August 2011

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This article appeared on the CanadianRealEstateMagazine.com on August 30th, 2011.

New Lending Rules Drop CMHC MortgagesRefinancing activity of insured mortgages in Canada dropped 40% following the federal government’s tightening of mortgage rules in March, according to a second quarter financial recap report out this week by the Canada and Mortgage Housing Corporation.

Earlier this year the government limited insured mortgage refinances to a maximum of 85% loan-to-value ratio, after previously setting the mark at 90%. Finance Minister Jim Flaherty also reduced the maximum amortization period for new government-backed insured mortgages to 30 years from 35. While buying activity did not seem to slow much after these changes, refinancing seems to have been particularly hit.

Additionally, homeowner mortgage insurance dropped 10% initially after implementation of the news rules, but by June was down a lesser 5%.

The CMHC also noted in its report that insured mortgage volumes were down 13% compared to last year and 20% below what was anticipated for the year.

Along with the new mortgage rules, the CMHC attributed weaker housing activity and a drop in its mortgage insurance share to the drop in activity.

Flaherty in June told reporters he was “satisfied” with the moderation in the housing market following the tightened rules.

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This article appeared on CBC.ca on August 26th, 2011.

B.C. families can expect to save hundreds of dollars a year once the province returns to the PST and GST system, which the provincial government Friday said would be completed by March 2013.

An independent panel appointed by the government reported in May that families earning between $40,000 and $60,000 a year would pay about $350 more annually in sales taxes due to the HST.

That amount rose to more than $1,000 a year extra for individuals or families making more than $100,000.

“There is a slight benefit to consumers under the old PST system compared to the HST,” said Helmut Pastrick, chief economist for the Central Credit Union.

Pastrick said some people may want to wait to purchase certain items until the old tax system is restored.

“For those planning on purchasing those big ticket items such as a vehicle or house, then it might be worthwhile to wait as there might be some savings,” he said.

One of the biggest objections to the HST — which combined the five-per-cent GST and the seven-per-cent PST — was its application to many items that previously had not been taxed.

After the announcement Friday that the HST had been rejected in the provincewide referendum, both Premier Christy Clark and Finance Minister Kevin Falcon promised that all the product and service sales tax exemptions that existed before the HST would be reinstated.

Range of consumer items:

Some of the items that consumers can expect — in 18 months — to once again be PST-exempt include:

New homes over $525,000.
Real estate fees.
Moving services.
Home renovations and landscaping.
Purchase or lease of a fuel efficient vehicle.
Restaurant meals and snack foods.
Domestic flights, coach bus, rail and taxi.
Sporting events, movie tickets, gym memberships, concerts, camping sites
Beauty salon services.
Over-the-counter medications.
School supplies.
Wedding expenses.
Telephone and TV service.

Critics of the PST point out that there may not be any real long-term savings under the PST system, because it will provide less government revenue and lead to an increased provincial deficit, which theoretically will have to be paid for eventually with tax dollars.

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This article appeared on The Vancouver Sun and was written by James Kwantes on August 29, 2011.

B.C. residents have high hopes of retiring debt-free, but for many, this reality show has an unhappy ending.

While most B.C. residents believe they’ll be debt-free by age 58, fewer than one-third of B.C. residents aged 45 to 64 don’t owe any money, according to a Harris-Decima poll conducted for the Canadian Imperial Bank of Commerce.

About one-quarter of B.C. residents report that they’ve abandoned hopes for a debt-free retirement. Fourteen per cent believe they will pay off all debts in their 70s and one in 10 says they will never be debt-free, the poll found. That compares with only four per cent of Alberta residents who believe they’ll carry debt into their 70s.

Part of the problem is that many Canadians who have a financial plan don’t factor in their debts, said Mike Stevenson, CIBC senior vice-president, Western Canada. For example, polling shows that about three in five Canadians meet with a financial planner to talk about financial goals and retirement strategy, but only one in five incorporates a debt repayment plan into that strategy.

“Many people lack a comprehensive and cohesive plan or strategy,” he said.

On the bright side, 37 per cent of all B.C. residents are debt-free, compared to 21 per cent nationally, the poll found.

The trend of more British Columbians carrying debt into retirement is one that Scott Hannah, president and CEO of B.C. Credit Counselling, has noticed.

People have a higher tolerance for debt because interest rates are very low, Hannah said. Compounding the problem, many are unwilling to make the hard choices required to dig themselves out of debt.

“People have to make some sacrifices, and the more severe your financial situation is, the bigger the sacrifice you’re going to have to make,” Hannah said, using the example of a cash-strapped family going from two cars to one.

“But none of us wants to give up what we have.”

The poll showed that people tended to predict they would have all their debt paid off 10 to 15 years from now. For example, those 18 to 24 picked 32 as the average age for being debt-free, those 25 to 34 said 44, people 35 to 44 said 54, 45- to 55-year-olds said 60, and 55- to 64-year-olds said 65.

Rob Abboud, an Ottawa-based financial planner with Raymond James, said many people underestimate the effect of 30-year amortizations, consumer debt, their children’s education and various things that can come up, such as buying a new car.

Hannah advocates setting up a financial plan that involves debt repayment and retirement savings coming out of the account first.

“What you’re probably going to find is that the amount of funds that a person has available for discretionary spending is somewhat limited,” he said. “But at least you’re taking care of your financial goals and those things that are most important to you first, as opposed to doing it after the fact.”

Many homeowners who are mortgage-shopping still ask how much they can get instead of how much they can comfortably afford, he pointed out. “For a lot of people who put themselves into a tight spot, it makes it difficult to get ahead,” he said.

It’s not only expensive real estate that has British Columbians cash-strapped.

One in five B.C. residents who responded to an ING Direct survey released Monday said their biggest monthly expense — besides mortgage or rent payments — was loans and credit card payments, compared to 16 per cent nationally. Half of B.C. respondents reported that they could not afford to save $25 more per week.

 

This article appeared on TheStraight.com and was written by Carlito Pablo on August 24, 2011.

On the day Mark Carney appeared before the finance committee of the House of Commons in Ottawa, Miguel Escueta went about his regular routine in Vancouver.

While the governor of the Bank of Canada talked on Parliament Hill about risks associated with the economic crises in the U.S. and Europe, it was business as usual for Escueta, a realtor of several years.

Global equities and financial markets may be wobbly, but according to Escueta, this is keeping interest rates down in Canada. This can only be good for property buyers out to make a move.

“We feel positive about the real-estate market,” Escueta told the Georgia Straight in a phone interview.

Escueta may not see most of the data that Bryan Yu goes through as an economist with the Vancouver-based Central 1 Credit Union, but the latter arrives at practically the same conclusion as the realtor.

“We’ve also seen factors of instability creating downward pressure on bond yield as a lot of investors know there’s so much hesitance to be in the [stock] market,” Yu told the Straight by phone. “What we expect to see, in the short term at least, is that mortgage rates [will] tend to come down further than they already are, and they are already at low levels.”

Yu also predicted a softening of housing prices, though this may not exceed five percent. But he doesn’t foresee a housing crash. “Sellers generally, if the market becomes weaker, they don’t list their properties,” the economist said.

However, Yu pointed out consumer confidence could take a hit in the face of an unstable world economy. With personal investments declining in value, people could pull back on spending on large items like new houses.

The B.C. Real Estate Association has reported that home sales in the province fell four percent from June to July this year. However, the organization is banking on mortgage rates slipping further as a government measure to mitigate the impact of uncertainties in the world economy, giving home buyers more purchasing power.

The housing market in the province isn’t immune to economic vagaries, the last of which was the recession of 2008 and 2009. According to BCREA data, total sales dropped 31 percent from 2007 to 2008, to $31.3 billion. The number of houses sold declined by 33 percent to 68,923 units, the lowest since 2000.

Weak sales continued into early 2009. Residential unit sales decreased by 57 percent in January of that year compared to the same month in 2008, with only 2,115 homes sold. But the pace picked up in February 2009. Tracking by Statistics Canada indicated that the economy began to stabilize in mid 2009.

While interest rates are expected to remain low, the federal government will be keeping a close eye on household debt levels. As the central bank’s Carney recalled in his opening statement to the House finance committee on August 19, the government has tightened mortgage rules since 2008 to “support the long-term stability of the Canadian housing market”.

“In an environment of exceptionally low interest rates, we must be careful not to repeat the mistakes of others who now face the challenges of simultaneously lowering unsustainable public and private debt burdens,” Carney stated.

Carney noted that Canadians are “now as indebted as the Americans and the British”.

The volatile global economy isn’t much of a concern to Simon Fraser University’s Andrey Pavlov. According to the associate professor of business, who specializes in real-estate finance, many people are expected to consider parking their money in properties as a safe investment.

“There’s no other place to put your money,” Pavlov told the Straight in a phone interview. “All other investments are suffering a lot.”

What worries Pavlov about the real-estate market in Metro Vancouver is the high prices relative to rent. According to the SFU academic, that could affect the potential for further price increases down the line.

“It doesn’t mean that prices would go down, but future growth of prices from here is hard to see because any investor wants to look at the rent they can collect if they rent their property,” he said. “And that rent is just not very high right now in B.C.”

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MLS Residential Sales BC August 2011

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Vancouver, BC – August 25, 2011. The British Columbia Real Estate Association (BCREA) released its 2011 Third Quarter Housing Forecast Update today. BC Multiple Listing Service® (MLS®) residential sales are forecast to increase 3.8 per cent from 74,640 units in 2010 to 77,500 units this year, increasing a further 3.6 per cent to 80,300 units in 2012.

“Slower than expected employment growth is expected to keep BC home sales below their ten-year average through 2012,” said Cameron Muir, BCREA Chief Economist. “However, weaker global economic growth and recent uncertainty in the equity markets points to continued low mortgage interest rates which will help underpin housing demand.”

“Following a decade where unit sales broke all records, consumer demand over the next few years will be relatively moderate,” added Muir. The ten-year BC MLS® residential sales average is 87,600 units. A record 106,300 MLS® residential sales were recorded in 2005.

 

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