Self Employed Archives - Page 6 of 48 - Bruce Coleman, Senior Vancouver Mortgage Broker Archive - – Bruce Coleman, Senior Vancouver Mortgage Broker

08 Dec

2014

Alycia

Millennials with debt face rent-or-buy dilemma

Self Employed

Johanna and Jack have landed good jobs so they’re eager to pay off their student loans. They also want to buy a house and in time, get married and have children.

He is 29, she is 27. They live comfortably in a Toronto-area suburb and enjoy weekend getaways every couple of months. Together, they bring in nearly $140,000.

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CARRICK TALKS MONEY Video: Carrick Talks Money: Why Gen Y’s job struggles are a ‘massive problem’ If they stay in their current jobs, they will both be entitled to government pensions. But that’s a long way off. For now, the asset side of their balance sheet is light: $21,500 altogether. On the liabilities side, they have nearly $45,000 in student debt and a $19,500 car loan.

“Should we even be trying to save for a home?” Jack asks in an e-mail. Their plan is to buy when the housing market weakens. The kind of house they want would cost at least $600,000. Should they continue to rent or “should we just go ahead and buy?” Jack asks.

“How can we optimize our cash flow to attain debt freedom as quickly as possible?” he adds.

We asked Christine White, a money coach at Money Coaches Canada in Toronto, to look at Jack and Johanna’s situation.

What the expert says

Jack and Johanna like where they live but are uncomfortable with their student debt, so they should pay it off first and then begin saving for a house, Ms. White says.

“This will put them in a much better position to buy their dream home in a few years,” she says. If they attempt to do so now, they “will absolutely be house poor.”

She suggests they pay a combined $1,600 a month against their student loans so they will be paid off in two and a half years (April, 2017). They should pay the line of credit first because it has a higher interest rate and also because interest on the Ontario Student Assistance Program (OSAP) loans is tax deductible.

Next, they could take their $5,000 cash and move $2,500 each to a tax-free savings account to start building an emergency fund, Ms. White says.

Even though Johanna and Jack are striving to pay down their student loans, they could still contribute at least $50 each to a registered retirement savings plan every payday. That way, they could draw on this money later under the federal government’s Home Buyers’ Plan for a down payment. They are allowed to borrow $25,000 each, for a total of $50,000.

They should strive for at least a 10-per-cent down payment, which would be $60,000, the planner says. “Ideally, a 20-per-cent down payment would allow them to completely avoid the additional cost of mortgage loan insurance,” Ms. White says.

Once their debt is paid off, they can start “power saving” – putting the $1,600 a month that was going toward debt repayment to building up a down payment.

“Following this plan, they can have an additional $50,000 saved in their RRSPs within two years,” the planner says ($800 each a month multiplied by 24 would give them $19,200 each after two years. That, plus a 30-per-cent tax refund, or $5,760, would give them $24,960 each). Jack already has $16,000.

Longer term, Jack and Johanna may decide to move back to their home town, especially if they have children. They figure their salaries would be roughly the same if they could get jobs in the public service but the cost of housing would be halved.

“Given that they may want to move back home to be near family for support, they would be wise to pay off their debts, build a down payment and then decide if it’s best to buy in the city or wait until they lay down roots,” Ms. White says.

Once their car loan is paid off, they should “consciously reallocate” that $500 monthly to some other goal “to avoid it getting lost in discretionary spending,” the planner says.

“For example, they could split the payment amount, using half for saving for their home and the other half to save for a new car.” All debt payments and savings should be set up to occur automatically and be aligned with paydays if possible, the planner says.

**

Client situation:

The people: Johanna, 27, and Jack, 29

The problem: Can they afford to buy the house of their dreams now or should they pay off their debts?

The plan: Pay off the student loans and the car loan, then save as much as possible to RRSPs to take advantage of the federal Home Buyers’ Plan. Have at least a 10 per cent down payment, more if possible.

The payoff: A more secure footing with less risk of being house poor.

Monthly net income: $8,665

Assets: Cash in bank $5,000; stocks $500; his RRSP $16,000. Total: $21,500

Monthly disbursements: Rent $1,500; other housing $70; transportation $480; grocery store $600; clothing $420; line of credit $200; car loan $500; OSAP loans $435; gifts, charitable $120; vacation, travel $300; drinks, dining, entertainment $700; grooming $70; clubs $50; golf $150; sports, hobbies, subscriptions $50; miscellaneous cash $225; dentists, drugstore, $40; telecom, TV, Internet $200; RRSP $215; pension plan contributions $1,150; professional association $115. Total: $7,590

Liabilities: His student loan $20,000; her student loan $14,500; her student line of credit $10,000; car loan $19,500. Total: $64,000

05 Dec

2014

Alycia

Young family craves vacation retreat, but should they wait

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Lena and Louis have good jobs and manage their money well. She is 38, he is 39. They have two children, ages 1 and 3.

Lena is in the Canadian Armed Forces, while Louis works as a manager. Like many parents, they are eager to buy a vacation retreat while their children are small, but they still have a while to go until their mortgage and car loans are paid off. Should they wait or buy the cottage now?

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RETIREMENT PLANNING Retirement dilemma: He says British Columbia: She says Ontario

MULTIMEDIA Into the wild: A cottage enthusiast does it his way Louis and Lena are paying an extra $1,500 a month on their mortgage on their home in Southern Ontario and hope to have it paid off in three or four years. As well, they are saving for their children’s higher education. Although they have some cash and savings, they would have to borrow to buy the cottage.

Longer term, their goals include paying off the vacation property mortgage in turn, increasing their retirement savings and travelling more. They hope to retire in their mid to late 50s with $60,000 a year after tax.

“Can we afford to purchase a cottage for about $250,000 in the next two to four years and still afford our retirement goals?” Lena writes in an e-mail.

“Should the cottage purchase be delayed until after the house mortgage is completely paid off and the kids are out of daycare?” she asks.

Lena will qualify for a full government pension when she retires but Louis has no work pension plan.

We asked Keith Copping, a financial planner at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Louis and Lena’s situation. Macdonald Shymko is a fee-only financial planner.

What the expert says

With payments of $3,150 a month, Lena and Louis will have their $127,000 mortgage paid off in 3.5 years, Mr. Copping says. Their $33,500 in car loans will be paid off in 3.8 years. By 2018, their mortgage and car loans will be paid in full. They will be 42 and 43.

“Their expenses will be reduced by $3,885 a month (mortgage, car loans, extra mortgage payments), plus their child-care costs will be falling as the children reach school age,” the planner notes.

By waiting to buy a cottage, their monthly outlays will be $4,000 to $5,000 lower, enabling them to absorb the financing costs, estimated at $2,057 a month (based on a $250,000 loan with a 13-year amortization) plus maintenance and other costs associated with a second property, Mr. Copping says.

If they were to buy a cottage now, “the extra cost will stretch the budget and result in a longer time frame to pay off the home mortgage, as well as reduced savings,” Mr. Copping says. “Better to pay off the current debt first,” he adds.

Lena and Louis have good jobs and manage their money well. She is 38, he is 39. They have two children, ages 1 and 3.

Lena is in the Canadian Armed Forces, while Louis works as a manager. Like many parents, they are eager to buy a vacation retreat while their children are small, but they still have a while to go until their mortgage and car loans are paid off. Should they wait or buy the cottage now?

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MULTIMEDIA Into the wild: A cottage enthusiast does it his way Louis and Lena are paying an extra $1,500 a month on their mortgage on their home in Southern Ontario and hope to have it paid off in three or four years. As well, they are saving for their children’s higher education. Although they have some cash and savings, they would have to borrow to buy the cottage.

Longer term, their goals include paying off the vacation property mortgage in turn, increasing their retirement savings and travelling more. They hope to retire in their mid to late 50s with $60,000 a year after tax.

“Can we afford to purchase a cottage for about $250,000 in the next two to four years and still afford our retirement goals?” Lena writes in an e-mail.

“Should the cottage purchase be delayed until after the house mortgage is completely paid off and the kids are out of daycare?” she asks.

Lena will qualify for a full government pension when she retires but Louis has no work pension plan.

We asked Keith Copping, a financial planner at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Louis and Lena’s situation. Macdonald Shymko is a fee-only financial planner.

What the expert says

With payments of $3,150 a month, Lena and Louis will have their $127,000 mortgage paid off in 3.5 years, Mr. Copping says. Their $33,500 in car loans will be paid off in 3.8 years. By 2018, their mortgage and car loans will be paid in full. They will be 42 and 43.

“Their expenses will be reduced by $3,885 a month (mortgage, car loans, extra mortgage payments), plus their child-care costs will be falling as the children reach school age,” the planner notes.

By waiting to buy a cottage, their monthly outlays will be $4,000 to $5,000 lower, enabling them to absorb the financing costs, estimated at $2,057 a month (based on a $250,000 loan with a 13-year amortization) plus maintenance and other costs associated with a second property, Mr. Copping says.

If they were to buy a cottage now, “the extra cost will stretch the budget and result in a longer time frame to pay off the home mortgage, as well as reduced savings,” Mr. Copping says. “Better to pay off the current debt first,” he adds.

They have a monthly surplus of about $820, which they have been using for tax-free savings account contributions and extra loan payments.

Lena and Louis also wonder how the cottage purchase will affect their retirement spending goal.

“With 20 years’ service to date, Lena can qualify for a full pension at age 54,” the planner notes. She plans to work to at least age 55.

Mr. Copping estimates her pension at $75,600 a year, falling to $66,480 a year at age 65, when her pension will be reduced by her Canada Pension Plan benefit.

“Assuming they save $15,000 a year (RRSPs and TFSAs) for the next 17 years until Lena is age 55, their combined RRSP and TFSA savings of $219,200 could grow to about $900,000, assuming a 5 per cent return.”

Their savings, plus Lena’s pension, their CPP benefits at age 65 and their Old Age Security benefits at age 67, should allow them to “achieve their retirement goal with a healthy surplus,” the planner says. Altogether, their income sources could approach $100,000 a year, before tax.

They should continue to contribute to Louis’s registered retirement savings plan and their tax-free savings accounts when possible, he says. This would give them the flexibility to respond to unexpected events and perhaps help their children, who will still be fairly young when their parents retire. As well, Lena and Louis could draw on their savings while they are waiting to collect their CPP and OAS benefits.

They could use some of the cash they have in the bank to fund higher RRSP contributions for Louis so he could take advantage of his unused contribution room, the planner says. This should give him tax savings in the range of 33 to 39 per cent, he adds.

Lena and Louis should aim to be debt free by the time Lena retires at age 55, Mr. Copping says.

**

Client situation:

The people: Lena, 38, Louis, 39, and their two children, 1 and 3.

The problem: How soon can they afford to buy a cottage?

The plan: Wait until their home mortgage and car loans are paid off, likely in 2018, to buy the cottage. Aim to have the cottage loan paid off before they quit working.

The payoff: They can avoid a potential cash squeeze and have greater financial flexibility.

Monthly net income: $11,700

Assets Home $555,000; her TFSA $24,000; his TFSA $25,300; her RRSP $90,600; his RRSP $79,300; RESP $11,780; cash $19,000; present value of her pension plan: $644,655. Total: $1.45-million

Monthly disbursements Mortgage $3,150; property tax $400; home insurance $130; maintenance $200; utilities $320; transportation $440; grocery store $600; clothing $20; phones $125; cable/Internet $160; child care $1,700; dining, drinks, entertainment, club membership $390; travel, vacation $400; life insurance $20; car loans $735; RESP $490; gifts, charitable $200; RRSPs $800; employee pension plan $600. Total: $10,880 Surplus $820

Liabilities: Mortgage $127,000 at 3.55 per cent; car loans $33,500. Total: $160,500

04 Dec

2014

Alycia

Toronto house prices’ heady gains expected to continue into 2015

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Canada’s largest housing market continues to show price gains which the Toronto Real Estate Board says will continue into 2015.

The board said the average sale price in November was $577,936, a 7.4% increase from a year ago.

Year-to-date prices are up 8.4% to an average of $567,198.

Related Great news coming if you’re renewing a mortgage, you’re about to save money Black Friday mortgage specials see rates dip close to historic lows How to co-buy a home with your friend in Canada’s expensive market “The robust average price growth experienced throughout 2014 has been fundamentally sound, with demand high relative to supply. Strong competition between buyers has exerted upward pressure on selling prices. Barring a substantial shift in the relationship between sales and listings in the GTA, price growth is expected to continue through 2015,” said Jason Mercer, TREB’s director of Market Analysis, in a statement.

Sales across the Greater Toronto Area climbed 2.6% from a year ago to 6,519. For the first 11 months of 2014 there were 88,462 sales — a 6.6% jump from the same period in 2013.

“Even with a constrained supply of homes for sale in many parts of the Greater Toronto Area, buyers continued to get deals done last month. Households remain upbeat about home ownership because monthly mortgage payments remain affordable relative to accepted lending standards. This is coupled with the fact that housing has proven to be a quality long-term investment,” said Paul Etherington, president of the board, in a statement. LATEST PERSONAL FINANCE VIDEOS

02 Dec

2014

Alycia

Despite spiking house prices, ownership became slightly more affordable in the third quarter, says RBC

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TORONTO — Home ownership became more affordable in Canada in the third quarter despite a broad spike in home prices, according to the latest survey by RBC Economics.

How to co-buy a home with your friend in Canada’s expensive market

As housing costs rise, many first-time homebuyers are being priced out of the market and unable to save the huge down payment or even qualify for a mortgage. So more people are resorting to other ways to achieve their home-buying goals, including co-buying with friends or family. Keep reading. The bank says that was because of rising household incomes, low and steady interest rates and cheaper utility costs in many parts of the country.

RBC says resales rose for the eighth time in the past nine months in October, primarily due to robust activity in hot markets in Calgary, Toronto and Vancouver.

That is in contrast to balanced or soft conditions elsewhere in the country despite signs of strengthening activity in the third quarter.

RBC says this split resale picture shows up in price trends as well, with prices in Calgary, Toronto and Vancouver appreciating much faster than other local markets.

The report also suggests declines in fixed mortgage rates earlier this year were a key reason for such strength in the housing market since spring.

RBC predicts interest rates will slow the market in 2015 with the Bank of Canada expected to raise its overnight rate mid-year and longer-term rates will rise before that.

Related Forget city living: Canadian seniors are moving to the suburbs, study finds Great news coming if you’re renewing a mortgage, you’re about to save money “With home resales sitting close to the highest levels since early 2010, the overall tone of Canada’s housing market is quite solid at this stage,” said RBC chief economist and senior vice president Craig Wright.

“A combination of gradually increasing interest rates and higher prices will likely reverse the improvement in housing affordability that took place in the past year and weigh more and more heavily on homebuyer demand in Canada,” he said.

“We expect the next stage of the housing cycle to be a transition toward lower resales and slower price increases.”

The RBC index looks at the level of pre-tax household income needed to cover the costs of owning a specified category of home at current market values.

During the third quarter of, affordability measures at the national level fell by 0.2 percentage points to 47.8% for two-storey homes and by 0.3 percentage points to 27.1% for condo apartments. The measure for detached bungalows inched higher by 0.1 percentage points to 42.6%. LATEST PERSONAL FINANCE VIDEOS

01 Dec

2014

Alycia

IMF can’t stop worrying about Canada’s so-called housing bubble

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Canada’s housing market is likely to achieve a soft landing but authorities may need to tighten mortgage rules further to contain vulnerabilities to a crash, the International Monetary Fund said on Wednesday.

Canada avoided the housing market crash that accompanied the financial crisis in the United States. But a post-recession housing boom, fuelled by record-low borrowing costs, has prompted some analysts to warn a bubble may be in the works.

Canada’s Conservative government has tightened eligibility for government-backed mortgage insurance several times, hoping to push more marginal buyers out of the market and cool the market.

The IMF saw signs of over valuation in single-family homes, especially associated with high-end buyers, but said tighter mortgage insurance rules, reduced affordability and the construction of multi-family units appeared to have contained price growth in other market segments.

“Further action may be needed if household balance sheet and housing market vulnerabilities resume rising,” it said.

“The balance of risks is modestly tilted to the downside for the Canadian economy,” the IMF said, pointing to the possibility of faster-than-expected tightening of global financial conditions and a further fall in oil prices.

“Deeper downside risks to growth involve a combination of external shocks that are amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices.”

The IMF also said Canadian banks and other mortgage lenders should rely less on the federal government to cushion the risk of a downturn in the housing market.

Related Despite spiking house prices, ownership became slightly more affordable in the third quarter, says RBC CMHC to Canadian homebuilders: Beware of overbuilding in Toronto and Montreal Housing bubble begone. Turns out we just might need all those new condos and houses “Action to further limit exposure of taxpayers to the housing market and encourage appropriate risk retention by the private sector would be desirable,” the Washington-based lender said in a statement following a staff mission to Canada.

Canadian policy makers are counting on a pickup in exports and business investment to return the economy to full potential, after a recovery driven by consumer spending and government stimulus. The Bank of Canada said last month the risks to the financial system of high household debt are “edging higher,” even as it kept its benchmark interest rate at 1%.

Governor Stephen Poloz can afford to wait for “firmer signs to emerge of a more balanced and durable recovery with stronger business investment” before raising rates, the IMF said, noting falling crude prices should damp inflation.

The IMF forecasts the Canadian economy will grow 2.4% next year. Stronger growth in the U.S., which the fund projects will expand at a 3.1% pace in 2015, “should support above-potential growth and a broadening recovery” in Canada, it said.

Downside Risks

Still, the risks to the world’s 11th biggest economy are “modestly tilted to the downside,” the IMF said. Faster-than- expected tightening of global credit and a further drop in crude prices are the key threats to the nation’s outlook, according to the fund.

Canadian policy makers have taken steps to cool the housing market and reduce the exposure of taxpayers, even as they have maintained the country isn’t facing a bubble.

Canadian existing home sales rose last month, approaching the highest level in four years, amid gains in Vancouver and Toronto, the Canadian Real Estate Association said this month.

Canada Mortgage & Housing Corp., the nation’s housing agency, said in June it would would stop offering mortgage insurance for multiple-unit condominium construction.

Mortgage Pools

CMHC insurance is fully backed by the federal government. By law, Canadian mortgages that have less than a 20% downpayment must be insured. The government also guarantees 90% of mortgage insurance offered by private-sector insurers.

CMHC also backs pools of mortgages that financial institutions repackage as securities sold to investors.

Chief Executive Officer Evan Siddall said in a speech in September the agency is “evaluating a range of ideas on future improvements to our housing finance system, including risk sharing with lenders to further confront moral hazard.”

The IMF said in its report today that CMHC and private- sector mortgage insurers should consider reducing the amount of bulk mortgage insurance they offer. Financial institutions purchase so-called portfolio insurance to cover pools of mortgages they plan to securitize. CMHC started rationing portfolio insurance in 2012.

The IMF also said policy makers should consider tighter standards such as lower amortization limits on uninsured mortgages, which are growing about 10% a year.

With files from Bloomberg and Reuters

30 Nov

2014

Alycia

Joe Oliver wants to lower taxpayer exposure to the housing market — but there’s no specific plan to do it

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TORONTO — Finance Minister Joe Oliver says Ottawa won’t be making any protective moves in Canada’s housing market.

At a news conference Thursday, Oliver says the government’s long term aim is to gradually reduce taxpayer exposure to the residential real estate market, but there is no specific plan.

Oliver’s predecessor, Jim Flaherty, moved four times to tighten mortgage lending rules in an effort to cool a hot real estate market.

The minister’s comments follow an IMF warning on Wednesday that the housing market and household debt represent key risks to the Canadian economy.

Related IMF can’t stop worrying about Canada’s so-called housing bubble Home ownership became slightly more affordable in the third quarter, says RBC An IMF official estimated Canada’s housing market was over-evaluated by roughly 10% on a national scale, although in some regions those estimates could reach as high as 20%.

The IMF predicted a soft landing for the housing market, but warned Canada could be at risk of a sharp correction if interest rates rose too quickly and the job market suffered a downturn.

The finance minister spoke to the media Thursday ahead of his first pre-budget consultation roundtable in Toronto. LATEST PERSONAL FINANCE VIDEOS

28 Nov

2014

Alycia

Black Friday mortgage specials see rates dip close to historic lows

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Forget about lining up to buy a flat screen television, Black Friday may be all about mortgage rates this year.

Thanksgiving in the U.S. is a tough day to find a broker but an Atlanta-based mortgage organization says Americans who can find someone working can get the best deal in months – something that can be chalked up to a lack of trading in bonds.

Getting into the holiday spirit, a Canadian mortgage broker say he has secured funding from a major credit union to offer a one-day special on a five-year fixed-rate mortgage for a record low 2.59%. On the variable side, the 24-hour special takes rates to 2.05%, which is just above the 2% rate that was offered by Investors Group in the spring which sent the market into a frenzy.

Related Pay off your mortgage or invest? How to figure out what’s best for you Great news coming if you’re renewing a mortgage, you’re about to save money ‘I did mess up’: Even the experts admit mistakes on picking a mortgage So-called “sales” in the mortgage market may not be that unusual, they pop up every spring, but this would be the first for Black Friday — a time when the housing market slows down as we head into the Christmas season.

Gibran Nicholas, chief executive of CMPS Institute, which certifies mortgage planning specialists in the U.S., says the lack of liquidity in the market because of the holidays can mean dramatic swings in bond prices, which mortgages rates are based on. Prices have risen, dropping yields, creating an opportunity for consumers.

“There have only been two days in the last 18 months where mortgage rates have been as low as they are now,” said Mr. Nicholas. “The problem is even if you can get a mortgage broker on the phone, they might be on vacation. It’s an important story because if you can get your banker on the phone, even though it’s the furthest thing on your mind because you want to spend time with your family, now might be the perfect time to lock in your rate.”

Rob McLister, editor of Canadian Mortgage Trends, said there are times of the year where lenders are willing to offer better deals. Usually those sales happen to kick off the busy spring season, which in the past has seen Bank of Montreal unleash on the market a 2.99% deal on a five-year mortgage. That rate has twice helped set off a rate war among the major banks.

“Mortgage sales happen all the time but they are typically called specials,” said Mr. McLister. “There are usually no shortage of promotions.”

Mr. McLister, who is also a broker and runs ratespy.com, is upping the ante and is introducing the five-year fixed rate mortgage of 2.59% which he maintains ties the all-time record for lowest rate for that term.

He says DUCA, an Ontario credit union has agreed to finance the 2.59% special, but he won’t say who is providing him funding for his five-year variable rate product which is 95 basis points off of prime. He is only offering both deals on Black Friday and then the sale is over.

“I can’t say who the later [variable rate] is being funded by or I’ll be cut off by them. They have other [clients they fund],” says Mr. McLister.

Getting a deal on a mortgage is only one element of making sure you get a good rate. The other is guessing which way rates are headed. A good deal doesn’t mean much if rates are double where they are today, something to keep in mind in the wake of the Organization for Economic Co-operation and Development calling this week for the Bank of Canada to raise rates next May.

“Deals are based on how narrow a profit margin lenders are willing to accept,” said Benjamin Tal, deputy chief economist with CIBC. “The deals happen when demand is strongest and the competition is hot. Banks use the mortgage market to attract customers.”

Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals, said there’s almost a sale on mortgages every day in the market.

“Nobody pays posted rates,” said Mr. Murphy, who agrees it’s like stores that offer 20%-to-30% off. “There is something every day. To me it seems like a stretch that there will be Black Friday sales [on mortgages] but you never know.”

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27 Nov

2014

Alycia

Why the price of your home may not be up as much as you think

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The national average home price rose in October but the impact of Canada’s two largest markets is continuing to influence Canada-wide numbers, according to the Canadian Real Estate Association.

Toronto and Vancouver home prices pass Rome and close in on Paris

Canada’s two priciest cities for homes can now be included in an international class that is attracting foreign investors from around the world, says a new real estate study. Find out more Across the countries prices were up 7.1% from a year ago to an average of $419,699. Once Toronto and Vancouver are removed, the annual gain slips to 5.4% and the average sale price for October drops to $330,596.

“Low interest rates continued to support sales in some of Canada’s more active and expensive urban housing markets and factored into the monthly increase for national sales,” said Beth Crosbie., president of CREA, in a statement. “Even so, sales did not increase in many local markets in Canada, which shows that national and local housing market trends can be very different.”

For the sixth straight month sales rose and last month proved to be the strongest for October since 2009.

Related One way to lose money even when you’ve made 5000% on your home Toronto housing market still on fire, adding heat to national debate Calgary’s condo market booming as average price for single-family homes tops half a million “While the strength of national sales activity is far from being a Canada-wide phenomenon, it extends beyond Vancouver, Calgary and Toronto,” said Gregory Klump, chief economist with CREA. “Sales in a number of B.C. markets have started to recover from weaker demand over the past couple of years. They have also been improving across much of Alberta, where interprovincial migration and international immigration are reaching new heights.”

Actual October sales were up 7% from a year and sales were up 70% of all local markets, led by Greater Vancouver and the Fraser Valley, Victoria, Calgary, and Greater Toronto. Those five markets combined for 40% of the national sales activity.

For the first 10 months of the year, sales were now up 5.2% from a year ago and 2.5% above the 10-year average for the same period.

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26 Nov

2014

Alycia

Great news coming if you’re renewing a mortgage, you’re about to save money

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Canadians renewing a mortgage in the next six months are likely to be all smiles as they end up with a lower interest rate that should prove to be positive for the overall economy, says a new report out Tuesday.

The Canadian Association of Accredited Mortgage Professionals says in its annual state of the mortgage market that the average existing rate in Canada for consumers with a mortgage due in first half of 2015 is 3.5%. Just 60,000 of the 140,000 people renewing in the next six months have a rate lower than 3.5%.

“During the coming year, mortgage renewal is likely to be a positive event for the borrowers and therefore the broader economy,” says the report.

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According to www.ratespy.com the best rate on a fixed five-year mortgage is now 2.74% while a five-year variable rate mortgage is 2.15% based on a hefty 85 basis point discount off of the prime rate that the product is tied to.

“We have seen in aggregate that interest payments as a share of disposable income have been trending downward. The reduced interest payments also allow many to accelerate principal payments and/ or increase spending. Regardless this is a net positive for the economy,” said Benjamin Tal, deputy chief economist for the Canadian Imperial Bank of Commerce.

Record low interest rates have continued to a propel the housing market to new heights and on Monday the Ottawa-based Canadian Real Estate Association reported that October sales were the strongest for the month since 2009.

Canadians who bought last year saw some of the best deals in history with the average rate negotiated over the first 10 months of the year 2.89%. That topped the average rate of 3.25% just six months earlier.

“Mortgage rates have been cut in half in the last seven years so it’s been a renewer’s paradise. But rates are leveling off. The clock is ticking on the opportunity to renew into substantially lower rates,” said Rob McLister, editor of Canadian Mortgage Trends.

Already CAAMP says of the 1.35 million Canadians who renewed or refinanced mortgages since the start of 2014, 1.05 million saw their rate drop. There were 175,000 that faced a rate jump while 125,000 saw no change at all.

CAAMP estimates that fewer than 25,000 borrowers saw rate increases of more than one percentage point, a small number in the context of the 5.64 million Canadian homeowners who have mortgages.

“Low interest rates continued to support sales in some of Canada’s more active and expensive urban housing markets and factored into the monthly increase for national sales,” said Beth Crosbie, president of CREA after the monthly results were released which showed the average home in Canada sold for $419,699 last month.

Despite low rates, Canadians are also trying to pay those loans down. The CAAMP survey shows that in the past year about 38% of people with a mortgage took some action to pay down their debt faster than they had to. The top choices at 16% were to increase a monthly payment or make a lump sum payment.

Another 7% of Canadians increased the frequency of their payments. One of the more popular recommendations in the mortgage industry is that consumers make a mortgage payment every two weeks instead of monthly. The 26 payments a year can reduce your amortization from 25 years to 21.5 years.

“The fall report paints a picture of homeowners whether just starting out on their ownership journey or long time mortgage holders, as remarkably confident,” said Jim Murphy, chief executive of CAAMP. “They wait until they are financially stable before buying, and they take advantage of low interest rates to aggressively reduce their mortgage debt. Home ownership continues to be an important anchor for the Canadian economy.”

The survey does show that Canadians are also using their home equity to finance other behaviour. CAAMP found that over the past year $63-billion of equity was taken out of homes. About 11% of homeowners took an equity take-out.

The most popular reason was debt consolidation with $20.6-billion of home equity used to repay consumer loans. Another $17.4-billion of debt was used for home renovation, $7.7-billion for investments, $6.6-billion for purchases including education and $10.3-billion for other purchases.

The survey is based on 2,000 online interviews and was done in mid-October.

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Are we really overbuilding, constructing too many condominiums and creating too much sprawl? A new report maintains we need that housing more than ever.

Great news coming if you’re renewing a mortgage, you’re about to save money

Canadians renewing a mortgage in the next six months are likely to be all smiles as they end up with a lower interest rate that should also boost the overall economy, says a new report Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce, says we might be substantially underestimating household formation because we are not factoring in up to 100,000 immigrants.

“Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defence would be immigration and its critical role in supporting demand,” writes Mr. Tal, in a note he coauthored with Nick Exarhos. “It turns out that at least for now, this claim is more valid than widely believed.”

Mr. Tal points out that not only do new immigrants account for about 70% of our population growth about half of them are in the 25-44 age cohort, a key demographic that will lead to more household formation.

In 2013, the number of Canadians aged 20-44 grew by 1.1% which is the fastest pace in more than two decades and stronger than the average of countries in the Organisation for Economic Co-operation and Development.

Related Why the price of your home may not be up as much as you think Toronto and Vancouver home prices pass Rome and close in on Paris Calgary’s condo market booming as average price for single-family homes tops half a million “Healthier demographics are benefitting trends in household formation,” the pair write. “In fact, despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation is not far from its long-term average of 1.03.”

The bottom line is that when the housing boom does wind down it will not be as dramatic as once feared because of those immigrants picking up the slack, argues the paper.

In spate of the stronger than anticipated household formation, markets in Alberta, British Columbia and Ontario might still be outstripping what should be built based on demographics.

Their argument that immigration is being underestimated comes largely from underestimating the number of non-permanent residents in Canada which includes students, temporary workers and humanitarian refugees. That number was 22,000 in 2013 which brought the total number of NPRs to 774,000.

“Those are big numbers. And evidently when it comes to measuring household formation in Canada and its implication for the appropriate level of home-building, we understate the number of those non-permanent residents,” say the economists.

The pair say researchers are using the 2011 census to estimate household formation in Canada and that census bases household formation on 400,000 non-permanent residents which is 200,000 below even figures reported by Citizen and Immigration Canada.

“It’s a huge gap,” they write. “The gap is increasingly becoming more relevant for household demand since a growing portion of non-permanent residents come from workers and students with a high propensity to rent.”

The pair say there is no doubt that the pace of growth of the echo generation is slowing and foreign workers will face more barriers to entry albeit that will be offset by a decision by Ottawa to raise the annual immigration quota by 20,000 to 30,000 per year.

“But for the here and now, any claim of significant overbuilding in the Canadian market is not supported by the rise in household formation relative to starts,” says the paper, adding non-permanent residents will continue to provide the market a cushion from any downturn.

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