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What to do, what to see? In Port Alberni, BC

How to prepare your home for a quick, profitable, summer sale

Posted on Jun 18, 2014 in Mortgage Market Updates and News

Melissa Leong
http://business.financialpost.com/author/mwleong/
Financial Post


After a brutal winter, the heat has finally arrived and with it, expectations of a hotter real estate market. The flurry of housing activity normally reserved for early spring is extending into the summer, industry experts say.

“The pent up demand from the winter is coming to fruition. As soon as listings come out, they’re being swallowed up,” Gurinder Sandhu, executive vice-president at RE/MAX’s Ontario-Atlantic Canada Division, says.

“For buyers there are more choice and for sellers there are more buyers.”

How you price your home and how you prepare its for sale are key.

“Price trends from one neighbourhood to the next can be very different,” Gregory Klump, chief economist at the Canadian Real Estate Association. “If you price your property too high, there is a chance it’ll sit on the market without offers.”

Here’s how three recent home sellers weighed their options, and came out with the sale price they were looking for.


1.
Original purchase price: $332,000 in 2002.
Asking price: $889,000
Sold on the first day: $889,000

Jennifer Lee, a 41-year-old public relations manager, had bought her 3,000-square foot home in Markham, Ont. brand new in 2002 for $332,000. The house had four bedrooms and four bathrooms. With the goal of moving her family to Toronto to be closer to work and loved ones, she put her house on the market on March 12.

What were your home selling goals?
“My goal was to get maximum value for the home because I was going to move into a much more expensive neighbourhood. I also had a very short timeline because I wanted to match it with my kids finishing the school year.”

Describe your home selling strategy.
“One of my strategies was to sell before I buy. [My brother] who has moved five or six times, said the stress he experienced buying a home first and then trying to sell his home was the worst stress of his entire life. Then you get into panicky mode: ‘I need to accept an offer.’ Then you get sellers regret: ‘Did I sell too cheap?’

We had looked at a home three doors down from us that was the exact same model that had sold last summer. They didn’t have a finished basement. It sold for $815,000. (We had spent about $50,000 to upgrade our basement.)

My agent told me that buyers in the market really like to bargain, so I thought I will price in a 5% to 10% buffer. My asking price was $889,000. I told my agent, ‘I don’t even want to hear an offer that is less than $850,000. In my head, I was thinking, I want $870,000 to $875,000.

We originally thought to hold off on offers; [our agent] said, let’s not lose momentum. If someone’s interested, let them make an offer.”

How did you prepare the home for sale?
“We significantly de-cluttered. We stripped out all of the closets and did some re-painting. There were some bold colours on the main floor that we neutralized. We replaced carpet in the basement with laminate and new carpeting. Our budget for clean up was $3,000.”

What did the home finally sell for in the end?
“We got an offer on the first day of the market for asking, no conditions.

“We do know that the buyer was from China and was moving to Toronto and was only in town for a week.”

Final thoughts on the process.
“I’d recommend not holding off on offers. If someone wants to offer, find out what they want to offer. You can always go back to people who’ve looked at the house and see if they’re interested.

In terms of preparations, don’t get pushed around by contractors who tell you that you need to paint eight rooms and replace all mirrors. Buyers can generally see beyond paint. You don’t have to redo your whole house.”



2.
Original purchase price: $122,500 in 2001
Asking price: $270,000
Selling price: $265,000

With Elisa Holland’s transient military career, which has included tours in Afghanistan, and her husband’s job as a consultant in Alberta’s oil patch, the couple has lived apart for eight years. They finally decided to list their Calgary home for sale on April 1 and move together to Kingston, Ont. They bought the two-storey townhouse with three bedrooms, one and a half baths and two parking spaces for $122,500 in 2001. They listed the 1,500-square foot property for $270,000.

What were your home selling goals?
“We wanted to put it at a fair price to sell quickly so we could buy a house in Kingston; it allowed us to buy our dream house. Kingston is a very stable market whereas Calgary is the exact opposite. My aunt and uncle have a fully detached house with a two-car garage in Barrie Ont.; it’s listed at the same [price] as our townhouse.”

Describe your home selling strategy.
“I had interviews with three realtors. You have to pick a realtor who understands your residence. The reason why we ended up going with Michelle [Russell, a realtor at Royal Lepage], she understands townhouse/condos and first-time buyers.

You want to make sure you have very neutral décor. You want it so that if someone else walks in, they don’t see that it’s your house but they can picture themselves there. If you have carpets, you want to take those up so it’s a clean line across the floor. If you have an area rug, it cuts up the space. If you have a pet, you want to remove all traces that you have one. Even before a realtor came over, I took photos and very harshly critiqued them.

Knowing when to put it on the market is key. Most people want to keep their kids in school and they’ll start looking in March/April.

What did the home finally sell for in the end?
Our price that we’d be happy with was anything over $260,000. We ended up with two offers: $263,000 and $265,000. We ended up selling it for $265,000, with fewer conditions (they didn’t want a home inspection) and they already had their financing in place.

Final thoughts on the process.
Go with your gut feeling, especially if you get multiple offers. Your realtor will give you a sense of what the buyer is like. The $263,000 offer that came in, I honestly felt sick to my stomach. I got a sense that there was something not quite right. Make sure you do your research on your realtor. Don’t always go by someone’s advertising. On the whole, the majority of good realtors will never have to advertise, it’s all word of mouth.


3.
Original sale price: $245,000 in 1995
List price: $689,000
Sale price: $700,000

Asking price After living in a two-bedroom bungalow in New Westminster for 19 years, Bob Harris looked at the backyard one day and said, “I just don’t want to do it anymore.” The 68-year-old retired union rep wanted to downsize. He had bought the house for $245,000 and listed it for $689,000. Meanwhile, he saw a two-bedroom condo that he liked and he put an offer on it.

What were your home selling goals?
“It seemed like a good time [to sell] in New Westminster; house prices were going up and condos were going down. The spread between the two was as good as it has been in a long time.”

Describe your home selling strategy.
“The rush was on. We got it ready to show within a few days – decluttered, depersonalized it.

My real estate agent Dave [Vallee] had sold a couple [of homes] in the same shape as mine; he had sold one for $683,000. We put it at $689,000, hoping to get some competing offers.

In less than a week, we had an open house on a Sunday. The next day there were three offers, all higher than the asking price…$692,000, $699,000 and $700,000.”

Knowing when to put it on the market is key

What did the home finally sell for in the end?
“Two of them were subject to financing. The [homebuyer offering] $695,000 had the money in cash. Her real estate agent was there that night at the house presenting the offer and she was waiting in the car. We said, ‘Would she be willing to move to $700,000 to meet the other offer?’ and she did.”

Final thoughts on the process.
“It helps to have a realtor who knows the area that you’re buying and selling in. In going to a lot of open houses, you’d go to ones where the realtors were from outside the area – so there were a lot of questions they couldn’t answer.

If something needs painting, paint it. I went to some places and they were messy. It just doesn’t make you necessarily want to buy. The place that I did buy ironically, the person had been relocated back east and said, ‘Take it as it is.’ They probably could’ve asked for more if they had done a few things.”


Reverse mortgages rising fast to deal with retirement shortfalls

Posted on Jun 17, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/
Financial Post


It could become a growing solution to our retirement savings problems, but opponents of reverse mortgages warn their spike in popularity could mean shrinking inheritances.

HomEquity Bank, which is owned by Birch Hill Equity Partners, and is behind the Canadian Home Income Plan, said reverse mortgages are up 26% year-to-date compared to the same period a year ago. It’s still a relatively tiny chunk of the 5.5 million mortgages outstanding, considering HomEquity only expects to issue about 3,000 reverse mortgages this year.

But is it a solution for people whose retirement savings don’t match their retirement spending? The interest costs, which are generally above market rates for a traditional mortgage, will ultimately eat into home equity and not leave much behind for heirs.

“A reverse mortgage is the last, last choice I consider for my clients,” says Lise Andreana, a certified financial planner with Continuum II Inc. who is based in Niagara-on-the-Lake. “It’s basically when they’re running out of money to live on.”

Jeff Spencer, vice-president of national sales for HomEquity Bank, says he’s heard it all before. He thinks it’s time Canadians start thinking about their home as part of their financial plan and incorporate a reverse mortgage into their strategy.

CARP, which represents retired Canadians, says two-thirds of the workforce — or about 12 millions working Canadians — do not have a workplace pension plan. Faced with a savings shortfall for retirement, their house can fill the gap.

“We think real estate needs to be treated very differently in a retirement plan. It’s not a passive asset but an active asset that is utilized at the start of retirement,” said Mr. Spencer, adding his company has created a new plan that starts delivering cash flow as soon as you retire as opposed to when you run out of cash.

The advantage of a reverse mortgage is you can take money out of your home and it is not taxed, which allows you to deplete your registered retirement income fund at a slower pace and potentially put yourself in a lower tax bracket. It might even help avoid clawbacks to Old Age Security by lowering your income threshold.

Canada Mortgage and Housing Corp. says reverse mortgages have been around since 1986 and generally allow you to take anywhere from 10% to 40% of the equity out of your house with the caveat that your interest rate will be about 150 basis points above the conventional rate for a five-year mortgage.

Mr. Spencer paints a scenario where a client might have a $1-million house paid off at 65 and qualify for a $350,000 mortgage. You could divide that amount over say 25 years.

“You might offset any type of interest you might accumulate on the reverse mortgage [with tax savings],” he says, acknowledging clients pay about 1.5 more percentage points above prime. “More importantly, it extends the horizon time on your portfolio.”

He says with life expectancy on the rise, this type of planning is going to become necessary or people are simply going to run out of money.

“When people retired at 65 and had a life expectancy of 75, we didn’t have to get too complicated with their retirement plan. They wouldn’t go through their investable assets even,” said Mr. Spencer. “But when you are retired as long as you are working, you need to utilize all of your assets.’

Plus, the real issue is people don’t want to leave their homes until they have to which is something a reverse mortgage accomplishes.

Ms. Andreana cautions if you do get a reverse mortgage, make sure both spouses names are on the contract because you can be pushed out after the spouse with the mortgage dies otherwise.

Still, she thinks the reverse mortgage could take off because people who are retired now are finding they are not making it financially. “They are in retirement for 10 years and their savings are running out and inflation is eating away at the lifestyle they’ve become accustomed to.”

Her recommendation is not the reverse mortgage but rather to sell your house outright if you can “stomach” the idea of moving. “You can only get so much money out of a reverse mortgage,” says the financial planner.

Phil Soper, the chief executive of Royal LePage Real Estate Services, agrees it is an expensive way to borrow but he can see the option making sense in some circumstances.

“You have someone who is older and quite sure they want to live in their home for an extended period of time and have limited other resources to draw upon,” he says, adding that the higher rate has to compensate for risk to the lender that your house could drop in value or you end up living in it longer than anticipated.

“In Canada, it’s been a pretty safe bet for reverse mortgage providers because over the long term, homes have risen 4% to 5% [annually],” says Mr. Soper.

As for the future, based on the strength of the housing market and the low savings rate, Mr. Soper says reverse mortgages just might become more popular.

“Conceptually, reverse mortgages are a way for people to consume the equity they have built up in their lifetime,” said Mr. Soper, who believes you provide for your children all your life so that home is yours. “If their wealth is tied up in their home, it will be something to consider.”


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CMHC stops offering mortgage insurance to condo developers

Posted on Jun 16, 2014 in Mortgage Market Updates and News

Andrea Hopkins, Reuters
 http://business.financialpost.com/author/reutersnp/
Financial Post


TORONTO — Canada’s federal housing agency will no longer offer mortgage insurance for condo construction, it said on Friday as it made further changes to its programs with the aim of cutting risks amid the country’s housing boom.

Canada Mortgage and Housing Corp (CMHC) also said it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20% or more.

It’s a step further than rules introduced two years ago when then finance minister Jim Flaherty announced that CMHC would stop insuring mortgages on homes worth $1 million or more if the buyer borrowed more than 80% of the value.

The Crown corporation says the changes announced Friday would have affected only about 3% of the mortgage insurance it provided last year for individual homes.

The changes are the latest made by the federal government and its agencies to tighten mortgage lending and mortgage insurance rules to make it harder for homebuyers, builders and developers to take on too much housing-related debt.

The changes are designed to increase market discipline in residential lending while reducing taxpayers’ exposure

“The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC,” the agency said in a statement.

“They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance.”

The shift is not expected to have a material impact on the mortgage market, said Geoffrey Kwan, a banking analyst at RBC Dominion Securities.

CMHC introduced its multi-unit condo construction mortgage insurance in 2010 to help developers get financing as they built their projects, but the agency said it has not provided any such insurance since 2011. Its total outstanding insurance-in-force for condominium construction was about $378 million as of March 31, a fraction of the agency’s total $557 billion insurance in force in 2013.

On the second change, CMHC said low-ratio insurance that falls outside the revised parameters accounted for about 3% of its total homeowner business volumes in 2013, and thus should not have much of an impact on the market. Mortgage insurance is not required when borrowers have a down payment of 20% or more, but lenders often buy insurance on low-ratio loans anyway as part of the approval process.

Under the changes, the low-ratio insurance product will be aligned with CMHC’s high-ratio product, with the maximum house purchase price of $1 million, the amortization period capped at 25 years, and the total debt service ratio limited to 44%, effective July 31.

Insurers who compete with CMHC include Genworth MI Canada and privately owned Canada Guaranty Mortgage Insurance Co.


© Thomson Reuters 2014, with files from the Canadian Press


Mortgage interest never as easy to pay as now — as long as rates stay low, DBRS report shows

Posted on Jun 13, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/


It hasn’t been this easy to pay the interest on your mortgage in almost 25 years.

Credit rating agency DBRS Inc. has been tracking our ability to pay loans since 1990 and says today we only need on average 3.7% of our household disposable income to cover the interest on those loans — the lowest percentage on the books.

All this comes as Canadians continue to ramp up their mortgage debt, albeit at a slower pace. Mortgages outstanding were up only 5.5% year over year in January, 2014 from a year earlier but still reached $1.2-trillion in the first quarter. That’s a 202% increase since 1999.

The juggling act is pretty simple. The interest costs don’t seem like much when every day there is a better mortgage deal being offered, from the near rock bottom price of 1.99% if you are willing to gamble on a variable rate to just under 3% if you lock in for five years.

“This is a good news story with clouds on the horizon because it’s a lot harder for rates to go down further and a lot easier for them to go up,” says Jamie Feehely, managing director of Canadian structured finance with DBRS.

The ratings agency lays out what it calls an “interest rate shock” scenario where rates rise two percentage points — an increase that would be hefty enough to leave the average Canadian with more debt than the Office of the Superintendent of Financial Institutions considers acceptable.

That increase in rates would mean the average Canadian household with a conventional mortgage, not insured by the government, would see almost 46% of pre-tax income going towards paying down debt — a level on par with what we saw in the early 1990s when interest rates were double digits. So a two percentage point increase would mean our debt servicing costs jump by six percentage points.

Under OSFI guidelines the measure called gross debt service ratio should be 40% or as high as 45% if you are stretching it, according to DBRS. At 46%, consumer would have trouble qualifying for a mortgage, meaning many potential new buyers would be left on the sidelines.

The impact wouldn’t be immediate for existing Canadian homeowners because once you have a mortgage that test only comes into play if you decide to switch lenders.

“We really do believe rates will go up, it’s just a question of when,” said Mr. Feehely.

The ratings agency does not expect a sharp rise in mortgage defaults which averaged 0.32% of loans in 2013 compared to 1.43% in the United States. Even when unemployment spiked during the 1990s, Canadian mortgage defaults did not reach 1%.

Canadians also have plenty of equity in their homes. The average Canadian household has $560,800 in net worth, including $189,400 in their home. Net worth as a percentage of disposable income reached a record of 715% in the first quarter.

While the banks may be protected in case of default, the consumer might not be as lucky. “On average the Canadian household is stretched,” says Kevin Chiang, senior vice-president of Canadian structured finance with DBRS, adding the worry is what happens if there is an external shock to the Canadian economy.

Benjamin Tal, deputy economist at Canadian Imperial Bank of Commerce, says while he worries about a hike in rates, Canadians are probably in a slightly better shape than they were in the 1990s to absorb an increase because heavy discounting off the posted rate has left us with a cushion.

He adds any rise in interest rates would also probably come with a jump in income as inflation kicks in so everything would be relative.

“The key issue will not necessarily be a wave of defaults but a reduction in consumer demand,” said Mr. Tal, adding that’s why he’s forecast a rise in interest rates will slow the housing market down.

Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc., said while the amount of interest may be low, the rising debt will be a problem.

“Canadians are just buying too much house, we should be worried,” said Mr. Schwartz. “Even though interest rates are low, the amount of money we have to pay overall to our income is incredibly high.”


How record low interest rates are helping us pay off our mortgages faster

Posted on Jun 12, 2014 in Mortgage Market Updates and News

Garry Marr
http://business.financialpost.com/author/garrymarr/


Record low interests rates are helping Canadians pay off their debt faster, but cheap borrowing costs are not enough to overcome the red hot housing sector, according to a new survey.

The Canadian Association of Accredited Mortgage Professionals says 35% of Canadians were able to bump up their payments in the last year, some of them taking advantage of a renewed loan at a lower interest rate. That lower rate allows them to apply more of their monthly payment to principal as opposed to just interest.

“There are people comfortable with what their payments are when they are renewing and [the lower rate] becomes an additional payment,” said Jim Murphy, chief executive of CAAMP.

A $250,000 mortgage at 4%, amortized over 25 years, has a monthly mortgage payment $1,315.06 but if you lower the rate to 3% — the going rate on a five-year rate mortgage — your monthly payment drops to $1,183.12. Keep the payment the same and that extra $131.94 can be applied to principal which will ultimately mean your loan is paid off more quickly.

CAAMP found in its May survey that the average mortgage rate of a Canadian homeowner is 3.24%, that’s down from 3.5% a year ago. It said the renewal rate for what it called “recent” mortgages was down to 3.02% on average.

The group’s statistics show most people are doing better on renewal. Of the 2.2 million borrowers who have renewed or refinanced in the past year, 1.2 million saw their rate fall. Of the 750,000 who saw an increase, the rate was negligible. In the entire country, only 4% of borrowers have an interest rate of 5% or more.

Despite all these great deals on mortgages, debt continues to climb. A report from Dominion Bond Rating Service says it’s now $1.2-trillion and counting and CAAMP agrees it climbed 5% year over year.

“This is a reflection of overall real estate activity,” said Mr. Murphy, noting CAAMP’s forecast is for a slowdown in new construction which should slow down mortgage growth.

Will Dunning, chief economist with CAAMP, said he doesn’t have exact data but his sense is some of the reason for faster payments of mortgages is declining interest rates. Income growth could also be a reason for people increasing their payments, he said.



PAYING OFF YOUR MORTGAGE FASTER

Actons taken in the past year to shorten amortization perids
by Period of Purchase


Period of           Increased          Made a          Increased          Took one           Took
purchase           amount of         lump sum       frequency          or more of          none of
                          payment           payment         of payments      these actions     these actions


2000-2004           19%                    14%                   4%                   33%                67%

2005-2009           18%                     15%                  6%                   35%                65%

2010-2014            15%                     16%                 7%                   35%                65%

All Purchase
periods                  16%                     14%                 7%                  35%                65%


Source: Canadian Association of Accredited Mortgage Professionals
Andrew Barr / National Post



The survey found, of all borrowers, 16% increased the amount of their payment to shorten the length of their loan, a category that would reflect consumers taking advantage of lower rates. Another 14% had made a lump sum payment while 7% increased the frequency of their payments.

“There are a lot of people paying more than they need to be paying,” said Mr. Dunning.

The flip side is that 11% of homeowners took equity out of their homes in the past year with the average amount $51,000. That translates to total a equity take of $53-billion.

The No. 1 reason was debt consolidation at $16.9-billion, followed by renovation or home repair at $12.5-billion, $6.6-billion for purchases including education and $3.3-billion classified as “other.” Mr. Murphy said with debt consolidation occupying the top spot, it is clear consumers are taking their obligations seriously.

David Madani, an economist with Capital Economics, said you really need to quantify how much debt paying people are paying down before you can say what the impact will be.

“I think it is happening,” said Mr. Madani, a noted housing bear who continues to call for a 25% correction. “But I think what is being described is that people are also trading up and taking on more debt.”

Ron Cirotto, who runs amortization.com, jokes he is surprised anybody is worried about their mortgage anymore. “It seems like [rates are] going to go into the negative soon,” he laughs.

In the interim, he’s a strong proponent of using the opportunity of low rates to keep your payment the same and using the difference to pay down debt. “It’s a no-brainer, if you have been doing $500 per month for the last five years and the rate drops, why would you want to drop your monthly payment?” says Mr. Cirotto.

Still, he also gets the lure of the larger house and the extra debt that entails. “I have to admit myself when I bought my [current house], I did it just after I paid off my previous house,” he said. “Everybody does it, so I’m not throwing stones.”


gmarr@nationalpost.com

Financial Post

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Home prices moving at ‘uncomfortably hot pace’ in big markets

Posted on Jun 11, 2014 in Mortgage Market Updates and News

By Jamie Sturgeon
Global News
http://globalnews.ca/author/jamie-sturgeon/


Calls for a soft landing for the housing market appear on the mark this year, with sales and price gains this spring “comfortably cool” across much of the country, experts at TD Economics and others say.

But there are some big exceptions.

Toronto, Vancouver and Calgary, already Canada’s priciest markets, are seeing home prices leap higher still as limited supply of some housing types and ultra low interest rates fuel bidding wars, particularly for single family homes.

“Most price pressures are coming from the single-family home market in Toronto, Vancouver and Calgary,” TD’s Diana Petramala said.

“Surveys show that bidding wars remain common in many major cities like Toronto, Vancouver and Calgary, which is why prices are continuing to grow at an uncomfortably hot pace,” the economist said.

In Calgary, quality-adjusted prices surged 9.5 per cent last month, outpacing the 7.6 per cent gain in the national average home prices.

But the national average was skewed by Calgary, Toronto and Vancouver – stripping out those markets leaves the national gain for April at a more modest 5.0 per cent compared to prices last year.

The average home price across all housing types (detached, semidetached, townhouse and condo) hit $409,708 in April, the Canadian Real Estate Association said Thursday.

That compares to the average selling price in the Toronto area of $577,898, up 10.1 per cent from April 2013, the city’s real estate board said.

The average home price in Calgary is $483,887, according to the city’s real estate board. In Greater Vancouver, the average home price is $619,000.

The gains come as borrowing rates on home loans hit fresh lows. Investors Group dropped its variable rate to 1.99 per cent this week.

Peter Veselinovich, vice president of banking and mortgages at the financial services firm, said the ultra low rates were only for buyers who met stringent creditworthiness standards.

“This isn’t a means for individuals who otherwise can’t afford a property or get a mortgage to get one,” he said. “This is for individuals that otherwise qualify comfortably to enjoy a lower rate.”

Still, some economists are concerned about the gulf that’s opened up between home prices and incomes, with gains in the former far outstripping growth in incomes in recent years — a gulf low-interest debt has rushed to fill in.

With even lower rates entering the market, “the risk is that prices re-accelerate as the spring market heats up,” TD’s Petramala said.

Veselinovich said the ultra low rate at Investors Group wouldn’t be around for long, and he expects rates to climb in short order.

“There was an opportunity for us, we had funding available,” he said.


Federal mortgage insurer reassures us, there’s no housing bubble

Posted on Jun 10, 2014 in Mortgage Market Updates and News

By Staff The Canadian Press


OTTAWA – Canada Mortgage and Housing Corp. still sees a soft landing in Canada’s housing market future, with construction slowing further and price increases leveling off in the low single-digits.

But the latest quarterly forecast sees builders curbing their enthusiasm for more speculative construction aiming to tailor starts to more to demand, particularly in the overbuilt condo market.

“Builders are expected to continue to manage their starts activity in order to ensure that demand from buyers seeking new condominium units is first channelled toward unsold completed units or unsold units that are currently under construction,” said the agency’s deputy chief economist Mathieu Laberge.

CMHC predicts the average home price will rise 3.5 per cent to $396,000 this year, and 1.6 per cent to $402,200 in 2015.

Meanwhile, housing starts are predicted to dip somewhat from the 187,923 units built last year.

The agency forecasts starts this year will range between 172,300 and 189,900 for a midpoint prediction of 181,100. The midpoint forecast for 2015 is 182,100, suggesting a flat but not falling market.

CMHC also sees Multiple Listing Service sales remaining stable, with a midpoint of sales this year at 457,900 units, virtually unchanged from 2013. Sales are expected to pick up to about 471,100 units in 2015.

A number of analysts, including international organizations, have been anticipating a slowdown in the Canadian market, which is among the most robust in the world in defying what has generally been soft economic conditions.

The forecast from the government-held agency that insures higher-risk mortgages suggests that is happening in Canada, but the correction will be soft enough not to severely impact the economy or household wealth values.


Scotiabank cuts fixed 5-year mortgage rate to 2.97%, lowest among the big banks

Posted on Jun 9, 2014 in Mortgage Market Updates and News

Romina Maurino, Canadian Press
http://business.financialpost.com/author/canadianpressnp/
The Financial Post


TORONTO — Scotiabank is the latest lender to create waves in the mortgage market after lowering its special fixed five-year rate to 2.97%, the lowest fixed rate among the big banks.

The rate is effective until June 7, and comes amid growing competition for mortgages that have pushed rates down in recent months.

It’s also below the 2.99% level that drew sharp criticism from Ottawa in the past over fears that such rates could overheat the housing market and encourage buyers to borrow too much.

However, Scotiabank says the rate is on par with others in the market. David Stafford, Scotiabank’s managing director of real estate secured lending, said the trick is to use the low rates to your advantage because they won’t last forever.

“Our best advice to people renewing from a higher-rate mortgage is don’t change your payment,” he said.

“If you have a 5% mortgage and you’re up for renewal and you’re renewing into a 3% mortgage and your payment isn’t killing you, keep the payment because the interest cost to your mortgage will drop but the additional payment will all go to principal.”

The special five-year rate doesn’t come with the strict restrictions that usually accompany such low rates, he added, so that borrowers can have the flexibility they’ll need if their circumstances change.

John Andrew, a real estate expert with Queen’s University, said it was likely that other banks would follow Scotiabank’s lead to keep in pace in a competitive market — especially given a lag in sales in the all-important spring market which was delayed by bad winter weather.

“There’s no question that the mortgage lenders are very concerned about this slow spring and are obviously trying to catalyze the market and it’s obviously even more competitive right now than it normally would be,” Andrew said.

“We’re looking at mortgage rates very, very, close to this level being predominant right into the fall, and then I think we’re going to see bond yields begin to creep up again and we’ll start to see some rates rising.”

Finance Minister Joe Oliver has said in the past that unlike his predecessor Jim Flaherty, he had no plans to wade into the debate over the setting of mortgage rates, calling it a “private” decision by lenders. But he has signalled he would keep an eye on the changes, noting that Ottawa has intervened in the past.

On Wednesday, he called the Scotiabank change a small drop in rates and restated he wasn’t planning to become involved.

“It’s a tiny difference and we’re not here to determine mortgage rates for the industry,” Oliver said in Ottawa.

Andrew said he wouldn’t expect a big crackdown from the federal government if rates continue to drop.

“There’s not a lot else they can do, unless they decide to increase the minimum down payment from 5%, and rightfully so, I think they’re quite scared to do that because that would have a huge impact on first time home buyers (and) in the home building industry and mortgage lending and so on,” he said.

Investors Group recently offered a 1.99% rate for a 36-month closed, variable-rate mortgage, but Scotiabank is the first of the big banks to push its fixed rate down below 3% in recent months.

As part of its special rates, Scotiabank is also offering a five-year variable rate of 2.47%.

Rating agency DBRS published a report Wednesday saying that low and stable interest rates are the largest factor driving increasing levels of household debt and decreasing mortgage debt servicing. It found that mortgage debt servicing fell to 3.1%, the lowest level since record keeping started in 1990.


Mortgage interest never as easy to pay as now — as long as rates stay low, DBRS report shows

Posted on Jun 6, 2014 in Mortgage Market Updates and News

BY GARRY MARR, FINANCIAL POST
National Post


It hasn’t been this easy to pay the interest on your mortgage in almost 25 years.

Credit rating agency DBRS Inc. has been tracking our ability to pay loans since 1990 and says today we only need on average 3.7% of our household disposable income to cover the interest on those loans — the lowest percentage on the books.

All this comes as Canadians continue to ramp up their mortgage debt, albeit at a slower pace. Mortgages outstanding were up only 5.5% year over year in January, 2014 from a year earlier but still reached $1.2-trillion in the first quarter. That’s a 202% increase since 1999.

The juggling act is pretty simple. The interest costs don’t seem like much when every day there is a better mortgage deal being offered, from the near rock bottom price of 1.99% if you are willing to gamble on a variable rate to just under 3% if you lock in for five years.

“This is a good news story with clouds on the horizon because it’s a lot harder for rates to go down further and a lot easier for them to go up,” says Jamie Feehely, managing director of Canadian structured finance with DBRS.

The ratings agency lays out what it calls an “interest rate shock” scenario where rates rise two percentage points — an increase that would be hefty enough to leave the average Canadian with more debt than the Office of the Superintendent of Financial Institutions considers acceptable.

That increase in rates would mean the average Canadian household with a conventional mortgage, not insured by the government, would see almost 46% of pre-tax income going towards paying down debt — a level on par with what we saw in the early 1990s when interest rates were double digits. So a two percentage point increase would mean our debt servicing costs jump by six percentage points.

Under OSFI guidelines the measure called gross debt service ratio should be 40% or as high as 45% if you are stretching it, according to DBRS. At 46%, consumer would have trouble qualifying for a mortgage, meaning many potential new buyers would be left on the sidelines.

The impact wouldn’t be immediate for existing Canadian homeowners because once you have a mortgage that test only comes into play if you decide to switch lenders.

“We really do believe rates will go up, it’s just a question of when,” said Mr. Feehely.

The ratings agency does not expect a sharp rise in mortgage defaults which averaged 0.32% of loans in 2013 compared to 1.43% in the United States. Even when unemployment spiked during the 1990s, Canadian mortgage defaults did not reach 1%.

Canadians also have plenty of equity in their homes. The average Canadian household has $560,800 in net worth, including $189,400 in their home. Net worth as a percentage of disposable income reached a record of 715% in the first quarter.

While the banks may be protected in case of default, the consumer might not be as lucky. “On average the Canadian household is stretched,” says Kevin Chiang, senior vice-president of Canadian structured finance with DBRS, adding the worry is what happens if there is an external shock to the Canadian economy.

Benjamin Tal, deputy economist at Canadian Imperial Bank of Commerce, says while he worries about a hike in rates, Canadians are probably in a slightly better shape than they were in the 1990s to absorb an increase because heavy discounting off the posted rate has left us with a cushion.

He adds any rise in interest rates would also probably come with a jump in income as inflation kicks in so everything would be relative.

“The key issue will not necessarily be a wave of defaults but a reduction in consumer demand,” said Mr. Tal, adding that’s why he’s forecast a rise in interest rates will slow the housing market down.

Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc., said while the amount of interest may be low, the rising debt will be a problem.

“Canadians are just buying too much house, we should be worried,” said Mr. Schwartz. “Even though interest rates are low, the amount of money we have to pay overall to our income is incredibly high.”


© Copyright (c) National Post


Renovator's Green-Guide - Decks and Patios

Posted on Jun 5, 2014 in Mortgage Market Updates and News

CMHC Consumer Newsletter


In 2011, $63 billion was spent in the renovation sector in Canada, exceeding new home construction expenditures by approximately $20 billion. As housing stock ages, more renovation work will be required to renew and preserve the millions of homes already built. Renovations are popular as they provide a way to update the interior and exterior of a home, add space and address problem areas.

One of the easiest ways to add new and enjoyable living space to a house is to build a deck or patio. There are many green features that can be included in the renovation project that will reduce its environmental impact and conserve resources.

Quick reference: green deck and patio features

Occupant health / healthy indoor environments
  • Use materials with low pollutant emissions and low-VOC paints or stains.
  • Include details to prevent moisture damage to house.

Energy efficiency
  • Install energy-efficient lighting.
  • Protect existing trees or shrubs that provide shade or shelter for the house.

Resource conservation
  • Material choices: certified forest products, materials with low embodied energy.
  • Durability, resilience and serviceability: low-maintenance, durable materials, durable and easily cleaned surfaces.

Reduced environmental impact
  • Manage demolition and construction waste.
  • Reuse materials where possible.
  • Recycle materials.
  • Select products and materials with low pollutant emissions.

Affordability
  • Avoid expensive future problems by identifying and addressing hazards at the beginning of the job.
  • Support low maintenance and replacement costs by using quality, durable materials.

For more information

To learn more about other sustainable technologies and practices that can improve the performance of your home as well as information on owning or buying a home, call Canada Mortgage and Housing Corporation at 1-800-668-2642. For over 67 years, CMHC has been Canada's national housing agency and a source of objective, reliable housing information.


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