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Jim Murphy, Special to Financial Post

Since 2008 and the height of the financial crisis, the federal government has been active from a policy perspective in making sure that the housing market does not overheat or enter what some describe as a “bubble.”

The Canadian housing and mortgage markets receive extensive attention by economists, analysts and the media. The purchase of a home after all is the largest financial commitment that an individual will make in his or her lifetime.

Since 2008 and the height of the financial crisis, the federal government has been active from a policy perspective in making sure that the housing market does not overheat or enter what some describe as a “bubble.” It has done this for two reasons. First, interest rates have remained stable, indeed at record lows, for five years. Rising interest rates would in and of themselves moderate housing activity. This variable is absent.

But secondly, the government is concerned about its exposure to the real estate finance system. Or, to be more political, the exposure of the Canadian taxpayer to the housing market. In a way, this does not have anything to do with whether the housing market is up or down or whether resales have hit a record high or a record low. It has to do with the role of the federal government in backing various financial mechanisms that support the mortgage market. It wants to reduce its exposure in the mortgage market and, by extension, to increase the role of the private sector. In the last 12 to 18 months the federal government has:

• Capped CMHC’s mortgage default insurance at $600-billion;

• Excluded the ability of lenders to insure covered bonds;

• Capped the annual allocation for National Housing Act Mortgage Backed Securities at 
$85-billion with rationing implemented;

• Revamped the governance of CMHC by having government Deputy Ministers placed on 
its Board and having the federal financial regulator OSFI oversee its operations.

The government is limiting its exposure and its involvement

Some argue these measures are tied to slowing the housing market. In some ways, that is the by-product. The real result is that the government is limiting its exposure and its involvement — capping its appetite for risk. If the government wanted to slow the housing market it would have also capped the amount of mortgage default insurance that the two private sector competitors to CMHC provide. It did not do that. Instead it increased that amount by $50-billion.

The federal government wants a healthy housing market. While we are all concerned about household debt levels, the government also appreciates the enormous economic impact housing has in terms of jobs and tax revenues. Indeed, new home sales in some markets such as the GTA are at record lows.

The right balance needs to be found. What the government wants is not necessarily to limit the size and scope of the mortgage market. Instead, it wants to have the private sector take on more of a role and share the risk, to expose or utilize its capital first. It is a clear mortgage policy.

Home Series: Selling your Home During a Divorce – Consult with a Vancouver Mortgage Broker

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Selling your Home During a Divorce

Divorce rates hover around the 50% mark in Canada. Divorce is clearly a very traumatic and intense period for both parties. And, one of the biggest items that might be contested during a divorce is the family home.

Buying a home was likely the most significant investment you both made during those happier times. Likely, you never saw yourself as becoming a divorce statistic, but now there may be nothing you can do about it except go with the flow and deal with it.

The family home is just one of many important issues that have to be resolved during a divorce proceeding especially if you have children.

So, here are a few tips for you consider if this unfortunate situation happens to you.

Keep Your Emotions in Check

One of the biggest things that cause a divorce to spiral out of control is your emotions. If make decisions based on your emotional response then your partner is likely going to respond in kind.

The first and most important consideration of both partners should be to consider the needs of the children. So, the first thing is to establish which partner will end up being the main custodian of the children

Then you will have to consider what to do with the home and decide whether to do one of the following:

Both Partners Agree to Sell the House

You don’t have to agree to sell the house immediately. You can wait for the appropriate time and do so when it’s advantageous for both parties. It might a good idea that you both meet with an agreed upon realtor and explain the situation so you are both kept apprised of any offers. Once the home is sold, you will both hopefully walk away with some equity and can proceed with a fresh start.

You Can Sell Your Portion or Buy Out Your Spouse

Another option is that one of the partners would like to keep the home. Whether it be you or your partner, you can get the home appraised and either sell your portion of joint ownership or purchase the other partner’s portion at current market value. You might want to consult with your lender, broker or financial adviser before you take this route as it is likely that the person who is buying the home will have to reapply for a new mortgage.

Continue with Joint Ownership

If both partners agree then you can continue to maintain joint ownership for an agreed upon period or negotiate some particular clauses where selling the house outright or to one of the parties is done so for your particular needs and requirements. It also makes sense to take this approach should the real estate market end up in a slump and wait until market conditions improve.

Some Other Tips to Consider

• Just remember that if you continue to make the issue of the home a continuing source of something you are contesting then the only ones who are going to profit are the lawyers and not you. It’s best that you both strive to make a compromise so you and not the divorce lawyers will realize any profit that you make from the sale of the home.
• Most importantly, remember the needs of your children as they are too are under emotional distress during this time.
• If emotions too start to spiral out of control then you should both give serious consideration to a “cooling off” period so you can both put things back into proper perspective.

Whatever you do, don’t use your home as part of the divorce battleground because neither one of you will likely win in the end.

Financial FYI Series: Can retired couple afford holiday home? – Consult with a Vancouver Mortgage Broker

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DIANNE MALEY – Globe and Mail

Gabe and Gwen dream of leaving their Toronto Beaches home in a couple of years for the pastoral charm, rolling vineyards and white sand beaches of Ontario’s Prince Edward County.

He is 57, she is 61. Together, they earn about $158,000 a year before taxes.

When they retire, Gabe will get a defined benefit pension from his employer of about $31,000 a year. Gwen, who is self-employed, has no pension plan.

Their plan is to buy a recreational property, financing it by borrowing from their registered retirement savings plan. The RRSP would hold the mortgage. Ideally, they will rent the second property out when they are not using it to help cover costs.

“Since we also may want to retire there, we can use the property as a base to explore the area when it is not rented out and possibly move in when we retire, either selling our house in the city or renting it out,” Gabe writes in an e-mail. The Toronto home is valued at $1-million. Their target price for the second home is $350,000.

With retirement nearing, they have a number of questions. Can they afford to retire and buy a second property? Will it be a sound investment? Does it make sense to have their RRSP hold their mortgage rather than borrowing from a bank?

We asked Warren MacKenzie, founder of Weigh House Investor Services in Toronto, to look at Gwen and Gabe’s situation. Weigh House is an independent financial planning firm that does not sell investment products.

What the expert says

Yes, Gabe and Gwen can retire in two years and maintain their current lifestyle, Mr. MacKenzie says. They are spending roughly $45,000 a year, excluding savings. The planner’s forecast also includes mortgage payments on the new property and assumes they earn a rate of return on their investments of inflation plus 2.5 percentage points.

“They will not be leaving a large estate, but that’s okay because that is not their objective,” the planner adds. The couple have three children in their 20s. They can afford the recreational property, but they will have to borrow to finance it. They should plan to sell their Beaches home and downsize to a smaller home by the time they retire.

In the first year of retirement, their living expenses are expected to be $70,000 a year and they will pay about $5,500 in income tax. The source of their cash flow will break down as follows: $31,000 from Gabe’s pension; $20,000 from their RRSPs (Gwen especially would be in a low tax bracket because she has no pension income); and $24,500 from their other savings.

Later, when they are both collecting Canada Pension Plan and Old Age Security benefits – and making mandatory minimum withdrawals from their RRSPs/RRIFs (age 72) – they will have enough to meet their spending goal without having to draw on their other savings, Mr. MacKenzie says. If they still have two properties, they should plan to sell one at some point. This will give them enough to live comfortably to age 100.

There are pros and cons of buying a second property as an investment, Mr. MacKenzie says. If they can rent it out enough to cover expenses and its value increases in line with inflation, the capital gain on its eventual sale will be taxed at a lower rate than other types of income, which is a plus. On the negative side, they already have roughly half of their net worth in real estate.

“It is not a liquid investment and will require financing,” the planner notes. A well-diversified stock portfolio, in contrast, would give them better diversification, liquidity “and probably a slightly higher return,” he says. The recreational property “should be considered a lifestyle choice, not a real investment,” he says.

“Given they feel they would enjoy their retirement more by having a recreational property, I would say they should buy it even if some other investment might earn more.”

He is not so keen on Gabe and Gwen’s plan to invest their RRSP money in their mortgage.

“The idea of making mortgage payments to your own RRSP is always appealing,” he acknowledges. But having your mortgage in your RRSP makes it impossible to cash in your savings in an emergency.

“If there is an illness or a job loss, or if money is needed for any purpose – including taking early RRSP withdrawals – the house may have to be sold to get the money.” The couple may want to invest in easily traded mortgage funds as an alternative.

——-

Client situation

The people

Gabe, 57, and Gwen, 61.

The problem

Figuring out if they can afford to buy a recreational property and if so, whether it makes sense to finance it by holding the mortgage in their RRSP.

The plan

Go ahead and buy the recreational property.

The payoff

The pleasure of having a country residence that they can either rent or move into at some point, and the flexibility of being able to cash in all or part of their RRSPs in an emergency.

Monthly net income

$8,335

Assets

Bank deposits $40,000; his TFSA $31,000; her TFSA $20,000; his RRSP $118,000; her spousal RRSP $305,000; present value of his pension plan $500,000; children’s RESP $48,000; principal residence $1-million. Total: $2.06-million

Monthly disbursements

Property tax $500; maintenance $225; home insurance $100; utilities $350; transportation $620; groceries, clothing $425; charitable $100; vacation, travel $400; personal discretionary (dining, entertainment, clubs, hobbies, pets) $635; life, disability, dental insurance $120; drugstore $50; telecom, TV, Internet $135; RRSPs $700; TFSAs $500; pension plan contributions $950; professional association $115. Total: $5,925

Liabilities

None

Want a free financial facelift? E-mail finfacelift@gmail.com

Some details may be changed to protect the privacy of the persons profiled.

Upgrading your Vancouver Home on a Budget – Consult with Bruce Coleman, Vancouver Mortgage Broker

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Upgrading your Vancouver Home on a Budget

If you’re planning to put your Vancouver home on the market then you will want to do everything that you can possibly manage to make the home presentable for viewers.

However, you might not have a lot of money to invest or you might have time to spend on any major home renovation projects.

Depending on the budget and time you can manage, there are actually a lot of things that you can do to spruce up your home before you put it out on the market. And, the best thing is that you can do so without having to spend a big wad of cash.

Here are some tips to upgrade your Vancouver home on an economical budget.

Nothing Beats a Fresh Coat of Paint

A fresh coat is one of the most effective means and an affordable economical investment you can use to make your house more appealing for viewing. This project is for those who are handy and comfortable using a roller and paintbrush. Professional house painters can be a bit pricey so you can save a bundle if you do it yourself.

A paint job should not just be limited to the interior of the home but you should also take a critical look at the exterior of the home. Why? Because when they talk about curb appeal, the first impression that a prospective buyer has of your home is when they first step out their car.

Painting the exterior trim, a wooden door, window frames or adding some fresh stain to wood siding or deck can make a very positive impression and put buyers into the right mindset.

By adding a neutral paint scheme to the interior walls, you get the opportunity to not only brighten the home but also to make your home more of a showcase. Painting gives you the opportunity to cover up any obvious imperfections, scrapes and dints in the walls. It’s a worthwhile investment.

Add New Fixtures

You would be surprised how a few new fixtures can sparkle up a home, especially in the kitchen and bathrooms. You could also start by taking a look at your light fixtures throughout the home. They may be look dated, worn or maybe they simply don’t provide adequate or are too bright for a particular room.

Then, there are the sinks and faucets in your bathroom and kitchen. Have they lost their sparkle, or are they scratched, dull or look tacky? New faucets don’t have to be very expensive but there are some snazzy new gadgets out there that have conservation and other regulatory features built in.

Adding new faucets, replacing the toilet bowl, adding some light fixtures, dimmer switches, or even something as simple as replacing your towel rack can add a whole new dimension and look to key rooms in your home.

Make your Home Clean and Tidy

This might sound too obvious even to bother with but if you don’t put a bit of elbow grease into cleaning and tidying up your home, storing away needless clutter around the home and in your closets, then it can reduce your chance of making a quick sale.

Prospective buyers do not want to see cobwebs, dust bunnies, mould stains, chipped paint or greasy windows. The more you can make your home more of a showcase, both inside and out then the easier it will be to sell it and move on.

Taking care of the little details doesn’t have to be expensive and just by being carefully selective you can easily upgrade your home.

Bank of Canada’s Poloz upbeat about economic growth – Ask a Vancouver Mortgage Broker

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Bank of Canada‘s Poloz upbeat about economic growth

BARRIE MCKENNA AND BRENT JANG-  OTTAWA/VANCOUVER — The Globe and Mail

Bank of Canada Governor Stephen Poloz speaks Wednesday, Sept. 18, 2013, in Vancouver. Mr. Poloz told the Vancouver Board of Trade he is not concerned about a potential housing bubble.
(JIMMY JEONG/THE CANADIAN PRESS)

Bank of Canada Governor Stephen Poloz is painting a brighter picture for the Canadian economy while tossing aside concerns over a housing bubble.

Canada is on its “way home” to more natural economic growth as central banks prepare to reverse nearly six years of low-interest rate fuel, he said Wednesday.

“We are now close to the tipping point from improving confidence into expanding capacity,” Mr. Poloz told more than 600 members of the Vancouver Board of Trade in his second public speech since taking over from Mark Carney in June.

Mr. Poloz said the key pieces of a more normal and self-sustaining economy are falling into place.

Most economists don’t expect the Bank of Canada to start raising its key overnight rate – which has held at 1 per cent since September, 2010 – until late 2014 or even 2015.

Mr. Poloz said the central bank will eventually raise its key interest rate as inflation moves back up to the bank’s annual 2-per-cent target. “We can expect that short-term interest rates, as is normal, will be above inflation,” he said.

His only hint on the timing of eventual higher rates came when he said the economy can support much stronger activity “without stoking inflation,” given the slack in the labour market. That suggests the central bank could be on hold for some time.

At a news conference, he said major real estate markets across Canada appear healthy 14 months after Ottawa tightened mortgage borrowing rules in July of 2012. “Our reading of that is that markets have responded to the various changes in the rules around mortgage underwriting in a way which has in effect engineered a soft landing – a much more comfortable kind of situation,” Mr. Poloz said.

Even though mortgage rates have crept up recently, interest rates remain at historically low levels. “If you’re in a position to buy a home, of course chances are that you will. So, what I have been suggesting, though, is that people take care to do the arithmetic,” he said.

Consumers have been mindful of their exposure to potentially higher mortgage payments when it comes time to renew in three to five years, Mr. Poloz said. “I don’t know what those numbers will be, but you want to make sure that you test it a little bit and you know that you’ll be able to be afford the payments at those higher levels,” he added.

Mr. Poloz said Canadians have been taking on more debt amid the climate of low interest rates since the 2008-09 recession, but he forecasts that consumers’ income will grow at a faster rate than their debt over the long term. “I don’t perceive that there is a bubble in Canada’s housing market,” he said.

During his speech, he said he is optimistic that gathering foreign demand – particularly from the United States – will soon boost business confidence and prompt companies to expand and invest.

He pointed out, for example, that an unusual post-recession dearth of new company formations appears to be ending. After four years of stagnation, 40,000 new companies with at least one employee were created in the past 12 months in Canada, helping to replace the ones destroyed in the recession, he said.

Mr. Poloz also talked about the “tapering” process in which the U.S. Federal Reserve will, at some point, ease the pace at which additional stimulus is provided to the American economy. It decided against such a move Wednesday.

He likened the financial crisis to “a pot of simmering spaghetti sauce,” where injections of easy money in the economy have created a bubble, but also a large crater. “Central banks have been filling that crater with liquidity,” he said. “Central banks can gradually reduce the rate at which they add liquidity. That’s not policy tightening. Rather, it’s another welcome sign that things are getting back to natural growth. And it indicates that the underlying momentum of the U.S. economy is expected to hold.”

Bank of Canada’s Poloz upbeat about economic growth – Ask a Vancouver Mortgage Broker

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Bank of Canada‘s Poloz upbeat about economic growth

BARRIE MCKENNA AND BRENT JANG-  OTTAWA/VANCOUVER — The Globe and Mail

Bank of Canada Governor Stephen Poloz speaks Wednesday, Sept. 18, 2013, in Vancouver. Mr. Poloz told the Vancouver Board of Trade he is not concerned about a potential housing bubble.
(JIMMY JEONG/THE CANADIAN PRESS)

Bank of Canada Governor Stephen Poloz is painting a brighter picture for the Canadian economy while tossing aside concerns over a housing bubble.

Canada is on its “way home” to more natural economic growth as central banks prepare to reverse nearly six years of low-interest rate fuel, he said Wednesday.

“We are now close to the tipping point from improving confidence into expanding capacity,” Mr. Poloz told more than 600 members of the Vancouver Board of Trade in his second public speech since taking over from Mark Carney in June.

Mr. Poloz said the key pieces of a more normal and self-sustaining economy are falling into place.

Most economists don’t expect the Bank of Canada to start raising its key overnight rate – which has held at 1 per cent since September, 2010 – until late 2014 or even 2015.

Mr. Poloz said the central bank will eventually raise its key interest rate as inflation moves back up to the bank’s annual 2-per-cent target. “We can expect that short-term interest rates, as is normal, will be above inflation,” he said.

His only hint on the timing of eventual higher rates came when he said the economy can support much stronger activity “without stoking inflation,” given the slack in the labour market. That suggests the central bank could be on hold for some time.

At a news conference, he said major real estate markets across Canada appear healthy 14 months after Ottawa tightened mortgage borrowing rules in July of 2012. “Our reading of that is that markets have responded to the various changes in the rules around mortgage underwriting in a way which has in effect engineered a soft landing – a much more comfortable kind of situation,” Mr. Poloz said.

Even though mortgage rates have crept up recently, interest rates remain at historically low levels. “If you’re in a position to buy a home, of course chances are that you will. So, what I have been suggesting, though, is that people take care to do the arithmetic,” he said.

Consumers have been mindful of their exposure to potentially higher mortgage payments when it comes time to renew in three to five years, Mr. Poloz said. “I don’t know what those numbers will be, but you want to make sure that you test it a little bit and you know that you’ll be able to be afford the payments at those higher levels,” he added.

Mr. Poloz said Canadians have been taking on more debt amid the climate of low interest rates since the 2008-09 recession, but he forecasts that consumers’ income will grow at a faster rate than their debt over the long term. “I don’t perceive that there is a bubble in Canada’s housing market,” he said.

During his speech, he said he is optimistic that gathering foreign demand – particularly from the United States – will soon boost business confidence and prompt companies to expand and invest.

He pointed out, for example, that an unusual post-recession dearth of new company formations appears to be ending. After four years of stagnation, 40,000 new companies with at least one employee were created in the past 12 months in Canada, helping to replace the ones destroyed in the recession, he said.

Mr. Poloz also talked about the “tapering” process in which the U.S. Federal Reserve will, at some point, ease the pace at which additional stimulus is provided to the American economy. It decided against such a move Wednesday.

He likened the financial crisis to “a pot of simmering spaghetti sauce,” where injections of easy money in the economy have created a bubble, but also a large crater. “Central banks have been filling that crater with liquidity,” he said. “Central banks can gradually reduce the rate at which they add liquidity. That’s not policy tightening. Rather, it’s another welcome sign that things are getting back to natural growth. And it indicates that the underlying momentum of the U.S. economy is expected to hold.”