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Cubitat unveiled in Toronto shrinks a whole house into a 10-foot prefab box

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9F89709F-8030-4D49-ABE2-85BC8CC7946BThe next step in micro living is completely re-imagining what the interior of a home should be. That’s where the “Cubitat” comes in.

Unveiled at this year’s Interior Design Show in Toronto, the Cubitat is quite possibly the most versatile and useful 10′ x 10′ x 10′ piece of furniture ever. It’s a prefab cube outfitted with all the conveniences of a living space in a tiny package.

The developers are calling the cube “plug and play,” as in all you need to do is hook up electricity and plumbing and find an outer shell, and then you’ve got a fully functional home.

Related There is a now a video game that lets you assemble Ikea furniture Airbnb Is Offering A Chance To Stay In a Luxury Cable Car 9,000 Feet Above The French Alps Old Paris Factory Built By Gustave Eiffel Turned Into A Gorgeous $11.5 Million Mansion It sits in any space that can fit it — provided you also have enough room to open its doors and pull out the bed — and has a variety of functions, including:

A full kitchen for preparing meals.

Urban Capital

A bed for sleeping, along with an entertainment center and space for a TV.

Urban Capital

A full-sized bathroom is hidden in the interior of the cube.

Urban Capital

Plenty of storage space.

Urban Capital

A collaboration between Toronto-based Urban Capital development and design firm Nichetto Studio, the cube will be completely customizable to the core elements needed in your life.

Once it moves past the prototype stage, the cube will be available for anyone to order and customize.

We can’t wait.

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By this time next week, Canadian consumers borrowing for a home might be looking at the lowest rates in the country’s history as a result of the Bank of Canada’s rate cut on Wednesday.

Top five takeaways from Bank of Canada’s surprise rate cut

Governor Stephen Poloz called the cut ‘insurance’ against low oil prices. Here are the bank’s top messages on how the oil rout could impact the economy Interest rates on the discount market are already 2.05% on a variable rate, five-year mortgage and 2.57% on a five-year, fixed rate mortgage, said Rob McLister, editor of Canadian Mortgage Trends.

“We haven’t heard from the banks yet,” he said, referring to whether financial institutions will match the central bank’s 25-basis point cut. Bank lending rates tend to move with prime which variable rates are tied to. “Historically it takes a day or two for them to move.”

With the average discount on a variable rate product 75 basis points, that means a 2% rate if banks move their prime rate to 2.75% from 3%. Based on the lowest variable available Wednesday, the 25-point reduction would result in a 1.80% rate.

But it’s not just floating rates that are about to fall. Bond yields have been sinking and Mr. McLister said the five-year fixed rate could be as low as 2.35% unless the banks decide to hold onto profits. “Bond yields have been falling like a knife,” he said.

All of this comes as the real estate market heads into spring market, which is its busiest time of the year — but comes as real estate price gains have begun to slow in a number of major markets across the country, if not Toronto and Vancouver.

Peter Norman, chief economist with Altus Group, said real estate prices have been flat but sales steady over the past six months.

We have a generation of Canadians that never experienced high or even rising rates “[Prices] have not been accelerating much beyond the rate of inflation,” he said, noting an index used by the Canadian Real Estate Association shows prices up just 0.65% over the past six months. “A decline in mortgage rates will probably create a little bit of extra stimulus.”

Canadians who do want to take advantage of the rate cut to move into a floating rate product will still be held back by rules Ottawa imposed to curb the housing by forcing people to qualify based on the five-year posted rate — now 4.79%.

About 28% of Canadians are in variable rate products, according to Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals.

“It’s been stable around that level for a long time,” said Mr. Dunning, adding only a large gap between variable and fixed causes people to shift.

One benefit of the cut could be that Canadians will use the lower interest payments to pay down principal faster, said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce.

“We have seen before when people leave their payments unchanged but more of it will go to principal,” he said. “We should question the effectiveness of this move on housing. We have a generation of Canadians that never experienced high or even rising rates so for them those low mortgage rates are not as exciting as they were before. They are taken for granted.”

Phil Soper, chief executive of Brookfield Real Estate Services Inc., thinks central Canada, which is already benefitting in savings from lower gas prices, just got a further impetus to buy.

In the west, he thinks lower rates will provide a mitigating factor in a market which is expected to slow in the coming months amid lower oil prices.

On risk of government moving to further regulate the sector, he said the Greater Toronto Area is probably most at risk.

“I still believe prices will rise more modestly in 2014 [in Toronto],” said Mr. Soper, who doesn’t expect there to be a need for Ottawa to intervene.

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Harold Gerstel, who works behind a metal security cage at his cash-for-jewellery shop in Toronto’s Lawrence Manor neighborhood, has found another way to make money: arranging mortgages.

With Bank of Canada rate cut, sub-2% mortgages are coming to a bank near you

imageBy this time next week, Canadians borrowing for a home might be looking at the lowest rates in the country’s history as a result of the Bank of Canada’s rate cut. Find out more Gerstel, who promises a mortgage in five business days in daytime commercials, said he serves borrowers with low-income, little documentation and a record of late payments. Since 2011, he has sourced hundreds of mortgages with lightly regulated nonbank lenders.

“We arrange mortgages for the average Joe,” Gerstel said over a blaring television in his shop, which is furnished with weathered black leather couches. “The banks are very strict today. A lot of these people go to the bank and they get refused. So they turn to the private market.”

Gerstel, 57, is part of an expanding industry of mortgage brokers and nonbank lenders who operate outside the reach of federal bank regulators. They’re thriving after Canada introduced a half-dozen mortgage rules since 2008 to cool its soaring home prices. While slowing the growth of traditional bank loans, the regulations have pushed new borrowers into an opaque market where nonbanks provide uninsured, short-term mortgages at interest rates as high as 20%.

The Bank of Canada warned in December that the less regulated lenders pose financial risks. Canada is among countries where financial activity outside the regular banking system is on the rise, and the industry’s “lack of transparency” could be hiding issues such as an overextended balance sheet and faulty risk-management, the bank said in its 2014 financial stability review.

Shadow Banking

“A sizable proportion of new, uninsured mortgages are being issued to riskier borrowers,” the bank report said. “Although less-regulated lenders account for only a small share of overall lending in Canada, stress experienced by one or several of these entities could have adverse financial and economic spillover effects.”

About 80% of mortgages in Canada are created by federally regulated lenders, including its five biggest banks, according to a 2013 Bank of Canada report. About 5% of home loans are originated by unregulated lenders, the report said. Shawn Allen, head of brokerage Matrix Mortgage Global, is among those in the industry who said these loans comprise closer to 10% of the market.

“A lot of this business falls out of the regulated space and into the shadow banking or unregulated space,” said Martin Reid, president of Home Capital Group Inc., one of a handful of nonbank mortgage lenders that are federally regulated. “It may become a bigger systemic risk.”

Related Mortgage rate thaw renews fears of Canadian housing bubble Vancouver’s housing market ranked second most unaffordable in the world How Airbnb renters are helping Canadians pay off their mortgage in a grey-market area Soaring Prices

The average price of a house in Vancouver rose 67% since January 2005 to $638,500 in December. Toronto prices jumped 71% in the same period to $521,300, according to the Canadian Real Estate Association.

Canadians are taking on record debt to buy homes even as the government has enacted lending restrictions. The rules, imposed by the Office of the Superintendent of Financial Institutions and the Department of Finance, include higher down payment requirements and a shorter amortization period to 25 years from 30 years. The curbs constrained bank lending growth to 4% in 2014 from 11% in 2008, according to data compiled by the Canadian Bankers Association.

The restrictions are driving borrowers to nonbank lenders, which are rapidly expanding to meet demand, said Benjamin Tal, the Canadian Imperial Bank of Commerce deputy chief economist. Home loans from shadow lenders are growing about 25% annually, he said.

Jumping In

“There’s been a lot of hype in the market, everyone is jumping into the wave without understanding how to lend properly,” said Reza Nezami, a managing director of nine-year- old First Swiss Mortgage, a nonbank lender in Toronto. “It’s like the tech boom. It creates a risk for borrowers, investors lose their money. They create a bad mark on the sector.”

Nezami said a few hundred high net-worth investors — those who earn at least C$200,000 annually — finance his firm’s mortgages with a minimum investment of C$100,000. Investors receive an average return of 13.5% each year, he said.

“It used to be Uncle Joe who would go to his lawyer and say, ’I have a few million dollars and I want to lend this out and make a good return,’” Nezami said. “Those people are still around but some of them are also” creating lending companies.

15% Rates

First Swiss matches the risk profile of loans to the desires of investors. The lender examines a borrower’s pay stubs, job confirmation letter, up to 12 months of bank statements and their credit history, Nezami said. The firm lends up to 95% of the value of a home with a maximum one-year term and a mortgage rate from 5% to 15%.

“We follow a different guideline that ensures clients don’t get stuck in that systematic calculation that the banks do,” Nezami said. “But we are not going to take undue risk. We will take a calculated risk.”

After a year of making monthly payments, many borrowers establish better credit and refinance the loan, Nezami said. First Swiss has had only one borrower default in its history, he said, and it took possession of the house.

One client of brokerage Matrix Mortgage turned to a nonbank lender after Royal Bank of Canada rejected her application for a mortgage. The client, an entrepreneur, didn’t want to go through the hassle of having her income verified by a third party, such as an accountant, as the new rules require.

Mortgage Approved

The client found that Xceed Mortgage Corp. had no qualms providing a mortgage. The three-year C$380,000 loan came with a 5% interest rate, about double the average comparable rate at one of the big five banks.

Allen at Matrix Mortgage said business has almost doubled each year since operations began in 2008. Matrix agents field calls from its second-floor office in north Toronto from customers who see their advertisements that say: “Bad credit? No credit? Mortgage approved.”

Senior agents, or those with at least a year of experience, match borrowers with individual investors and mortgage investment corporations. Investors can get returns as high as 20%, the interest rates charged to some borrowers, Allen said in an interview at his company’s headquarters.

He prefers to offer loans below 80% of the value of the property to limit losses in case of a housing price downturn.

Important Role

“You have to live somewhere. So who is the government to say that people shouldn’t be buying?” Allen said.

Jim Murphy, chief executive officer of the Canadian Association of Accredited Mortgage Professionals, said nonbank lenders play an important role in the market.

“It’s not a bad thing at all,” Murphy said. “There are people that want a mortgage and are prepared to pay a high percentage for it. That’s the appetite of risk the companies have taken and some are very, very good at what they do.”

Tal, the bank economist, said regulators may need to provide more oversight of nonbank lenders in the future to gauge their risk as their market share grows.

“We don’t have good information on what’s not regulated,” Tal said. “To the extent that banks have to leave something on the table, it means that there is a vacuum in the market that invites the less regulated bodies into the system. That can increase the risk profile of the market as a whole.”

Provincial Monitors

Provincial authorities license and monitor mortgage agents, brokers, brokerages and nonbank home lenders but don’t set policy or regulation. In the country’s most populous province, the Financial Services Commission of Ontario asks its members to answer annual surveys on the amount of mortgages sold, record- keeping methods and number of complaints.

There are 146 licensed mortgage administrators — those who collect loan payments from borrowers and send them to investors — and 1,429 brokerages listed on FSCO’s website. Most are not federally-regulated. FSCO has taken action against six mortgage administrators in the last five years, and about 40 brokerages in 2014 alone, the data show.

FSCO spokeswoman Aisha Silim referred questions about the growth and regulation of the nonbank mortgage market to Ontario’s Ministry of Finance. Ministry spokesman Christian Bode said FSCO is responsible for regulating the industry in the province. He said the ministry’s review of the Mortgage Brokerages, Lenders and Administrators Act last year recommended additional consumer protections against fraud.

Regulator Response

Stephanie Rubec, spokeswoman for the Department of Finance, which sets policy, declined to comment on whether regulators were considering actions to curb the potential risks from nonbank lenders.

“The government actively monitors developments in the housing market and consumer debt as well as the broader economy,” Rubec said in an e-mail.

Rubec said that many non-federally-regulated lenders must comply with federal rules if the mortgages are backed by Canada Mortgage & Housing Trust insurance or sold to a bank.

The Office of the Superintendent of Financial Institutions said it monitors mortgage market developments and their impact only on federally regulated home lenders and insurers.

“We discuss emerging trends with financial institutions as part of our on-going supervisory processes,” said spokesman Brock Kruger in an e-mail in response to questions about the growth of the nonbank mortgage market.

The Bank of Canada is working with authorities to monitor the market, spokeswoman Josianne Menard said in an e-mail, without elaborating.

Interest Rates

Todd Foster, an agent for brokerage Northwood Mortgage Ltd., has arranged thousands of loans and anticipates a day of reckoning when the Bank of Canada overnight policy rate, which the bank cut to 0.75% today, rises.

“Eventually what’s going to happen is interest rates are going to start creeping up again and we’re going to have a housing crash,” he said. “I’m sure the government’s going to step in with more rules before you know it.”

Gerstel, the cash-for-jewellery dealer, is expanding his mortgage business after getting his brokerage license in December. He said he plans to provide thousands of loans under the name “Harold the Mortgage Closer.”

“I’m always going to do a little bit of jewellery but I’d rather do mortgages because there’s a lot of room for growth there,” he said from his store along a strip of pawn shops and pizza joints. “Every day there’s thousands of thousands of people that need mortgages.” Bloomberg.com LATEST PERSONAL FINANCE VIDEOS

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The Bank of Canada’s bid to stimulate a sluggish economy with a surprise rate cut is getting no help from the nation’s big banks.

With rate cut, sub-2% mortgages are coming to a bank near you

By this time next week, Canadians borrowing for a home might be looking at the lowest rates in the country’s history as a result of the Bank of Canada’s rate cut. Read on Toronto-Dominion Bank, Canada’s largest lender, says it has no plans to cut its prime rate to match the central bank’s move, keeping the rate linked to variable mortgages, car loans and other securities, at 3%. Other banks, including Royal Bank of Canada, are also holding off.

“Our decision not to change our prime rate at this time was carefully considered and is based on a number of factors, with the Bank of Canada’s overnight rate only being one of them,” spokesman Mohammed Nakhooda said in an e-mail statement.

The Bank of Canada unexpectedly lowered its overnight lending rate a quarter of a percentage point to 0.75% Wednesday as a plunge in the price of oil dims the outlook for the economy. Prime rates have traditionally moved in lock-step with the central bank’s benchmark level, though there’s been departures in the past.

“The question becomes: Is this going to raise the ire of the Bank of Canada or the government?” John Aiken, analyst at Barclays Plc, said in an interview Thursday. “If you’re doing this to stimulate the economy and it doesn’t flow through into the lending rates, then it does not have the same impact as what was intended.”

Related Why the Bank of Canada could cut its key rate again soon Shadow lenders fuel risk in Canada’s hot housing market How the Bank of Canada’s rate cut may spur growth faster than expected Canada’s big five banks last cut their prime rate in April 2009, when they cut to 2.25% from 2.5%, Bloomberg data show.

A spokesman for the Bank of Montreal declined to comment on whether the bank would move its prime rate and a Canadian Imperial Bank of Commerce spokesman didn’t respond to a request for comment. Andrew Chornenky, a spokesman for Bank of Nova Scotia said the bank will make an announcement “if there are any changes to report.”

‘Off Guard’

“I, like the others, were completely caught off guard Thursday,” Royal Bank of Canada Chief Executive Officer David McKay said in an interview. “I need to catch up with my team and digest what’s going on in the market and figure out what we’re going to do from here.”

The country’s banks loaned about 74% of total Canadian mortgages, according to the Bank of Canada’s data for the second quarter of 2013.

“The BOC was prompted to cut rates in order to improve the affordability of existing — very high — consumer debt loads as unemployment rises and as incomes stagnate,” Gabriel Dechaine, an analyst at Canaccord Genuity in Toronto, said in a note to clients. “In turn, we believe there will be regulatory pressure on the banks to cut their lending rates,” he said referring to the Bank of Canada and Department of Finance.

The Bank of Canada rate cut comes just months away from the start of the key spring market when activity typically jumps. Home prices have been rallying for at least the last decade in Canada’s largest cities. The average price of a house in Vancouver rose 67% since January 2005 to $638,500 in December. Toronto prices jumped 71% in the same period to $521,300, according to the Canadian Real Estate Association.

Oliver

Meanwhile, Federal Finance Minister Joe Oliver says he has no intention of pushing Canadian banks to follow the Bank of Canada’s lead and drop their rates.

For his part, Oliver says he won’t interfere with internal decisions of commercial banks.

He also says he has no current plans to introduce new rules for residential mortgages.

Oliver’s approach differs from that of his predecessor, Jim Flaherty, who called the Bank of Montreal in 2013 to express his disapproval of its decision to offer a special low rate.

“I do not intend to interfere with the day-to-day operations of the banks,” Oliver said in a statement Friday.

Spring Season

Five-year variable mortgage rates, which are tied to prime, are at 2.4% for the major banks, according to RateSpy.com, a mortgage rate search engine run by Robert McLister, who also has a mortgage brokerage. He thinks they could go below 2%.

“We haven’t seen that for a while,” McLister said by phone. “You’re going to see fixed rates under 2 1/2%, which has never happened. It’s going to certainly heat up the housing market more.”

Big 5 banks have a discretionary rate on five-year fixed term mortgages at 2.89%, according to the website. Five-year fixed rates currently average 4.79%, according to data compiled by Bloomberg.

The bank’s prime rates haven’t always moved in tandem with the central bank rate. In December 2008, the country’s lenders failed to immediately match the central bank’s cut. CIBC, Bank of Montreal, Royal Bank of Canada, Scotiabank, Toronto-Dominion Bank and National Bank of Canada all cut their prime rates by 50 basis points to 3.5%. That was less than the three- quarters of point rate cut from the Bank of Canada to 1.5%.

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If you’ve ever dreamed of living somewhere else — maybe Rio, Berlin, Trieste — the value in your Canadian home right now could take you further than ever before.

With rate cut, sub-2% mortgimageages are coming to a bank near you

By this time next week, Canadians borrowing for a home might be looking at the lowest rates in the country’s history as a result of the Bank of Canada’s rate cut. Read on Although price growth has slowed in some Canadian housing markets, prices reached a record $408,068 in 2014, across the country. For instance, the average detached Vancouver home was selling for more than $1.3 million at the end of 2014, with Demographia’s annual housing survey labeling it the second least affordable city in the world after Hong Kong.

With Canadian home prices at their all-time high and the loonie sinking fast against many major currencies, this could be your last chance to jump into another housing market.

The decision to sell up and move elsewhere, of course, isn’t just about real estate prices.

Gurinder Sandhu, regional director of RE/MAX Integra, said housing issues can include currency risk, taxes and the political stability of the market.

“There were many opportunities during the real estate recession around the world, like Florida,” he said, adding in some jurisdictions the opportunity has disappeared. The rising greenback and improved U.S. housing market has limited an opportunistic move south.

Related Vancouver’s housing market ranked second most unaffordable in the world How Airbnb renters are helping Canadians pay off their mortgage in a grey-market area Sales of Canadian homes worth over $1M grew substantially last year and will again in 2015 One consideration for a major move is as part of retirement strategy, especially to the U.S., “but you have to consider issues like health care,” said Mr. Sandhu.

And what if you hedged your bets and kept your Canadian property? Paul Hickey, a partner at KPMG LLP, said you would lose part of your capital-gains exemption, since you’re not eligible for it while living elsewhere. If you leave the country for a decade and sell your house after owning for 30 years, one-third of any gains would be taxed.

Keep in mind that not that many Canadians are actually doing this. From July 1, 2013 to June 30, 2014 only 61,928 people emigrated from Canada, according to Statistics Canada. But if it’s one of your dreams to cash out and fly the coop, now’s the time.

Re/Max agreed to look at 10 Canadian markets and their relative counterpart in the big, wide world, and bluesky about what your dollar might buy you if you have an adventurous nature.

If you sell this home in Toronto for $900,000 … You can buy this home in Chicago

Toronto vs. Chicago

$900,000

These two dense cities, with populations about 2.7 million, may be a little buttoned-up, but they both bristle with life. Chicago is often held up as a model of urban planning, with its distinctive museum row along Lake Michigan, while Toronto’s access to Lake Ontario is cut off by the unsightly Gardiner Expressway. You’ve had it with the Leafs, anyway. Maybe you’re looking to move to a city with a Stanley Cup contender. Chicago does have the Blackhawks.

If you are in Toronto , you can probably forget about a single-family detached home ­– they average close to $1 million in the city proper. But for just a shade under $900,000, you can land a one-bedroom deluxe unit in the Trump Tower in the Financial District. Or you could take that $900,000 out of your current semi-detached and get a 4,600-square-foot home built in 1886 in Old Northwood Circle, about 20 kilometres from the downtown core of the Windy City, for US$724,900. The taxes are US$11,452 for the year. But there’s great jazz.

If you sell this house in Vancouver for $1.5-million … You can buy this house in Rio de Janeiro

Vancouver vs. Rio de Janeiro

$1.5 million

Laidback Vancouver on the Pacific Ocean, with its milder weather and proximity to mountain skiing, hiking trails and fly-fishing, is a dream location. Lots of other people think so too, and consequently the real estate is sky-high. And there’s all that rain. If you’re sick of the wet weather and looking for a property near the rainforest with a little beachfront, consider Rio De Janiero on the Atlanic Ocean.

In Canada’s most expensive city, $1.5 million might net you a location in Renfrew Heights. You will get 3,800 square feet of space with a legal suite in the basement to help pay that mortgage. Your Rio, on the other hand, which comes with 24-hour security, will cost $3.5 million Brazilian Reals, or $1.3 million. You’ll land a home on a protected area of the rainforest with nine bedrooms, room for 30 cars and a ballroom for 200 – plus your own beach.

If you sell this home in Montreal for $1.05-million … You can buy this house in Berlin

Montreal vs. Berlin

$1.05 million

These two cities, slightly down at heel, have attracted hip young artists from around the world. Bilingual Montreal, situated on an island in the middle of the St. Lawrence, is blessed with a triple-peaked mountain right in the city. Berlin is divided by the River Spree, along which the magnificent Museum Island strides like a giant. In other words, they both have a great club scene, public transportation that’s the wonder of the world, bike-share programs, and relaxed public-drinking laws.

In Montreal, $1.049 million will get you a two-storey, four-bedroom home on Nun’s Island in Verdun, in the southwest. In Berlin, you may have to settle in a remote location called Spandau, since the cheaper rent and real estate have attracted so many to the city, it’s driven up price. It will cost you 1.049 million euros – about $1.4 million, but you do get 10 rooms. So you have to take a bus to the U-bahn. Once you’re in the city, it’s a playground non-pareil.

If you sell this house in Ottawa for $370,000 … You can buy this house in Helsinki, Finland

Ottawa vs. Helsinki

$375,000

Two capital cities. You won’t be escaping the cold heading to Finland, although you will be in the land of the sauna.

In Canada’s capital, full of historic limestone buildings, Parliament Hill, and cute neighbourhoods like the Glebe, $375,000 will get you a three-bedroom, three-bathroom, two-storey detached house in the eastern end of the city on a big lot, 41 feet by 147 feet.

The move to Helsinki is going to mean some financial sacrifice, although you’ll be living close to the beautiful Baltic Sea. The city’s population is growing, attracting young Russian entrepreneurs. Social rentals are the main form of living arrangements, with two-thirds of housing in public hands. But there are pretty, historic neighbourhoods such as Eira, with art nouveau buildings chock-a-block with diplomats. In Pitäjänmäkin in the the western-most district of the city, you can purchase an apartment with three rooms, or about 785 square feet, albeit renovated in 2000. It will cost you 256,258 euros or about $356,000.

If you sell this house in Calgary for $600,000 … You can buy this house in Houston

Calgary vs. Houston

$600,000

Trade in one oil capital for another? If the price of a barrel of oil keeps falling there may be deals to be had in both centres.

A two-bedroom townhome with about 1,400 square feet next to the Elbow River runs for $599,900 in Calgary, the city of the Saddledome, the unapologetic Calgary Stampede, Eau Claire Market Mall south of the Bow River, and Prince’s Island Park, which has great music festivals.

But extreme weather events may encourage you to depart for Houston, where you can have your fill of steak or “barbecue,” and mingle with those who feel entirely comfortable wearing a cowboy hat. So get in touch with your inner oil baron, and flip your Calgary residence for something in Houston for US$495,500. That price will buy you a 3,700-square-foot home in Lakes on Eldridge North, a subdivision in West Houston just north of the city’s energy corridor. The Texans are brash, but they’re friendly.

If you sell this house in Winnipeg for $300,000 … You could buy this house in Rotterdam

Winnipeg Vs. Rotterdam

$300,000

Both cities are about the same size with 600,000 people but one thing you’ll escape in Winnipeg is that biting cold; not to mention the biting mosquitoes. Winnipeg has the Canadian Museum of Rights while Rotterdam has more than its own share of museums, including the renovated Kunsthal. Winnipeg has the Royal Art Lodge, while Rotterdam has starchitects.

In the Peg, $309,900 is the price of a an 1,101-square-foot bungalow about nine kilometres from the city centre. In Rotterdam, in south Holland, 219,000 euros, about $308,000, gets you a three-bedroom home, in a city that pulses with artistic life. The new psychedelic market hall alone, Markthal, is an eye-popping wonder. The docklands along the Meuse River is riddled with nightclubs, a testament to regeneration. Dining is superb in The Netherlands, with Michelin-starred restaurants only a hop-step away.

If you sell this house in Halifax for $420,000 … You can buy this house in Liverpool, UK

Halifax vs. Liverpool

$420,000 Two industrial cities on the coast: one gave birth to Alexander Keith’s beer and the other, the Beatles and their Mersey sound. One has spectacular coastline drives a few minutes away, the Halifax Common and lots of maritime history. The other has a World Heritage Site that stretches along the waterfront from storied Albert Dock, and even more maritime history. Both have a population of about 400,000.

In Halifax, you get a massive lot with a huge yard that comes with 2,600 feet of indoor living space in the Kingswood North section of the city. In Liverpool, which is more than 800 years old, money can’t buy you love, but 235,000 pounds stirling, or about $428,000, will buy you a six-bedroom home close to the local university and the city centre. The location might be occasionally foggy, but you’ll hear that dreamy Liverpudlian accent in every pub.

If you sell this house in Saskatoon for $435,000 … You can buy this house in Pittsburgh

Saskatoon vs. Pittsburgh

$435,000 Prices have been rising fast in Saskatchewan during the Canadian housing boom, thanks to strong commodity prices, and the Prairie city of Saskatoon is no exception. Pittsburgh, long known for its steel industry, transformed itself in the 2000s, creating health-care and technology jobs and has avoided some of the downward pressure on U.S. housing. Both cities are turning into destinations for young families, because of the good quality of life.

A $439,000 home in Saskatoon amounts to about 1,800 square feet of space. By comparison, US$365,000 will get you a newly-built home in suburban Pittsburgh, in Pennsylvania, with 2,600 feet of living space. And you now have access to a cultural centre that’s gaining a hipster following, the smokestacks having given way to museums and great restaurants, in a city with three rivers and surrounded by green hills.

If you sell this house in Victoria for $540,000 … You can buy this house in Zagreb, Croatia

Victoria vs. Zagreb, Croatia

$540,000

Two cities known as great places to retire. You probably love Victoria, with its old English style homes, balmy weather, and stunning gardens. But maybe you’re tiring off the Anglo-ness of it all and want something with a bit more panache.

There’s nothing sleepy about the prices in Victoria. A newly built single-family home in suburban Victoria is close to $540,000. But you could trade up to Eastern Europe, which is coming on strong as a travel destination. In the Croatian capital, 400,000 euros, or about $560,000, will get you a 10-year-old Zagreb home with close to 2,500 square feet of space. You do get a beautiful covered terrace with a brick barbecue, and access to history 24 hours a day.

If you sell this house in Quebec City for $260,000 … You can buy this house in Trieste, Italy

Quebec City vs. Trieste, Italy

$260,000

While Quebec City hasn’t been settled as long as Trieste, which can trace its history to before the common era, it is one of the oldest European settlements in Canada. For a shade under $300,000, you can get a three-bedroom condo with 1,200 square feet of space in the central borough of the city. And have a great lifestyle in this French-language city with gorgeous natural history, universities, and a Winter Carnival. Bonhomme, anyone?

It’s Italian counterpart in Trieste at $221,000 is a third-floor two-bedroom condominium located a short distance from the main thoroughfare in a storied building complex with a lake view. And, c’mon, you’ll be in Italy, with classic cuisine, warm soft breezes and the rest of the country to explore at your leisure, Steve Coogan-Rob Bryden style, in The Trip. Indulge.

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With Bank of Canada rate cut, sub-2% mortgages are coming to a bank near you

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By this time next week, Canadian consumers borrowing for a home might be looking at the lowest rates in the country’s history as a result of the Bank of Canada’s rate cut on Wednesday.

Top five takeaways from Bank of Canada’s surprise rate cut

Governor Stephen Poloz called the cut ‘insurance’ against low oil prices. Here are the bank’s top messages on how the oil rout could impact the economy Interest rates on the discount market are already 2.05% on a variable rate, five-year mortgage and 2.57% on a five-year, fixed rate mortgage, said Rob McLister, editor of Canadian Mortgage Trends.

“We haven’t heard from the banks yet,” he said, referring to whether financial institutions will match the central bank’s 25-basis point cut. Bank lending rates tend to move with prime which variable rates are tied to. “Historically it takes a day or two for them to move.”

With the average discount on a variable rate product 75 basis points, that means a 2% rate if banks move their prime rate to 2.75% from 3%. Based on the lowest variable available Wednesday, the 25-point reduction would result in a 1.80% rate.

But it’s not just floating rates that are about to fall. Bond yields have been sinking and Mr. McLister said the five-year fixed rate could be as low as 2.35% unless the banks decide to hold onto profits. “Bond yields have been falling like a knife,” he said.

All of this comes as the real estate market heads into spring market, which is its busiest time of the year — but comes as real estate price gains have begun to slow in a number of major markets across the country, if not Toronto and Vancouver.

Peter Norman, chief economist with Altus Group, said real estate prices have been flat but sales steady over the past six months.

We have a generation of Canadians that never experienced high or even rising rates “[Prices] have not been accelerating much beyond the rate of inflation,” he said, noting an index used by the Canadian Real Estate Association shows prices up just 0.65% over the past six months. “A decline in mortgage rates will probably create a little bit of extra stimulus.”

Canadians who do want to take advantage of the rate cut to move into a floating rate product will still be held back by rules Ottawa imposed to curb the housing by forcing people to qualify based on the five-year posted rate — now 4.79%.

About 28% of Canadians are in variable rate products, according to Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals.

“It’s been stable around that level for a long time,” said Mr. Dunning, adding only a large gap between variable and fixed causes people to shift.

One benefit of the cut could be that Canadians will use the lower interest payments to pay down principal faster, said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce.

“We have seen before when people leave their payments unchanged but more of it will go to principal,” he said. “We should question the effectiveness of this move on housing. We have a generation of Canadians that never experienced high or even rising rates so for them those low mortgage rates are not as exciting as they were before. They are taken for granted.”

Phil Soper, chief executive of Brookfield Real Estate Services Inc., thinks central Canada, which is already benefitting in savings from lower gas prices, just got a further impetus to buy.

In the west, he thinks lower rates will provide a mitigating factor in a market which is expected to slow in the coming months amid lower oil prices.

On risk of government moving to further regulate the sector, he said the Greater Toronto Area is probably most at risk.

“I still believe prices will rise more modestly in 2014 [in Toronto],” said Mr. Soper, who doesn’t expect there to be a need for Ottawa to intervene.

Bad news for borrowers: The economy could improve this year

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Indebted people aren’t going to like the return to stronger economic growth.

Rising interest rates will offset any benefits they get when the economy accelerates from the sluggish pace oimagef recent years. If you owe a lot, plan now for higher rates to avoid nasty surprises ahead.

The decline of oil prices adds some uncertainty to Canada’s economic outlook, but there are some things working in our favour. A lower dollar makes our exports more attractive to foreign buyers and could reinvigorate our manufacturing sector. Another plus is the revival of growth in the United States, our largest trading partner.

This economic outlook is presented not specifically to warn of an interest rate increase in 2015, but rather to encourage people to start analyzing what their finances will look like in a higher rate world, whenever it comes. Seniors and others looking for safe but competitive returns will benefit from at least somewhat higher returns on high-interest savings accounts, guaranteed investment certificates and bonds. Borrowers, particularly those who recently took on big mortgages, will be squeezed.

Let’s use the example of someone who will have a $350,000 mortgage balance when her 3-per-cent, five-year mortgage comes up for renewal at the end of this year. At that same interest rate, the monthly payments on renewal are $1,938 (a 20-year amortization is assumed). Bump up the rate on renewal to 3.5 per cent and the payments rise to $2,025, or an extra $87 a month.

A return to economic prosperity should mean higher pay increases. Wage indicators have shown gains below 2 per cent recently, but let’s be optimistic and say 3-per-cent pay hikes are coming. If the borrower in our example makes $70,000 after tax, she’d be taking home an extra $175 a month. That’s enough to cover higher mortgage payments and still have lots left over.

Bigger mortgage rate increases would eat the extra money right up, though. If that $350,000 mortgage balance is renewed for a new five-year term at 4 per cent, the monthly payment rises to $2,115. That’s an extra $177, enough to consume the entire pay increase.

Forecasters have been striking out for years in trying to predict when rates would rise from the historic lows reached in the financial crisis six years ago. But let’s look at some rate projections, anyway. At very least, they’ll give us a sense of the magnitude of possible rate increases ahead.

A quick sampling of bank forecasts: CIBC World Markets sees the Bank of Canada’s benchmark overnight rate rising to 1.25 per cent later this year from the current level of 1 per cent, and to 1.5 per cent in 2016; BMO Capital Markets and TD Economics differ on timing, but both see the overnight rate at double its current level by late 2016; RBC Economics forecasts an increase of half a point in the second half of this year and a hefty further rise to 2.75 per cent by the end of 2016.

The overnight rate is a guide for variable-rate mortgages and lines of credit – fixed-rate mortgages take their cue from the bond market. But if the Bank of Canada moves into rate-increase mode, you can be sure that rates in the bond market will rise, too.

In addition to mortgages, rising rates would make it more expensive to carry a balance on lines of credit and loans that do not have a fixed rate. Let’s say our mortgage borrower also has a $20,000 home-equity line of credit balance. A typical rate for this type of borrowing would be 3.5 per cent, which means interest per month of $58. A half-point increase in rates brings the minimum interest-only payment per month to almost $67 a month; a full point would bring the cost to $75.

Now, our borrower is up to an extra $252 a month with rates moving up a full point. She’d need a pay increase of close to 4.5 per cent just to break even. But if pay hikes of that size become the norm, you can bet the Bank of Canada will be cranking rates up even higher to contain inflation.

A stronger economy would be good in a lot of ways, including more and better jobs, better returns on saving and more corporate and personal income tax revenue for government. But an economic rebound is bad for borrowers. Find out just how bad now, while you have a chance to prepare.

How rising prosperity is bad for borrowers

Stronger economic growth means rising interest rates, which may increase costs for borrowers beyond any pay increases they get. Here’s an example:

Assumptions: – you make $100,000 pre tax and $70,000 after tax – the economy grows this year, and that helps you get a 3 per cent pay increase, higher than the sub 2 per cent increases typical in 2014 – a year or so from now you must renew a mortgage that will have a balance of $350,000 – you are currently paying a rate of 3 per cent on a fixed-rate, five-year mortgage and will renew into a new five-year, fixed term – your amortization will be 20 years when you renew Monthly Benefit/Cost Extra after-tax pay* $175 $175 Payments on a $350K mortgage renewed at the same 3% rate you’ve been paying $1,938 n/a Payments on this mortgage if renewed at 3.5% $2,025 $87 ** Payments on this mortgage if renewed at 4.0% $2,115 $177 *** *3 PER CENT OF AFTER-TAX INCOME OF $70,000 ON A MONTHLY BASIS ** AT THIS RATE, HALF YOUR PAY INCREASE GOES TO HIGHER MORTGAGE PAYMENTS *** AT THIS RATE, ALL YOUR PAY INCREASE HAS GONE TO HIGHER MORTGAGE PAYMENTS

SOURCE: THE MORTGAGE GROUP ONLINE MORTGAGE CALCULATOR

Real estate flippers beware, the taxman is watching

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With the economy in turbulence, some Canadians have openly started to wonder whether our housing market mayimage be next. Despite that possible scenario, the temptation to buy, renovate and then sell real estate at a profit is still irresistible for many. And, if you don’t know how to get started, a number of U.S. TV shows have debuted in the past couple of years with names such as Flip or Flop, Flip it Forward and, most recently, Flip Addict that will walk you through the process.

You should be aware, however, that if you are indeed successful in making a profit from your real estate activities, the taxman will be watching and will want a piece of the action. Of course, just how big a piece he’ll want depends on whether your profitable sale is treated as a capital gain, in which case only 50% is taxable, or business income, in which case 100% is subject to tax.

Take a recent tax case involving a Montreal woman who found herself in Tax Court fighting CRA reassessments for her 2007, 2008 and 2009 tax years, in which she disposed of six real estate properties and reported over $100,000 in profits as 50% taxable capital gains. The CRA sought to reassess these transactions as business income and thus fully taxable. Of note, the average holding period of five of these properties was nine months and she financed her properties through a closed, one-year mortgage.

Related When writing off moving expenses, the route you take matters When moving expenses are a tax deduction, and when they’re not

The taxpayer’s argument was that she wanted to keep the real estate “in order to generate rental income and extra income during retirement,” even though she reported significant rental losses in two tax years and she didn’t keep any of her properties for the long term. Responding to these counterarguments, the taxpayer stated that the reason she sold the real estate within such a short time frame was that “rents were too low.” This argument didn’t fly with the CRA who maintained that the taxpayer “has a lot of experience and could not have been unaware that the price of income properties is determined on the basis of rents.”

While the Income Tax Act itself doesn’t list the criteria to distinguish when profits are taxed as business income rather than a capital gain, the case law has developed a number of factors that should be taken into account in making this distinction.

They include: the nature of the property sold, the length of time the taxpayer owned the property, the frequency and number of transactions carried out by the taxpayer, the improvements made by the taxpayer to the property, the circumstances surrounding the sale of the property and the taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

The judge, upon reviewing the applicable criteria in this particular case, concluded that “it is much more probable and likely” that the Montreal taxpayer acquired the properties for the purpose of reselling them at a profit “at the earliest opportunity” rather than holding them as long-term investments with the intention “to build a diversified retirement portfolio,” and that her main intention was to make short-term investment returns.

As a result, the taxpayer’s appeal was dismissed and the CRA’s reassessments to treat the taxpayer’s profits as business income were upheld.

Jamie.Golombek@cibc.com

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Wealth Advisory Services in Toronto.

B.C. couple worries that unexpected pay cuts could severely jeopardize their retirement plans

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Situation: With their jobs downsized and pay cut, a couple worries their retirement will be spare Solution: Count the pension dollars, estimate what savings can generate, compare to future budget

 

imageCan a couple who have made their lives in the Armed Forces manage a comfortable retirement given the numerous job cuts, position terminations and salary caps successive governments have imposed?

That’s the dilemma faced by B.C. residents Ed and Jodi, as we’ll call them. A decade and a half ago, Ed left the Armed Forces with a 25-year pension when his trade was eliminated. He returned immediately to work as a civilian doing a similar job at the same base but with a reduced salary. Jodi recently learned that her present full-time job at the base would be cut to half-time in early 2015, reducing her paycheque by half. Ed, 62, has had a full career and does not want to extend his working years as a federal employee much longer. But Jodi, 54, has had her career path and income slashed in what could have been her peak earning years.

“We think these changes are going to affect us severely,” she says. “The question I want to have answered is just how bad it will be. We were expecting to have two incomes for a few more years in order to build our savings. Now we won’t. Are the pensions we have enough to get us through retirement?”

The cut in their combined incomes, which are $9,713 a month (but due to contract in 2015), will echo in what they have for retirement. For now, they save almost $6,000 monthly in their chequing accounts in a desperate rush to bolster their retirement incomes. They have just $223,070 in financial assets, plus two cars that are about a decade and a half old and in need of replacement, and a house fully paid with an estimated market value of $425,000.

Are the pensions we have enough to get us through retirement? The costs of raising two children, now independent adults, and caps on what they could contribute to their own RRSPs mean that Ed and Jodi must rely on their federal pensions. Government pensions are immune to market crashes, indexed to inflation, and the envy and outrage of many who don’t have them. But like all defined-benefit pensions, the capital behind the pensions is not theirs. Unlike RRSP capital, which can be cashed out and used for anything after taxes are paid, Ed and Jodi will remain tethered to their government pensions.

Family Finance asked Graeme Egan, a financial planner and portfolio manager with KCM Wealth Management Inc. in Vancouver, to work with the couple. “We can work this out for them,” he says. “The situation is far from desperate.”

Related With net worth under $40,000, big mortgage and retirement looming, 64-year-old fears bleak future Headed into middle life, Alberta couple need budget help to tackle debt that is swallowing almost half their monthly income

Counting up pensions

If Jodi retires in early 2015 when she turns 55, she will be entitled to a severance payment of $34,300. She has $59,300 of unused RRSP room. The severance payment should be directed to the RRSP so that it is not taxed, Mr. Egan suggests. Next, use about $50,000 of $90,000 cash to fill available TFSA space.

Ed receives two Armed Forces pensions: a regular monthly job pension of $2,279 including a bridge to age 65 of $463, and a veteran’s pension of $1,134 a month, which is not taxable. In early 2015 when he will be 63, he will begin receiving another pension of $1,697 from his civilian job, including a $270 bridge to age 65. All of that will add up to $5,110 a month plus the $733 of bridges to 65, total $5,843. After a 15% average tax on pensions other than his veteran’s, he will have $4,966 a month to spend, assuming splits of qualified pension income and use of pension income-tax credits.

Ed can apply to receive a Canada Pension Plan benefit of $912 a month if he elects to take his benefit at 63. That would be two years before receiving a potential full benefit of about $1,065 a month, based on a reduction of 7.2% per year for each year before 65 for commencement of benefits. After tax, he would have a net benefit of about $775 a month. Thus his total income from age 63 to 65 will be about $5,742 a month after tax.

In a few months when Jodi turns 55, she can start her pension of $27,098 a year, or $2,258 a month. If she pays income tax at 15%, she would have $1,919 a month.

Putting all their pensions together, they would have about $7,660 a month from Ed’s age 63 to 65. At 65, his bridge pensions, a total of $733 a month, will end, but his Old Age Security will begin at $564 a month. Their after-tax monthly income would then be about $7,500, more than enough to support estimated living expenses of $4,500 a month, which includes a generous $1,200-a-month travel allowance.

At age 60, Jodi can apply for early CPP with a 36% reduction on her payments. Based on an assumed 50% of maximum benefit, or $6,230, she would get about $282 a month after 15% tax, pushing total family monthly income to $7,775. After turning 66, Jodi could get her Old Age Security benefit, $6,765 a year, adding $479 after tax a month as of January, 2015. That makes final and permanent monthly pension income from all pension sources $7,980 in 2015 dollars.

Managing retirement income

The couple will not need to start making RRSP withdrawals until Ed is in his 72nd year. He can use Jodi’s younger age to set the payout rate, cutting the distribution by about 4% a year and preserving capital. If Jodi rolls her severance package into her RRSP and maintains contributions of $1,200 a year, the two plans (his and hers) would have $147,370 growing at an assumed rate of 4% after inflation.

Assuming that Jodi works eight more years, that both plans use Jodi’s lower age for RRIF distributions, and that payments begin when Ed is 71 (in eight years), the plans would have $213,000 and be able to support $8,520 pre-tax annual payments at the same 4% growth rate indefinitely. On this basis, and again assuming 15% average tax, they would have $600 a month to add to their total income, making total after-tax family income about $8,580 a month, Mr. Egan estimates.

Jodi and Ed can raise their retirement income even more. First move: top up TFSAs with available cash and invest the TFSAs as part of a long-term investment strategy.

Then, address the management fees they are paying.

At present, they use segregated funds for their registered investments. Those funds have creditor protection and guarantees of minimum payouts of not less than 80% of original contributions after 10 years. They also have guaranteed investment certificates. The couple has, in effect, bulletproof investments, but at a high cost. Segregated fund management fees typically add 0.75% to mutual fund management expenses. GICs offer government-guaranteed deposit insurance at the cost of years of illiquidity. Given that 90% of their retirement income will come from government pensions, they have an excessive level of security they really do not need. They can skip the segregated funds and buy low-cost mutual funds or exchange-traded funds and increase their pre-tax income from their RRSPs and TFSAs, the planner suggests.

After directing $50,000 to their TFSAs from their cash holding, Jodi and Ed will have perhaps $40,000 left in cash. They can use some of that money for new cars, for travel or for indulging their grandchildren.

“As long as they don’t spend beyond their means, they can have a comfortable and secure retirement,” Mr. Egan concludes.

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Canadian housing bulls are joining real estate doubters as warnings and oil collapse sink in

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Canadians who last year brushed off predictions of a real estate slowdown and kept buying houses are increasingly joining the doubters.image

The nation’s households are the least optimistic since May 2013 that home prices will keep rising, according to weekly polling data compiled by Nanos Research for Bloomberg. The share of survey respondents predicting higher prices fell to 31.1 per cent last week, from as high as 47 per cent in July.

The survey results suggest policy-maker warnings about overvalued home prices are starting to sink in, amplified by plunging prices for crude oil, the nation’s biggest export. The gloom may spell the end of a housing rally that helped pull the world’s 11th largest economy out of a 2009 recession.

Related As Vancouver home prices surge out of reach, businesses worry how to retain staff Houses might not be as overvalued as the Bank of Canada thinks, Moody’s report suggests Slumping oil prices to hit home prices in Calgary in 2015: Re/Max “Any negative changes in real estate values coupled with low oil prices could be a one-two punch for Canadian consumer sentiment,” said Nik Nanos, Ottawa-based chairman of Nanos Research Group.

The Bank of Canada estimates that house prices are 10 per cent to 30 per cent overvalued. That didn’t stop sales and prices from rising through most of 2014, fueled by low mortgage rates and a shortage of single-family housing in some markets such as Vancouver, where the average price of a detached home reached a record $1.36 million in February.

Through November, the average residential sales price in Canada rose 6.8 per cent on an annual basis, putting 2014 on pace to be even stronger than 2013, when average prices rose 5.2 per cent.

The survey of real estate expectations is part of polling for the Bloomberg Nanos Canadian Confidence Index and based on phone interviews with 1,000 people, using a four-week rolling average of 250 respondents. The results are accurate to within 3.1 per centage points, 19 times out of 20.

Respondents are also asked about their expectations for the economy, their job security and changes in the state of their personal finances.

The broad confidence index climbed to 55.8 in the week ended Jan. 2, the first increase in five readings, from 55.1 in the prior period. Bloomberg.com LATEST PERSONAL FINANCE VIDEOS

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