The case for locking in your mortgage

ROB CARRICK

The Globe and Mail

 

 

You can’t go wrong if you respond to this week’s mortgage rate increases by locking in for five or 10 years.

But at least consider the alternative: Variable-rate mortgages sound risky in today’s volatile interest rate environment, but they’re actually a quiet corner of the mortgage world right now.

We’ve had several rising-rate episodes in the past few years, but they’ve invariably fizzled. In each case, one of the many global economic trouble spots has gone critical and caused rates to retreat. Will this latest rate spike unwind itself, too? Can our low-rate utopia last indefinitely?

Smart borrowers today work on the assumption that the answer is no. The question, then, is how to best keep mortgage costs low today while also protecting against future increases.

Let’s consider the lock-in option, first. That’s where people with variable-rate mortgages convert at no cost into a fixed-rate mortgage, and new home buyers go with a five- or 10-year fixed rate mortgage. It happens to be an excellent time to lock in, even if some banks have boosted their special five-year fixed mortgages rates by 0.2 of a percentage point this week.

The banks were responding to a big runup in the yield on the five-year Government of Canada bond, which sets the trend for five-year mortgages. But thanks to a highly competitive mortgage market, lower rates are still available. Kim Arnold, a broker with Dreyer Group Mortgages in Vancouver, said earlier this week that she was able to get a very competitive five-year rate of 2.89 per cent for clients.

“Rates are phenomenal, even with this latest increase,” she said. “It’s certainly not a bad time to lock in.”

David Larock of Integrated Mortgage Planners in Toronto sees zero urgency for locking in, mainly because of the potential for yet another global economic scare to send rates lower. Europe’s problems with high government debt levels and slow economic growth could do it. So could Japan’s rickety economic fundamentals, worry about weakening growth in China or uncertainty over the sturdiness of the U.S. economic recovery.

Low inflation is another constraint on rate increases, Mr. Larock said. “I think the Bank of Canada is probably more concerned about getting inflation to go up as opposed to going down.”

It’s this line of thinking that leads Mr. Larock to make a case for the variable-rate mortgage, where your rate rises and falls along your lender’s prime rate.

The prime, in turn, is guided by the Bank of Canada’s benchmark overnight rate of 1 per cent, which hasn’t moved since September, 2010, and is expected to remain steady until the latter half of next year.

“The prime rate moves when the Bank of Canada changes their rates, and they’re not going to jump around like the market does in terms of what happens with five-year Government of Canada bonds,” Mr. Larock said. “These bonds are subject to the vagaries of large institutional investors, and to the ebb and flow between the stock market and bonds.”

Another reason to look at variable-rate mortgages is that the discounts have improved recently. Mr. Larock said it’s now possible to get a variable-rate mortgage with a discount of as much as 0.5 of a point off prime in some provinces.

That means a rate of 2.50 per cent, which compares to a range of 2.72 to 3.29 per cent for discounted fixed-rate mortgages over five years, depending on which lender you deal with.

If you go with a variable-rate mortgage, you’re vulnerable to the short-term rate increases the Bank of Canada will eventually start using to keep economic growth under control.

Toronto-Dominion Bank’s economics department expects a half-point rise in the overnight rate in the fourth quarter of next year.

As for five-year fixed rates, they could retreat again in the weeks and months ahead if there’s another global economic scare. But TD chief economist Craig Alexander said the broader trend in the bond market is the start of a move toward more normal levels. Next year, he sees the five-year Canada bond yield at 1.85 per cent, up from 1.60. “I think bond yields are going to grind higher, but 1.85 per cent on a five-year Government of Canada bond is still incredibly low.”

The best strategy for most people today is to lock in quickly to today’s best five- or even 10-year rates (read my case for the 10-year mortgage online at tgam.ca/DqYG). As Ms. Arnold, the Vancouver mortgage broker, put it, “I don’t honestly think anyone can make a mistake by locking in.”

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Mortgage Rate Survey
A range of best rates available from banks and through mortgage brokers

Type	Best rates available (%)
Variable rate	2.50 to 2.60
One-year	2.39 to 2.59
Two-year	2.49 to 2.69
Three-year	2.49 to 2.69
Four-year	2.69 to 2.89
Five-year	2.72 to 2.89

 
Source: RateHub.ca

Canadian housing "Balanced and stable"

In recent weeks two of the big players in the Canadian real estate market have issued their latest reports, offering calm words – “balance and stability” – for the country’s housing market.


The Canadian Real Estate Association (CREA), the national body that represents the real estate industry, and Canada Mortgage and Housing Corporation (CMHC), the government agency that tracks housing and insures mortgages, are in agreement that the market remains balanced and will remain stable for the next year, or so.

CREA: Market behaving as it should

CREA's March report shows the market is behaving as it should, albeit with smaller numbers. While recognizing that actual sales have dropped from a year ago, CREA points out that they have been stable since the introduction of new mortgage rules last summer. The association's March report shows sales rose 2.4% from February, which is what would be expected as the home-buying season warms-up. The report also shows that home prices are rising to keep pace with inflation.

Sales to new listings show balance

When it comes to balance, CREA focuses on the ratio of sales to new listings. The report shows that ratio at 50.3%, up slightly from 49.9% in February. A range between 40% and 60% is considered balanced which puts the current figures right on target. A little more than 60% of regional markets in Canada are operating in balanced territory.

CMHC: Economy will shift balance... slightly

This year's first-quarter CMHC housing report shows Canada's housing market has been in balance since 2010, with a slight bias toward sellers. It expects that bias will shift somewhat toward buyers over the next two years. CMHC cites improving economic conditions, low interest rates, employment growth, immigration and a reduction in new home starts as factors keeping the market in check.

CMHC: Sales & Prices will rise thru 2014

CMHC is forecasting a modest 0.5% drop in housing re-sales for 2013, with a 4.7% increase for 2014. The agency also predicts price increases will keep pace with inflation posting a 2.7% increase from 2013 to 2014.

It's worth noting that CREA and CMHC use different methods to arrive at their numbers so they sometimes don't appear to match-up. They do, however, generally point in the same direction.

Even Mark Carney sees balance

Even the Bank of Canada Governor has remarked on the balance in the Canadian market. During a recent parliamentary testimony, Mark Carney used typically cautious language, saying "We're encouraged by the evolution of house prices in a number of markets. We're on the path to a balanced evolution of the household sector and we have to continue to be vigilant."

Title insurance

First National, "You're Home"


Title insurance –
Do you have it, do you need it?

Your property's title provides the legal proof that you are the owner. Given the negative impact that any potential errors or misrepresentations on your title can have on your property's value, buying a little insurance protection should be considered.

What am I insuring?

Title insurance is not mandatory but it is routinely recommended by lawyers, lenders and realtors because it protects you from potential losses against fraud, survey errors, encroachment issues and existing undisclosed liens. Some policies also include a rider for "building compliance" coverage, which means that if you buy a property that was renovated without proper permits, and if the changes were not in compliance with current building code regulations, the title insurer will compensate you for all or part of the cost of correcting any issues.

A title insurance premium is a one-time fee and the coverage lasts for as long as you own the property. Many policies also allow the amount of coverage to appreciate along with the value of the property, up to a maximum of double the original purchase price.

Can you buy insurance for a property you currently own?

Yes, you can, however the rules are slightly different because any pre-existing conditions cannot be as easily determined. However many existing homeowners have still decided to purchase a policy to protect against mortgage fraud. This can happen when fraudsters steal personal information and forge documents to transfer title of the property.

Are there other advantages to title insurance?

In some cases title insurance can eliminate the need for a new, up-to-date land survey but it does not replace the role of a lawyer in a real estate transaction.  It is an added layer of protection that can settle claims for losses that would otherwise require you to file a lawsuit.  If this extra protection appeals to you, title insurance is offered by several companies and can be purchased through your lawyer, a title insurance company or an insurance agent/broker.

What does title insurance cost?

The cost of title insurance varies depending on the scope of coverage, the type of property and its value.  One firm advertises rates ranging from $185, for a condo under $200,000 purchased directly from a developer, to $374 for a home valued at up to $500,000.

Need to know more?

The Government of Ontario has this handy website:
http://www.fsco.gov.on.ca/en/insurance/brochures/Documents/undstitins.pdf

For information on coverage that's best for you, speak with your lawyer, your realtor, and/or your Mortgage broker.
  
If you are unsure about whether or not you already have title insurance check the package of documents you received from your lawyer. You can also contact your lawyer or realtor directly and ask them.

Planning to move? Buy first or sell first?

First National, "You're Home"


Any homeowner looking to sell and buy another home has to answer a lot of questions. Some factors to consider are location, timing and budget; and some are even as simple as should you buy first or sell your home first.

These questions can be answered with a critical and honest look at the facts and figures.

There are two key factors that play into this decision, your personal risk tolerance, finances and the local housing market.

Selling first – The tradition has changed

Traditionally, the recommendation has been to sell first, then find a new place. Doing things in this order allows you to answer the critical and financial questions with more certainty. You'll know how much money you have and what you can afford to buy. And, it makes it much easier to put in a clean, firm offer on a new home.
However, the housing market has changed, especially in Canada's large urban centres where it tends to favour sellers. With high demand, multiple offers and homes that routinely sell for well above the asking price, sometimes buyers find themselves looking for a home longer than they anticipated. This can lead to time pressures as the closing date for the existing home approaches or you may need to rent or make other arrangements until you find your next home.
Ways around this include extending the closing date on the existing home for as long as possible or renting until a suitable new property is purchased.

Buy first

Those who opt to buy first, and then sell, need to have a very clear picture of their finances, as, it is possible that you run the risk of paying the mortgage of two homes at a time. The financial pressure to sell the old home could mean taking a lower price which could, in turn, change the affordability of the new home.
Bridge financing can be a solution, but you need to have a committed purchaser for the existing property. It is also possible to make the agreement to buy the new home conditional on the timely sale of the old property but, again, in a competitive market an offer without conditions will likely win, even if the amount is a little lower.

No right or wrong answer

It comes down to what you are comfortable with. Consultation with a realtor will give insights into local market conditions and whether they appear to be favouring buyers or sellers. An examination of your finances with a mortgage professional will give a clearer picture of how to manage your budget and plan for potential rental costs of bridge financing.

4 ways we deceive ourselves to keep spending

By: Krystal Yee, Special to The Star
TheStar.com


One of the keys to financial independence is to stop making poor spending decisions and unnecessary purchases. Here's how.

No matter how good we think we are at managing your finances, we are all guilty of lying to ourselves from time to time to justify indulgent spending. While splurging on occasion is healthy, one of the keys to financial independence is to stop making poor spending decisions and unnecessary purchases.

Here are four common ways we justify unnecessary spending:
 

I work hard, so I deserve it 
  

A few weeks ago, I was in Prague for a couple of days. As I waited in line for a tram, I overheard two 20-something women discuss how they couldn’t afford their six-week trip, but they were happy they did it because they “deserved it after a hard semester.” They each financed their trip with a credit card, and fretted for a few moments about how they planned on paying it back. “We’re young!” one of them said. “We only live once.”
 

Luxuries like vacations are a good thing if you can afford them. If you can’t pay for it in cash, wait and save up for it until you can, or go for a less expensive option. The last thing you want is to have to continue to work hard into your retirement in order to pay off all of the things you thought you “deserved” along the way.
 

The savings aren’t worth it 
  

Most of my friends don’t comparison shop. They don’t clip coupons, they don’t ask for better rates, and they don’t bring back receipts for price adjustments because “the savings isn’t worth it.”
 

A few years ago, I was speaking to a friend who had about $4,000 in a “savings” account that offered 0.05 per cent interest. On top of the low rate, she was also paying a monthly fee for her chequing account. I asked why she didn’t move her money to a bank with a higher interest rate (at that time, PC Financial was offering 4 per cent interest) and free chequing accounts. She replied by saying, “it’s not worth the hassle, and I don’t need the extra money.” Even though she was in debt, she wasn’t willing to trade a few hours of her time in exchange for a free monthly chequing account or a higher interest rate.
 

When you take a little bit of time each month to go over your finances to make sure you’re getting the best prices on the items and services you pay for, you could potentially save hundreds of dollars each year.
 

It’s an investment 
  

Sure, you might need new clothes and shoes when you land your first job out of school; looking professional truly is an investment in your career. However, buying a $500 pair of shoes is not an investment. A true investment is something that will make you money over time, not plummet in value the moment you leave the store.
 

It’s a once-in-a-lifetime opportunity 
  

If I indulged myself in every “once-in-a-lifetime” opportunity that has come my way, I would be broke. However, when something fun and unique comes along, it’s hard to say no.
 

Nearly 10 years ago, a friend asked me to go backpacking in Asia for a summer. “We’ll never get to do something like this again,” she said. I turned her down even though I wanted to go. I was a student with a limited income – plus, if I could have somehow come up with the money to fund a trip to Asia, it would have been better off put towards my debt. Spending money to increase my debt load (while decreasing my net worth) didn’t make sense to me.
 

What other lies do we tell ourselves in order to justify spending we can't afford? 
  

Krystal Yee lives in Vancouver.

Home building to pick up pace later this year: CMHC

Andrea Hopkins, Reuters
More from Reuters

 

TORONTO — New homebuilding in Canada is expected to regain momentum in the later part of 2013 and into 2014 as employment, economic growth and migration boost demand for housing in a market that had slowed, the Canada Mortgage and Housing Corp said on Tuesday.

“So far in 2013, the average monthly growth rates of MLS (multiple listing service) sales, new listings and prices have all been increasing. This follows a period of average monthly declines that held sway over the second half of 2012,” Mathieu Laberge, deputy chief economist for CMHC, said in the federal agency’s second-quarter outlook.

Canada’s housing market slowed dramatically in mid-2012 after the government tightened mortgage lending rules to head off a housing bubble. It was the fourth such move in five years. But the market has rebounded in recent months.

In its quarterly outlook, the CMHC said housing starts will be in the range of 173,300 to 192,500 units in 2013, with a point forecast, or most likely outcome, of 182,900 units, down from 214,827 units in 2012. Starts are expected to range from 166,500 to 211,300 units in 2014, with a point forecast of 188,900 units.

Existing home sales will slow to a range of 412,000 to 474,800 units in 2013, with a point forecast of 443,400 units, down from 453,372 in 2012. In 2014, sales are expected to move up in the range of 435,800 to 501,400 units, with a point forecast of 468,600 units.

Price gains are expected to slow in 2013 but regain some strength in 2014. CMHC’s point forecast for the average price calls for a 1.6% gain to $369,700 in 2013 and a 2.1% gain to $377,300 in 2014.

© Thomson Reuters 2013

Are reverse mortgages a good idea for retirees?

SHELLEY WHITE

Special to The Globe and Mail

 

 

It’s no secret that many Canadians are heading toward retirement without much money in the bank.

In a recent survey of 1,500 Canadians aged 50-plus by the non-profit Investor Education Fund, only two in 10 households said they would have more than $250,000 saved for their retirement. And half of all households surveyed said they believe they will exhaust their savings in the first 10 years of retirement.

Faced with these challenging prospects, many Canadian homeowners are considering the option of a reverse mortgage to access the equity in their home.

Here’s how it works: If you are a Canadian homeowner older than 55, you can get up to 50 per cent of your home’s value through a reverse mortgage. You are not required to make any mortgage payments and don’t have to pay any interest or principal until you sell the home or die. The mortgage is paid off from the proceeds of the home’s sale.

It’s increasingly becoming a popular choice among seniors. Steve Ranson, president and CEO of HomEquity Bank, which administers the Canadian Home Income Plan (CHIP), the main source of reverse mortgage products in Canada, says they currently have about $1.5-billion in mortgages outstanding. He projects about 2,500 new customers, or $250-million in mortgages, this year.

“Our average clients are couples in their early 70s,” he says. “They’ve been retired for a certain time and they are on a fixed income. Interest rates are low so whatever they’ve been earning on their investments is less than they planned on and they’re saying, we need a little bit more money. They bought a house for $30,000 or $40,000, now it’s worth $400,000. They love their house, they don’t want to move, but the problem is how do you get at that equity? And that’s what we do.”

Mr. Ranson says older seniors are generally eligible to receive a higher percentage of their home’s value, while younger seniors get less, with the average being about 33 per cent. Another feature of the program is the “no-negative equity guarantee,” which means that regardless of how much interest you accrue, you will never owe more than the house is worth.

“The benefit is that if you’ve got a cottage you want to leave to the kids or you’ve got other assets you want to give to charity or whatever, you never have to worry that those assets are somehow going to be used to pay the loan. You are only ever going to owe the value of the house,” Mr. Ranson says.

Lending rates differ depending on the term – the six-month term rate is currently 3.99 per cent, while a five-year rate is 5.45 per cent. At the end of each term, the mortgage resets to the current posted mortgage rate. There is an option to pay the interest annually, and Mr. Ranson says they will give clients 50 basis points off the rate if they choose that option. But he notes that only about 5 to 10 per cent of customers choose to make those annual interest payments.

“It really is designed for people who need cash flow,” he says.

Danielle Park, a Barrie, Ont.-based chartered financial analyst with Venable Park Investment Counsel Inc. and author of Juggling Dynamite, says that in most cases, taking out a reverse mortgage is not the way to go.

“The thing that stands out for me is that the interest rate is above market, quite a bit,” she says. “The five-year rates are around 5.45 per cent at the moment and they compound semi-annually, so … the debt could potentially double every seven years.”

As well, Ms. Park notes that because clients can lock in a rate only for a maximum of five years, they could run into trouble should mortgage rates start rising again.

“With rates at an all-time low, it would be more fortuitous for the homeowner if the rate was fixed but, of course, it’s not,” she says. “Once we do get into a rising-rate environment again – a normal five-year rate is 8 per cent actually – if they are charging over-market rates, potentially five years or 10 years from now it could be a big risk for the homeowner.”

Annie Kvick, a Vancouver money coach and certified financial planner who specializes in retirement planning, says that although reverse mortgages are more expensive compared with other products, they’ve come a long way. “Just the last few years, rates have gone down, they are more flexible nowadays because you can pick fixed versus variable rates, you can choose the length of term, so definitely the product with some good planning could be a good tool for some seniors.”

Ms. Kvick says the key is figuring out, with the help of a financial planner or money coach, how much you need to take out and using those funds prudently. She says that for some people, a reverse mortgage might be preferable to a home equity line of credit because it’s more difficult to access funds.

But with housing prices at an all-time high in Canada, says Ms. Park, cash-strapped seniors should consider selling their home, as opposed to heaping on debt.

“Basically the correct answer in most cases is if people don’t have sufficient cash flow and they’ve got a lot of equity in their house, [they should] downsize, sell their house, put the funds into an annuity or something that will pay them an income or actually even rent in some cases.”

Seven myths about selling your home privately

Walter Melanson

The Globe and Mail

 

 

If real estate agents are so expensive compared with many lower-cost alternatives now available to Canadians, why do the majority of home sellers still use them?

With 15 years at the helm of PropertyGuys.com, a private-sale marketing company, I’ve met hundreds of people trying to sell their homes and I’ve learned they tend to share some common fears. But most of these fears are based on misunderstandings of how real estate transactions actually work.

Here are seven of the most common worries and misperceptions I’ve come across and why you shouldn’t be worried about them at all.

1) It’s too complicated

First, buying and selling real estate doesn’t need to be complicated.
I believe that real estate is a simple function of “supply and demand” – nothing less and nothing more. Agents do little to influence supply or demand, other than going with the flow.

Unfortunately, most advertising campaigns by traditional agents or their associations attempt to convince you to be afraid of selling without an agent. This message gets even stronger (but no truer) when it is introduced by your best friend, daughter, son or long-lost uncle.

They’ll say they just want to save you from making a bad financial decision. Don’t believe them.

2) Without an agent you’ll be alone

Many programs out there today offer some level of personalized service and expertise comparable to the ones that most agents deliver. Most alternative providers recognize that you’ll probably want to have your hand held throughout the process as much as possible. Many providers are able to deliver that type of service to you.

3) Legal issues

Agents aren’t lawyers. Like many sellers, you may fear the legal pitfalls you’ve heard you’ll encounter as a result of not using an agent (you’ve probably largely heard this from agents).

Since a lawyer will need to close your transaction anyway, it only makes sense to engage them to handle any real legal fears that you may have along the way. After all, they are the real legal experts who can most easily provide you with proper guidance and advice for a mere fraction of what an agent costs.

4) Choosing your price

Many sellers fear that they will somehow price their home incorrectly (too low or too high). To alleviate this fear, many private sellers now turn to appraisers who can offer a more robust and less biased approach (appraisers aren’t paid a percentage of the sale price).

5) Lack of exposure

Missing out on exposure for your home is a very common concern among would-be private sellers. But it shouldn’t be. These days, you can get your property posted onto REALTOR.ca and a board’s multiple listing service (MLS) via brokers who charge only hundreds of dollars rather than tens of thousands (a result of the recent intervention of the Canadian Competition Bureau).

6) Too busy to take calls

For those who are afraid of missing calls from potential buyers because they are too busy – or don’t want to be harassed by aggressive agents – some private sellers are now using answering services which allow you to better manage your contacts and your showings.

7) Agents won’t show their buyers your property

That’s not true. While you may choose to avoid listing with agents, that doesn’t mean you can’t agree to pay them for bringing you a buyer. The biggest difference here is that a buyer agent is obviously going to want to secure an agreement on their fees in advance of introducing your property to their buyer.

As more alternative real estate companies pop up, I believe the most widely adopted services will be those that help sellers alleviate their fears (both real and perceived). It will be a mix of high tech but won’t be lacking in high touch. Real estate will always be a “people” business.

I concede that there will always be sellers willing to pay top dollar for the services agents provide regardless of the available alternatives.

But as more Canadians realize their fears are unfounded, it won’t be 90 per cent who choose that route.

Walter Melanson is Director of Partnerships and a principal of PropertyGuys.com Inc. The views he expresses are his alone.

Rising interest rates: Consumers, investors face sudden shift

TARA PERKINS AND TIM KILADZE

The Globe and Mail

 

 

Canadians accustomed to cheap money are quickly realizing that the era of rock-bottom rates could soon be coming to a close.

Since the worst of the financial crisis, government interest rates in Canada and the United States have remained exceptionally low, and for the past three years government bond yields have kept falling to shocking depths, with the five-year Government of Canada bond dropping once again to below 1.2 per cent in early May.

Since then, however, there’s been a sudden turn.

Although the upswing in yields was anticipated, the feverish pace of this rise wasn’t. Since the beginning of May, the yield on 10-year U.S. Treasuries has spiked roughly 60 basis points, or 0.6 per cent, to hit 2.5 per cent, their highest rate since August, 2011. (A basis point is 1/100th of a percentage point.)

These yields affect many parts of the economy, from residential mortgage rates to the values of Canadians’ pensions. The sudden jump has caught many off guard. In the past month Royal Bank of Canada has already raised mortgage rates twice.

Bond yields began rising in early May when U.S. jobs numbers came in much better than expected, and then they shot up this week after U.S. Federal Reserve chairman Ben Bernanke suggested the central bank could start tapering its asset-buying program, under which the central bank now scoops up $85-billion (U.S.) of bonds and securities each month to keep their yields low.

Now interest rates on Canadian bonds are following suit because international investors largely view U.S. and Canadian bonds as alternatives to one another.

This is “uncharted territory,” said Toronto-Dominion Bank chief economist Craig Alexander.
“We’ve never been in a world where the Federal Reserve is buying $85-billion of bonds a month, and now the government is going to start scaling that back.”

As investors navigate the choppy waters, the question now, he said, is whether the recent spike in rates will hold. “Do they continue to climb, or does the market take a pause and recognize that it went too far too quickly?”

Whatever the outcome, uncertainty is weighing on everyone from small businesses to pensioners, who wonder how the market will shake out.

The Bank of Canada’s key interest rate isn’t expected to jump higher than its 1-per-cent level for some time, but government bond yields are at the whim of the market, and these yields are the benchmarks from which so many other products are priced.

Mortgage Rates

Royal Bank of Canada, the country’s biggest mortgage lender, has boosted its five-year rates for fixed-rate mortgages twice in the last two weeks to 3.49 per cent, and has also raised rates on mortgages of other lengths. Rival banks are following suit. These hikes follow a period during which rates sank to new lows, luring more people into the housing market. Such low rates prompted Finance Minister Jim Flaherty to lecture banks at a time of high consumer debt and house prices. Now the market is doing his work for him.

Personal savings

Canadians nearing retirement have had few choices for quality, dependable investments over the past few years – something they need at such a vulnerable point in their lives. Rock-solid 10-year federal government bonds that paid north of 4 per cent before the crisis offered returns less than half that amount until early May, and the banks’ super safe guaranteed investment certificates (GICs) barely offered more than the paltry inflation rate. That’s quickly changing as bond yields rise, widening investment options for baby boomers.

Business borrowing

The rates at which businesses of all sizes, from family-run restaurants to major corporations, can borrow money are quickly escalating. These rates are priced off soaring underlying government bond yields, which means the banks and the end borrowers have little control over them. However, the upside is that higher rates make the loans more economical for the banks, because they earn better margins on them. That means the banks should be more willing to lend money out – provided businesses have good reason to borrow.

Pensions

Low interest rates have caused serious pain for defined-benefit pension plans, and rising rates should be good news for people who are counting on payments from such plans in retirement. Pension accounting rules require plans to calculate a discount rate that determines whether they have enough money to fund their pension liability. This rate is priced off of bond yields, and higher yields translate into higher discount rates, making pension plans more solvent.

10 ways to avoid buying the wrong house

By: Mark Weisleder Real Estate
TheStar.com


The most common mistake home buyers make is that they buy with their heart instead of their head.

The most common mistake home buyers make is that they buy with their heart instead of their head. This often means they pay more than they should or are disappointed when they uncover defects in the home or find out the neighbourhood isn’t quite what they thought.

1. Visit the neighbourhood on foot. 
  

Take a walk through the neighbourhood and talk to people. Drive by at 7:30 in the morning to see how many school buses are picking up children. You can also tell how long it may take you to commute to work during rush hour. By speaking to people, you can not only get a sense of the friendliness of the community, but also as to whether there are any surprises that no one is going to advertise, a local haunted house, vandalism, former grow houses, or the neighbour from hell.
 

2. Go to City Hall 
  

Visit your local building department and find out if any new developments are planned. New development may increase property values but also increase traffic. Check to see how many owners have applied for minor variances, to either build homes or additions that are larger than the by-law permits. This gives an indication of the future direction of this neighbourhood.
 

3. Find the right real estate agent 
  

Start by asking family and friends. Look for signs in the area that interest you, especially “Sold” signs. This is a good indication that the agent has the area’s pulse and knows what a home should sell for. They should also likely be aware of any problems, such as sewage backups, termites or vandalism; things that may only be known by locals. Also check the website of any agents that you may interview. Do they offer tips and explain what services they provide? Do they offer information about the neighbourhood including parks, religious institutions, demographics and schools? Ask about their success rate with bidding wars and do they know how to approach sellers who refuse to pay commission?
 

4. How much can you afford? 
  

When it comes to mortgages, it is not enough to know in advance how much you can safely borrow based on your income. Buyers should also realize that the lender will do an appraisal and if the lender believes you paid more than the house is worth, they will not give you the full amount of the loan that you expect. So, be very careful about stretching yourself to the limit when you make an offer on any home.
 

5. Title insurance is a must 
  

Title insurance can be arranged through your lawyer. You will be protected against unpaid taxes or water bills by the seller, as well as problems that are not known at closing. This includes problems where part of the home or swimming pool is in fact on your neighbour’s property. However, it is a mistake to believe that title insurance will protect you against everything. For example, title insurance will not compensate you if you thought your lot was 50 feet and a later survey showed that it was only 48 feet.
 

6. Why a survey is important 
  

A survey will reveal all boundary issues in advance, which will ensure that you do not have problems after closing, especially if you plan on making additions or other improvements.
 

7. Choose a home inspector carefully 
  

The home inspection is a critical part of the process, so do your research. Make sure the company is registered before retaining them. The Ontario Association of Home Inspectors is a self-regulating body that defines qualifications for home inspectors, and grants the designation RHI, or Registered Home Inspector, to qualified practitioners in Ontario. Most inspection firms have a limitation of liability clause, which states that if they miss something that costs you money, they are not responsible. Ask the company if they have ever been sued by a buyer.
 

8. Ask the seller hard questions 
  

Ask the sellers if they have had basement flooding problems, or mould or roof leaks, even if the leaks have been repaired. Watch how they answer. Most sellers will now refuse to sign property disclosure statements, but they are required to respond truthfully to these questions if you ask them directly. If the seller refuses to answer or acts suspiciously, then you need to discuss this with your home inspector and your real estate agent and either adjust your purchase offer or walk away.
 

9. Basement apartments must be legal 
  

If the home contains a basement apartment and the income is important to you, make sure that it legally complies with zoning and the fire code by-laws. If it doesn’t, then all it takes is one complaint from a neighbour and you may be forced to spend thousands of dollars to make it comply after you buy.
 

10. Check about your insurance premium early 
  

Find an insurance agent right away and if possible, check what it will cost to obtain insurance as soon as you sign your agreement and before you waive any conditions. An insurance agent can check the history of claims in the neighbourhood and can let you know about claims for sewage back-ups or vandalism. This is important information that any buyer should have before deciding to waive their conditions and complete the deal.
 

If you follow these simple steps and buy with your head instead of your heart, chances are you’ll get the house you want at a price you can afford, with no unwanted surprises later.
 

Mark Weisleder is a lawyer, author and speaker to the real estate industry.

Time to educate clients on what that bank mortgage really entails

Well said Jon.. Time to educate clients on what that bank mortgage really entails


I couldn't have put it better myself..

In a recent MortgageBrokerNews article, an Ontario Mortgage Broker outlines an all too common situation his client is currently facing. The broker tells the story of a deal he lost a couple years ago when the clients bank matched his rate. This happens often. A client is shopping for a mortgage with their bank and a broker. The broker gets them a better rate so they decide to go with them, and then at the last minute the bank swoops in to match the rate. The client then stays with their bank out of loyalty.

This practice has always boggled my mind personally. I don't understand the loyalty to a bank that wasn't willing to give you their best rate upfront. But that's a different story, back to my point. Flash forward to the present day, and that same Ontario Mortgage Broker is working on a refinance for the client out of the bank mortgage. This happens often, for whatever reason, people need to pay out their 5 year mortgages a couple years early.

Well... nearing completion of his refinance the client gets a phone call from the bank saying he can move his mortgage, but he'll be subject to a $12,000 mortgage penalty to break out of his existing contract. Wow! $12,000! Don't get me wrong, I completely agree with the theory behind the rule of mortgage penalties. If you sign on for a 5 year contract and want to pay it out 3 years in, then you deserve to be charged a penalty. After all, you committed to 5 years. What I don't agree with is the lack of consistency lender to lender, and the extreme lack of explanation clients are given prior to signing.

Just to be clear, there are very limited rules and regulations as to how lenders are allowed to calculate early pay out penalties. The main rule, is that they need to disclose their calculation in their Standard Mortgage Terms. Well, some may think this is enough, but I certainly don't. How many people out there have read their standard mortgage terms? Or had their banker review it with them before signing? Not likely. It's a pretty thick document. Even if the banks were reviewing this document, in my opinion it still wouldn't make a difference to clients. If your bank rep says to you, "This is how we calculate mortgage penalties, A multiplied by B divided by C," you wouldn't know that that's any different or more or less beneficial than the next lender. You wouldn't know for example, that their inclusion of the 'posted rate' in their calculation can add thousands of dollars extra to your penalty. What's even worse, is when an uneducated Bank Rep actually tells the client penalties are THE SAME no matter which lender you go with. I've personally had a client told this by a bank rep. It was a completely untrue statement that could have lured my client into a mortgage, that would have cost her thousands extra to break out of.

This is an issue in my opinion that deserves more media presence. Borrowers have the right to know that if they sign onto a mortgage with one lender their penalty could be 3x what it would be with another lender.

In the situation above with the Ontario Broker's client, if he'd gone with the Mortgage Broker's advise and taken the MCAP mortgage that was originally arranged for him before the bank matched the rate, his penalty would have been $3,500 vs the $12,000 his RBC mortgage charged him. In order to balance the difference in cost of this outrageous penalty, RBC would have had to offer a rate about 1.40% better than the Ontario Broker was offering.

I urge people to remember that mortgage brokers are trained on and know the products of 20+ lenders products, whereas most bank reps know nothing but their own, and are typically trained on only the positives of the product and not the negative. There's a lot more to a mortgage than rate, so make sure you get your advice from someone who truly understands the good and bad of each product and can properly advise you. Unfortunately this Ontario borrower learned the hard way that, "Not all mortgages are created equally."

Want a Smooth Mortgage Process? Here are some Do's and Don'ts

Every borrower wants their mortgage closing to be simple and stress free.  While it may not always feel like it (between sending documents, tracking down last years T4's and searching for bank statements), lenders do want the same thing.

Here are some timely "do's and (mostly hypothetical) don'ts" for borrowers to consider during the loan application process.  While no single list can completely cover all loans, following these "do's and don'ts" during your mortgage application process will help you close your loan faster, sleep better at night, avoid premature gray hair, and help your mortgage broker give you the best service possible.

DO:  Ask your mortgage broker questions and listen to his/her answers.
DON'T:  Solicit mortgage advice from your cousin's hairdresser who had a real estate license in 1995 and almost sold 3 houses.

DO:  Promptly provide all documents requested by your mortgage broker to speed up your closing.
DON'T:  Leave out pertinent details on your loan application, such as that pesky pending lawsuit, the layoff notice you just got at work, your unpaid child support, or the fact you haven't actually filed a tax return since 2009.

DO:  Check your email frequently during the loan process for questions and updates from your mortgage broker and respond to any requests they have.
DON'T:  Start a loan the day before you go on a two week camping trip with no cell phone or email access.
 
DO:  Make sure you and your mortgage broker discuss your rate lock, agree on when to lock, and have a plan for closing by lock expiration date.
DON'T:  Instruct your mortgage broker to lock the rate, then ask her a week later if she can improve it because you heard a radio ad stating rates dropped and are now "THE LOWEST EVER FOR THE 19TH CONSECUTIVE WEEK!!"

DO:  Be comfortable with and confident in your mortgage broker and loan before you submit a formal loan application.
DON'T:  Start the loan, then "check around" with 6 other lenders "just to see what they have" the week before your closing.

DO:  Make sure your employment, asset, and personal information are correct on your loan application.
DON'T:  Become gravely concerned because the credit card balances on your credit report aren't identical to the current balances.

DO:  Ask for a written loan estimate before you start the loan, and discuss it thoroughly with your mortgage broker .
DON'T:  Rely on vague statements such as "I'll get you a great rate", "don't worry about the new loan size", or "this is an awesome deal."

DO:  Feel free to ask questions to your mortgage broker during the loan process.
DON'T:  Leave 3 voice mails on her cell phone on Canada Day, then wonder why she didn't get right back to you.

DO:  Check ficom.org   to see if your mortgage broker is a member.
DON'T:  Rely on pop-up internet ads promising rates 2% lower than you've ever heard of for reliable mortgage information!

DO:      Fully inform your mortgage broker of any business losses or other tax situations that impact your income.
DON'T:  Ask your mortgage broker if she would like to invest in your Ponzi scheme, er, "investment club" and earn 10% guaranteed return monthly.

DO:      Get a survey done to be sure of the exact boundaries of the yard on your new home.
DON'T:  Move the surveyor's stakes 2 feet into your neighbors' lots to maximize the space available for your new pool.

DO:      Show the appraiser invoices for any major upgrades you've performed on your home.
DON'T:  Expect a significant pricing adjustment on your appraisal for adding three bushes and a new mailbox.

DO:       Tell your mortgage broker if you are buying a home from a relative.
DON'T:  "Forget" to mention the three rental homes you own free and clear.

DO:      Inform your mortgage broker if the home you're buying is for your vacation use only.
DON'T:  Tell him the duplex you're buying nine blocks from your current residence is for vacation use only.

DO:      Use your existing credit judiciously during the loan process unless instructed otherwise.
DON'T:  Open 3 new charge accounts during the loan process to save 10% on curtains, bath towels, and throw rugs for your new home.

DO:      Ask your neighbors, family, and coworkers for referrals to mortgage brokers they had great experiences with.
DON'T:  Use your boss's nephew for your loan because "he's just starting out and needs the business."

DO:      Understand that loan terms vary by credit score, equity, loan purpose, property type, loan size, tax/insurance escrows, property location, and lock period.
DON'T:  Expect to get the same rate your friend with an 820 credit score got two months ago when your score is 609 and rates went up 1% in the interim.

Should mortgage shoppers choose the 1 or 5-year fixed rate?

Robert McLister

Special to The Globe and Mail

 

 

Mortgage rate predictions are as often wrong as they are right. Yet, many mortgage shoppers believe that these forecasts give them an edge.

Unfortunately, rate expectations sometimes prevent people from picking the lowest-cost mortgage. For instance, those who believe rates can only rise could ignore shorter terms.

It doesn't help that those who sell mortgages often have an economic incentive to push standard five-year fixed terms. (Read more about that here.) And economist rate predictions play right into that, with today’s average bank economist forecasting that rates will rise in the spring of 2014.

But economists have been pushing back their rate hike forecasts for more than three years now. And, with many expecting subdued economic growth and low-inflation , it wouldn’t be shocking if they pushed them back again, to 2015 or beyond.

It is noteworthy that at the moment not one major economist, as tracked by Bloomberg, is predicting lower rates. Given Canada’s tentative economy, global uncertainties and sheer random probability, you’d think that at least one economist out of dozens would break from the herd and forecast lower rates.

Research also shows that many economists exhibit an upwards bias to their rate predictions. Three years ago, for example, not one economist tracked by Bloomberg predicted that 10-year bond yields would fall below four per cent. Today, 10-year yields are less than half that.

It’s likely that few economists now want to go on record predicting lower rates while the Bank of Canada is trying to convince us that rates are headed higher. But the central bank itself is not immune to forecasting error.

The only purely objective rate analyst is the bond market – which directly influences fixed mortgage rates. The bond market isn’t swayed by talking heads. Instead, it methodically sets rates based on inflation expectations and demand for “safe” government investments.

As a rule of thumb, the best five-year fixed mortgage rates are generally 1.50 percentage points higher than the five-year bond yield. As of when I was writing this column, that yield was 1.29 per cent. This puts us near 2.79 per cent today for an ultra-competitive five-year fixed.

But a lot of countries have five-year bond yields below one per cent. And some of those countries are arguably less desirable credit risks than AAA-rated Canada. That’s why some believe that Canadian bonds are undervalued. If they are, it’s not unthinkable that greater bond demand could boost bond prices, lower yields and reduce mortgage rates.

You may wonder if Finance Minister Jim Flaherty would let rates drop without a fight, given his criticism of BMO and Manulife for promoting sub-3 per cent mortgages. But Ottawa has little power over unadvertised rates, or those of non-bank lenders who are not federally regulated.

For that reason, if bond yields drop to 1 per cent, it’s a safe bet we’ll see 2.49 per cent five-year fixed rates. (Conversely, if five-year yields shoot above 1.60 per cent, we can wave goodbye to 2.99 per cent five-year rates, at least for a while.)

So how do you as a home owner use this information to pick the best mortgage? Like many, you may be torn between a five-year fixed and a shorter term or variable rate. Your mortgage adviser may rightly tell you that rates only need to rise three-quarters of one per cent in mid-2014, and stay there, for a five-year fixed to save you money versus a variable or short term. (That assumes you don’t need to break your mortgage , for which you’d potentially face a higher penalty in a five-year fixed.)

But what if rates stay the same – or even drop? In that scenario, today’s best one-year fixed rates would save you roughly $500 in the first 12 months when compared to a five-year fixed, for every $100,000 of mortgage.

A one-year borrower would then have the option of rolling into a second one-year term–saving at least $1,000 over two years if rates stay the same. Again, that’s $1,000 for every $100,000 of mortgage.

The question is, does this potential savings make it worth betting against higher rates? For people with tight cash flow, limited savings, high consumer debt, job instability, credit issues, minimal equity and/or a long remaining amortization, the answer is usually no.

For others, it pays to weigh the risk versus reward. You can start by comparing your term options. If you want a mortgage that’s five years or less, you can take a:

• Five-year fixed and be done with it
• One-year fixed and renew into a four-year fixed
• One-year fixed and renew into multiple one-year terms
• Two-, three-, or four-year term (These terms are currently most suited to those with a two-, three– or four-year holding time-frame. That’s because their rates aren’t compelling enough versus one-year and five-year terms, given the increased risk of higher renewal rates in two to four years.)
• Variable-rate mortgage, which won’t be a compelling value (versus a 1-year fixed) until variable discounts improve.

If you pick a one-year fixed, the risk is potentially higher rates when you renew in 12 months. Rates could pop one-half per cent or more if economic growth heats up.

If rates rose one-half percentage point before you renewed, you’d have a choice to make. You could renew into another one-year fixed, in which case you’d still be ahead if rates didn’t go up further. Or you could renew into a four-year fixed, which would lock in your total five-year interest cost at roughly $700 more than you would have paid on a five-year fixed, per $100,000 of mortgage.

Of course, rates could jump over one-half per cent in 12 months. So a one-year fixed borrower would want to be sure he/she can afford the risk of 10-20 per cent higher payments. But rates can fall as well, in which case you’d be renewing into an even cheaper mortgage.

Fortunately, it’s now possible to lock in a renewal rate up to six months in advance. The makes one-year fixed terms very nimble by reducing the time you’re exposed to rising rates by half (i.e., to only the first six months of your term).

And if you happen to live in Manitoba, credit unions offer renewable six-month terms as low as 2.14 per cent, a fantastic deal that gives you more flexibility for locking in a great rate. Hopefully we’ll some day see lenders outside of Manitoba offer six-month rates this low.

So the question is, is the guaranteed upfront savings of a one-year fixed worth the potential downside? You’ll need to be the judge. There are exceptions to the above guidelines so get personalized advice.

One thing we know is that despite all the jawboning about rate increases, no one can tell you with any degree of certainty where rates are headed. There is at least a 50 per cent theoretical chance that rates will move sideways or drop in the next year. Trading in a long-term mortgage for a one-year fixed can therefore be a sound play for certain financially secure borrowers.

Robert McLister is the editor of CanadianMortgageTrends.com

The case for locking in your mortgage

ROB CARRICK

The Globe and Mail

 

 

You can’t go wrong if you respond to this week’s mortgage rate increases by locking in for five or 10 years.

But at least consider the alternative: Variable-rate mortgages sound risky in today’s volatile interest rate environment, but they’re actually a quiet corner of the mortgage world right now.

We’ve had several rising-rate episodes in the past few years, but they’ve invariably fizzled. In each case, one of the many global economic trouble spots has gone critical and caused rates to retreat. Will this latest rate spike unwind itself, too? Can our low-rate utopia last indefinitely?

Smart borrowers today work on the assumption that the answer is no. The question, then, is how to best keep mortgage costs low today while also protecting against future increases.

Let’s consider the lock-in option, first. That’s where people with variable-rate mortgages convert at no cost into a fixed-rate mortgage, and new home buyers go with a five- or 10-year fixed rate mortgage. It happens to be an excellent time to lock in, even if some banks have boosted their special five-year fixed mortgages rates by 0.2 of a percentage point this week.

The banks were responding to a big runup in the yield on the five-year Government of Canada bond, which sets the trend for five-year mortgages. But thanks to a highly competitive mortgage market, lower rates are still available. Kim Arnold, a broker with Dreyer Group Mortgages in Vancouver, said earlier this week that she was able to get a very competitive five-year rate of 2.89 per cent for clients.

“Rates are phenomenal, even with this latest increase,” she said. “It’s certainly not a bad time to lock in.”

David Larock of Integrated Mortgage Planners in Toronto sees zero urgency for locking in, mainly because of the potential for yet another global economic scare to send rates lower. Europe’s problems with high government debt levels and slow economic growth could do it. So could Japan’s rickety economic fundamentals, worry about weakening growth in China or uncertainty over the sturdiness of the U.S. economic recovery.

Low inflation is another constraint on rate increases, Mr. Larock said. “I think the Bank of Canada is probably more concerned about getting inflation to go up as opposed to going down.”

It’s this line of thinking that leads Mr. Larock to make a case for the variable-rate mortgage, where your rate rises and falls along your lender’s prime rate
.
The prime, in turn, is guided by the Bank of Canada’s benchmark overnight rate of 1 per cent, which hasn’t moved since September, 2010, and is expected to remain steady until the latter half of next year.

“The prime rate moves when the Bank of Canada changes their rates, and they’re not going to jump around like the market does in terms of what happens with five-year Government of Canada bonds,” Mr. Larock said. “These bonds are subject to the vagaries of large institutional investors, and to the ebb and flow between the stock market and bonds.”

Another reason to look at variable-rate mortgages is that the discounts have improved recently. Mr. Larock said it’s now possible to get a variable-rate mortgage with a discount of as much as 0.5 of a point off prime in some provinces.

That means a rate of 2.50 per cent, which compares to a range of 2.72 to 3.29 per cent for discounted fixed-rate mortgages over five years, depending on which lender you deal with.

If you go with a variable-rate mortgage, you’re vulnerable to the short-term rate increases the Bank of Canada will eventually start using to keep economic growth under control.

Toronto-Dominion Bank’s economics department expects a half-point rise in the overnight rate in the fourth quarter of next year.

As for five-year fixed rates, they could retreat again in the weeks and months ahead if there’s another global economic scare. But TD chief economist Craig Alexander said the broader trend in the bond market is the start of a move toward more normal levels. Next year, he sees the five-year Canada bond yield at 1.85 per cent, up from 1.60. “I think bond yields are going to grind higher, but 1.85 per cent on a five-year Government of Canada bond is still incredibly low.”

The best strategy for most people today is to lock in quickly to today’s best five- or even 10-year rates (read my case for the 10-year mortgage online at tgam.ca/DqYG). As Ms. Arnold, the Vancouver mortgage broker, put it, “I don’t honestly think anyone can make a mistake by locking in.”

----------

Mortgage Rate Survey
A range of best rates available from banks and through mortgage brokers

Type	Best rates available (%)
Variable rate	2.50 to 2.60
One-year	2.39 to 2.59
Two-year	2.49 to 2.69
Three-year	2.49 to 2.69
Four-year	2.69 to 2.89
Five-year	2.72 to 2.89

 
Source: RateHub.ca

Google Glass real estate app promises a simpler house hunt

Financial Post Staff


It won’t negotiate a better price for you, but there’s not much else a new app being developed for Google Glass won’t do to help you find a house.

Trulia, a U.S. real estate listings website, has designed an app for the Internet-powered headgear that sends users an alert when they are near an open house that matches up with criteria on their wish list, such as number of bedrooms, neighbourhood or price range.

The app can read out any given property listing and lets users flick through images of properties by swiping the side of the device.

If you decide you’d like to take a closer look at a house, the app can also give you directions on how to get there. Or you can save listings for later viewing.

Real estate agents are sure to like the program, too, as it lets prospective buyers call or email about properties directly from the device.

So, what makes Trulia for Glass different than the countless smartphone apps available to tech-savvy house hunters?

“Glass notifies me when I receive a message, but nothing appears or impedes my vision,” writes Jeff McConathy, VP engineering consumer service at Trulia, in a blog post on the company’s website.  ”It’s a very different experience than having your head buried in your phone while the world passes by.”

McConathy notes he’s still working on tweaking the app but hopes to have it available to Glass users soon.

Google released a limited number of the devices to developers and early adopters for US$1,500 a pop in April. The company hopes to lower the price of Glass, which lets users snap photos and surf the Web among other tasks, by the time it’s released on the mass market next year.

Housing still booming? Construction jobs growth leaves economists slack-jawed

Garry Marr
The Financial Post


It’s just a number and only one month of data but the 43,000 jobs created in the construction sector in May has some questioning their math and others wondering whether the real estate sector still has legs.

Statistics Canada figures — they are not broken down between residential and commercial employment — show the seasonally adjusted data for construction jobs is the best monthly number in the past decade.

It has even the economists confounded.

“I think there is a bit of disbelief. It’s so surprising,” said Sonya Gulati, senior economist with Toronto-Dominion Bank.

She notes data is seasonally adjusted but even with that factored in you can get some upward momentum based on the time of the year that numbers comes out.

But the real estate sector got more positive news from building permit numbers released this week by StatsCan which showed Canadian municipalities issued $7-billion in permits in April, up 10.5% from March. It was the fourth straight month that the figure has risen.

It’s not just residential construction that is booming, the office component of commercial activity continues to experience good times across the country.

“There are 19 million square feet of office under construction. There are 20 plus office buildings going up as we speak,” said Ross Moore, director of research for Canada for CB Richard Ellis. “In downtown Toronto, we’ve never seen so much under construction, including the 1970s and 1980s.”

All this leaves the economy more vulnerable to real estate than ever and the hope is once the residential sector ramps down those jobs will eventually be replaced, said Avery Shenfeld, chief economist at CIBC. “We need by 2014 something to step up and take the place of home building as a source of job growth and the hope is it’s the export sector and non-residential construction associated with business and capital spending. It’s a reasonable hope.”

Bill Ferreira, director of government relations and public affairs at the Ottawa-based Canadian Construction, said the overall trend in the sector has been positive.

“There are a number of things going on in the country, that require additional construction capacity,” he said. “Some of it is the hot condo markets in cities like Toronto and Vancouver. Others have been include been natural resource extraction, so infrastructure required to ensure that those projects can go forward.”

But he suggested it might be a bit too early to get overly excited about the job growth since there are so many month-to-month variables.

Brian Johnston, chief operating officer of Mattamy Homes, said there is no question in Ontario that slowing sales have cooled hiring in the province.

“But we are definitely hiring out west. It’s just exceptionally strong,” said Mr. Johnston. “I just met with my president this morning and he was showing me this big huge organizational chart with yellow boxes [that stand] for people we need to hire. I’m going ‘you have a lot of work in front of you’ because it very difficult to get people and staff out west.”

Not everyone is convinced. Noted housing bear David Madani, Canada economist for Capital Economics, is sticking with his call for up to a 25% decline in home values — a call he first made about two years ago.

“Everybody got excited because permit numbers jumped up. I’ve seen spikes like this before,” he says. “We may seen housing starts actually pop up in June.”

He says that’s a prescription for an even harder fall. “We all know condo sales have slumped and inventories are rising and therefore why on earth would you [build more],” said Mr. Madani, adding many of the jobs being created today are from projects announced two years ago. “There is definitely a lag.”

Vancouver home sales turn a corner

BRENT JANG

VANCOUVER — The Globe and Mail

 

 

Greater Vancouver’s real estate market is finally perking up after a 19-month slump.

The Vancouver area’s housing sales volume rose by 1 per cent in May amid early signs that the region’s property market could be slowly inching back.

The number of resale properties that changed hands on the Multiple Listing Service last month was 2,882, up from 2,852 sales in May of 2012, according to the Real Estate Board of Greater Vancouver.

The board’s May home price index which strips out the most expensive properties, was $598,400 for single-family detached homes, condos and townhouses – a decrease of 4.3 per cent from the same month in 2012, but up 1.8 per cent since January of this year.

The slight increase in homes sold on the MLS in May – an extra 30 compared with a year earlier – contrasts with monthly decreases in sales volume last year that ranged from 13.2 per cent to 32.5 per cent. In February this year, sales volume fell 29.4 per cent year-over-year, but the pace of transactions has been gradually picking up since then.

The last time that Greater Vancouver experienced a year-over-year gain in monthly sales came in September of 2011, when 2,246 properties were sold, up 1.1 per cent from 2,220 in September of 2010.

Greater Vancouver board president Sandra Wyant said the number of resale transactions last month was still 19.4 per cent below the 10-year sales average for May. Last month’s volume was 9.7 per cent higher than April’s 2,627 sales.

Ms. Wyant is encouraged by a measurement known as the sales-to-active-listings ratio, which registered 16.7 per cent in Greater Vancouver in May. B.C. real estate agents consider it a balanced market when the ratio ranges from 15 to 20 per cent. It is deemed a buyer’s market below 15 per cent and a seller’s market above 20 per cent in the Vancouver region.

“Based on the statistics, we’re definitely seeing a trend into a balanced market,” Ms. Wyant said in an interview. “The amount of listing inventory has begun to decrease, so it’s not a marketplace where you have a lot of time to make decisions any more. The sellers and the buyers are working together to get homes to sell. You need to be prepared and ready to buy at close to the list price, if the property is priced well.”

The total number of active listings in May was 17,222, or a 3.4-per-cent decline from a year earlier. There were 5,656 new listings in May, or an 18.3-per-cent decrease from 6,927 new listings in the same month of 2012.

Sellers are increasingly avoiding a boom-time mindset and becoming realistic with their list prices, and that translated into a flurry of transactions that came within 98 per cent of the asking price last month, Ms. Wyant said.

Greater Vancouver’s benchmark home prices have now risen slightly month-over-month from February to May.

In the Fraser Valley, which includes the sprawling and less-expensive Vancouver suburb of Surrey, benchmark May prices for single-family detached homes, condos and townhouses slipped 0.5 per cent to $427,200. Sales volume in the Fraser Valley declined 14.7 per cent last month to 1,379.

The sales-to-active-listings ratio was 13 per cent in the Fraser Valley in May. The index price for single-family detached homes was $549,200 last month, up 0.2 per cent from May of 2012.

Fraser Valley board president Ron Todson said prices in his area were relatively stable last month, helped by a 2-per-cent drop in active listings.

A soft landing for housing sales, but prices up in the air

TARA PERKINS - REAL ESTATE REPORTER

The Globe and Mail

 

 

Home sales are stabilizing in the spring market, but housing prices are still on the rise – sharpening concerns that Canada’s real-estate market is overvalued.

The latest data suggest that the number of homes changing hands is relatively steady, after a period of steep year-over-year sales declines. This is welcome news to federal policy makers, such as Finance Minister Jim Flaherty, who wanted to take some momentum out of the market to curb fast-growing consumer debt levels – which come largely from mortgages – and prevent a housing bubble from forming.

“Last year’s deep downturn in Canadian home sales appears to be fading,” said Bank of Montreal economist Sal Guatieri.

Even condo developers, many of whom were scaling back amid fears of overbuilding, appear to be jumping back in the game. “If Canada’s housing boom is over, someone forgot to tell condo builders,” said Bank of Montreal vice-president and senior economist Benjamin Reitzes.

The value of building permits issued in April jumped 10.5 per cent on the back of a 51.9-per-cent surge in multiunit residential permits, he said.

While the steep slump in sales that began last summer now appears to be ending, it did not remove the key issue that first sparked fears a bubble might be forming in Canada’s housing market – high house prices.

The Organization for Economic Co-operation and Development said Canada has one of the three most overvalued housing markets in the world, coming after Belgium and Norway. But unlike in Belgium, Canadian house prices continue to rise, putting the country at higher risk of vulnerability to a price correction, the OECD said, “especially if borrowing costs were to rise or income growth were to slow.”

Falling prices tend to lag falling sales and many economists expect that prices will eventually drop, but not much. Prices have held up so far because, as demand has fallen, so has the number of homeowners listing their properties for sale, said Canadian Imperial Bank of Commerce economist Benjamin Tal. “I think we will still see prices go down in the next year or two, and it will probably start in the condo market.”

Earlier this week, Toronto-Dominion Bank economists said that, while they had asserted in 2011 that house prices were 10-per-cent too high, the increase in prices has been weaker since then and personal incomes have risen, so they have revised their estimate to about 8 per cent.

The latest data suggest that the softening in prices is likely to be milder than expected. In Vancouver, the city that was the frothiest in 2011 and the hardest hit by last year’s correction, prices did decline. But they’re already on the mend.

“While benchmark prices are still down 4.3 per cent from the record high of May, 2012, they have climbed modestly in the past four months,” Mr. Guatieri said of Vancouver. “Some of the increase is probably seasonal, but the recent stability begs the question: If the priciest market in Canada can muster a mere 5-per-cent price correction, should not the rest of the country (and in particular Toronto) have even less to worry about … barring, of course, a larger shock than tougher mortgage rules.”

Mr. Guatieri also noted that Toronto’s home prices are hitting new highs. “Even the abundantly supplied condo market popped above $300,000 for the first time ever [according to the MLS Home Price Index].”

In May, sales registered on the Multiple Listing Service were 3.4-per-cent lower in Toronto than in the same month last year. But the average selling price was $542,174, up 5.4 per cent from a year earlier. The MLS home price index, which seeks to adjust for any changes in the types of homes that are selling at any given time, was up 2.8 per cent from a year ago.

Vancouver’s sales rose by 1 per cent in May, compared with a year earlier, and were up 9.7 per cent compared with April. That was the first positive result since September, 2011, Mr. Guatieri noted. Calgary, meanwhile, saw a 6.9-per-cent increase in sales in May.

Mr. Tal said that while he agrees with the OECD, there may not necessarily be a housing crash. “I do not see smoke. I see a boring, slow process over five to seven years that will take fundamentals and prices back in line.“

4 questions to ask before buying a rental property

By Krystal Yee

Canadian Living

 

 

Owning a rental property can be a profitable investment -- but it's not for everyone. Here are some questions to ask yourself before you take the plunge.

 

If you're thinking of purchasing an investment property to rent out to tenants, you will need to do some serious research. There's much more to being a landlord than putting up an ad on Craigslist -- it's like taking on a second job. You will need to factor in realistic financial projections, and carefully weigh the pros and cons of your decision.

Here are a few things to consider before purchasing a rental property.

1. Do you have enough saved for the down payment?
Under Canada's new mortgage rules, you must come up with a down payment of at least 20 per cent for a small rental property holding from one to four units. This rule does not apply to borrowers whose principal residence also includes rental units.

2. How much income will the property generate?
You will need to do some research into the neighbourhood. What does rent typically cost, and what is the vacancy rate in that area? Don't assume that you will always have a tenant -- according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada's 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don't forget to calculate potential costs, such as repairs and maintenance.

3. Can you be a successful landlord? Being a landlord is a second job. It's not just about finding a tenant and letting the money come in every month. Not only do you have to be available to field emergency calls and keep up with maintenance such as routine fixes, yard work and even shovelling snow, but if you rent to the wrong tenant, you might have even bigger problems to deal with, such as non-payment of rent. Hiring a property manager can help, but that will greatly reduce your monthly profit from the property -- and you never want to be in a negative cash-flow situation.

4. How will deductions affect your profits?
By deducting certain expenses from your income, you can reduce the taxes that you owe. Applicable expenses include mortgage interest, property tax, insurance, property management, maintenance and utility bills. You can also deduct any losses from your rental property. If your expenses exceed your rental income, you can subtract your losses from any other source of income you have coming in.

Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.

Want to learn more? Check out the Canada Revenue Agency's Rental Income Guide, where you can get more information on deductible expenses, and most other issues regarding rental property.

Spring puts bounce back in Canadian home prices

Andrea Hopkins, Reuters
The Financial Post
 

 

TORONTO — Canadian home prices jumped in May from April as a spring rebound in real estate continued in most cities, offsetting a couple of weak markets, the Teranet-National Bank Composite House Price Index showed on Wednesday.

The index, which measures price changes for repeat sales of single-family homes, showed overall prices rose 1.1% in May, the ninth time in 15 years that May prices were up 1.0% or more from April.

The index was up 2.0% from a year earlier, which matched the April rate and marked the smallest 12-month gain since November 2009.

 

The report suggested Canada’s housing market regained strength in the spring after a long slow winter of decline following the government’s move to tighten mortgage lending rules in July 2012.

Residential real estate activity typically picks up in the spring, and economists have been waiting to see if demand will return after a dramatic slowdown since the middle of 2012.

The report echoed one released on Monday by the Canada Mortgage and Housing Corp that showed housing starts jumped much more than expected in May from April, suggesting residential construction may contribute to Canadian economic growth in the second quarter.

The Teranet data showed prices rose in May from April in nine of the 11 metropolitan markets surveyed, led by a 2.3% gain in Calgary and a 1.9% rise in Edmonton. Prices were up 1.4% in Hamilton, 1.2% in Montreal and Winnipeg, 1.1% in Ottawa, 1.0% in Toronto, 0.8% in Quebec City and 0.7% in Vancouver.

They were flat in Halifax and down 0.8% in Victoria.

Year-on-year prices dropped in two cities — Victoria, where they were down 4.1% from May 2012, and Vancouver, where prices fell 3.2%. British Columbia had the hottest housing market going into the downturn.

Compared with May 2012, prices were 6.5% higher in Quebec City, 5.8% higher in Calgary and Hamilton, 4.6% higher in Winnipeg, 4.0% higher in Edmonton, 3.9% higher in Toronto, 2.3% higher in Halifax, 2.0% higher in Ottawa and 1.9% higher in Montreal.

© Thomson Reuters 2013

5 ways to manage money like a millionaire

Megan Durisin and Mandi Woodruff, Business Insider
The Financial Post


Martin Graham, chairman of London’s Oracle Capital Group, knows a thing or two about millionaires.

His wealth consultancy firm manages several billion dollars for about 40 European families, most of whom are self-made entrepreneurs. 

“They’re brilliant at running their company, but may not be brilliant at handling their own money,” said Graham, who is also a former Director of Markets for the London Stock Exchange.

 


 The goal of most millionaires is two-fold: to keep getting richer and to protect the riches they’ve already earned.

The good news for the more modestly-heeled consumers out there is that the super wealthy don’t have any secret skills that the rest of us can’t imitate.

We asked Graham to share a few guiding principles that anyone –– whether you make $50,000 or $5 million –– can use to better manage their money.

1. Only invest money you have for the long-term. Unless you’ve got a nice stash of emergency funds on hand first, you have no business meddling in the stock market. Here’s the rule of thumb Graham typically goes by: ”Don’t invest money that you can’t lock away for five years.”

2. Don’t invest in anything that you don’t understand yourself. When it comes to investing, individuals often have an edge over the professionals, Graham said. For example, when famed British retail chain Marks & Spencer brought in new product lines and lost touch with customers in 2012, it wasn’t stock analysts who picked up on it first. “The man on the street knew that,” Graham said. “You should invest in things you understand because the experts can get things wrong.”

3. Don’t sit on your investments for too long. We’ve all heard it before, but Graham emphasized the need to diversify your investments, both by location and industry. It’s important to have some downside protection in the markets world, and you probably will need to shift around investments on occasion, he said. That doesn’t mean spending hours a day trading obsessively or trying to beat the market. Prepare a plan with a financial advisor on how often you should rock the boat.  ”Be prepared to rebalance your portfolio to get the best returns from time to time, ” Graham said, especially as you age and are less willing to take risky bets with your nest egg.

4. Go against the crowd. The markets –– and the media that follow them –– aren’t always right. Gold was everyone’s investment du jour a year ago, and now it’s tanking faster than the Titanic. And who could forget the Dot Com boom of the early 00′s and 2008′s crippling housing crisis. Don’t be afraid to buck the trend and invest in things that aren’t getting all the attention sometimes. “You need to be brave to buy against market sentiment,” Graham said. As always follow the golden rule of buying low and selling high.

5. Prepare for a rainy day. The no. 1 goal of the rich is to protect their wealth at all cost. ”A lot of our clients are interested in preserving wealth for future generations,” Graham said. That means making sure that they are prepared for any business or personal circumstances that may pose a threat. For most people, that could be as simple as losing a job or going through a divorce. You could invest all day in the market or buy up a chunk of cheap real estate, but without liquid assets to depend on in leaner times, you won’t get far.