Quite frankly, as the discussion developed I found myself siding with the tenant.
On the call-in segment of the session, one caller lamented the dearth of assistance programs for first-time buyers. He particularly singled out the IHOP program of the seventies. Now before you start to write to REM’s editor, I know the International House of Pancakes wasn’t supporting homebuyers – but it made for a good laugh. At least in my car. On my commute. Alone.
Presumably he meant the AHOP or Assisted Home Ownership Program created by a federal government that just couldn’t resist jamming housing down the throats of Canadians so we could emulate the USA and become the best housed nation in the world. My advice: Be careful what you wish for.
Whether it was fixed-rate mortgages or subsidized payments, folks lined up to buy because they’d be fools not to. Waiting lists trailed from desk drawers. With five per cent down, in some cases provided by sweat equity, and house prices limited in my community to the mid-20s and then 40s towards the end of the decade, people were counting on equity gain at the end of the five-year term. Didn’t happen.
Sound familiar? Sound like the housing crisis in the USA today? When folks had to relocate for work or lost their job, a glut of housing came on the market and subsequently followed the foreclosure path. Mortgage insurance companies had so much inventory, they were at risk and certainly could have flooded the market. I recall MICC owned most of Fort St. John.
It was not unusual for listing salespersons or bank managers to find house keys dumped through office mail slots. I recall one house stripped of its plumbing and shag carpeting as the departing owners desperately sought to regain something of their equity and exact revenge.
To the survivors, equity gains did come. But timing is everything. Chart 1 shows a summary of average house prices every fourth year in the Comox Valley on Vancouver Island beginning in 1977 at $42,000. By 1981, $82,000.
Then, oops! Nothing like world events and government policies to ruin a plan. Wage and price controls, Trudeau’s National Energy Policy and 21 per cent interest rates followed. By 1985, buyers saw prices drop to $58,000, a 29 per cent decline in price. (Compare that to today’s forecast, courtesy of Royal LePage, of declines in Vancouver of six per cent. Imagine your five per cent equity against that price drop. The phrase ‘underwater’ had not yet been invented.)
But by 1989, prices were off and running again to $80,000. Unfortunately, there wasn’t a bell to signal the bottom – or the top – of the market. Apparently, the time to buy was between 1985 and 1989 because in the next four years prices reached $140,000 in 1993 and then $157,000 in 1997.
But guess what. Peak housing. And still no bell!
By 2001 the average price in the Comox Valley had slipped to $143,000, a nine per cent decline. Time to buy again? You betcha. The average price soared to $253,000 by 2005 and $337,000 by 2009, more than double in eight years. Today, in 2012, our average price is $353,000 and if you had purchased and stayed in the same home for those 35 years, your equity gain would be a modest 740 per cent. Mind you, the long green shag and canary yellow appliances with matching fixtures are likely a tad shop worn. And the non-slip daisies in the bottom of the tub? Hey, they were kind of cute!
How did this happen? Interest rates, two-income families and divorce.
Matching the rise over time of housing prices was the almost lock-step decline in interest rates. From the double digits of the ’70s and ’80s, decade by decade, rates declined, slipping below 10 per cent in 1995, never looking back, to our posted rate of 4.99 per cent today – and we know significantly lower rates are available.
Pop quiz: If the cost of borrowing is lower, you can borrow (a) more or (b) less? And so we did. At the same time, someone in banking suggested all of spousal income should count towards mortgage qualification. What the heck, the baby was almost walking at 12 months, day care abounded and many spouses returned to work.
Cars, boats, vacation homes and bigger screen TVs followed until one spouse got a little tired of watching Extreme Bass Fishing and suggested the other take a hike. Not together. And they kept the TV. And the house. Not that they didn’t deserve it.
And so we reduced our household size dramatically and needed to build – condominia – and plenty of them. Immigration to a better country and inter-provincial migration following the job markets fuelled local demand. Developers have responded to demand. According to some, that response is now approaching saturation and another decline in prices is likely. Peaks and plateaus, peaks and plateaus. All we know for sure is current prices are likely on a plateau in many areas of Canada. We know it’s flat. What we don’t know is how far it is across.
You can find Marty Douglas on Twitter – http://twitter.com/41yrsrealestate – Facebook and LinkedIn. He is a managing broker for Coast Realty Group, with offices on Vancouver Island, the Discovery and Gulf Islands and the Sunshine Coast of B.C. Marty is a past chair of the Real Estate Errors and Omissions Corporation of B.C., the Real Estate Council of B.C. , the B.C. Real Estate Association and the Vancouver Island Real Estate Board. mdouglas@coastrealty.com.
Tuesday 28 August 2012
Continuing housing demand will cushion impact on home prices: CIBC economist
THE CANADIAN PRESS
Read more: http://www.vancouversun.com/business/commercial-real-estate/Continuing+housing+demand+will+cushion+impact+home+prices+CIBC/7133704/story.html#ixzz24twVtBAi
TORONTO — A senior economist at one of Canada’s major banks says a widely anticipated downturn in the housing market may not be as deep or as long-lasting as some fear.
Benjamin Tal, deputy chief economist at CIBC World Markets (TSX:CM), says demographic forces over the next decade will limit the damage.
Tal writes that there will be fewer Canadians under the age of 25 and between the ages of 45 and 54, but those groups account for a small portion of home buyers.
But Tal says the group aged between 25 and 34 — the age group that makes up the vast majority of first-time buyers — will continue to grow, and he says growth in the housing market could be even stronger due to immigration.
Overall, the CIBC economist says the next decade will see an annual population growth of 0.9 per cent, in line with growth seen in the past decade — a period of strong demand for residential real-estate and a sharp jump in housing prices.
Benjamin Tal, deputy chief economist at CIBC World Markets (TSX:CM), says demographic forces over the next decade will limit the damage.
Tal writes that there will be fewer Canadians under the age of 25 and between the ages of 45 and 54, but those groups account for a small portion of home buyers.
But Tal says the group aged between 25 and 34 — the age group that makes up the vast majority of first-time buyers — will continue to grow, and he says growth in the housing market could be even stronger due to immigration.
Overall, the CIBC economist says the next decade will see an annual population growth of 0.9 per cent, in line with growth seen in the past decade — a period of strong demand for residential real-estate and a sharp jump in housing prices.
© Copyright (c) The Vancouver Sun
Read more: http://www.vancouversun.com/business/commercial-real-estate/Continuing+housing+demand+will+cushion+impact+home+prices+CIBC/7133704/story.html#ixzz24twVtBAi
Monday 27 August 2012
How to avoid home closing day anxiety
By Mark Weisleder, theStar.com
Lots of things can go wrong on closing day. If you’re careful and think ahead, you can avoid a lot of anxiety later. Sometimes, though, you have to go with the flow.
They only left us one key. The front door has two locks!
This happens more often than you think. Calling the sellers won’t help because they usually left the rest of the keys on the kitchen counter. The best option is to call a 24-hour locksmith and then send the bill to the sellers.
Lesson: Sellers must make sure they give their lawyer enough keys to provide access to the buyer after closing.
We walked in and the house smelled awful.
It is hard to sue for these kinds of issues, unless the seller did something to conceal the smell when the buyers were visiting the home in the first place.
Lesson: Be wary when you smell air freshener during an open house. Ask questions and make sure you have the home inspected.
The house is filthy, there’s junk in the garage, the mirrors are gone.
If the seller leaves any junk behind and you have to pay to remove anything or clean it, you can send the sellers the bill. When it comes to mirrors, it depends on whether they were permanently attached to the wall. If they are hanging on a hook, the seller can probably take them.
Lesson: Include a contract clause that says your seller will leave the home in a broom swept condition. Describe everything you expect to remain after closing when you prepare your agreement in the first place.
Oops, we forgot to tell the lawyer.
We recently acted for the seller of a home and when we called the buyer’s lawyer on closing day and asked where the money was, he told us we were a week early. The buyer and seller had signed an amendment moving the closing date up one week, but the buyer hadn’t told his lawyer. My client agreed to a one-week extension, but the buyer had to pay the lost interest.
Lesson: Whenever a change is made to your contract, make sure that your lawyer knows about it right away.
Doesn’t everyone buy and sell on the same day?
That’s the problem. Let’s say A is buying from B; B is buying from C; C is buying from D and D is buying from E. If A can’t close for any reason, none of the other deals close either. Real estate lawyers call these train wrecks.
Lesson: Arrange bridge financing. This means you ask your bank to lend you all the money to close your home purchase and then you pay all or part of it back a day or two later when your sale closes. It is worth the interest for a few days to make sure that you close both deals without stress.
Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com
Lots of things can go wrong on closing day. If you’re careful and think ahead, you can avoid a lot of anxiety later. Sometimes, though, you have to go with the flow.
They only left us one key. The front door has two locks!
This happens more often than you think. Calling the sellers won’t help because they usually left the rest of the keys on the kitchen counter. The best option is to call a 24-hour locksmith and then send the bill to the sellers.
Lesson: Sellers must make sure they give their lawyer enough keys to provide access to the buyer after closing.
We walked in and the house smelled awful.
It is hard to sue for these kinds of issues, unless the seller did something to conceal the smell when the buyers were visiting the home in the first place.
Lesson: Be wary when you smell air freshener during an open house. Ask questions and make sure you have the home inspected.
The house is filthy, there’s junk in the garage, the mirrors are gone.
If the seller leaves any junk behind and you have to pay to remove anything or clean it, you can send the sellers the bill. When it comes to mirrors, it depends on whether they were permanently attached to the wall. If they are hanging on a hook, the seller can probably take them.
Lesson: Include a contract clause that says your seller will leave the home in a broom swept condition. Describe everything you expect to remain after closing when you prepare your agreement in the first place.
Oops, we forgot to tell the lawyer.
We recently acted for the seller of a home and when we called the buyer’s lawyer on closing day and asked where the money was, he told us we were a week early. The buyer and seller had signed an amendment moving the closing date up one week, but the buyer hadn’t told his lawyer. My client agreed to a one-week extension, but the buyer had to pay the lost interest.
Lesson: Whenever a change is made to your contract, make sure that your lawyer knows about it right away.
Doesn’t everyone buy and sell on the same day?
That’s the problem. Let’s say A is buying from B; B is buying from C; C is buying from D and D is buying from E. If A can’t close for any reason, none of the other deals close either. Real estate lawyers call these train wrecks.
Lesson: Arrange bridge financing. This means you ask your bank to lend you all the money to close your home purchase and then you pay all or part of it back a day or two later when your sale closes. It is worth the interest for a few days to make sure that you close both deals without stress.
Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com
Younger people will be able to buy homes: CIBC Bedunks theory
By Luann Lasalle, The Canadian Press
A widely anticipated downturn in the housing market may not be as bad as feared because the important 25-to-34 age group will continue to buy houses - some with help from their well-off parents, says a senior economist at CIBC World Markets.
The analysis takes aim at a theory that population growth won't be strong enough to sustain demand, putting downward pressure on housing prices that have risen dramatically during a years-long period of relatively low interest rates.
"This demographically driven fear is much ado about nothing," Benjamin Tal, deputy chief economist at CIBC World Markets, said Thursday.
Mr. Tal said the group aged between 25 and 34 - the age group that makes up the vast majority of first-time buyers - will continue to grow.
Young people may have to postpone buying a house for a couple of years due to their student-debt level, but their parents can help them out, Mr. Tal said from Toronto.
"Many of those young people - they're lucky - they have wealthy parents," Mr. Tal said in an interview after the report was published.
"This is actually the first generation that the parents are better off than the kids and those parents will write a nice cheque," he said. "The student-debt level is not significant enough to really kill the housing market."
This group of young people also have the option of living with their parents while paying down their debt and saving for a down payment, he said.
Mr. Tal said once they move out, the younger generation will be "extremely dynamic" in terms of self-employment and being employable, which will help them buy houses.
"They will work and they will make money," he said.
Mr. Tal notes there will be fewer Canadians under the age of 25 and between the ages of 45 and 54, but those groups account for a small portion of homebuyers.
He expects a "correction" - or lowering - in housing prices will not be seen as "up in the sky" and should follow inflation.
Mr. Tal also added that growth in the housing market could be even stronger due to immigration.
Overall, the CIBC economist says the next decade will see an annual population growth of 0.9%, in line with growth seen in the past decade - a period of strong demand for residential real estate and a sharp jump in housing prices.
"It's not about everything is rosy, it's about what is after the storm clouds."
A widely anticipated downturn in the housing market may not be as bad as feared because the important 25-to-34 age group will continue to buy houses - some with help from their well-off parents, says a senior economist at CIBC World Markets.
The analysis takes aim at a theory that population growth won't be strong enough to sustain demand, putting downward pressure on housing prices that have risen dramatically during a years-long period of relatively low interest rates.
"This demographically driven fear is much ado about nothing," Benjamin Tal, deputy chief economist at CIBC World Markets, said Thursday.
Mr. Tal said the group aged between 25 and 34 - the age group that makes up the vast majority of first-time buyers - will continue to grow.
Young people may have to postpone buying a house for a couple of years due to their student-debt level, but their parents can help them out, Mr. Tal said from Toronto.
"Many of those young people - they're lucky - they have wealthy parents," Mr. Tal said in an interview after the report was published.
"This is actually the first generation that the parents are better off than the kids and those parents will write a nice cheque," he said. "The student-debt level is not significant enough to really kill the housing market."
This group of young people also have the option of living with their parents while paying down their debt and saving for a down payment, he said.
Mr. Tal said once they move out, the younger generation will be "extremely dynamic" in terms of self-employment and being employable, which will help them buy houses.
"They will work and they will make money," he said.
Mr. Tal notes there will be fewer Canadians under the age of 25 and between the ages of 45 and 54, but those groups account for a small portion of homebuyers.
He expects a "correction" - or lowering - in housing prices will not be seen as "up in the sky" and should follow inflation.
Mr. Tal also added that growth in the housing market could be even stronger due to immigration.
Overall, the CIBC economist says the next decade will see an annual population growth of 0.9%, in line with growth seen in the past decade - a period of strong demand for residential real estate and a sharp jump in housing prices.
"It's not about everything is rosy, it's about what is after the storm clouds."
© Copyright (c) National Post
Friday 24 August 2012
3-Month Penalties Aren’t Always Clearcut
Rob McLister, CMT, CanadianMortgageTrend.com
Breaking a closed mortgage usually results in a penalty. With a fixed mortgage, that penalty is typically the greater of 3-month’s interest or the interest rate differential (IRD).
The dreaded IRD has been debated here ad infinitum, but there’s one thing we haven’t covered yet. There is a subtle twist to some lenders’ 3-month interest penalties that many folks aren’t aware of.
Breaking a closed mortgage usually results in a penalty. With a fixed mortgage, that penalty is typically the greater of 3-month’s interest or the interest rate differential (IRD).
The dreaded IRD has been debated here ad infinitum, but there’s one thing we haven’t covered yet. There is a subtle twist to some lenders’ 3-month interest penalties that many folks aren’t aware of.
When most people calculate a 3-month interest charge they do so by taking their mortgage balance, multiplying by their interest rate, and dividing by four.
That usually works…unless your lender calculates the penalty with a different rate than your contract rate.
Believe it or not, a few lenders (see below) jack up the rate they use to figure their 3-month penalties. These lenders will typically base your penalty on the posted rate at the time you closed the mortgage, instead of your actual rate.
Let’s examine the difference this makes to the typical mortgage holder.
The average mortgage balance in Canada is $170,000, according to CAAMP. The average mortgage rate is 3.64%, or 1.77% off posted rates.
Therefore, the penalty for a “typical” mortgagor being assessed a 3-month interest charge would be about $1,547.
By contrast, the 3-month penalty based on posted rates would be almost $2,300.
In other words, lenders who use arbitrary posted rates to calculate their 3-month interest penalties drain the typical borrower of an additional $752 based on a 20-year amortization. That is:
In case you were wondering, there is no legislation prohibiting this practice.
“There is nothing in the Bank Act (or Interest Act) that stipulates exactly what interest rate should be used in the calculation of a mortgage prepayment penalty,” says Natasha Nystrom, Communications Officer at the Financial Consumer Agency of Canada. “The calculation itself is a business decision.”
Theoretically, a lender can use almost any rate short of usury to calculate your penalty, as long as it tells you in advance.
“The Bank Act does require that all Federally Regulated Financial Institutions (FRFI) initially disclose the manner in which their penalty is calculated as well as a description of the components included in the calculation of the penalty,” Nystrom adds.
Here’s what we’d take away from all this...
When you’re comparing two mortgages and the rates are equal, all other terms are rarely equal. The method your lender uses for penalty calculations is one of many reasons why the rate you get doesn’t determine the interest you pay.
Rates used to calculate 3-month interest penalties on fixed mortgages:
The “posted rate” refers to the non-discounted posted rate at the time you closed your mortgage.
The above list was compiled based on information obtained by surveying lender call centre reps and/or reviewing standard charge term documents. These rates apply to prime mortgages only and are believed accurate. If you have different information, please let us know. Moreover, if you know of other lenders who calculate 3-month penalties based on posted rates, feel free to leave a comment below.
Note: Many lenders let you avoid penalties by porting your mortgage or using a “same-term blend and increase.” Contact your mortgage planner for details.
That usually works…unless your lender calculates the penalty with a different rate than your contract rate.
Believe it or not, a few lenders (see below) jack up the rate they use to figure their 3-month penalties. These lenders will typically base your penalty on the posted rate at the time you closed the mortgage, instead of your actual rate.
Let’s examine the difference this makes to the typical mortgage holder.
The average mortgage balance in Canada is $170,000, according to CAAMP. The average mortgage rate is 3.64%, or 1.77% off posted rates.
Therefore, the penalty for a “typical” mortgagor being assessed a 3-month interest charge would be about $1,547.
By contrast, the 3-month penalty based on posted rates would be almost $2,300.
In other words, lenders who use arbitrary posted rates to calculate their 3-month interest penalties drain the typical borrower of an additional $752 based on a 20-year amortization. That is:
- About 49% more than other lenders
- Roughly equivalent to paying a 10 basis points higher rate over five years.
In case you were wondering, there is no legislation prohibiting this practice.
“There is nothing in the Bank Act (or Interest Act) that stipulates exactly what interest rate should be used in the calculation of a mortgage prepayment penalty,” says Natasha Nystrom, Communications Officer at the Financial Consumer Agency of Canada. “The calculation itself is a business decision.”
Theoretically, a lender can use almost any rate short of usury to calculate your penalty, as long as it tells you in advance.
“The Bank Act does require that all Federally Regulated Financial Institutions (FRFI) initially disclose the manner in which their penalty is calculated as well as a description of the components included in the calculation of the penalty,” Nystrom adds.
Here’s what we’d take away from all this...
When you’re comparing two mortgages and the rates are equal, all other terms are rarely equal. The method your lender uses for penalty calculations is one of many reasons why the rate you get doesn’t determine the interest you pay.
Rates used to calculate 3-month interest penalties on fixed mortgages:
- ATB Financial - Contract rate
- BMO - Contract rate
- CIBC – Posted rate
- Coast Capital - Contract rate
- First National – Contract rate
- Home Trust – Contract rate
- HSBC - Contract rate
- ING Direct – Contract rate
- Manulife – Contract rate
- MCAP - Contract rate
- Meridian Credit Union – Contract rate
- National Bank – Posted rate
- Scotiabank – Contract rate
- Street Capital - Contract rate
- RBC – Contract rate
- TD Bank – Contract rate
- Vancity - Contract rate
The “posted rate” refers to the non-discounted posted rate at the time you closed your mortgage.
The above list was compiled based on information obtained by surveying lender call centre reps and/or reviewing standard charge term documents. These rates apply to prime mortgages only and are believed accurate. If you have different information, please let us know. Moreover, if you know of other lenders who calculate 3-month penalties based on posted rates, feel free to leave a comment below.
Note: Many lenders let you avoid penalties by porting your mortgage or using a “same-term blend and increase.” Contact your mortgage planner for details.
Wednesday 22 August 2012
No set standards for home appraisers
Homeowners need to be watchdogs
I got an email from a homeowner who was upset — that’s nothing new. But she wasn’t upset because a contractor ripped her off or because she got a bad home inspection. She was mad because of an appraiser.
She and her husband wanted to redo their kitchen. The previous owner of their home had done some renovations but it was all wrong. They had bad plumbing, bad layout, bad tiling, improper ventilation. And it looked ugly.
The new homeowners wanted it fixed. So they did what many homeowners do, they went to their bank for a home-equity loan. But they ran into a problem.
The appraiser the bank hired decided their home’s value couldn’t support the loan. So they couldn’t refinance their mortgage, which meant they couldn’t redo their kitchen. And now they’re stuck with a bad kitchen that will probably lead to bigger problems down the road.
Was the appraiser wrong? Was their home that bad? I don’t know. I haven’t seen the house. But the homeowners didn’t think so. That’s why they emailed me. They thought the appraiser didn’t have the right skills to evaluate their home. And I’ve got to wonder.
The appraisal industry works a lot like the home inspections industry. There isn’t a single set of standards. The skills you need to be an appraiser depend on the association an appraiser belongs to.
Some associations require a university degree as a first step, others a business degree. And some don’t require a degree at all. But most appraisal associations want some kind of designation. And again, what that designation is will be different for every association.
For example, one association requires its members to have a university degree — in anything. It could be sociology or art, it doesn’t matter. Then they have to complete a university-level education program specific to appraising.
Most of the courses in the program deal with real estate and business. But what about building skills, understanding the structure of a house, a basic understanding of construction, knowing how one part of a home affects another? Aren’t these skills important when you’re evaluating a home? For some appraisal associations, they are. But not always. It depends on the needs of the user who hired the appraiser in the first place.
When it comes to mortgages, banks care about a home’s selling price. If a homeowner can’t pay their mortgage, the bank will have to sell their house. Banks want their money back. They want to know how much they can sell a house for. And sometimes a home’s construction has very little to do with that.
You could have a house that cost $2 million to build, but an appraiser says it’s worth $600,000. Is this fair? Where was it built? Maybe the neighbourhood’s no good and no one wants to live there. In this case, the appraiser is saying that the only way to sell the house is if it’s priced at $600,000.
Then you’ve got a market like Vancouver or Toronto. You can’t buy a house downtown for less than $1 million. It doesn’t matter if it’s a shack. It’s all about land value.
More banks are starting to put pressure on appraisers. They’re looking to the U.S. and trying to avoid its mistakes. Inflated house prices plus record debt levels are a bad mix. They want to make sure that if an appraiser says a property is worth $500,000 they can sell it for $500,000.
The new homeowners wanted it fixed. So they did what many homeowners do, they went to their bank for a home-equity loan. But they ran into a problem.
The appraiser the bank hired decided their home’s value couldn’t support the loan. So they couldn’t refinance their mortgage, which meant they couldn’t redo their kitchen. And now they’re stuck with a bad kitchen that will probably lead to bigger problems down the road.
Was the appraiser wrong? Was their home that bad? I don’t know. I haven’t seen the house. But the homeowners didn’t think so. That’s why they emailed me. They thought the appraiser didn’t have the right skills to evaluate their home. And I’ve got to wonder.
The appraisal industry works a lot like the home inspections industry. There isn’t a single set of standards. The skills you need to be an appraiser depend on the association an appraiser belongs to.
Some associations require a university degree as a first step, others a business degree. And some don’t require a degree at all. But most appraisal associations want some kind of designation. And again, what that designation is will be different for every association.
For example, one association requires its members to have a university degree — in anything. It could be sociology or art, it doesn’t matter. Then they have to complete a university-level education program specific to appraising.
Most of the courses in the program deal with real estate and business. But what about building skills, understanding the structure of a house, a basic understanding of construction, knowing how one part of a home affects another? Aren’t these skills important when you’re evaluating a home? For some appraisal associations, they are. But not always. It depends on the needs of the user who hired the appraiser in the first place.
When it comes to mortgages, banks care about a home’s selling price. If a homeowner can’t pay their mortgage, the bank will have to sell their house. Banks want their money back. They want to know how much they can sell a house for. And sometimes a home’s construction has very little to do with that.
You could have a house that cost $2 million to build, but an appraiser says it’s worth $600,000. Is this fair? Where was it built? Maybe the neighbourhood’s no good and no one wants to live there. In this case, the appraiser is saying that the only way to sell the house is if it’s priced at $600,000.
Then you’ve got a market like Vancouver or Toronto. You can’t buy a house downtown for less than $1 million. It doesn’t matter if it’s a shack. It’s all about land value.
More banks are starting to put pressure on appraisers. They’re looking to the U.S. and trying to avoid its mistakes. Inflated house prices plus record debt levels are a bad mix. They want to make sure that if an appraiser says a property is worth $500,000 they can sell it for $500,000.
But if an appraiser’s job is to know how much a house is worth, they should know about construction. That’s basic. You should know how a home works, signs that tell you if there are any huge costs, the difference in finishes, how different improvements affect the value of a home and how different climates affect materials.
I’ve heard of homeowners having to point things out to an appraiser; things like radiant in-floor heating, low-E windows, a metal roof — even a finished basement. Or some appraisers will ignore mould, faulty electrical and HVAC. These have a huge impact on the value of a home.
Having a basic understanding of a home’s structure, materials and mechanics — and knowing how each affects value — is logical and essential. How do you value something you don’t understand? It’s like being a jewelry appraiser and not knowing about different stones, cuts, metals or colours.
Are business skills important for appraisals? Absolutely. But so are building skills. You need to know the signs that tell you what a house is worth. Believe me — a fresh coat of paint can hide a world of trouble. And it can be really deceiving for someone who isn’t trained to look for the signs.
We have good contractors and bad contractors. Good home inspectors and bad home inspectors. And good appraisers and bad appraisers. The good ones have strong associations backing them up. And the bad ones are bad because the industry allows it — we allow it.
If we want to change the industry, we all have to be watchdogs. If you think an appraiser is wrong, tell them. Speak to their association. You might need to point things out. They might listen. And you might help make it right.
Catch Mike Holmes in his new series, Best of Holmes on Homes, Tuesdays at 9 p.m. on HGTV. For more information, visit hgtv.ca. For more information on home renovations, visit makeitright.ca.
I’ve heard of homeowners having to point things out to an appraiser; things like radiant in-floor heating, low-E windows, a metal roof — even a finished basement. Or some appraisers will ignore mould, faulty electrical and HVAC. These have a huge impact on the value of a home.
Having a basic understanding of a home’s structure, materials and mechanics — and knowing how each affects value — is logical and essential. How do you value something you don’t understand? It’s like being a jewelry appraiser and not knowing about different stones, cuts, metals or colours.
Are business skills important for appraisals? Absolutely. But so are building skills. You need to know the signs that tell you what a house is worth. Believe me — a fresh coat of paint can hide a world of trouble. And it can be really deceiving for someone who isn’t trained to look for the signs.
We have good contractors and bad contractors. Good home inspectors and bad home inspectors. And good appraisers and bad appraisers. The good ones have strong associations backing them up. And the bad ones are bad because the industry allows it — we allow it.
If we want to change the industry, we all have to be watchdogs. If you think an appraiser is wrong, tell them. Speak to their association. You might need to point things out. They might listen. And you might help make it right.
Catch Mike Holmes in his new series, Best of Holmes on Homes, Tuesdays at 9 p.m. on HGTV. For more information, visit hgtv.ca. For more information on home renovations, visit makeitright.ca.
© Copyright (c) The Ottawa Citizen
Read more: http://www.ottawacitizen.com/business/standards+home+appraisers/7100653/story.html#ixzz24K7M8PeK
Tuesday 21 August 2012
How to avoid home buyers’ regret
Julian Beltrame, Canadian Press, Financial Post
A recent survey commissioned by TD Canada Trust found the two biggest regrets — reported by 60 per cent of the 1,002 respondents — have to do with finances; not making a bigger down payment and not doing enough research into the costs of home ownership.
That’s not surprising, says Farhaneh Haque, director of mortgage advice with TD.
Even though buying a home is the biggest investment the vast majority of Canadians will ever make, many first time buyers still don’t do the necessary homework.
“It’s not the sticker price that shocks first-time home buyers. It’s the costs associated with the sticker,” she explains.
“We see so many home buyers that after the fact feel they could have used information, that they could have had more preparation going into home ownership.”
For instance, 29 per cent of those surveyed said they didn’t budget for ongoing costs, such as maintenance and utilities. One in eight said they overlooked some of the one-time fees associated with buying, such as inspection and legal fees, title insurance, and land transfer taxes, depending on the home price.
These are not minor omissions.
Paying the mortgage is just the most obvious cost of ownership, and not necessarily the biggest in today’s world of super-low interest rates. The combined cost for municipal taxes, fire and theft insurance, utilities, plus regular upkeep, could actually pinch household monthly budgets more.
“If you are renting, you pay that one shelter cost and that’s all you have to think about. But as a homeowner, there’s more,” says Haque, who tells clients to budget at least $500-$700 on average in additional monthly expenses.
Her advice to prospective buyers is get advice, which is easily available to them. Most first-timers know existing homeowners who have acquired wisdom through experience.
And financial institutions, real estate agencies and other market players regularly stage seminars with experts that can offer sage counsel.
Michele Rowe, a sales representative with Keller Willams VIP Realty in Ottawa, tries to arrange one seminar every month, and she typically invites an inspector and a mortgage broker for their input.
She tells attendees the first thing they should do is to get a buyer’s agent to steer them through the process.
“Most first-time buyers don’t know where to start and don’t know the importance of using their buyer agent,” she says.
The other key advice she gives them is that they need to get pre-approval for a mortgage, so buyers know how much they can spend on a home.
“They need to know how much of house they can afford, based on their income, their GDS (gross debt service) and TDS (total debt) ratios, because they might think they can afford $300,000 when they can’t,” she explained.
The ratios calculate monthly home costs, and other debt charges, as a percentage of household income to determine affordability. A ratio of 40 per cent on all commitments (TDS) is usually acceptable to mortgage lenders.
The survey, which was conducted in the spring, found that 54 per cent of first-time buyers want a single, detached home, but Rowe says that is often impractical. That’s because although interest rates may be low, house prices have been rising steadily — the average resale home in Canada now costs close to $370,000.
In Ottawa, most first-time buyers Rowe sees can only qualify for a home of about $250,000. That price range will most likely mean a condo or townhouse, she said.
Which comes to another key finding in the TD Canada Trust survey — Canadians don’t start saving up for a home soon enough.
Haque said it’s critical for Canadians thinking they will want to own a home one day to get informed about what is involved and how much money they will need. The bigger the down payment, the more flexible a household’s ongoing finances will be.
“A bigger down payment reduces monthly payments, but it also gives owner options for a mortgage that is more flexible,” she explains. “For instance, with more than 20 per cent down payment, an owner can obtain a mortgage with a 30 year amortization period, rather than 25 years, which further reduces monthly payment.”
Monday 20 August 2012
Home ownership in Canada reaching new heights
Garry Marr
The Canadian real estate industry is in a tight spot these days.
With home-ownership rates headed for record levels and the federal government tightening lending rules to cool the market, the question now is whether we have reached the saturation point.
Bank of Nova Scotia economist Adrienne Warren says that when the latest census figures come out next month she expects us to be in the elite company — depending on your view — of countries with more than 70% of households owning their own homes. Based on the 2006 census, we were at 68.4%. “It’s similar to the U.S., U.K. and Australia when they came up with the mid-decade census,” Ms. Warren said.
The government is saying you should not be a homeowner if you cannot afford it
Some countries, like Italy and Spain, could be as high as 80% while in others with expensive real estate, like Switzerland, home-ownership rates are more like 30%, she said.
Ms. Warren said the biggest jump in home-ownership rates going into the 2006 census was among young people buying condominiums. Do we need another census to tell us that that group expanded or can we just look up at the cranes across the country? “It was people in their early 20s buying as opposed to waiting until they got older. It probably continued,” Ms. Warren said.
Interestingly enough, the United States is believed to have cracked that 70% threshold before the bottom fell out of its housing market.
Already Ottawa has stuck a pin in the housing balloon with new rules, including a restriction that limits amortizations to 25 years, which ultimately increases monthly payments for consumers and limits how much they can borrow.
The Office of the Superintendent of Financial Institutions added its own rules tightening up regulations for financial institutions.
“The government is saying you should not be a homeowner if you cannot afford it,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.
The Canadian Real Estate Association released data last week that showed home prices across the country had actually slipped 2% from a year ago to an average of $353,147.
“We are at the peak of home ownership in Canada,” Mr. Tal said. “In fact, we are probably too high and it will probably go down.”
It’s not that 70% is some type of threshold we can’t break through but renting is becoming that much more attractive as the gap between home ownership and renting costs widens.
It’s impossible to argue against the emotion of owning your home or the advantage of forced savings that comes with a mortgage — a clear edge for people with no financial discipline.
The principal advantage is you can leverage your investment by putting only 5% down because the government will back your mortgage with the bank. But leverage means nothing when your investment is decreasing in value — it just compounds your losses.
If you consider that average $353,147 home with a 5% down payment, it will cost you close to $1,600 in monthly mortgage costs, even at today’s 3% interest rates with a 25-year amortization. Canada Mortgage and Housing Corp. said in June the average two-bedroom apartment in new and existing structures was $887 a month. Add in other home-ownership costs like taxes and the gap widens.
Beyond the current expansion, there’s no arguing against the long, steady price appreciation of housing, which has been going on for decades, but there is an alternative to home ownership if you want upside exposure to the market.
Michael Smith, an analyst at Macquarie Equities Research, has published a report for the past five years comparing condo returns to apartment real estate investment trusts.
“REITs win,” said Mr. Smith, adding in a report in January the REITs would have returned 31.5% over the past year compared to a condo return of 12.4% in Toronto and 6.1% in Calgary. Going back another four years, the numbers are even more in favour of the public vehicles.
“What I would say now, since I did the last study, is if anything the outlook for the REIT versus the condo is even more compelling given where the condo market seems to be correcting,” Mr. Smith said.
Sam Kolias, chief executive of Boardwalk Real Estate Investment Trust, Canada’s largest apartment owner, says he is already seeing the push back into apartments.
“If you wanted to be hedged against housing [going up], you could rent and buy stock in our company,” said Mr. Kolias, who added that occupancy rates have climbed close to 99% as house prices have risen steadily. “We’ve never been as full as we are now.”
While this may all be bad news for housing, Phil Soper, chief executive of Royal LePage Real Estate Services, still sees room for expansion.
“There is nothing magical about 70%. The U.S. rate fell from this rate because of a collapse in their financial system,” said Mr. Soper, who points out home ownership in the U.S. is still about 66%, even after “one of the worst meltdowns.”
He said one key driver of the housing market that has not changed is the rule that allows consumers in with just a 5% down payment.
“We have public policy in place that supports home ownership,” Mr. Soper said.
Okay, you can probably still get into the housing market. But with prices falling and the gap between renting and carrying a home widening, the question is do you really want to make that investment?
The Canadian real estate industry is in a tight spot these days.
With home-ownership rates headed for record levels and the federal government tightening lending rules to cool the market, the question now is whether we have reached the saturation point.
Bank of Nova Scotia economist Adrienne Warren says that when the latest census figures come out next month she expects us to be in the elite company — depending on your view — of countries with more than 70% of households owning their own homes. Based on the 2006 census, we were at 68.4%. “It’s similar to the U.S., U.K. and Australia when they came up with the mid-decade census,” Ms. Warren said.
The government is saying you should not be a homeowner if you cannot afford it
Some countries, like Italy and Spain, could be as high as 80% while in others with expensive real estate, like Switzerland, home-ownership rates are more like 30%, she said.
Ms. Warren said the biggest jump in home-ownership rates going into the 2006 census was among young people buying condominiums. Do we need another census to tell us that that group expanded or can we just look up at the cranes across the country? “It was people in their early 20s buying as opposed to waiting until they got older. It probably continued,” Ms. Warren said.
Interestingly enough, the United States is believed to have cracked that 70% threshold before the bottom fell out of its housing market.
Already Ottawa has stuck a pin in the housing balloon with new rules, including a restriction that limits amortizations to 25 years, which ultimately increases monthly payments for consumers and limits how much they can borrow.
The Office of the Superintendent of Financial Institutions added its own rules tightening up regulations for financial institutions.
“The government is saying you should not be a homeowner if you cannot afford it,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.
The Canadian Real Estate Association released data last week that showed home prices across the country had actually slipped 2% from a year ago to an average of $353,147.
“We are at the peak of home ownership in Canada,” Mr. Tal said. “In fact, we are probably too high and it will probably go down.”
It’s not that 70% is some type of threshold we can’t break through but renting is becoming that much more attractive as the gap between home ownership and renting costs widens.
It’s impossible to argue against the emotion of owning your home or the advantage of forced savings that comes with a mortgage — a clear edge for people with no financial discipline.
The principal advantage is you can leverage your investment by putting only 5% down because the government will back your mortgage with the bank. But leverage means nothing when your investment is decreasing in value — it just compounds your losses.
If you consider that average $353,147 home with a 5% down payment, it will cost you close to $1,600 in monthly mortgage costs, even at today’s 3% interest rates with a 25-year amortization. Canada Mortgage and Housing Corp. said in June the average two-bedroom apartment in new and existing structures was $887 a month. Add in other home-ownership costs like taxes and the gap widens.
Beyond the current expansion, there’s no arguing against the long, steady price appreciation of housing, which has been going on for decades, but there is an alternative to home ownership if you want upside exposure to the market.
Michael Smith, an analyst at Macquarie Equities Research, has published a report for the past five years comparing condo returns to apartment real estate investment trusts.
“REITs win,” said Mr. Smith, adding in a report in January the REITs would have returned 31.5% over the past year compared to a condo return of 12.4% in Toronto and 6.1% in Calgary. Going back another four years, the numbers are even more in favour of the public vehicles.
“What I would say now, since I did the last study, is if anything the outlook for the REIT versus the condo is even more compelling given where the condo market seems to be correcting,” Mr. Smith said.
Sam Kolias, chief executive of Boardwalk Real Estate Investment Trust, Canada’s largest apartment owner, says he is already seeing the push back into apartments.
“If you wanted to be hedged against housing [going up], you could rent and buy stock in our company,” said Mr. Kolias, who added that occupancy rates have climbed close to 99% as house prices have risen steadily. “We’ve never been as full as we are now.”
While this may all be bad news for housing, Phil Soper, chief executive of Royal LePage Real Estate Services, still sees room for expansion.
“There is nothing magical about 70%. The U.S. rate fell from this rate because of a collapse in their financial system,” said Mr. Soper, who points out home ownership in the U.S. is still about 66%, even after “one of the worst meltdowns.”
He said one key driver of the housing market that has not changed is the rule that allows consumers in with just a 5% down payment.
“We have public policy in place that supports home ownership,” Mr. Soper said.
Okay, you can probably still get into the housing market. But with prices falling and the gap between renting and carrying a home widening, the question is do you really want to make that investment?
Saturday 18 August 2012
Save up for a down payment? The young adult's struggle
ROBERT MCLISTER
Special to The Globe and Mail
If you asked 100 recent home buyers if they were satisfied with the size of their down payment, as many as 60 of them would say no. That’s what TD Canada Trust found in a recent survey of first time home buyers.
This finding is hardly surprising: A bigger down payment means less interest paid, easier refinancing, lower mortgage insurance fees, and a bigger equity buffer if home prices slide.
The challenge, in a world of record-high debt ratios, skimpy investment returns and towering home prices, is saving a sizable deposit. Frustrated by the long, slow process, some new buyers would rather throw in the savings towel and get the keys to their new home faster. In fact, 55 per cent of first-timers surveyed by TD said they would buy sooner if they had a chance to do it all over again.
The problem is it takes time to save up a down payment.
The minimum price of admission to home ownership is currently set at 5 per cent. (This ignores 100 per cent financing – also known as cash-back down payment mortgages – because they’re usually ill-advised and they may not be around for long.)
People who responded to the TD poll estimated that it takes an average of “two years or less” to save a 5 per cent down payment and “one to four years” to save a 10 to 20 per cent down payment.
If that strikes you as optimistic, you’re not alone.
For today’s highly leveraged consumer, saving a down payment isn’t as easy as it was in the early 1980s when personal savings rates exceeded 20 per cent.
The national average purchase price for a first-time buyer has soared to roughly $295,000, according to a May estimate from mortgage insurer Genworth Financial Canada. That means the average first-time buyer would need to save more than $16,000 to cover the minimum 5 per cent down payment and closing costs.
For a 10 per cent down payment and closing costs, he or she would have to save at least $31,000.
How long does it take young people to scrape together that kind of money?
Doug Porter, deputy chief economist at BMO Capital Markets, says the rate of savings has been trending near 4 per cent and the median family income is just shy of $70,000. “The median family would, by this measure, be saving about $2,800 annually,” he adds.
The annual cash savings of first-time buyers – who are on average 34 years old, according to CMHC – would be somewhat less than the median family. And understandably, socking away a good chunk would be even harder for a single person.
“I would suspect that on a median basis, just to get in the housing market (with 5 per cent down), would take about four to five years of saving. Cobbling together a down payment is a big challenge for first-time buyers,” Mr. Porter says.
“Frankly, I think that’s one of the reasons why the government hasn’t raised the minimum down payment. It’s almost a nuclear option.”
None of this is meant to discourage saving for a down payment. Saving longer gives you abigger cushion if home prices tumble and you need to sell. The last thing anyone wants is to owe more than their home is worth.
It also gets you a better entry price if the market sells off before you buy. According to surveys of housing forecasters, a price correction in the next few years is the most likely scenario.
In terms of mortgage costs, buying with 10 per cent equity, versus the 5 per cent minimum, can save the typical entry-level buyer up to $80 a month in payments, plus almost $2,400 in default insurance premiums. These savings, however, can easily be overshadowed if home values march higher.
Buying today also lets you lock in abnormally low fixed mortgage rates for up to a decade.
But as a first-time buyer, you’ve got other things to consider, including:
• Your rental costs. (Are they higher or lower than your potential ownership costs?)
• Alternative uses for your down payment money. (Can you get a better return by investing down payment funds elsewhere?)
• The size of your emergency fund. (Home ownership comes with a laundry list of unexpected expenses.)
• Your economic stability and future earning power.
There are several ways to piece together a bigger down payment. You can:
• Cut your spending. “If you are saving for a house you might be a little more aggressive than the average saver,” Mr. Porter says.
• Tap into the bank of mom and dad. Gifts from parents get a lot of young people started as home owners.
• Borrow from your RRSP under theHome Buyers’ Plan (HBP).
• Apply tax refunds and bonuses.
• Receive an early inheritance.
• Get rid of one car in a two-car household.
• Postpone a vacation for 18 months or more.
• Use municipal first-time home buyer grants when applicable (likethis one in Winnipeg,this one in Surrey, BC, orthis one in Saskatoon).
People need to pay some sort of shelter cost, either in the form of a mortgage or rent, says TD Canada Trust’s director of mortgage advice, Farhaneh Haque. “As long as people have gone through the exercise of understanding what money they have coming in, asking is my job stable, will my income increase or decrease, looking at their financial strength…and building in a cushion for potential interest rate increases,” then a decision to buy a home sooner often makes sense.
TD’s advice for first-timers is to aim for 20 per cent down. But simple math shows that a 20 per cent down payment could take some people over a decade to accumulate.
The reality is, waiting that long is not in the game plan for most young people.
Robert McLister is the editor ofCanadianMortgageTrends.com and a mortgage planner atMortgage Architects. You can also follow him on twitter at@CdnMortgageNews.
Special to The Globe and Mail
If you asked 100 recent home buyers if they were satisfied with the size of their down payment, as many as 60 of them would say no. That’s what TD Canada Trust found in a recent survey of first time home buyers.
This finding is hardly surprising: A bigger down payment means less interest paid, easier refinancing, lower mortgage insurance fees, and a bigger equity buffer if home prices slide.
The challenge, in a world of record-high debt ratios, skimpy investment returns and towering home prices, is saving a sizable deposit. Frustrated by the long, slow process, some new buyers would rather throw in the savings towel and get the keys to their new home faster. In fact, 55 per cent of first-timers surveyed by TD said they would buy sooner if they had a chance to do it all over again.
The problem is it takes time to save up a down payment.
The minimum price of admission to home ownership is currently set at 5 per cent. (This ignores 100 per cent financing – also known as cash-back down payment mortgages – because they’re usually ill-advised and they may not be around for long.)
People who responded to the TD poll estimated that it takes an average of “two years or less” to save a 5 per cent down payment and “one to four years” to save a 10 to 20 per cent down payment.
If that strikes you as optimistic, you’re not alone.
For today’s highly leveraged consumer, saving a down payment isn’t as easy as it was in the early 1980s when personal savings rates exceeded 20 per cent.
The national average purchase price for a first-time buyer has soared to roughly $295,000, according to a May estimate from mortgage insurer Genworth Financial Canada. That means the average first-time buyer would need to save more than $16,000 to cover the minimum 5 per cent down payment and closing costs.
For a 10 per cent down payment and closing costs, he or she would have to save at least $31,000.
How long does it take young people to scrape together that kind of money?
Doug Porter, deputy chief economist at BMO Capital Markets, says the rate of savings has been trending near 4 per cent and the median family income is just shy of $70,000. “The median family would, by this measure, be saving about $2,800 annually,” he adds.
The annual cash savings of first-time buyers – who are on average 34 years old, according to CMHC – would be somewhat less than the median family. And understandably, socking away a good chunk would be even harder for a single person.
“I would suspect that on a median basis, just to get in the housing market (with 5 per cent down), would take about four to five years of saving. Cobbling together a down payment is a big challenge for first-time buyers,” Mr. Porter says.
“Frankly, I think that’s one of the reasons why the government hasn’t raised the minimum down payment. It’s almost a nuclear option.”
None of this is meant to discourage saving for a down payment. Saving longer gives you abigger cushion if home prices tumble and you need to sell. The last thing anyone wants is to owe more than their home is worth.
It also gets you a better entry price if the market sells off before you buy. According to surveys of housing forecasters, a price correction in the next few years is the most likely scenario.
In terms of mortgage costs, buying with 10 per cent equity, versus the 5 per cent minimum, can save the typical entry-level buyer up to $80 a month in payments, plus almost $2,400 in default insurance premiums. These savings, however, can easily be overshadowed if home values march higher.
Buying today also lets you lock in abnormally low fixed mortgage rates for up to a decade.
But as a first-time buyer, you’ve got other things to consider, including:
• Your rental costs. (Are they higher or lower than your potential ownership costs?)
• Alternative uses for your down payment money. (Can you get a better return by investing down payment funds elsewhere?)
• The size of your emergency fund. (Home ownership comes with a laundry list of unexpected expenses.)
• Your economic stability and future earning power.
There are several ways to piece together a bigger down payment. You can:
• Cut your spending. “If you are saving for a house you might be a little more aggressive than the average saver,” Mr. Porter says.
• Tap into the bank of mom and dad. Gifts from parents get a lot of young people started as home owners.
• Borrow from your RRSP under theHome Buyers’ Plan (HBP).
• Apply tax refunds and bonuses.
• Receive an early inheritance.
• Get rid of one car in a two-car household.
• Postpone a vacation for 18 months or more.
• Use municipal first-time home buyer grants when applicable (likethis one in Winnipeg,this one in Surrey, BC, orthis one in Saskatoon).
People need to pay some sort of shelter cost, either in the form of a mortgage or rent, says TD Canada Trust’s director of mortgage advice, Farhaneh Haque. “As long as people have gone through the exercise of understanding what money they have coming in, asking is my job stable, will my income increase or decrease, looking at their financial strength…and building in a cushion for potential interest rate increases,” then a decision to buy a home sooner often makes sense.
TD’s advice for first-timers is to aim for 20 per cent down. But simple math shows that a 20 per cent down payment could take some people over a decade to accumulate.
The reality is, waiting that long is not in the game plan for most young people.
Robert McLister is the editor ofCanadianMortgageTrends.com and a mortgage planner atMortgage Architects. You can also follow him on twitter at@CdnMortgageNews.
Thursday 16 August 2012
Building permits fall 2.5 per cent in June
Ottawa — The Canadian Press
Statistics Canada says the value of building permits issued in June fell 2.5 per cent to $6.8-billion, mostly because of a drop in the non-residential and residential sectors in Alberta and British Columbia.
The decrease follows a 7.1 per cent increase in the previous month.
The value of residential building permits increased 4.2 per cent to $4.4-billion in June, a second consecutive monthly increase, which was mostly due to an increase in Ontario.
Contractors took out $2.5-billion worth of permits in the non-residential sector, down 12.3 per cent.
The total value of building permits was down in seven provinces in June, with Alberta and British Columbia posting the biggest drops.
The agency says Alberta’s decrease stemmed from lower construction intentions in both the residential and non-residential sectors, while British Columbia’s drop resulted from lower construction intentions for institutional and commercial buildings, as well as multi-family homes.
Ontario posted the biggest monthly gain, which Statistics Canada says is because of growth in the value of building permits for both residential and non-residential construction.
The value of building permits fell in 22 of the 34 census metropolitan areas in June, with Vancouver, Calgary and Edmonton experiencing the largest declines.
Toronto had the biggest gain, led mainly by more construction permits for semi-detached houses, row houses and single homes – and to a lesser extent, non-residential buildings.
Statistics Canada says the value of building permits issued in June fell 2.5 per cent to $6.8-billion, mostly because of a drop in the non-residential and residential sectors in Alberta and British Columbia.
The decrease follows a 7.1 per cent increase in the previous month.
The value of residential building permits increased 4.2 per cent to $4.4-billion in June, a second consecutive monthly increase, which was mostly due to an increase in Ontario.
Contractors took out $2.5-billion worth of permits in the non-residential sector, down 12.3 per cent.
The total value of building permits was down in seven provinces in June, with Alberta and British Columbia posting the biggest drops.
The agency says Alberta’s decrease stemmed from lower construction intentions in both the residential and non-residential sectors, while British Columbia’s drop resulted from lower construction intentions for institutional and commercial buildings, as well as multi-family homes.
Ontario posted the biggest monthly gain, which Statistics Canada says is because of growth in the value of building permits for both residential and non-residential construction.
The value of building permits fell in 22 of the 34 census metropolitan areas in June, with Vancouver, Calgary and Edmonton experiencing the largest declines.
Toronto had the biggest gain, led mainly by more construction permits for semi-detached houses, row houses and single homes – and to a lesser extent, non-residential buildings.
Wednesday 15 August 2012
The HELOC Clock Starts Ticking
Rob McLister, CMT
Canadian Mortgages Trends.com
If you want a HELOC or readvanceable mortgage equalling 66%-80% of your home value, be ready to act soon.
We’re hearing that some banks may start cutting back on their HELOC lending limits by the end of this month.
These moves relate to OSFI’s new B-20 underwriting guidelines, which require federally regulated lenders to limit new HELOCs to 65% loan-to-value (LTV), from 80% today.
Banks must comply with this new guideline by the end of their fiscal years. That makes the official implementation deadline October 31, 2012 in most cases. But don't count on lenders waiting until then.
Canadian Mortgages Trends.com
If you want a HELOC or readvanceable mortgage equalling 66%-80% of your home value, be ready to act soon.
We’re hearing that some banks may start cutting back on their HELOC lending limits by the end of this month.
These moves relate to OSFI’s new B-20 underwriting guidelines, which require federally regulated lenders to limit new HELOCs to 65% loan-to-value (LTV), from 80% today.
Banks must comply with this new guideline by the end of their fiscal years. That makes the official implementation deadline October 31, 2012 in most cases. But don't count on lenders waiting until then.
OSFI says that existing HELOC holders will be grandfathered. So if you need a 66%-80% LTV HELOC from a bank, get approved while the getting’s good.
Other key points:
Other key points:
- Borrowers who modify their HELOC after the rule changes take effect will potentially be subject to the new 65% LTV limit. So make sure you have your HELOC set up exactly the way you want it.
Borrowers who obtain readvanceable mortgages under the new guidelines can still get them at 80% LTV, but 15% of that will need to be amortizing (i.e., various lenders will still offer you a 65% LTV secured line of credit plus a 15% LTV mortgage, for 80% total)
- If, under the new regime, you have a readvanceable mortgage with two parts:
1) a secured line of credit portion, and
2) an additional amortizing mortgage portion
…then the mortgage portion will not be readvanceable if the line of credit portion is greater than or equal to 65% of your home value. (Note: Different lenders may have different policies when it comes to readvancing under the new B-20 rules. We'll report on this further as more information becomes available.)
- So far, no major lenders have announced HELOC LTV changes in relation to the OSFI guidelines.
- Investment borrowing (using strategies such as the Smith Manoeuvre)
- Borrowing for education
- Rental property investment
- Value-adding home improvements
- One-time debt consolidation
- An alternative to higher-rate loans
- A down payment source for a second property
- An emergency backup fund
Tuesday 14 August 2012
Housing market crash not in cards for Canada: CMHC
The Canadian Press
OTTAWA — Canada Mortgage and Housing Corp. is forecasting a moderate slowdown in new-home construction starts as well as sales of existing housing.
The Ottawa-based federal agency isn’t calling for a major decline, but its latest forecast suggests next year will be somewhat softer than estimates CMHC issued in June while 2012 may be somewhat stronger than previously expected.
CMHC has been saying for some time that it expects housing prices in most local markets will grow more slowly than they have been recently.
It says housing starts and home sales have been strong in 2012 — particularly when it comes to multiple-dwelling units such as condos and apartments — but will soften moderately in coming months into 2013.
“Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” Mathieu Laberge, CMCH’s deputy chief economist, said in an outlook released Tuesday.
CMHC provides various levels of mortgage insurance to protect lenders from defaults by home buyers. It also closely monitors residential construction activity and housing sales and provides outlooks used by various sectors of the economy.
In the latest forecast, CMHC estimates there will be between 196,800 and 217,000 units of housing started in 2012, with a point forecast of 207,200 units.
The point forecast is slightly higher than an estimate of 202,700 issued by CMHC in June, when the range was wider at between 182,300 to 220,600.
In 2013, CMHC now estimates housing starts will be in the range of 173,000 to 207,400 units, with a point forecast of 193,100 units — about seven per cent fewer than this year under the latest forecast.
The previous 2013 point forecast for 195,700 housing starts.
Based on data compiled by the Canadian Real Estate Association, CMHC said Tuesday that it expects about 466,600 units of existing housing to be sold this year and 469,600 units in 2013.
The average price for property sales through CREA members is forecast to be between $351,300 and $378,400 in 2012 and between $358,000 and $395,800 in 2013, CMHC said Tuesday.
CMHC’s point forecast for the average price is now $368,000 for 2012 and $377,300 for 2013, the agency said Tuesday Its June was the average price to be $372,700 for 2012 and $383,600 for 2013.
OTTAWA — Canada Mortgage and Housing Corp. is forecasting a moderate slowdown in new-home construction starts as well as sales of existing housing.
The Ottawa-based federal agency isn’t calling for a major decline, but its latest forecast suggests next year will be somewhat softer than estimates CMHC issued in June while 2012 may be somewhat stronger than previously expected.
CMHC has been saying for some time that it expects housing prices in most local markets will grow more slowly than they have been recently.
It says housing starts and home sales have been strong in 2012 — particularly when it comes to multiple-dwelling units such as condos and apartments — but will soften moderately in coming months into 2013.
“Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” Mathieu Laberge, CMCH’s deputy chief economist, said in an outlook released Tuesday.
CMHC provides various levels of mortgage insurance to protect lenders from defaults by home buyers. It also closely monitors residential construction activity and housing sales and provides outlooks used by various sectors of the economy.
In the latest forecast, CMHC estimates there will be between 196,800 and 217,000 units of housing started in 2012, with a point forecast of 207,200 units.
The point forecast is slightly higher than an estimate of 202,700 issued by CMHC in June, when the range was wider at between 182,300 to 220,600.
In 2013, CMHC now estimates housing starts will be in the range of 173,000 to 207,400 units, with a point forecast of 193,100 units — about seven per cent fewer than this year under the latest forecast.
The previous 2013 point forecast for 195,700 housing starts.
Based on data compiled by the Canadian Real Estate Association, CMHC said Tuesday that it expects about 466,600 units of existing housing to be sold this year and 469,600 units in 2013.
The average price for property sales through CREA members is forecast to be between $351,300 and $378,400 in 2012 and between $358,000 and $395,800 in 2013, CMHC said Tuesday.
CMHC’s point forecast for the average price is now $368,000 for 2012 and $377,300 for 2013, the agency said Tuesday Its June was the average price to be $372,700 for 2012 and $383,600 for 2013.
Monday 13 August 2012
When one home isn’t enough
Garry Marr, Financial Post
Based on the tales of real estate professionals and financial planners, multiple home ownership is becoming more common as the wealthy spread out beyond just owning a cottage to having a U.S. address or even some European digs.
Statistics are hard to come by but if the latest numbers from the National Association of Realtors are any indication, foreign buyers are having an impact in the United States. Increasingly those buyers are Canadian.
The Washington-based group said international buyers purchased US$82.5-billion worth of property in the U.S. for the year ending March 31, 2012, compared to US$66-billion a year earlier. Canadians represent about a quarter of those buyers.
Considering it’s impossible to be in more than one place at the same time, unless you’re renting property you’ve got real estate sitting empty. Is that really a sound investment decision or just one of the luxuries that comes with being wealthy?
Author Talbot Stevens questions the wisdom of owning property that is going to sit mostly vacant and says, “No matter what income you are, if you are only using something 10% or 20% of the time,” it doesn’t make financial sense.
“If you are looking at diversifying into real estate, why not just buy some income property?” Mr. Stevens. “These are people that can stay at the Four Seasons anyway.”
As he puts it, what is the point of having a French home for two months, complete with all the costs?
“The same logistics apply to a cottage if you are only going to use it three or four weeks a year. It becomes very expensive. Even those who are mega-wealthy have to ask, ‘What is the most effective use of your money?’ ” Mr. Stevens says. “The bigger challenge might be people who do this and can’t even afford it.”
He says so much of this multiple ownership is for ego’s sake. “People just want to say ‘my house in the south of France.’ To be honest, I have more respect for people who are truly wealthy and don’t need to let anyone know.”
Toronto condominium developer Brad Lamb, one of those multiple home owners, says having another address is a convenience many are willing to pay for and it’s not an entirely new concept.
“What’s the difference between owning a condo in New York for $800,000 or a cottage on a lake, it depends on what your thing is,” he says. “You get wealthy investors who have a pied-Ã -terre. I own a condo in New York City and a condo in Miami. I go to New York probably 12 times a year and Miami six times or eight times a year. I bought them to have an address in the city but also bought at the bottom of the market when they were giving away real estate.”
Mr. Lamb says the idea of having a place to call home in another city is probably at least partially behind the Canadian housing boom as foreign investors pour into luxury condominiums.
He agrees it is a luxury to have a place to call his own when he comes to town. “I have ample room. You can cook your own food, have your own clothes,” Mr. Lamb says.
He says Toronto, at least partially, has become home to that investor/homeowner.
“There is that element to it,” says Mr. Lamb, estimating it equates to 10% to 15% of the condo market. “The building I live in, one of the sub-penthouses was sold to a wealthy South American family that uses it when they are in Toronto. The rest of the time their daughter [in school in Toronto] uses it.”
Multiple ownership usually starts with a cottage but the U.S. is fast becoming a popular place to hold a third property, says Prashant Patel, vice-president of high-net-worth planning services at RBC Wealth Management.
“That’s probably one of the main issues our team deals with quite a bit, all the tax and financial planning issues of owning U.S. real estate,” says Mr. Patel, adding even if you don’t have an income-producing property, you need to think about tax and legal implications.
He says some clients may have roots in other countries, having immigrated to Canada, so it’s not uncommon for them to own property in their native country.
“When we have clients saying, ‘I’m thinking about buying a cottage or a property in the U.S.,’ we say, ‘Let’s step back and make sure it does not impact your future retirement or lifestyle’, ” says Mr. Patel, adding most of the purchases south of the border are for personal use and lifestyle.
“We typically recommend them doing a financial plan to see what the impact would be if they buy that cottage or property and how it affects their cash flow, particularly if it’s not an income property and it’s a personal-use property.”
The good news for those buying is an industry has sprung up to support multiple home ownership, says Kimberley Marr, author of How To Buy U.S. Real Estate.
“The big one is Canada-U.S. but there is a growing trend of Boomers purchasing abroad, especially in Europe,” said Ms. Marr, pointing to the steep drop in the euro, as well the decline in property prices, as fuelling demand among Canadians for homes in places like Spain, Portugal and France.
She says a wealthy owner might have $5-million to $10-million in real estate, about 10% to 20% of their net worth.
She’s a member of International Real Estate Society, which is an alliance of real estate professionals around the globe.
“Say I have a property of a Canadian in Toronto, it’s higher-end. The buyer could be someone from Toronto but it could be someone from France, Germany, Hong Kong,” Ms. Marr says. “Through the network, they market [property]. Someone in Paris might market their property in Toronto.”
She says clients might be in some of their “homes” for one month a year while the rest of the time the unit is rented out for income. “In the higher end, you’re generally dealing with professionals renting it out on your behalf,” says Ms. Marr, adding the property manager gets a fee but it includes services like a concierge to take care of clients. “When you get to a place like Paris, there is someone there to greet you, walk you through the apartment, give you the keys. The renter has someone to contact, if they need to.”
It may sound a bit like a timeshare but the difference is these people are in full control of their property, leaving them with all the profit from price appreciation and potentially all of the losses.
“You have all the control but also all the responsibility and the liability,” Ms. Marr says.
Friday 10 August 2012
Today's Fixed Rates Are Gifts
Rob McLister, CMT, Canadian Mortgage Trends (July 31, 2012)
Be careful of looking the gift horse in the mouth.
Much of that discounting was thanks to lower bond yields (which generally lead fixed rates). You can see the recent downtrend in yields in the chart below.
In all of the emotion of plunging rates, however, it’s easy to forget that they can reverse to higher just as fast as they drop.
On Friday, the 5-year government yield popped 12 basis points—the biggest one-day increase in almost a year. When that sort of thing happens near lows, after a long downtrend and a period of sideways trading, it often marks a noteworthy change in market sentiment.
As bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks, and sometimes much longer.
For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It's kind of like passing a gas station on empty to save a few more cents a litre. You may find another station, but if you’re wrong, it won’t be much fun pushing.
If yields bounce much higher (e.g., into the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches.
So if you need a 5-year fixed rate, it's as good a time as any to take the “gift” lenders are giving. This is certainly not to say that rates won’t go lower. (Global and domestic risks could keep yields depressed for a while.) But don't be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it's almost impossible to pick the bottom.
On Friday, the 5-year government yield popped 12 basis points—the biggest one-day increase in almost a year. When that sort of thing happens near lows, after a long downtrend and a period of sideways trading, it often marks a noteworthy change in market sentiment.
As bond traders suddenly reverse their positions, it can halt the drop in yields (and fixed mortgage rates) for a few weeks, and sometimes much longer.
For that reason, those waiting for lower rates before applying for a mortgage may be taking a bit more risk than normal. It's kind of like passing a gas station on empty to save a few more cents a litre. You may find another station, but if you’re wrong, it won’t be much fun pushing.
If yields bounce much higher (e.g., into the 1.40-1.50% range), deep-discount lenders will waste no time taking rates back up a few notches.
So if you need a 5-year fixed rate, it's as good a time as any to take the “gift” lenders are giving. This is certainly not to say that rates won’t go lower. (Global and domestic risks could keep yields depressed for a while.) But don't be afraid that applying now will make you miss the boat on a better deal. When it comes to rates, it's almost impossible to pick the bottom.
Thursday 9 August 2012
Practical Amortization Choices
Rob McLister, CMT, CanadianMortgageTrends.com
Shorter amortizations can cost you less interest and help you pay off your mortgage sooner.
If that’s a revelation to you, then here’s another story you’ll appreciate: Shorter mortgage is money in your pocket.
Since we’re pointing out the obvious, we should also note that making a bigger down payment and buying a cheaper house save interest as well.
This is the type of generic advice that some mortgage commentators like to give while applauding the recent amortization reductions. Few media types have acknowledged that extended amortizations are actually a valuable tool when used intelligently.
Shorter amortizations can cost you less interest and help you pay off your mortgage sooner.
If that’s a revelation to you, then here’s another story you’ll appreciate: Shorter mortgage is money in your pocket.
Since we’re pointing out the obvious, we should also note that making a bigger down payment and buying a cheaper house save interest as well.
This is the type of generic advice that some mortgage commentators like to give while applauding the recent amortization reductions. Few media types have acknowledged that extended amortizations are actually a valuable tool when used intelligently.
It seems that publicly advocating longer amortizations has become semi-taboo, almost like promoting legalized marijuana. But a borrower’s best interests are absolutely not always served by the shortest mortgage.
When choosing an amortization, folks must ask two questions right off the bat:
In truth, lower amortizations provide net savings only if you have no better alternatives for the money that would have gone towards paying down your principal.
To put it another way, eliminating your mortgage quicker can actually cost you money if:
When choosing an amortization, folks must ask two questions right off the bat:
- Can I comfortably afford my mortgage if rates rise 3%, and
- Is there a better use of my cash flow than making larger payments on my mortgage?
In truth, lower amortizations provide net savings only if you have no better alternatives for the money that would have gone towards paying down your principal.
To put it another way, eliminating your mortgage quicker can actually cost you money if:
a) the return on your excess disposable income is greater elsewhere, and/orCertain types of people need to pay extra attention to the opportunity costs of shorter amortizations. They include:
b) you have insufficient contingency funds.
- Investment property owners (who need to minimize payments to maximize cash flow)
- Self-employed borrowers (who need to reinvest in their business)
- Commission earners (who need to build contingency funds for lean months)
- Investors (who invest in higher-returning assets)
- Families (who need to pad their contingency funds, pay down higher interest debt, top up registered retirement accounts, or build education savings).
Wednesday 8 August 2012
CAAMP Mortgage Forum: Please Stop, You’re Making us Blush!
Article written by Boris Bozic, Merix Financial
“What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences.”
I had a new blog all crafted and ready to be posted today but I had to set it aside. Why? Because I received some fantastic news on Monday morning that I had to share. CAAMP Mortgage Forum 2011 was the recipient of another award over the weekend. This is now the second award that the CAAMP Mortgage Forum 2011 has received. The most recent award was from the International Events Society. The ISES awarded CAAMP the “Best Meeting Conference over $250K”. What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences. The sense of pride and accomplishment has nothing to do with an inferiority complex. We can do anything as well as they do South of the boarder and given the state of our respective economies we’ve demonstrated that we can do a lot of things better north of the 49th parallel. What makes this a little sweeter for me is based solely on the fact that Canada’s Woman soccer team lost to the US woman’s team over the weekend at the London Olympics. The loss was a direct result of shameful officiating and the referee in charge of the match should never be allowed to officiate a match of such significance again. It was gut wrenching to watch our gal’s come out on the short end because of an officials ineptitude. Our Woman’s soccer team have dedicated years of training for this moment, and as far as I’m concerned, they’re true champions.
Okay, I’ll get off on one soap-box to jump on another. We won, hands down fair and square! I’m so proud of the staff at CAAMP. Putting a conference together like ours takes extraordinary effort. It’s easy to take for granted the work that is required to pull off an event of this magnitude. The truth is the CAAMP staff has spoiled us a little. It’s easy to assume that every conference is like ours and that every conference is as cost effective as ours. As someone who’s attended many conferences outside of Canada, I can honestly say that we’re very fortunate. From sheer size to quality and cost, we are the best. And now we have some hardware to prove it. Take a bow Michael Ellenzweig, Cara Shulman, Alison Cousland, the organizing committee and all the staff at CAAMP for making it happen. Most importantly, thank you to all the Mortgage Forum sponsors, and those who attended. Without your collective support the conference doesn’t happen.
Thanks to our sponsors, Mortgage Forum 2012 in Vancouver promises to be b
igger and better. Hopefully I’ll see you in Vancouver from November 25 -27, 2012.
Link to Mortgage Forum 2012 Conference site
“What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences.”
I had a new blog all crafted and ready to be posted today but I had to set it aside. Why? Because I received some fantastic news on Monday morning that I had to share. CAAMP Mortgage Forum 2011 was the recipient of another award over the weekend. This is now the second award that the CAAMP Mortgage Forum 2011 has received. The most recent award was from the International Events Society. The ISES awarded CAAMP the “Best Meeting Conference over $250K”. What makes this award a little sweeter is that the CAAMP Mortgage Forum 2011 beat out two large American conferences. The sense of pride and accomplishment has nothing to do with an inferiority complex. We can do anything as well as they do South of the boarder and given the state of our respective economies we’ve demonstrated that we can do a lot of things better north of the 49th parallel. What makes this a little sweeter for me is based solely on the fact that Canada’s Woman soccer team lost to the US woman’s team over the weekend at the London Olympics. The loss was a direct result of shameful officiating and the referee in charge of the match should never be allowed to officiate a match of such significance again. It was gut wrenching to watch our gal’s come out on the short end because of an officials ineptitude. Our Woman’s soccer team have dedicated years of training for this moment, and as far as I’m concerned, they’re true champions.
Okay, I’ll get off on one soap-box to jump on another. We won, hands down fair and square! I’m so proud of the staff at CAAMP. Putting a conference together like ours takes extraordinary effort. It’s easy to take for granted the work that is required to pull off an event of this magnitude. The truth is the CAAMP staff has spoiled us a little. It’s easy to assume that every conference is like ours and that every conference is as cost effective as ours. As someone who’s attended many conferences outside of Canada, I can honestly say that we’re very fortunate. From sheer size to quality and cost, we are the best. And now we have some hardware to prove it. Take a bow Michael Ellenzweig, Cara Shulman, Alison Cousland, the organizing committee and all the staff at CAAMP for making it happen. Most importantly, thank you to all the Mortgage Forum sponsors, and those who attended. Without your collective support the conference doesn’t happen.
Thanks to our sponsors, Mortgage Forum 2012 in Vancouver promises to be b
igger and better. Hopefully I’ll see you in Vancouver from November 25 -27, 2012.
Link to Mortgage Forum 2012 Conference site
Canada Mortgage Rates Hit Record Low, Frustrating Efforts To Cool Housing Market
The Huffington Post Canada | By Daniel Tencer
Canada’s fiscal policymakers are working to cool off the country’s overheated real estate market, tightening lending restrictions and warning buyers about the dangers of excessive debt.
But maybe someone should tell the country’s independent mortgage lenders. They’re working overtime against the government’s policies, engaging in a mortgage rate war that on the one hand could make homeownership more affordable for many Canadians, but but on the other hand scuttles efforts to cool down the housing market before it overheats to the point of collapse.
According to mortgage blog RateSupermarket.ca, you can now get a five-year fixed mortgage for as little as 2.88 per cent interest -- an all-time low for a mortgage rate in Canada, so far as Huffington Post Canada can tell. The offer comes from Advent Mortgage Services, a Toronto-area company that offers mortgages in Ontario, the Northwest Territories and the Yukon.
This is the third week in a row that Canada has seen a new record-low interest rate. The record low was 2.89 per cent last week -- an offer from True North Mortgage -- and 2.94 per cent for a five-year fixed mortgage two weeks ago.
Just a few months ago, it was the large banks who were falling over each other to offer the lowest rates. The Bank of Montreal dropped its rate for a five-year fixed mortgage to 2.99 per cent in January, then an all-time low, spurring other banks to follow temporarily.
The mortgage battle heated up again in March, when all five of the country’s biggest banks temporarily dropped rates to somewhere around 2.99 per cent.
But this time around, the big banks are staying out of the fight, and attention is turning to the country’s small, independent mortgage brokers.
Flaherty, like many other policymakers, has expressed concerns about Canada’s real estate market, and recently tightened rules on mortgage lending. Mortgages insured by the CMHC are now limited to 25-year amortization periods, down from 30 years, and home equity loans can amount to no more than 80 per cent of the value of the house, down from 85 per cent.
It was the fourth tightening of mortgage rules in as many years, and a sign the government is aggressively working to cool off what it sees as an overheated market.
Or maybe the big banks are listening to the credit rating agencies that determine their borrowing costs. Standard & Poor’s issued a warning on seven Canadian financial institutions on Friday, including the big five banks, arguing that house prices are overpriced and Canadian consumers’ debt levels too high.
Whatever the reasons, the battle for mortgage customers appears to have shifted to the small, independent lenders, some of whom are seeing their business boom.
First National Financial Services, for example, completed $4.4 billion of new mortgages in the second quarter of 2012 -- a jump of 50 per cent, reports the Globe and Mail.
Despite the tighter mortgage rules, lenders are finding it easier to offer low rates because yields are falling in the bond markets, making it cheaper to finance loans, the Globe reported.
The explosion of a rate war among small lenders is certain to raise concerns among critics who fear that Canada’s real estate market is beginning to resemble the subprime mortgage mess in the U.S., where homeowners found themselves saddled with loans larger than the value of their homes when real estate prices dropped.
A report in the Globe and Mail several years ago pointed out that private lenders have played a major role in the development of Canada’s subprime mortgages (which account for a much smaller share of the overall mortgage market than subprime loans did in the U.S. before the housing crash.)
“More startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories,” the Globe reported. “The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.”
Canada’s fiscal policymakers are working to cool off the country’s overheated real estate market, tightening lending restrictions and warning buyers about the dangers of excessive debt.
But maybe someone should tell the country’s independent mortgage lenders. They’re working overtime against the government’s policies, engaging in a mortgage rate war that on the one hand could make homeownership more affordable for many Canadians, but but on the other hand scuttles efforts to cool down the housing market before it overheats to the point of collapse.
According to mortgage blog RateSupermarket.ca, you can now get a five-year fixed mortgage for as little as 2.88 per cent interest -- an all-time low for a mortgage rate in Canada, so far as Huffington Post Canada can tell. The offer comes from Advent Mortgage Services, a Toronto-area company that offers mortgages in Ontario, the Northwest Territories and the Yukon.
This is the third week in a row that Canada has seen a new record-low interest rate. The record low was 2.89 per cent last week -- an offer from True North Mortgage -- and 2.94 per cent for a five-year fixed mortgage two weeks ago.
Just a few months ago, it was the large banks who were falling over each other to offer the lowest rates. The Bank of Montreal dropped its rate for a five-year fixed mortgage to 2.99 per cent in January, then an all-time low, spurring other banks to follow temporarily.
The mortgage battle heated up again in March, when all five of the country’s biggest banks temporarily dropped rates to somewhere around 2.99 per cent.
But this time around, the big banks are staying out of the fight, and attention is turning to the country’s small, independent mortgage brokers.
“Interestingly, we still haven’t seen major banks publicly announce aggressive pricing,” Canadian Mortgage Trends editor Rob McLister wrote in an email, as quoted at Postmedia. “You still have the majors advertising five-year rates like 3.94 per cent or 3.99 per cent.”
Perhaps the big banks are listening to Finance Minister Jim Flaherty, who reportedly went directly to the banks and asked them to stop engaging in mortgage discounts.Flaherty, like many other policymakers, has expressed concerns about Canada’s real estate market, and recently tightened rules on mortgage lending. Mortgages insured by the CMHC are now limited to 25-year amortization periods, down from 30 years, and home equity loans can amount to no more than 80 per cent of the value of the house, down from 85 per cent.
It was the fourth tightening of mortgage rules in as many years, and a sign the government is aggressively working to cool off what it sees as an overheated market.
Or maybe the big banks are listening to the credit rating agencies that determine their borrowing costs. Standard & Poor’s issued a warning on seven Canadian financial institutions on Friday, including the big five banks, arguing that house prices are overpriced and Canadian consumers’ debt levels too high.
Whatever the reasons, the battle for mortgage customers appears to have shifted to the small, independent lenders, some of whom are seeing their business boom.
First National Financial Services, for example, completed $4.4 billion of new mortgages in the second quarter of 2012 -- a jump of 50 per cent, reports the Globe and Mail.
Despite the tighter mortgage rules, lenders are finding it easier to offer low rates because yields are falling in the bond markets, making it cheaper to finance loans, the Globe reported.
The explosion of a rate war among small lenders is certain to raise concerns among critics who fear that Canada’s real estate market is beginning to resemble the subprime mortgage mess in the U.S., where homeowners found themselves saddled with loans larger than the value of their homes when real estate prices dropped.
A report in the Globe and Mail several years ago pointed out that private lenders have played a major role in the development of Canada’s subprime mortgages (which account for a much smaller share of the overall mortgage market than subprime loans did in the U.S. before the housing crash.)
“More startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories,” the Globe reported. “The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.”
Monday 6 August 2012
Don't fear the small mortgage lender
Even when a smaller lender has tantalizing rates and the best terms, homeowners sometimes tend to avoid it if they don’t know the name. An oft-cited reason for that is fear that the lender will go out of business. And that is certainly not unprecedented.
Mortgage lenders come in all sizes, ranging from RBC – the biggest in the country – to tiny wholesale lenders and credit unions.
If we’re talking about “prime” lenders – i.e., those catering to more creditworthy customers – the list of extinct lenders includes companies like Abode Mortgage, Citizens Bank, Dundee Bank, Maple Trust and ResMor Trust. Mind you, most of these lenders were purchased by others.
Just this week we buried another lender. FirstLine, once one of the biggest mortgage companies in the country, closed its doors Tuesday after 25 years in business.
People worry about lenders closing down for one main reason: they’re scared the lender will force them to repay their mortgage early. In reality, however, that rarely happens with prime lenders.
The bigger risk has been with subprime lenders. In fact, some subprime borrowers have even lost their homes in cases where they couldn’t refinance elsewhere after their lender shut down.
But if you’re a qualified borrower with provable income, do you really need to be worried if your lender goes out of business?
“Not at all,” says Boris Bozic, president and chief executive officer at Merix Financial.
“I always find it fascinating that people are concerned about smaller lenders,” he adds. “We’re not deposit takers. We’re giving money, not taking money. The risk is all ours.”
Many second- and third-tier lenders get their funding from large financial institutions and that funding is fairly stable, Mr. Bozic says.
“Even if a company were to run into financial difficulties, the vast majority of the time there are backup servicers in place.” This sort of contingency planning is almost always required by the parties funding a lender’s mortgages.
Mortgage lenders come in all sizes, ranging from RBC – the biggest in the country – to tiny wholesale lenders and credit unions.
When it comes to entrusting a company with your biggest debt, odds are, name recognition matters to you. Consciously or subconsciously, people gravitate to well-known lenders partly because there’s a feeling of safety in “big.”
If a lender were to close, Mr. Bozic says another financial institution would simply take over the mortgage.
When a lender sells your mortgage to another party, you just keep making the same payments like nothing happened – albeit to a different company, in some cases. The new lender is generally required to honour the terms of your old mortgage contract, Mr. Bozic says.
The one thing that will change is the renewal offer you receive at maturity. Generally, the new owner of your mortgage will be the one making your renewal offer. That could be good or bad depending on how competitive the new lender is. But smart consumers always shop their lender’s renewal offer anyway, so this isn’t a major issue.
Overall, the probability of a lender disappearing is low. On its own, it’s not enough reason to avoid a less prominent company.
That’s especially true when the lender has the best deal in the market–which is the case with many smaller lenders today. If you can find a 0.10 percentage point lower rate, you’ll save roughly $1,200 over 60 months on a standard $250,000 mortgage.
If you’re interested in getting the best rate possible, you need to be open to saving money with a smaller mortgage company. Just be sure to get independent advice so you can sidestep the ones with onerous contract restrictions. Examples of those include fully closed terms, costly penalty calculations, porting restrictions, refinance limitations, and so on. Some lenders have rather unpleasant fine print, but that’s true for micro and mega lenders alike.
There are certainly reasons to choose a major bank or large credit union for your mortgage, including branch accessibility, integrating your mortgage with your banking or credit line, and access to other financial products. But it’s rarely necessary to shun lesser-known lenders for fear they’ll close and leave you stranded.
ROBERT MCLISTER
Special to The Globe and Mail
Published
Friday 3 August 2012
Why do interest rates continue to fall?
What can we make of the low interest rate environment we are now seeing? Fixed
rates are dropping and one lender has dropped its variable rate. Will more
lenders follow suit?
When the five-year fixed rate fell to under 3% earlier this year, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney cautioned consumers and warned lenders to be careful with debt loads. Clearly it didn't slow the robust housing market - purchases and refinances continued at a pace not seen since 2007.
Then Flaherty announced some changes to the mortgage rules to slow down the pace of rising debts. So what happened? We had a couple of weeks of quiet as the summer was also upon us.
It appears both lenders and investors are not comfortable with a lull. They have been taking advantage of lower bond yields, which accounts for lowered fixed rates. Even the seven and 10-year rates are looking very good. At the time of this writing a seven-year rate can be had for 3.69%. The spread between the posted rate on a five-year mortgage of 5.24% and a government of Canada five-year bond is almost 400 basis points - the highest it's been since the financial crisis in 2008.
Also, a few monoline lenders - lenders who specialize in mortgage lending only -- are now offering their variable rate under prime --something we have not seen consistently since last Fall. Clearly, these lenders have an appetite for funding right now. It will be interesting to see if this initiates a mini-price war in the variable rate market. But there is always the threat that the government will step in and introduce even tougher rules.
These rates continue to tempt consumers. This may be the best time to consolidate even if it's only to 80% of the value of your property. On the other hand, the challenge is the increasing debt loads that a low interest rate environment can create.
Craig Alexander, chief economist at Toronto-Dominion Bank suggested in a recent news article that consumers should not abuse this opportunity by taking on new debt but should take advantage of it.
The Canadian Real Estate Association had previously forecast housing sales in 2012 and 2013 that were roughly on par with the 10-year average for annual activity. The updated forecast now predicts activity slightly above the long term average. The national average price is also forecast to rise modestly in 2013, edging up two per cent to $378,200.
It's hard to heed the warnings from government when the economy, the job market and the housing market seem to be doing so well.
When the five-year fixed rate fell to under 3% earlier this year, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney cautioned consumers and warned lenders to be careful with debt loads. Clearly it didn't slow the robust housing market - purchases and refinances continued at a pace not seen since 2007.
Then Flaherty announced some changes to the mortgage rules to slow down the pace of rising debts. So what happened? We had a couple of weeks of quiet as the summer was also upon us.
It appears both lenders and investors are not comfortable with a lull. They have been taking advantage of lower bond yields, which accounts for lowered fixed rates. Even the seven and 10-year rates are looking very good. At the time of this writing a seven-year rate can be had for 3.69%. The spread between the posted rate on a five-year mortgage of 5.24% and a government of Canada five-year bond is almost 400 basis points - the highest it's been since the financial crisis in 2008.
Also, a few monoline lenders - lenders who specialize in mortgage lending only -- are now offering their variable rate under prime --something we have not seen consistently since last Fall. Clearly, these lenders have an appetite for funding right now. It will be interesting to see if this initiates a mini-price war in the variable rate market. But there is always the threat that the government will step in and introduce even tougher rules.
These rates continue to tempt consumers. This may be the best time to consolidate even if it's only to 80% of the value of your property. On the other hand, the challenge is the increasing debt loads that a low interest rate environment can create.
Craig Alexander, chief economist at Toronto-Dominion Bank suggested in a recent news article that consumers should not abuse this opportunity by taking on new debt but should take advantage of it.
The Canadian Real Estate Association had previously forecast housing sales in 2012 and 2013 that were roughly on par with the 10-year average for annual activity. The updated forecast now predicts activity slightly above the long term average. The national average price is also forecast to rise modestly in 2013, edging up two per cent to $378,200.
It's hard to heed the warnings from government when the economy, the job market and the housing market seem to be doing so well.
Thursday 2 August 2012
Canada plans no new steps to cool housing market: finance minister
By Edwin Chan
SUNNYVALE, California (Reuters) - Canada does not expect to have to tighten mortgage rules further as the real estate market has softened in the wake of government measures to cool it down, Finance Minister Jim Flaherty said in an interview on Wednesday.
Home prices hit a third straight record high in June, extending a steady climb that had triggered fears of a property bubble. But a slowdown in the pace of price increases suggested to economists the red-hot housing market is cooling.
"We always monitor the housing market. There has been concern, particularly with the condo market in Toronto and Vancouver. We have taken steps, including recently in June, another step to tighten the market for residential mortgages," Flaherty said in an interview in Sunnyvale, California.
"There has been some softening in the past month or so, so right now there is no intention to intervene again," he said after a series of meeting with Silicon Valley tech corporations and venture capitalists.
The minister tightened conditions for borrowers and lenders on June 21 to put the brakes on home buying and deflate a possible housing bubble before it popped.
Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.
But Flaherty and Bank of Canada Governor Mark Carney have expressed concern about rising household debt and about persistent strength in the condominium market.
Ratings agency Standard & Poor's has warned that debt-ridden consumers and the cooling property market are leaving the country's banks vulnerable, revising its outlook to "negative" from "stable" for the country's biggest banks.
The debate comes as economic growth in Canada shifted into low gear in May on unexpected weakness in the manufacturing sector, casting doubt on the country's ability to distance itself from the disappointing performance plaguing the United States.
IT'S GROWTH, AFTER ALL
A weaker-than-expected 0.1 percent monthly gain in gross domestic product in May, after a 0.3 percent jump in April, puts the second quarter on track for annualized growth of less than 2 percent.
Flaherty waved off calls for further government stimulus, saying the present situation did not call for it. Economists have called for more government borrowing and infrastructure spending should the economic picture worsen, but Flaherty said he would not speculate on what might happen.
"We took certain steps back in 2009 to create economic stimulus. We're not in that situation today," he said.
"We are seeing modest growth, not as much as Americans and Canadians would like it to be, but it is growth. And that's better than many Western countries."
Flaherty is in Silicon Valley to hear views of investors and industry executives on how to foster domestic tech entrepreneurs. He toured a local startup "accelerator," or incubator, that specializes in incubating startups and helping forge ties with local players.
Away from technology, Ottawa is also actively seeking Chinese investment to help develop the oil-rich tar sands in northern Alberta. But now, some domestic critics are unhappy that a Chinese state-owned company might soon be allowed to buy out a key Canadian energy firm.
The finance minister would not be drawn on the government's running review of No. 3 Chinese oil company CNOOC Ltd's bid to buy Nexen for more than $15 billion, saying it was the purview of the industry ministry's, not his.
But Flaherty did say every mega-deal had to be reviewed on its individual merits, on whether it would be of net benefit to the country and if it passed the national security litmus test.
Prime Minister Stephen Harper said last week the country will study the $15.1 billion bid carefully and no one should make assumptions about whether the proposed takeover will be green-lighted., Flaherty said he shared that view.
"We have had some significant investments, Chinese investments, in Canadian resource companies. And we expect that there'll be continuing relationship that way with China," he said. "But when we get into reviewable transactions, that's a different situation."
"It's a question on each transaction, like the Nexen transaction, of assessing the net benefit test, and the national security test."
SUNNYVALE, California (Reuters) - Canada does not expect to have to tighten mortgage rules further as the real estate market has softened in the wake of government measures to cool it down, Finance Minister Jim Flaherty said in an interview on Wednesday.
Home prices hit a third straight record high in June, extending a steady climb that had triggered fears of a property bubble. But a slowdown in the pace of price increases suggested to economists the red-hot housing market is cooling.
"We always monitor the housing market. There has been concern, particularly with the condo market in Toronto and Vancouver. We have taken steps, including recently in June, another step to tighten the market for residential mortgages," Flaherty said in an interview in Sunnyvale, California.
"There has been some softening in the past month or so, so right now there is no intention to intervene again," he said after a series of meeting with Silicon Valley tech corporations and venture capitalists.
The minister tightened conditions for borrowers and lenders on June 21 to put the brakes on home buying and deflate a possible housing bubble before it popped.
Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.
But Flaherty and Bank of Canada Governor Mark Carney have expressed concern about rising household debt and about persistent strength in the condominium market.
Ratings agency Standard & Poor's has warned that debt-ridden consumers and the cooling property market are leaving the country's banks vulnerable, revising its outlook to "negative" from "stable" for the country's biggest banks.
The debate comes as economic growth in Canada shifted into low gear in May on unexpected weakness in the manufacturing sector, casting doubt on the country's ability to distance itself from the disappointing performance plaguing the United States.
IT'S GROWTH, AFTER ALL
A weaker-than-expected 0.1 percent monthly gain in gross domestic product in May, after a 0.3 percent jump in April, puts the second quarter on track for annualized growth of less than 2 percent.
Flaherty waved off calls for further government stimulus, saying the present situation did not call for it. Economists have called for more government borrowing and infrastructure spending should the economic picture worsen, but Flaherty said he would not speculate on what might happen.
"We took certain steps back in 2009 to create economic stimulus. We're not in that situation today," he said.
"We are seeing modest growth, not as much as Americans and Canadians would like it to be, but it is growth. And that's better than many Western countries."
Flaherty is in Silicon Valley to hear views of investors and industry executives on how to foster domestic tech entrepreneurs. He toured a local startup "accelerator," or incubator, that specializes in incubating startups and helping forge ties with local players.
Away from technology, Ottawa is also actively seeking Chinese investment to help develop the oil-rich tar sands in northern Alberta. But now, some domestic critics are unhappy that a Chinese state-owned company might soon be allowed to buy out a key Canadian energy firm.
The finance minister would not be drawn on the government's running review of No. 3 Chinese oil company CNOOC Ltd's bid to buy Nexen for more than $15 billion, saying it was the purview of the industry ministry's, not his.
But Flaherty did say every mega-deal had to be reviewed on its individual merits, on whether it would be of net benefit to the country and if it passed the national security litmus test.
Prime Minister Stephen Harper said last week the country will study the $15.1 billion bid carefully and no one should make assumptions about whether the proposed takeover will be green-lighted., Flaherty said he shared that view.
"We have had some significant investments, Chinese investments, in Canadian resource companies. And we expect that there'll be continuing relationship that way with China," he said. "But when we get into reviewable transactions, that's a different situation."
"It's a question on each transaction, like the Nexen transaction, of assessing the net benefit test, and the national security test."
Record setting low rates
With mortgage rates time and time again setting record lows, now's the time to take advantage in a positive way and pay off your mortgage faster. Yes, mortgage rates are low, lower than they've ever been at 2.89% for 5 years fixed, but that isn't necessarily a reason to pile all your debt into your house and extend amortization. Take advantage of these low rates in a positive way and use them to pay your mortgage down faster. If you refinance your mortgage to a lower rate, keep your payment the same, all your additional money each month will go straight towards principal and you'll be amazed how much extra you pay off on your mortgage.
With rates as low as they are it's more important now than it ever has been to prepare for an increase at the end of your term. If you lock in 5 years now at 2.89%, in 5 years, you have to refinance, what if rates are 5 or 6% then? That could hugely increase your payments, even with the decrease you'll see in your principal. So it's important now, to pay off as much principal as we can to make our future refinance amounts as low as possible.
With rates as low as they are it's more important now than it ever has been to prepare for an increase at the end of your term. If you lock in 5 years now at 2.89%, in 5 years, you have to refinance, what if rates are 5 or 6% then? That could hugely increase your payments, even with the decrease you'll see in your principal. So it's important now, to pay off as much principal as we can to make our future refinance amounts as low as possible.
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