Archive | July, 2012

Softening House Prices: Silver Linings or Dark Clouds

July 30, 2012

0 Comments

Article courtesy of MCAP.

 

As housing market data begins to show that prices may be trending a little lower – or at least flat – in some areas in Canada, the debate about the relative benefits or detriments of this new reality has begun in earnest. With new mortgage rules also in place for almost a month now, what does it all mean? If sales fall off and if prices decline, is this a positive development which will position the market for long term stability or will it be another drag on the sputtering economic recovery?

When a leading national realtor publishes its Price Survey and Market Survey Forecast and calls it “Canada’s Housing Market at a Tipping Point”, it’s pretty clear that the trajectory of the real estate market over the past three years is probably not sustainable. Royal Lepage CEO, Phil Soper, a vocal critic of the government’s recent mortgage rule tightening, commented on the data in his company’s report that “home prices cannot grow faster than salaries and the underlying economy indefinitely”. He feels that the market was already cooling when the government tightened mortgage rules, referring to them as “unfortunate”.

Dark CloudsThe Globe and Mail’s personal finance columnist, Rob Carrick, made the case for some of the benefits of price declines in the market in his column last month. Rationality and balance will return to the market, he suggests, and the urgent desire to enter the market for fear of being priced out of it, will subside. But, even if we agree that the pace of price increases could not have continued and that the market needed to cool to preserve its long term stability, what impact could falling house prices have on the Canadian economy?

After enjoying annualized gains averaging 6.2% over the past 10 years, many Canadian home owners are feeling confident in their personal financial circumstances, buoyed by healthy and growing levels of home equity. This confidence continues to fuel consumer spending and keep certain sectors of the economy strong. In the US, prior to the sharp pull-back in the real estate market, the economy was driven largely by the American consumer whose voracious spending was supported by significant gains in home values. When values finally dropped, the American consumer suddenly felt much poorer and then stopped spending. Mr. Carrick suggests that homeowners’ recent gains in Canada will still be solid even if prices were to correct by 10%. This would mean that values would have increased by 5.1% every year, on average, forz the past 10, rather than by 6.2%. While the arithmetic is clear, what isn’t clear is the psychological impact of feeling poorer – even only a bit poorer – on consumer spending. If Canadian households, already under pressure to pay down debt, feel pinched by eroding home equity levels, they could decide to follow a course of household austerity and stop spending. If this happens, the larger economy, including employment growth, will also suffer.

Mr. Carrick points out that first time home buyers, who represent half of the home purchasing market, will enjoy increased affordability if home prices correct. They will be less tempted to stretch the limits of their re-payment capacity in their borrowing and they should be less inclined to succumb to the frenzy of bidding wars for houses. All valid analysis for sure but if the market correction is less orderly and more sudden than expected, first time buyers may be tempted to sit on the sidelines and wait for what they think is the bottom of the market and the end of the correction. Existing homeowners who are both buying and selling need not consider this strategy unless they are purchasing a significantly more expensive home. If enough buyers elect to wait out a correction, the correction itself may be sharper and deeper than expected.

If the market pulls back enough, investors will, once again, be attracted to buy. As Mr. Carrick reminds us, the principle of buying low is still a critical element of any successful investment strategy and, especially in some markets, Canadian residential real estate has not recently presented many opportunities to buy low. Rather, it has created another not so sound investment strategy which says “buy now before prices move even higher”. Few prudent investors follow this approach but it has been a key driver of some of the recent price run-ups in certain hot markets.

The return of rationality to the market would itself be a healthy development. The balance which must be struck in order to create the most beneficial consumer and market perceptions is certainly a challenge. If, as Royal Lepage suggests, the Canadian housing market is at a “tipping point”, the difference between rationality and irrational exuberance may be slim and the risk is that it tips the other way into a correction which is too sharp. If there is a correction in Canadian home values, let’s hope that we realize its benefits without suffering the most severe consequences…

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

More Posts - Website

Continue reading...

Keep Your House Comfortable

July 27, 2012

0 Comments

This is a guest post by Caroline Doherty of Century 21 B.J. Roth Realty & COMDA.

 

The heating and cooling systems in your house play vital roles when it comes to keeping your home comfortable. It’s important, therefore, to ensure that the equipment that keeps the temperature just right is maintained properly. Nothing is quite so frustrating, and potentially expensive, as having a major appliance on which you rely on a daily basis, like your refrigerator, furnace or air conditioner, break down when you need it most.

There are a few things that you can do on a regular basis to help ensure their longevity and effectiveness. Pull your refrigerator out from the wall and vacuum off the condenser coils, as they rely on air flowing around them to work efficiently.

Your furnace should be serviced by a qualified service company annually. Proper maintenance can save you money by making sure that the unit is operating at peak efficiency and can also translate into extended life for this major appliance. On your furnace, it’s easy to replace (or clean, on some models) your filter in order to keep it in good working order.

On your air conditioner, make sure that you either replace or clean, if possible, the filter and inspect the drain pan under the cooling coil to confirm that it is draining properly and that it is clean. Seasonal check-ups will help to maintain the ideal home temperature all year long. To keep your air conditioner in top form, keep the grill and register clean and it will keep working for you when you need it most.

Look after your home and it will look after you.

Guest Authors

BarrieRealEstateTalk.ca occasionally features guest posts from a variety of real estate professionals around Simcoe County. This is one of those posts (check out the top of the article to find out who contributed this article!).

More Posts

Continue reading...

Start digging

July 25, 2012

0 Comments

A few months ago, I blogged about how far up and down you own on your property. Today, I thought I would focus in on one of those: mining rights.

In Ontario, whether you own the subsurface rights to your property depends on a lot of things. First, when the Crown first gave the land to a settler hundreds of years ago, did they keep the subsurface rights? In large parts of the province, particularly the north, mining rights were reserved in what is called the “Crown patent” when lands were initially distributed. If you do not have the subsurface rights, you cannot prospect or mine.

Second, in any of the transfers before you became the owner, did anyone sever off the subsurface rights? I once had a client who wanted to sell a property, and in the process of helping her do that, I discovered that a prior owner – 100 years earlier – had sold the land but kept the mining rights to himself. Three years later, we are still trying to determine who exactly owns the subsurface rights. It is possible to sell the surface rights only to a property; it is rare, especially in parts of the province with minimal mining opportunity, but it can happen.

Finally, is there anything in the Mining Act of Ontario that prevents you from being able to do anything with your subsurface rights? For the most part, lands in subdivisions cannot be mined, for obvious reasons. There are also other exceptions in the law; even if you have a piece of vacant land in the middle of the wilderness, you may still be blocked from trying to mine.

As always, check before you dig.

Cesia

Cesia is a real estate lawyer at Wall-Armstrong and Green, a boutique law firm in Barrie focusing on real estate and estates. When she’s not online, she can usually be found in her garden.

More Posts - Website

Continue reading...

Mortgage Monday Rate Update – July 2012

July 23, 2012

0 Comments

Whether you like it or not, stats and numbers are a part of the world of mortgages. When rates change even the slightest of percentage points, it could cost or save you thousands of dollars. Every once in a while, here on the Mortgage Monday posts, I’ll update you on what’s going on in the world of mortgage rates. If this kind of stuff doesn’t really interest you, I won’t be offended if you just skim through it – I’ll try to make it as painless as possible. 😉

  • The Bank of Canada interest rate continues to hang out at 1.00%.  Not a big surprise here.   Next meeting date isn’t until September 5th, 2012.
  • The Bank of Canada prime lending rate is also holding steady at 3.00%. It has also been holding steady since Fall 2010 – if the bank rate goes up, the prime lending rate will follow.  At the earliest, we’re probably looking at late 2012/early 2013.
  • The qualifying rate (the rate you would need to qualify at for a variable mortgage) for a 5-year mortgage is still at 5.24%.  Not many folks are getting into a variable mortgage these days (variable rates just aren’t competitive with fixed rates right now – so this doesn’t affect that many folks).
  • The current best variable rate (changes daily) is in the prime-0.1% (2.9%) ballpark, though many lenders currently are offering ‘prime’ as their variable rate.
  • The current best 5-year fixed mortgage rate (changes daily) hasn’t really moved around much and is still in the 3.09%-3.29% range – again, always contact your mortgage broker for current best rates for your situation (and as we’ve talked about previously, The Best Mortgage Rate is Not Always the Best Option).
  • The “hot term” in Canada these days is still the full-featured, 10-year fixed mortgage with rates as low as 3.99% (check out my post from a couple of months ago on the 10-Year Mortgage Below 4% and a more recent one: Should You Consider a 10-Year Mortgage?). If you want to lock in for a decade and record-low rates, definitely take a look at locking in for 10 years at less than 4%.

If you’ve been following along with my rate updates, this has probably been the most boring to date.  Essentially, none of the numbers have changed from last month, though some of these numbers can change monthly and even daily. While I’m happy to provide an update on what’s going on as rates, if you’re interested on getting personalized mortgage advice, speak to your favorite mortgage broker who can help you decide the best rates and options for you.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

More Posts - Website

Continue reading...

Renting underground

July 18, 2012

2 Comments

I have a lot of clients who want to buy properties that have the possibility of renting out the basement for some extra income. There are several concerns that you should be aware of if you intend to do this.

1. Is the apartment legal? In Barrie, very few basement apartments are actually legal apartments. If it’s not a legal apartment, you could potentially run into trouble with the City down the road if they find out about the rental.

2. Will your lender allow you to have a tenant? Most banks offer you a certain rate because you will be living in the home. If you are going to have a tenant, you are supposed to tell them so that they can make adjustments on the interest rate. Often, the terms of your mortgage require you not to have tenants, so you should always check before you advertise the space for rent.

3. Are you prepared to be a landlord? There are very strict rules about renting to individuals in Ontario. If you are seriously thinking about it, be sure that you are very familiar with the rules of the Residential Tenancies Act.

Becoming a landlord can be a great way to add income, but be sure it’s right for you.

Cesia

Cesia is a real estate lawyer at Wall-Armstrong and Green, a boutique law firm in Barrie focusing on real estate and estates. When she’s not online, she can usually be found in her garden.

More Posts - Website

Continue reading...