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Bank of Canada warns low inflation to persist into 2016 – Ask Bruce Coleman, Vancouver Mortgage Broker

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BARRIE MCKENNA–  OTTAWA — The Globe and Mail

The Bank of Canada is warning that unusually low inflation pressures will persist into 2016 – a new forecast that could further delay future interest rate hikes and send the Canadian dollar lower.

The currency plunged after the announcement, sinking to 90.3 cents U.S. by late morning.

The central bank kept its key overnight interest rate unchanged at 1 per cent Wednesday, or where it’s been since September 2010.

Canadians saving more, but are they making the most of their savings? – Ask Bruce Coleman, Vancouver Mortgage Broker

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Recent data indicate that Canadians are saving more. Statistics Canada reports that the Household Savings Rate is currently 5.4%, a 0.4% increase from the previous year. Likewise, a recent BMO Bank of Montreal study found that 48% of Canadians are now investing in Tax-Free Savings Accounts (TFSAs), a 23% increase from 2012.

It’s good that Canadians are saving but unfortunately too few are making the most of it. Part of the problem is that many remain puzzled by the various investment vehicles available, and much of the confusion lays in TFSAs.

The BMO study found that only 11% of Canadians can identify eligible TFSA investments. And, only 19% understand the annual contribution limit; which might explain why one in ten TFSA holders has over-contributed since inception. Investors should spend a bit of time learning the rules so they can take full advantage of this very useful investment vehicle.

TFSAs are available to Canadian residents 18 years of age or older. They can save up to $5,500 per year in cash and investments, and unused contribution room can be carried forward indefinitely. Withdrawals can be made anytime in any amount, without being taxed, and can be fully re-contributed the following calendar year. It’s important to remember that re-contributions in the same calendar year count against contribution room and could cause over-contributing, which the Canada Revenue Agency penalizes.

TFSAs can hold investments such as mutual funds, stocks, bonds, and GICs. However many investors don’t realize this, perhaps confused by the words “Savings Account,” and instead use their TFSAs to hold cash. BMO says cash is the most common component held in TFSAs, at 57%. mutual funds weigh in at 25%, followed by guaranteed investment certificates at 23%, stocks at 14%, and exchange traded funds at 5%.

The cash earns tax-free interest but the tax advantage is minimal in a low rate environment. TFSAs are best used for investments offering better growth potential. With income and capital gains accumulating tax-free, they are suitable for investments that otherwise generate greater total tax payable if held in a non-registered portfolio.

For instance, an investor who contributed $5,500 to a TFSA last year, with the full amount invested in an exchange-traded fund tracking the U.S., would be up by about 25%. The tax-free profit would be $1,375. Compare this to the investor who left the contribution in cash generating 1.50% and earning only $82.50.

Although 25% profit is an exceptional year, the tax-free advantage holds true even at lower return levels. Consider an investor who puts $5,000 into a TFSA at the beginning of every year for the next 20 years, invested in a product generating a 6% gain per year. After 20 years, the TFSA would be worth $194,964. In comparison, if the investment was made in a non-registered account and taxed at a marginal rate of 32%, the balance would be $156,258. The $38,706 difference speaks for itself.

Since 2013 the TFSA contribution limits are $5,500 per year, up from $5,000 per year from 2009 through 2012. An investor who has never contributed to a TFSA, and has been eligible to do so since 2009, can invest up to $31,000 this year.

Kim Inglis is an investment advisor & portfolio manager with Canaccord Genuity Wealth Management, a division of Canaccord Genuity Corp. www.reynoldsinglis.ca.

What you need to know before, and after, buying a condo – Ask Bruce Coleman, Vancouver Mortgage Broker

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What you need to know before, and after, buying a condo

ROB CARRICK–  The Globe and Mail

Dan Barnabic, a former Realtor, developer and consumer advocate, has a number of tips for would-be condo owners.
(Fred Lum/The Globe and Mail)

Your life as a homeowner will likely include some time in a condo. Condos suit young adults, and retirees who want to downsize. As houses rise in price, more people in between those extremes may opt for condos. Given the strong foundations for condo demand, there are surprisingly few resources available to help people make smart buying decisions.

Into this void comes a new book called The Condo Bible For Canadians: Everything You Must Know Before and After Buying a Condo. (Read anexcerpt from the book here.) It’s written by Dan Barnabic, a former Realtor, developer and consumer advocate who now runs a paralegal firm in Toronto. Here’s an edited transcript of a recent conversation I had with Mr. Barnabic about condos.

What accounts for the big rise in popularity of the condo as a place to live?

It’s basically hype fuelled by several forces, many of them developers. The buildings themselves were built much nicer – not better – than ordinary apartment buildings, and they had more amenities. You had swimming pools, you had gyms, you had perks that made you say, why not? As a result, things mushroomed to the point of a deluge of condo towers, especially in Toronto.

Don’t you agree that condos serve a need for some people?

Yes. Condo ownership can be very advantageous for some, including older people who are tired of the hassles of maintaining a house.

What’s the main reason for unhappy condo ownership experiences?

The No. 1 reason is the management of the complex. You can hardly find a condo complex in which the tenants are very happy with the way it’s being run.

What’s the role of the condo board, and how can I make sure they know what they’re doing before I buy?

The condo board is supposed to be in charge of the governance of the complex, making sure that money is being spent properly, that management of the condo is performing its job diligently, that the proper bidding takes place for any repair – stuff like that. You have to find out for yourself if the board is doing its job. Talk to the residents and ask them if they’re happy.

When buying a condo, you suggest starting with a low offer, say 75 per cent of asking. Won’t that just insult the seller?

Is it better to try and get a chance of a better price on a condo, or should you worry about insulting the seller? You’ve got nothing to lose. The worst that will happen is that you’ll be rejected.

Can you explain your warning about buying a condo in a building where more than 25 per cent of units are rented?

If you’re an owner, then it is obvious that you will take care of your condo, that you will not abuse the common elements, that you will look after the amenities.

Tenants simply don’t have the same interest, and you don’t expect them to because they’re not owners.

How can I tell if condo fees in a particular building are reasonable – not kept low to suit the short-term interests of residents, or so high as to work against resale?

You have to basically hit the pavement and compare – go around to other buildings and ask how much people pay and how big their units are.

Special assessments in addition to regular condo fees are a recurring horror story of condo ownership – how can you avoid them?

There’s no such thing as avoiding them. In the first 10 years of a condo, not much happens and it’s unlikely you’d face a special assessment.

After that, the roof is usually good for 10 years and then you have to start patching it up. Elevators start coming into play in 10 years if they’re well made. Outside balconies can become a problem.

There have been reports about leaky condos in Vancouver and falling windows in Toronto – how do you protect yourself against buying a poorly built condo?

The idea is to check on the reputation of the builder. Buying a condo really requires two months’ preparation time to do your due diligence on everything. There are reputable builders, and we have to recognize that. But there are also guys doing things in a hurry to make a buck.

Where do you live?

I am actually renting a very nice apartment on the top floor and not worrying about what expenses the building may incur.

———-

Which makes more financial sense – owning a condo or renting an apartment? Read an excerpt here from The Condo Bible for Canadians by Dan Barnabic.

Talk of rising interest rates no reason for homeowners to panic – Consult with Bruce Coleman, Vancouver Mortgage Broker

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ROMINA MAURINO-  The Canadian Press

Per cent blocks.
(Golkin Oleg/Getty Images/iStockphoto)

Talk of rising interest rates tend to make homeowners jittery and, if you have a big mortgage, you may be feeling extra nervous.

But while Bank of Canada Governor Stephen Poloz may have made some people uneasy when he spoke in a televised interview last week about the likelihood of rising long-term fixed rates, experts say not to panic.

Peter Veselinovich, vice-president of banking and mortgage operations with Investors’ Group in Winnipeg, says that while rate increases are expected, any change will not be “as dramatic as the sound bite that comes out of an interview with Mr. Poloz.”

“People immediately assume that means (rates) continually rising over a short period of time and that it’s a cause for concern,” Veselinovich said.

“It’s certainly not a ‘sky is falling’ type of message. It will be modest increases.”

Poloz said last week he expected long-term interest rates to rise in response to tapering by the U.S. Federal Reserve, which has already decided to reduce its monthly $85-billion bond purchases by $10-billion.

A change in interest rates would translate to higher mortgage payments, although that would only apply to people with variable ones, since fixed-rate mortgages don’t change for the duration of their term.

Most home owners currently have fixed-rate, five-year mortgages. The mortgages come with the peace of mind of knowing what your payment will be, but with an interest of about 3.5 per cent.

Variable mortgage rates usually hover around 2.5 per cent, since they are based on a floating rate based on prime and are adjusted with each change in prime. Rates have been low since the financial crisis of 2008.

Variable rates appeal to home owners who want to minimize the size of their payment or pay the debt off sooner, but require a financial cushion to account for any changes, should interest rates increase. They also provide more flexibility than fixed mortgages, since most variable mortgages will let you convert to a fixed rate at any time during the term, for a fee.

Robert Stammers, director of investor education for the CFA Institute, said that when it comes to picking a mortgage, it’s important to consider why you purchased the home and how long you plan to live in it.

“You really have to understand — Am I buying this asset to hold it for three (years) and then go up into something else or relocate? Because that will really drive the kind of debt decision you’ll make,” he said.

“If you’re going to be in your home for a short period of time and that’s the reason that you have floating rate debt, then you may be OK because you were expecting some rise in rates over the time period,” he said.

Home Series: Interior Design Mistakes to Avoid- Consult with Bruce Coleman, Vancouver Mortgage Broker

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Interior Design Mistakes to Avoid

When it comes to designing how you want your home to look, and you plan to live there awhile, you want to give the home a look which reflects your tastes and the style of the home.

However, if you don’t do it right or make some of the following common interior design mistakes, then it just means that you’re going to have re-do it which means additional time and expense.

So, to help you avoid some of the most common interior mistakes, this guide will hopefully help save you some expense and aggravation.

Choosing Paint and Fabrics in the Right Order

One of the most common mistakes is that people go ahead and choose a colour scheme and paint the walls before they go shopping for fabrics. The colour effect of the fabrics and paint often don’t match as well as you like. When considering the interior design of your home, it’s a lot easier to first choose the fabric colour scheme first and then select the colours to paint the walls because fabrics are limited in their colours and hues while paint is much more selective and adaptable.

Don’t Jump too Quickly on Going with White Walls

Most experts suggest you should avoid plain white walls unless it’s suitable for the type of architecture you have. The reason is that white walls often don’t work is because they give the impression that things which are resting against the walls that they are floating.

If you do go with white it is best to ensure that you have a lot of contrast and colour. Interior design experts recommend that a neutral colour or a colour with a mid tone will unify the pieces in a more cohesive effect.

Ask for Help and Opinions

Before you head out shopping, it can be advantageous to seek out the advice or get some critique from style conscious friends or even to seek out the services of a professional interior designer to assist you. Getting a second opinion can help avoid unnecessary expense and help you avoid any potential flaws in your design scheme.

Always Work Out a Budget Design Conception Beforehand 

Another huge rookie mistake that many people make is not having a clear cut budget in mind when considering the design scheme of their home. The second is not having a focused idea of what you want to achieve. When it comes to buying your sofas, chairs, wall units etc. you might buy it because it looks great in the store, but that does not mean that it will work in that particular room.

The biggest problem here is that many people do not consider the furnishings relative to the shape and size of the scale of the room which means the furnishings could end being too dominate or disappear, so always consider the size and scale of the furnishings relative to the size and scale of the room because otherwise they simply won’t jibe.

Another thing to consider is to avoid impulse buying because that is another major culprit that can completely offset a room’s design scheme.

Add Some Warmth or Character

Don’t be too rigid in your selection of colour and a furnishing so you end up with a space that appears too cold and lacks personalization. Often, all it takes to make a room more inviting is to add a focal point such as a piece of artwork or an antique or heirloom. And if your room contains something that you don’t like – simply get rid of it. The appearance of the décor of a room can be dramatically changed by doing something as simple as altering the location of the artwork such as at different heights.

CUs: A Lower Bar on Qualification Rates – Ask Bruce Coleman, Vancouver Mortgage Broker

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What soft landing? Bullish realtors see no slowdown at all for ‘strong’ housing market – Ask Bruce Coleman, Vancouver Mortgage Broker

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What soft landing? Bullish realtors see no slowdown at all for ‘strong’ housing market

Not only does Royal Lepage not expect a correction in Canada’s housing market, they say conditions are right for a rebound not seen since after the recession.

TORONTO — The latest Royal LePage housing survey shows average price of a home in Canada increased between 1.2% and 3.8% in the fourth quarter of 2013.

It says the average cost of a standard two-storey home rose 3.6% year-over-year to $418,282, while detached bungalows went up 3.8% to $380,710.

Royal LePage says the price of a standard condominium rose 1.2% during the quarter to an average of $246,530.

The real estate company says prices are expected to maintain a “healthy momentum“ this year and rise a projected 3.7% over 2013.

CEO Phil Soper says late 2013 saw the housing market transition to “buoyant sales volumes“ and above-average growth.

He says that in the absence of “some calamitous event or material increase in mortgage financing costs,“ he expects positive momentum to characterize 2014.

“We predict continued upward pressure on home prices as we move towards the all-important spring market.“ he said.

“Talk of a ’soft landing’ for Canada’s real estate market in the new year is misguided,“ continued Soper.

“We expect no landing, no slowdown, and no correction in the near-term. Conditions are ripe for as strong a market as we saw in the post-recessionary rebound of the last decade.”

We expect no landing, no slowdown, and no correction in the near-term

Separate data out Thursday was not so optimistic however. Three separate reports released on Thursday showed a cooling trend, with weaker-than-expected readings for November’s new housing price index and building permits, and December’s housing starts.

Building permits fell by a sharper-than-expected 6.7% in November, more than double the 3.0% pullback expected by analysts, while housing starts dropped to 189,672 units in December, shy of economists’ forecasts for 190,000.

“The decline (in building permits) is in line with our expectation that residential construction will soften in the coming year in the face of affordability challenges to a pace more in line with underlying demographics,” CIBC World Markets economist Peter Buchanan said in a research note.

Statistics Canada said Canada’s new housing price index did not change in November, after a 0.1% rise in October, with prices rising in eight metropolitan areas, unchanged in eight and declining in five.

Canada’s housing market avoided the crash experienced in the United States five years ago due in part to more conservative lending standards and a stronger economy. While economists have long predicted an eventual correction in Canada, they are divided over whether prices will drop sharply or simply stagnate in a so-called soft landing scenario.

Prices in the closely watched Toronto-Oshawa region were up 0.1% on the month and a tame 1.4% on the year. Vancouver, to which authorities also pay attention, fell 0.2% on the month and 1.3% on the year. The oil town of Calgary was up 0.4% since October.

With prices stabilizing, economists expect new construction to cool further in 2014. Starts for all of 2013 slowed to 188,200 units, down sharply from 215,000 in 2012 and the lowest full-year tally since 2009, according to Robert Kavcic, senior economist at BMO Capital Markets.

“In fact, outside of that recession year, it was the slowest year for starts in more than a decade. We expect further cooling to about 180,000 units this year, which would reflect balanced overall building activity,” Kavcic said in a research note.

Notably, starts for both houses and multi-units – typically condos – fell in December. Condominium construction fuelled building in Canada’s biggest cities, including Toronto and Vancouver, during the height of the boom, but has since slowed dramatically. Many observers fear a glut of condos coming to market in 2014 and 2015 may drive prices lower, but are divided over whether a correction would spread to the broader residential housing market.

The outsized drop in November building permits was offset slightly by an upward revision to October data to show an 8.0% gain in the month, according to Statistics Canada.

Residential construction intentions sank by 7.6% with both single- and multi-family dwellings declining, while the nonresidential sector dropped by 5.2% as institutional and industrial building plans decreased.

Commercial building intentions, however, were once again robust, with the value of permits hitting a record level over the past 12 months, according to Kavcic.

With files from Canadian Press, Reuters

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TORONTO — The latest real estate results look impressive for seven-figure homes but the story is not as dramatic once you factor out Canada’s two most expensive cities and look at three months of falling sales.

Garry Marr | January 15, 2014 9:50 AM ET

Prices across the country rose 10.4% in December from a year ago to an average of $389,119, according to the Ottawa-based Canadian Real Estate Association. Once you hack out Toronto and Vancouver, the increase drops  to 4.6%.

“The 10% number, unless you are millionaire living in Vancouver, this is not your number,” said Benjamin Tal, deputy chief economist with CIBC  World Markets.

Mr. Tal says prices are up nationally only 6.5% from a year ago if you create a weighted average that limits the impact of Vancouver and Toronto by factoring out a massive surge in the sale of high end homes. A year ago, sales were way down, making activity today look that much stronger and allowing expensive markets to skew the national results even more.

But he acknowledges even the 6.5% increase is more than most people had predicted for the market at this point in the housing cycle.

“We are running out of excuses and the housing market might be a bit stronger than expected,” said Mr. Tal.

There is cause for concern in the market. Seasonally adjusted December sales were down 1.8% from November and are now off 5.2% from the peak that was reached in September. Historically, price declines have followed sales declines.

“It’s very reasonable for prices to ease or even fall,” said Mr. Tal, who rules out doomsday scenarios that would see prices drop 25%.

He says it’s “way too premature” for the government to do anything to curtail the housing market, even though the market is stronger than anyone expected.

The concern is Jim Flaherty, the finance minister, will step into the market again to cool things down — something he’s done on multiple occasions during the this housing boom by among other things limiting amortization lengths. Mr. Flaherty has, so far, ruled out further intervention in the market.

We are running out of excuses and the housing market might be a bit stronger than expected

“I think January will look tepid because the first two weeks were so bad due to weather. But when we look at the first quarter of 2014, it will be quite starkly larger,” says Phil Soper, chief executive of Royal LePage, referring to sales.

He says economic conditions in North America are improving and that’s going to put pressure on housing.

“There’s going to be upward pressure on prices and by the end of the first quarter we will be talking about ‘Oh, my God how do people afford these homes’ as opposed to a falling number,” says Mr. Soper. He said more regulation could be in the cards as policy makers face a Catch-22. They need to keep the cost of money low but that encourages more debt and puts more pressure on housing prices.

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CREA has emphasized that results in the coming months might give people the wrong impression of the strength in the market. “We’ll likely continue getting mixed signals in the months ahead with positive year-over-year comparisons for sales masking the recent moderation in the monthly sales trend,” said Laura Leyser, president of the group.

Toronto-Dominion Bank issued a note yesterday with a continued call for a soft landing in the housing market.

“For the year as a whole, existing home sales rose 0.8%, a pace that is neither too hot, nor too cold but largely in line with our view of a soft landing in the Canadian housing market,” said Diana Petramala, an economist with the bank.

However, a report from Capital Economics, one of the well-known bears on this housing market, sees the downturn picking up steam.

“The downward pressure on house price inflation will intensify, translating into outright price declines in due course,” said economist Amna Asaf, citing declining sales and increasing number of unsold new homes.

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Home Series: Guide to Buying New Windows- Consult with Bruce Coleman, Vancouver Mortgage Broker

If you just bought or live in an older home, you might consider replacing your old windows to make your home more energy efficient.

Many older homes have wood frames made which tend to deteriorate and often only support single paned windows which can cause loss of energy.

Here is a brief guide on selecting new windows. Keep in mind that you can also get your windows custom made and in styles that reflect your style of home.

How Windows Are Rated

The energy efficiency of windows is reflected in the following terminology:

U Factor – Describes the glazing efficiency alone how it conducts non-solar heat flow. A more comprehensive rating is called the NFRC U- Factor rating describing the efficiency of both the glass/glazing. A lower rating means the window/frame has greater energy efficiency.

Solar Heat Gain Coefficient (SHGC) – Refers to the amount of solar energy and the amount of solar heat passing into the home. A lower rating means less solar heat.

Air Leakage – describes how much moves about the window frame. A lower rating means a tighter more efficient fit.

Sunlight Transmission

Windows are rated by the amount of sunlight so you can adjust to suit certain rooms.

Visible Transmittance (VT) – Represented as a fraction. The term refers to the spectrum of light which you see. A higher VT rating means more visible light.

Light to Solar Gain (SHGE) – This is the ratio of the Solar Heat Gain Coefficient (SHGE) to the Visible Transmittance (VT) and refers to the efficiency of the window glass or glazing.

Choosing Window Frames

Here are the types of window frames to choose from including:

Wood Window Frames – Many older homes have wood frames which are not energy efficient and subject to the elements.  You can buy wood frames, but keep in mind they need be regularly maintained

Metal Window Frames

Metal frames require minimal maintenance because they are light and durable, but they tend to be a poor conductor of heat and have negligible insulation. They have to be installed correctly to adjust these issues.

Vinyl and Fibreglass Window Frames

Most vinyl frames incorporate Polyvinyl Chloride and should preferably have ultraviolet light stabilizers to prevent erosion. They resist moisture and do not require painting.

Composite Window Frames

These use composite wood products such as strand lumber or particle board but can resist moisture and less decay than standard wood frames.

Window Glazing

There are many types of window glazing and glass so you select the ones you need for different rooms and for different effects. Your choices include:

Gas Filled – Uses inert gas such as Krypton or Argon between the window panes to provide greater resistance to both heat and air flow.

Tinting – Tints absorb heat and limit the amount of solar radiation and heat transfer. You have a variety of options

Coatings – Coatings are also varied so can opt for the following:

• Low-emissivity coating which regulates heat transfer for windows that have insulated glazing.

• Reflective coating which blocks light but will admit more heat.

• Spectrally selective coatings that filter out between 40 – 70% of heat but permit a full range of light to enter.

Insulated Windows – Have two or more panes of glass. They are hermetically sealed and can be very energy efficient.

When buying new windows, just remember that you don’t have to select one uniform type so give some thought about what you want to achieve when you go shopping for new windows.

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While many Canadians are focused on the looming RRSP deadline and maximizing contributions, it’s important that they don’t lose sight of an important alternative investment, a tax-free savings account.

A major benefit of TFSAs is that money invested in them can grow tax free-for life, says Ahmad Dajani, vice-president of investments, guaranteed investment certificates and sales tools for Scotiabank in Toronto. “They provide great flexibility because you can pay as little as you like up to $5,500 a year and withdraw funds without penalty or tax consequences.”

TFSAs are a useful special purpose savings vehicle for anyone wanting to save for a major expense, such as a renovation, car purchase or other outlay. Alternatively, investors – including retirees — can use TFSAs to generate dividend, interest or capital gains income tax-free.

Here are some things you should know about TFSAs:

1. The starting age for contributions is 18.
2. There’s no age limit to contributing to TFSAs; you can continue to invest even after the age of 71, the limit for RRSPs.
3. Investors can contribute a maximum of $5,500 per year in 2014.
4. If you have not contributed in the past, or did not meet maximum contributions in any given year, you can catch up on unused contributions (Up to the $31,000 limit as of this calendar year).  The best way to keep track of your unused contribution room is to check out your notice of assessment from the CRA.
5. Be careful not to over-contribute or you will incur tax penalties equal to 1% of the highest excess amount in the month and for each month you are over.
6. You can withdraw money at any time without penalty or tax consequences. However, you can’t re-contribute that amount in the same calendar year. (If you only need the funds for a short time and plan to replace them quickly, the best strategy is to make the withdrawal late in the calendar year so you can re-contribute Jan. 1 of the following year.)
7. TFSA withdrawals do not impact any government benefits or assistance programs such as child tax benefits, old age security or other guaranteed income supplements. This means low-income earners can generate tax-free income without it affecting their support.
8. A TFSA is not just a cash account. It can be structured so you can invest in various vehicles, such as GICs, bonds, mutual funds, stocks and exchange-traded funds, among other options.
9. Unlike RRSPs, deductions are not tax deductible. However, you can double up on tax-free income generation by opening a second TFSA in your spouse’s name.
10. For those on a limited budget, the best way to keep up with contributions is to set up an automatic monthly withdrawal plan.