Tag Archive for "self-employed" - – Bruce Coleman, Senior Vancouver Mortgage Broker

29 May

2014

Alycia

CMHC: Expect higher Canadian house prices and fewer starts in 2014 – Ask a Vancouver Mortgage Broker

TORONTO — Canada federal housing agency lowered its forecast for housing starts but not prices in 2014 and said sales and construction will be flat or barely higher in 2015 as the once-roaring market adjusts to a glut of condominiums coming onto the market.

Canada Mortgage and Housing Corp said the nation’s housing boom is coming to an end in what officials hope will be a soft landing as construction slows to more sustainable levels and sales and prices tick only slowly higher.

The CMHC said on Thursday housing starts will be in a range of 172,300 and 189,900 units in 2014, with a point forecast, or most likely outcome, of 181,100 units, down from 187,923 units in 2013. That is also down from CMHC’s February estimated of 187,300 starts.

The agency said there will be 160,600 to 203,600 units started in 2015, with a point forecast of 182,100, also a downwardly revised forecast.

Both forecasts represent a sharp slowdown from the 214,827 starts of 2012, when the market was at record highs and the government intervened to tighten mortgage lending rules.

“Builders are expected to continue to manage their starts activity in order to ensure that demand from buyers seeking new condominium units is first channeled toward unsold completed units or unsold units that are currently under construction,” Mathieu Laberge, deputy chief economist for CMHC, said in a statement.

28 May

2014

Alycia

CMHC probes how much Bank of Mom and Dad may be skewing real estate market – Ask a Vancouver Mortgage Broker

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CMHC probes how much Bank of Mom and Dad may be skewing real estate market

Federal housing agency trying to determine how much, and how often, parents are helping kids with down payments

Between 18,000 and 20,000 new condominium units are expected to be sold in 2014, says the Canadian Mortgage and Housing Corportation.

By: Susan Pigg Business Reporter, Published on Thu May 22 2014

Ontario’s housing market remains “modestly” overvalued, and that may be, at least in part, because of “gifting” — baby boomer parents who are helping finance down payments on pricey homes their grown children couldn’t otherwise afford, according to the Canada Mortgage and Housing Corporation.

That’s why the federal housing agency has launched a study, trying to determine how frequently young buyers are making purchases backed by the Bank of Mom and Dad.

CMHC is also trying to determine how much money is being handed down to echo boomers by their baby boomer parents, the wealthiest generation ever thanks to skyrocketing house prices and inheritances from their own parents.

“It may explain some of the gap between what’s fair market value and what people are paying,” especially in the Toronto market where bidding wars and fierce competition continue to drive up house prices, says Ted Tsiakopoulos, CMHC’s Ontario regional economist.

“It’s not data that’s readily available. It’s hard to get at, but it could explain a lot on the overvaluation front.”

CMHC has already compiled some preliminary data from Canada’s banks, which account for about 70 per cent of all mortgage lending.

Lenders are seeing a growing number of applications now accompanied by so-called “gift letters” worth tens or even hundreds of thousands of dollars from parents, outlining how much they are contributing toward the purchase in an effort to ease the monthly payments their grown children will have to carry.

Economists are now trying to factor that wealth transfer into housing models to see if it’s actually skewing house prices and purchases. Traditionally, economists have tended to focus on house prices compared to income, prices compared to rents and the impact of low interest rates to better understand the ups and downs of the real estate market.

“We’ve captured most of the variables we think are important. The missing piece is this wealth and gifting,” says Tsiakopoulos. “Industry people (lenders) have told us it’s happening. What we want to do now is quantify it in our (economic) models to help us understand this modest overvaluation, because we’re missing something.”

Statistics Canada data shows that between 1999 and 2012, Canadians’ net worth grew by 44.5 per cent, and the highest growth was among those over age 55, says Tsiakopoulos.

“That makes the wealth piece more important today versus 20 or 25 years ago.”

The data is critical, says CIBC deputy chief economist Benjamin Tal, because “it could be a market driver we’re not aware of.

“This transfer of wealth may be generating demand that otherwise wouldn’t be there.”

In a market like Toronto’s, where the supply of homes for sale continues to lag demand, it would also explain the bidding war mentality among young buyers armed with all the free money they need from their parents.

Tsiakopoulos mentioned the study Thursday while discussing CMHC’s spring outlook report for 2014 which found the GTA real estate market remains “resilient” and modestly overvalued, but no where near bubble territory or a major correction.

Sales of existing homes are likely to increase over the next two years but price growth ease, says the forecast.

Even the much-watched condo market is holding up well.

“Between 18,000 and 20,000 new condominium units are expected to be sold in 2014 as the pickup which began in late 2013 continues into this year,” says the outlook report.

Rental is expected to be a major growth sector over the next few years, says Ed Heese, senior market analyst for the GTA.

That’s because echo boomers, who average 24 years old, now outnumber their baby boomer parents. Many are expected to remain renters for years to come. That should drive strong demand for rental condos, especially close to the downtown core, with another 10,000 or so likely to come up for rent this year as more units, many bought by investors, come to completion.

Rental rates, however, which have been growing strongly the last few years, are likely to ease, notes CMHC.

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

27 May

2014

Alycia

CPP investment arm has best year since 2004 – Consult with a Vancouver Mortgage Broker

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CPP investment arm has best year since 2004

Fund which manages the retirement savings of 18 million people in every province except Quebec had its best performance since 2004 as private-equity returns surged.

The Canada Pension Plan Investment Board has invested in office towers being built in the Barangaroo area of Sydney, Australia. The development is typical of the private equity investment that lifted CPPIB’s returns to 17 per cent in fiscal 2014.

By: Bloomberg, Published on Fri May 23 2014

Canada Pension Plan Investment Board, the country’s largest pension manager, returned 17 percent in fiscal 2014, its best performance since 2004 as private-equity returns surged.

Assets rose 20 per cent to a record $219.1 billion from the same period last year and generated a record $30.1 billion in investment income for the year ended March 31, the Toronto-based fund manager said in a statement Friday. Private equities returned 30 per cent in Canada, 35 per cent in foreign developed markets and 37 per cent in emerging markets.

Canada Pension Chief Executive Officer Mark Wiseman said the gains were made even with “fairly priced” assets and challenges completing transactions in places such as India and China.

“My view is that in at least my career as an investor, this is probably the toughest market today to operate in as a value investor,” he told reporters.

The board’s 17 per cent return beat the 15 per cent median of Canadian pension funds in the 12 months ended March 31, according to RBC Investor Services.

The fund’s equity holdings in foreign developed markets grew 18 per cent to $75.6 billion from a year ago, and made up 35 per cent of its equity portfolio at the end of March. Its stake in Canadian equities rose 22 per cent to $18.6 billion compared with a year ago, for 8.5 per cent of its equity portfolio.

Emerging markets fell to 5.7 per cent of its equity portfolio at the end of March from 6.7 per cent a year ago.

Bonds made up 25 per cent of the board’s fixed-income portfolio, down from 29 per cent a year ago. Other debt rose to 5.2 per cent from 4.7 per cent while money market securities increased to 8 per cent from 4.8 per cent a year ago.

The fund, which manages the retirement savings of 18 million people in every province except Quebec, said it aims to continue to grow in foreign markets with 69 per cent of the fund invested internationally at the end of March, compared with 63 per cent last year.

“When you look around the world, you don’t see that assets are grossly overpriced, and you don’t see assets that are grossly underpriced,” Wiseman said.

This has forced Canada Pension to be “patient” and “pick its spots” in niche markets where the fund can leverage its long-term investment strategy to find value, like it did with the acquisition of Brazil’s Aliansce Shopping Centers SA, Wiseman said.

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

26 May

2014

Alycia

Facebook for condo dwellers? Vancouver entrepreneur launches social network for neighbours- Ask a Vancouver Mortgage Broker

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You’ve got Facebook for friends and LinkedIn for work associates. Now Joseph Nakhla thinks you need a social network for your neighbours.

The 40-year-old Vancouver resident is the founder of bazinga, which is designed to help neighbours connect to one another and to local resources.

Mr. Nakhla says he was inspired by his childhood in Egypt, where he grew up in a low-rise complex with five apartments. The people in those apartments helped each other out on a regular basis and grew close.

“I really felt a sense of community,” he says. It’s something that he thinks is generally lacking in Canada’s big cities. “I have a lot of friends that moved to Vancouver from other parts of the country that say it’s tough to meet people, and I’ve heard it in Toronto.”

Launched at the end of 2012, Bazinga enables all of the residents in a condo building or gated community or other form of neighbourhood to interact online. The social network has areas where residents can organize events or talk about local issues or ask for advice, and it also allows them to send private messages. People are using it to do things like set up potluck dinners and barbecues, share decorating ideas, and band together to lobby for local issues or talk about problems in their buildings.

The network also allows the developer or property manager to communicate with residents, and to upload a flood of documents, from notes from a condo board meeting to the owner’s manual for the microwaves.

At the moment about 400 communities or buildings are signed up, representing about 80,000 homes, Mr. Nakhla says. Its biggest market so far is Toronto, followed by Vancouver. Mr. Nakhla says his company has “good” revenues, but is not turning a profit yet.

For now, developers, property managers, strata or condo boards pay to sign up and then residents can access the network for free.

Mr. Nakhla says bazinga is more than just social. “There are all kinds of complaints about condo living and apartment living – logistical challenges, getting a hold of your property manager, you’ve got concierges and people that own the units and people that are renting – it’s a pretty complex ecosystem. So I looked at it and thought,‘Man, wouldn’t it be great to have a platform that brings everybody in.’”

Undoubtedly, there are many people who prefer to remain anonymous within their buildings, and who don’t want another social network.

“We’ve seen everything,” Mr. Nakhla says.

“We’ve seen people that are exceptionally social and put an avatar of themselves up, put their profession on there, put information about themselves. And we’ve also seen people that just put their initials.”

For those who prefer not to interact with their neighbours, instead of getting up at 2 a.m. to pound on the door down the hall because the music’s too loud, now they can make their feelings known from their smartphone.

Follow Tara Perkins on Twitter: @taraperkins

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

23 May

2014

Alycia

Aging workers aren’t giving up on finding work, they’re simply retiring: RBC – Consult with a Vancouver Mortgage Broker

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Aging workers aren’t giving up on finding work, they’re simply retiring: RBC New study shows that the 6.9 per cent unemployment rate is likely not hiding people who have given up on finding work but indicates baby boomers 65 and older are leaving the workforce

OTTAWA—A new Royal Bank analysis suggests the Canada’s labour market is already starting to feel the impact of the aging workforce.

The RBC paper notes that, given soft job growth in the past year and the corresponding decline in the labour participation rate, it is easy — and likely inaccurate — to jump to the conclusion that many Canadians are becoming too discouraged to look for work.

But economist Nathan Jansen says the most likely explanation is just that the baby boomer generation is starting to retire.

Why Stephen Harper’s unemployment solutions don’t work: Walkom

Why Canada’s job market hasn’t recovered: Goar

The evidence for such a conclusion is there has been an increase in the number of Canadians classified as not in the workforce.

It turns out that 65 year olds and older are responsible for most of the increase in the not-in-the workforce category — not because they are discouraged but because they have retired, says Jansen.

He points out that back in 2007 Statistics Canada predicted that the participation rate would start to fall sharply going forward because of the aging population, with the decline becoming noticeable in 2011.

If the analysis is true, that is good news for policy-makers because it suggests the country’s current unemployment rate of 6.9 per cent reflects accurately what is going on in the labour force and does not hide a large number of discouraged workers.

But analysts have also warned that as baby boomers retire it will squeeze government budgets with higher costs for services such as health care and fewer workers paying taxes.

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

22 May

2014

Alycia

Toronto tops for speedy home sales: How does your city measure up? – Consult with a Vancouver Mortgage Broker

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Calgary might have the hottest housing market in the country right now, and Vancouver’s might be the priciest, but Toronto is tops when it comes to the speed with which homes are selling.

The homes that sold in the Toronto area last month were on the market for an average of 20 days. Homes that sold in and around Calgary, in contrast, were on the market for an average of 34 days before they sold.

In other markets homes generally take longer to sell. The average number of days on the market for homes in Greater Vancouver that sold in April was 43. Homes in Ottawa are taking an average of 45 days to sell. Edmonton homes were on the market an average of 42 days, in Regina 34 days.

In Montreal, single family homes were taking a whopping 91 days to sell, while condos were taking an average of 113 days.

I’ve gathered this information from local real estate boards in each city. Here’s a bit more detail:

Toronto:

The average number of days that homes were on the market was 20 for both the Greater Toronto Area and in the city itself. But there were variations – for example, it was 14 in Whitby and 44 in New Tecumseh. There are also differences depending on the type of home – detached houses downtown Toronto took an average of 14 days to sell, while condos took 28. Year-to-date for all types of homes in and around the city the average is just 24 days.

Calgary:

Homes are selling faster, but it hasn’t caught up to Toronto. Homes in the area in and around the city were on the market for an average of 34 days before selling last month, while homes in the city itself took 27 days. Year-to-date homes in the Calgary area have taken 33 days to sell, while in the city itself the number is 30 (down from 37 a year earlier). Single family homes in the city itself were on the market for an average of 25 days before selling in April (down from 31 a year earlier), while condos were on the market for 34 days (down from 41).

Ottawa:

Homes were on the market for an average of 45 days before they sold in April. That’s a few days less than the homes that sold in March.

Edmonton:

Edmonton’s homes were on the market for an average of 42 days, an improvement over the 49 days it took them to sell on average a year ago. Year-to-date homes have taken an average of 48 days to sell, down from 55 in the same period during 2013. Condos that sold in April were on the market for an average of 46 days, down from 58 a year earlier. Detached homes were on the market for an average of 38 days, down from 44.

Regina:

Homes that sold in April had been on the market for an average of 34 days, down from 35 a year earlier. They sold at an average of 97.5 per cent of the most recent asking price, compared to 97.2 per cent a year earlier.

Montreal:

Single family homes that sold in April were on the market for an average of 91 days, which was up by 9 days from a year earlier. Condominiums took an average of 113 days to sell, which was up 15 days.

Vancouver:

The average days on the market for homes that sold in Greater Vancouver last month was 43, down from 56 days a year earlier. Year-to-date it has been taking detached homes an average of 47 days to sell and condos an average of 48 days.

“Despite all the hype in markets like Calgary and Vancouver, the GTA is the only real estate market in Canada where houses are selling like hotcakes,” says Eva Blay-Silverberg, a communications professional who has been analysing data in the real estate industry for more than a decade.

Follow Tara Perkins on Twitter: @taraperkins

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

21 May

2014

Alycia

Six things to know about real estate deposits – Consult with a Vancouver Mortgage Broker

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When you make an offer on a house you have to put down a deposit. Here are some things to keep in mind.

By: Mark Weisleder Real Estate, Published on Fri May 16 2014

Here are some answers to common questions about deposits when you are buying a house.

When must a deposit be paid?

In Ontario, the standard real estate contract gives the buyer two choices; you can pay the deposit immediately when you make an offer, or you can agree to pay it within twenty four hours after the seller accepts it. Most buyers prefer the second option. If you are in a bidding war, you will be encouraged to come up with the deposit immediately, to show good faith to the seller.

Can the buyer get out of a deal by refusing to pay the deposit?

No. Once the deal is accepted, you can’t change your mind. If you do, the seller can sell the property again and if he gets less money than you were going to pay the seller can sue you for the difference, plus legal fees.

What happens if the deposit is paid late?

The seller has the right to cancel the deal. This is because all time limits matter in a real estate contract and if you are late, even by a few minutes, the seller can try and cancel. I have seen this happen many times, especially when the seller knows that there is another buyer out there who will pay more money. If you need more time to come up with your deposit, say so in your offer.

How much should a buyer pay as a deposit?

This is a tough question, and will largely depend on where your home is located. In Toronto, deposits are now usually up to 5 per cent of the sale price. In Brampton, it is closer to 2 per cent. In some areas of Ontario, deposits can be as little as a few hundred dollars.

Why does the deposit go to the seller’s real estate agent and not the seller?

If the seller goes bankrupt or disappears with the deposit, the buyer is not protected. When the deposit is held by the real estate brokerage, it is in trust and is also protected by insurance so even if the brokerage goes bankrupt, the buyer can get their money back.

If the buyer is unhappy with their home inspection, can the seller refuse to return the deposit?

This happens more than you think. A deposit cannot be released unless both the buyer and seller agree. If a seller believes the buyer did not act in good faith in trying to satisfy their condition, whether it is a home inspection, financing or a condominium status certificate review, they can refuse to release the deposit. This means it stays in the broker’s trust account until a judge decides who gets it, which can take years. As a precaution, buyers should consider making two deposits in their offer, a small one of say one per cent when the offer is accepted, and a second larger deposit once the condition is satisfied.

Understand the rules about deposits before you sign any real estate contract. It is expensive to change your mind later.

More real estate columns by Mark Weisleder

Mark Weisleder is a Toronto real estate lawyer. Contact him atmark@markweisleder.com

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19 May

2014

Alycia

Home prices showing ‘early signs of accelerating’ – Consult with a Vancouver Mortgage Broker

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The Globe’s new Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter, Tara Perkins, and others. Read more on The Globe’s housing page and follow Tara on Twitter @TaraPerkins.

Canadian home prices appear to be picking up a little steam.

The gains come even after a sluggish winter for home sales, and forecasts from a number of economists for price growth to peter out.

Teranet-National Bank’s house price index, which tracks 11 cities, hit an all-time high in April, with prices rising 0.5 per cent from March and 4.9 per cent from a year earlier.

“Home prices are starting to show early signs of accelerating – even when adjusting for quality,” Toronto-Dominion Bank economist Diana Petramala wrote in a research note after the numbers came out, saying prices have maintained more momentum this year than TD economists anticipated.

“We continue to believe that home price growth will moderate in the second half of 2014,” she added.

In the meantime, Royal Bank of Canada economist Robert Hogue says that prices are rising faster than incomes. And if the current pace of price growth keeps up, that could be problematic. “This is starting to get uncomfortable, because it’s going to affect affordability,” he told me.

It’s not going to become an issue immediately. Declines in mortgage rates in recent months have helped to offset price gains when it comes to affordability, he points out. “But at some point interest rates are going to start moving up.”

“With home prices already estimated to be 10 per cent overvalued, the risk is for more froth to gather in the Canadian housing market,” Ms. Petramala wrote.

Digging into the numbers, there is a wide variation between markets. Some, such as Winnipeg, Toronto, Calgary and Vancouver, saw prices hit new highs in April. Others saw prices fall. Here’s how the markets fared, first from the prior month, and then from a year earlier:

Calgary: 1.5 per cent, 10 per cent
Edmonton: 0.6 per cent, 4 per cent
Halifax: 0.7 per cent, –3.5 per cent
Hamilton: 0.7 per cent, 5.3 per cent
Montreal: 0.8 per cent, –0.4 per cent
Ottawa: 0.7 per cent, –0.4 per cent
Quebec City: –0.5 per cent, –2.4 per cent
Toronto: 0.3 per cent, 5.8 per cent
Vancouver: 0.5 per cent, 9 per cent
Victoria: –1 per cent, –0.7 per cent
Winnipeg: 0.4 per cent, 2.5 per cent

It’s the first time since October 2010 that prices were down year-over-year in five markets, and it’s the third-weakest gain in prices for the month of April since 1999, outside of a recession. But it’s still stronger than many economists expected.

“Lack of homes for sale in many of Canada’s major markets appears to be a key reason for mounting price pressures,” Ms. Petramala wrote.

The cities with the sharpest price growth – Vancouver, Calgary and Toronto – are currently seller’s markets, while those where prices are falling are buyer’s markets, she said. “Following many years of rampant new home construction, Montreal, Quebec City and Ottawa are currently grappling with an inventory overhang of condos on the market,” she added.

Follow Tara Perkins on Twitter: @taraperkins

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

12 May

2014

Alycia

Five mortgage market truths, like you can do better than 2.99% – Consult with a Vancouver Mortgage Broker

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Here are five things you need to know about the mortgage market as the spring home-buying season gets going:

1. That 2.99 per cent Bank of Montreal five-year mortgage isn’t quite as good as it sounds.

BMO’s recent move to bring its rate below the psychologically significant 3-per-cent mark for fixed-rate five-year mortgages is being treated as a big deal because a similar move a year ago provoked then-finance minister Jim Flaherty to admonish the bank. Joe Oliver, Mr. Flaherty’s successor, is taking a more laissez-faire attitude.

What BMO is offering until April 17 is a competitive rate in a mortgage with uncompetitive terms. Most importantly, you can’t break this mortgage before it comes up for renewal in five years unless you sell the property, refinance with BMO or do an early renewal into another BMO product. All the usual prepayment penalties would apply in these situations. Veteran mortgage broker Vince Gaetano’s summary: “You’re handcuffed.”

Other issues:

-BMO will hold the rate for 90 days, compared with 120 days at some other lenders.

-You can prepay 10 per cent of the mortgage annually without penalty and increase your payment by 10 per cent a year; 20 per cent is the usual standard for both types of payment increase.

-The skip-a-payment option – a bad idea, admittedly – is not available.

-The maximum amortization period is 25 years; you can typically go up to 30 years if you have a down payment of 20 per cent or more.

2. You can do better than 2.99 per cent.

Mr. Gaetano said late last week that he had a 2.84-per-cent rate on five-year fixed mortgages, but it only applied to clients who had down payments of less than 20 per cent and thus required mortgage default insurance.

The RateSpy.com website confirmed this rate from Mr. Gaetano’s firm, Monster Mortgage, while also showing competing brokers and credit unions with rates in the range of 2.83 per cent to 2.94 per cent. Some other rate comparison sites to try include RateSupermarket.ca,RateHub.ca and LowestRates.ca.

3. We will see wide open rate competition this spring.

“I think there will be a full-scale rate war with some mortgage brokers,” said Bruce Joseph, a broker with Anthem Mortgage Group in Barrie, Ont. “We’ve got a huge amount of competition in the market. The market is quite saturated with realtors and brokers.”

Mr. Joseph wonders whether we’ll see more of a practice called “mortgage rate buydowns,” where brokers sacrifice some of their compensation from selling a mortgage in order to get a lower rate for the client. He said some brokerage firms have been aggressive users of buydowns to build sales volume.

Borrowers, there’s nothing to stop you from asking for a rate buydown. You just have to recognize that less compensation for a broker may mean less advice and hand-holding.

4. Variable-rate mortgages are looking good.

Rates on variable-rate mortgages are based on the major banks’ prime lending rate, which has been stuck at 3 per cent since September, 2010, minus a discount. Mr. Gaetano said discounts have widened out to 0.6 percentage points or more from roughly half that level about eight months ago, and that means a variable rate around 2.4 per cent.

His preference for variable-rate mortgages over the fixed-rate alternative right now is based both on the discounts being offered, and his interest rate outlook. “I don’t think rates are going anywhere soon, and getting a variable in the prime minus 0.60 range give you a considerable advantage in hammering down a mortgage.”

That said, many of Mr. Gaetano’s first-time home buyer clients are going with five-year fixed-rate mortgages, which is smart. In today’s expensive housing market, it makes good sense to buy yourself a five-year period to find your financial equilibrium as a homeowner without the risk that your payments will rise.

5. The banks will crush you if you want to break your mortgage.

The penalties that the big banks charge to break a mortgage before it comes up for renewal are abusive. They’re a far more deserving target for the federal finance minister than lenders aggressively undercutting each other on mortgage rates.

Get the lowdown on bank mortgage penalties in this column I wrote not too long ago. If there’s any chance you might have to break your mortgage – brokers say this is by no means unusual – then consider using a non-big bank lender with a lighter touch on penalties. These same lenders are often good on rates, too.

Follow me on Twitter: @rcarrick

——

Why low mortgage rates matter

Even small differences in payments can add up.

Assumptions

-you’re buying a house at the average national price in February of $406,372

-you have a 5 per cent down payment

-CMHC mortgage insurance costs are added to your principal

(table source: RateSpy.com, Canequity.com)

Mortgage Example	Bi-weekly accelerated payment	Total Payments Over Five Years
Five-Year Fixed
2.84 per cent (best rate found online)	$922.41	$119,913
2.99 per cent (BMO’s special offer)	$937.60	$121,888
3.39 per cent (another bank’s best special offer)	$978.75	$127,237
Variable rate
2.29 per cent (prime minus 0.71; best rate found online)	$867.87	$112,823
2.40 per cent (prime minus 0.6; a widely available discount)	$878.63	$114,222
2.55 per cent (prime minus 0.45; discounted bank rate)	$893.42	$116,145

Follow Rob Carrick on Twitter: @rcarrick

Tags: Bruce Coleman, Entrepreneurs, self-employed, Vancouver Mortgage Broker

11 May

2014

Alycia

How badly would you be hurt in a housing market price correction? – Ask a Vancouver Mortgage Broker

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A question for everyone who thinks houses are an investment: How much would a market decline hurt you?

Help yourself be a smarter homeowner by using The Globe and Mail’s Housing Price Correction Calculator to find out. Housing bulls, don’t self-combust. Our calculator shows the result of both price gains and losses over the next five years. Just plug in the current value of your house price – c’mon, you know you know it – and select from among our preset levels of price gains or declines.

Houses are a financial asset that can rise and fall in price, just like stocks, bonds and gold. It’s important to remind ourselves of this after a 25-per-cent price gain between 2008 and 2013 on a national basis and a doubling of prices in Vancouver, Calgary and Toronto over the past 10 to 12 or so years.

In fact, there are already signs of market softness in some parts of the country. “The markets that are strong in Canada are very strong,” housing analyst Ben Rabidoux said. “And the ones that are weak are showing weakness that we haven’t seen since the late 1980s and early 1990s.

Ottawa home prices are down 2.5 per cent on a year-to-date basis, according to the Teranet – National Bank National Composite House Price Index. Montreal is off 1.0 per cent, Quebec 1.2 per cent and Halifax 2.6 per cent. “The next markets that will crack are the Prairies outside of Alberta,” said Mr. Rabidoux, president of market research firm North Cove Advisors Inc.

Much larger price declines happened long enough ago that the most recent crop of buyers may not have any recollection of them. In Calgary, troubles in the oil patch caused a house price decline from $107,739 on average in 1981 to $80,462 in 1985, or about 25 per cent. After a few years of rampant speculation in Toronto, the average resale home price fell from $254,197 in 1989 to $195,311 in 1995, or 23 per cent. Vancouver, always a volatile market, plunged more than 25 per cent in a year in the early 1980s and has a couple of times fallen more than 6 per cent in a year.

Want to see what a 25-per-cent decline would look like in today’s market? Our Correction Calculator shows you the numbers for the Canadian market as a whole, as well as the Big Three markets of Vancouver, Calgary and Toronto.

The calculator in no way predicts a downturn in housing prices. It’s only a tool for helping people understand how both declines and increases in house prices might affect them.

Be cautious when viewing how a rising market will increase the value of your home. Interest rates are close to rock bottom levels after a 30-year down cycle and likely to rise in the next couple of years. The impact on affordability will be significant.

“I think it’s going to be a huge shock to the Canadian real estate market,” said Craig Alexander, chief economist at Toronto-Dominion Bank. “I do a lot of real estate presentations from coast to coast and an awful lot of young people think these low interest rates are normal. They don’t see anything abnormal about a 3-per-cent five-year mortgage. I always have to say, can you please have a conversation with the grey-haired gentleman at your table about the normal level of interest rates.”

As you’ll see in a chart included with our correction calculator, five-year mortgage rates reached 18 per cent in the early 1980s. The runaway inflation that drove rates to that height is extinct today, but even a small rise in borrowing costs will have an impact on housing.

Mr. Alexander’s 10-year view is that housing prices will increase by an average rate of inflation plus one to 1.5 percentage points, instead of the real returns of 2 to 3 per cent in the past several years. But he also warns of a “reversion to the mean,” a term that stock market investors should be familiar with.

It means that when a financial asset has a really good run, it’s wise to expect a period of weaker performance that brings the longer-term numbers back to the mean (the midpoint between the high and the low). A period of price stagnation could bring average price gains back to the mean, and so could a price decline.

When you invest in the stock market, you’re supposed to keep your eye on the long term and not worry about upsets along the way. The same applies to housing, although keeping a cool head in a declining market will be hard. A lot of owners have only lived in a world of rising prices.

Follow Rob Carrick on Twitter: @rcarrick

Tags: Bruce Coleman, self-employed, Vancouver Mortgage Broker

29 May

2014

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