Category: National Real Estate News

This article appeared in the Globe and Mail on 23rd of January, 2011 and was written by Dawn Walton. I thought this would be a good article for people who are considering buying a home in Kamloops. These low interest rates definitely make homes that may be slightly out of reach more tempting.

Household debt numbers are staggering, yet Canadians continue to pile it on lured by super-low interest rates.

But do consumers appreciate the true cost of borrowing? Not always, according to Adrian Mastracci, portfolio manager with KCM Wealth Management Inc. in Vancouver.

“We see a lot of people saying, ‘Oh my God. These rates. They are just giving them away.’ And they are – practically,” he explained, “But it is very easy to get yourself into thinking, I can afford this no problem not realizing that one day the piper is going to come knocking at the door and you’re going to have to pay a heck of a lot more.”

Taking on mortgage debt, which accounts for 69 per cent of total household credit, is particularly tantalizing right now as many big banks are offering 2.99-per-cent fixed-rate mortgages, the lowest ever.

Meanwhile, for the 11th consecutive time, the Bank of Canada left its key interest rate at 1 per cent, which marks the longest pause in rate hikes since the mid-1990s.

But at the same time, Federal Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been warning Canadians about taking on too much debt. Still, expectations are that household debt, loaded on by mortgages, credit cards, lines of credit and car loans, will continue to rise even though it is already at record levels.

In the third quarter, the debt-to-income ratio soared to 152.98 per cent, according to Statistics Canada. It’s been steadily marching toward the 160-per-cent barrier, a level that triggered trouble for the United States and the United Kingdom a few years ago.

“You still have to earn money, pay tax, and have enough money after tax to pay your loan, whatever it is, in whatever [tax] bracket you’re in,” Mr. Mastracci said.

Consider the implications of a non-deductible 5-per-cent loan.

For borrowers in the 35-per-cent tax bracket, consumers would need to earn 7.7 per cent to pay income taxes and still have 5 per cent left to cover the loan interest. For those in the 25-per-cent tax bracket, it would require 6.7 per cent earnings, while those in the 45-per-cent bracket, earnings would have to ring in at 9.1 per cent.

But what about those ultra-low mortgages?

“Don’t get lulled into saying ‘this is really cheap,’ ” Mr. Mastracci said, “It isn’t. Even at 3 per cent, you still have to earn 4.6 per cent – or thereabouts – in order to pay that 3 per cent after you pay the tax.”

Here are some borrowing tips:

• Don’t borrow more than you need, repay what you can fast and use any savings from getting a low rate to repay loans
• Shop around, negotiate and don’t take no for an answer
• Select the shortest amortization and most frequent payback you can afford
• Place emergency funds in an institution that you don’t owe money

Mr. Mastracci, who expects interest rates to start climbing in a year or so as the economy improves, noted that loans are the biggest impediment to retirement.

“The more debt you take on, the harder is to get out from under and ultimately save for retirement,” he said, “Just make sure you can afford it, that your cash flow can stand it.”

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This article appeared on CBC.ca on January 16th, 2012.

The average price of a Canadian home sold in December was $347,801, just 0.9 per cent higher than the same month a year earlier.

That’s the smallest increase since October 2010, the Canadian Real Estate Association said Monday.

“Momentum for national sales activity and average price remains positive but is slowing,” CREA chief economist Gregory Klump, said. “National average price momentum may wane further over the next few months.”

More than half of all local markets across the country showed a gain, with the remainder showing a small decline. At the local level, big gains were recorded in Saskatoon (up 21 per cent), Winnipeg (up 11 per cent) and Kitchener-Waterloo, which was up 13 per cent.

Stronger gains through much of the year in large cities such as Toronto and Vancouver skewed the overall average higher, CREA said.

Vancouver house prices increased by 15.4 per cent in 2011, while prices in Toronto were 7.9 per cent higher after being above 10 per cent earlier in the year.

Greater Toronto Area sales have consistently gained since the middle of 2010 and are now up by 36 per cent since July 2010, while prices have been mostly flat since April, TD economist Francis Fong noted in a report following the release of the CREA statistics.

Sales activity came in 4.6 per cent above year-ago levels in December. It also stood above the five- and 10-year average for December sales.

The agency reported that 456,749 homes were sold across CREA’s multiple listing service in Canada last year, broadly in line with the average over the last 10 years.

Real estate firm Royal LePage forecast last week that prices in 2012 will increase by an average of 2.8 per cent across the country. That’s ahead of December’s annual pace but well behind some of the rates of return seen in recent months and years.

“We look for both sales and prices to be roughly flat this year,” BMO chief economist Douglas Porter said. “That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices.”

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This article appeared in the Globe and Mail on December 30th, 2011 and was written by Katherine Scarrow.

As global housing markets coughed and sputtered in 2011, Canada’s barrelled ahead, even turning a few nervous heads along the way.

In fact, recently the Economist branded Canada one of the nine countries where “home prices are overvalued by about 25 per cent or more,” and among the four where prices are in line with those in the United States “at the peak of its bubble.”

Is there really a cause for alarm? Are we doomed to ride this white-knuckled roller coaster in 2012? Probably not, according to Benjamin Tal, deputy chief economist of CIBC.

“The housing market of tomorrow will not be as exciting as the housing market of yesterday,” he said in an interview.

While the current real estate market is overshooting, with home prices far higher than than they should be, we shouldn’t expect a crash either, he explains. As long as interest rates remain relatively low and subprime mortgages kept at bay, the most likely scenario is that the market will plateau.

“Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off, and that’s what we need,” he said.

How will a more relaxed real estate market affect new home buyers, investors and renovators in 2012? Here are Mr. Tal’s predictions:

1. First-time home buyers

• Affordability and interest rates will be the major concerns in 2012. Prices will continue to be expensive, especially in urban centres like Vancouver and Toronto, since interest rates are likely to remain low for the time being.
• But rates won’t stay low forever, which is why you should estimate mortgage payments based on interest rates that are 2 or 3 percentage points higher than current interest rates, and if you cannot afford that, get a smaller mortgage and buy a less expensive house.
• Expect an end to bidding wars, or at least a temporary ceasefire. New home buyers will have the luxury of time in terms of looking at properties without being rushed into decisions. That’s the positive. The negative is that prices continue to be drastically higher than they were five or 10 years ago.

2. Investors and flippers

• If you’re in it to flip it – meaning you buy a home hoping the price will rise by just doing minimal changes – those days are over.
• In some pockets of the country, you may even see prices go down.

3. Renovators

• The cost of renovations will not increase significantly so long as interest rates remain at their current level, so it’s a good idea to take advantage of this time to finance these projects.
• For those looking to take on a second mortgage, remember to make sure you’re equipped to finance them if interest rates creep up.
• Variable-rate mortgages are still a good option for those who are able to withstand fluctuations in the market and “ride the ups and downs without getting a stomach ache.”

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