Expect a Fairly Stable Real Estate Market in 2012

Experts are calling for a bit of a mixed bag in Canadian real estate for 2012.
Housing market prognosticators say next year will be marked by bursts of growth in certain hot regional markets throughout the country combined with a cooling trend in other areas, namely that of robust markets such as Toronto.

Look for mixed market signals in Canadian real estate as a market theme in 2012 as cities like Halifax and Edmonton and Calgary will begin to feel a marked increase in demand for real estate purchases, with average price increases beginning late in the year, according to says Vancouver real estate consultant Don Campbell. Toronto’s hot market will start to ease off next year, although its condo real estate market will remain stable.

“Sophisticated homeowners and investors will have to dig a little deeper, especially in 2012 and 2013, to find out how their region is performing because Canada is really going to be a tale of regions over the next few years,” says Campbell, a real estate investor and author. “Where one region is booming, the next may be underperforming.”

Expect price moderation in Toronto in the neighbourhood of five to 10 per cent, says Todd Hirsch, a senior economist with ATB Financial in Calgary. “There could be a little more worry of a small bubble (bursting) in Toronto,” says Hirsch, “because the Ontario economy in 2012 will likely cool off a bit, not tremendously, though. You won’t see a recession.”If you’re thinking the same for Vancouver, think again, advises Hirsch. Given that Vancouver is the destination of choice for Asian investors, prices there will remain far higher than what they are in Calgary and Toronto. This will likely continue into 2012, predicts Hirsch, who expects the Chinese economy will moderate next year although not enough to prevent its citizens from wanting to invest in Canada’s west coast real estate market.

But the markets in Toronto and especially Vancouver, which comprise approximately 40 per cent of Canadian real estate, should be eyed carefully by home buyers or investors. According to Campbell, time lines should run short at 12 to 18 months or long at five years or more as statistics show signs of market turmoil in the medium term (19 months to four years) as interest rates begin to edge up, inventory outstrips population demand. That’s when speculators will try to dump properties and market confidence will be lower. In Calgary and Edmonton expect stable prices, says Hirsch.

Saskatchewan is where you’ll find the best real estate deals in the country with the average house price in Saskatoon running at $320,000. That province also has the lowest unemployment figures in Canada with unemployment pegged at three per cent in Regina.

Halifax and St. John’s are stand alone in Atlantic Canada as those two cities experience an unrivalled economic boom right now. House prices in those cities could actually gain a little in 2012.

As for the rest of Atlantic Canada, notes Hirsch, much of it is a depressed economy in which its rural areas are being hollowed out as residents leave the countryside for jobs in urban areas.Quebec City’s economy is faring not too badly these days as its house prices are undervalued at about one third below the national average.

Still, growth in Quebec will be a bit sluggish in 2012 with no real strong real estate gains. While its economy will be sluggish, keep in mind the province’s housing prices are not as overvalued as in Toronto so you won’t see as much deflationary pressure as in Toronto. While the province is not looking at a recession in 2012, the year will be economically softer.

Strong real estate markets will be in Canadian regions where job growth continues, low unemployment rates continue to drop and where there’s a migration of people with jobs (as opposed to retirees), says Campbell, who cites Halifax, Kitchener/Waterloo/Cambridge, Hamilton, Saskatoon, Edmonton, Calgary, St. John, Dawson Creek and Surrey as having the most stable markets.“Many Canadians will be fooled into thinking that their home value is either increasing or decreasing because of reports that are released discussing the ‘Average Price in Canada,’ “ he says, “producing either a false sense of confidence or a false sense of doom, depending on the report of the month.”

According to CREA, the national housing market is edging closer to being a seller’s market.“The Canadian housing market is proving resilient in the face of ongoing global economic and financial uncertainty, to the benefit of Canadian economic growth,” said Gary Morse, CREA’s president. “That said, some housing markets are picking up, while others are holding steady or consolidating.”

A quarterly economic forecast by TD Economics economist Francis Fong indicates that the low interest rate environment coupled with slowing jobs and income growth, especially in the first six months of 2012, will hold back resurgence in housing activity. Expect a slight pullback in homes sales and prices to the tune of one to two per cent. “Looking ahead, 2012 will likely be a much more subdued year for the housing market,” wrote Fong in her report released this week.

When Is The Best Time of Year to Sell a House?

Is there such a thing as a best time of year to sell a house? Certainly, seasonal factors come into play when trying to sell a home, but there are other things to consider as well, like the tug and pull of supply and demand, as well as unique local market conditions.

No matter when a home goes on the market, one should take a few things under consideration that will likely affect not just the ability to sell a property, but more importantly the ability to get your asking price. Timing, it seems, is everything.

The Economy

While the economy does not follow the predictable ebb and flow of the seasonal changes in real estate and in buyer attention, the economy, it’s state and it’s prospects boil down to property values, and consumer confidence. When the economy is under fire, people are nervous about their jobs. There is generally a reluctance to spend, accumulate debt or make major purchases.

The market will tell you what a home is worth. The problem is, during an economic downturn, the market may value your home lower than you had hoped, or than from when you started.

That may succeed in removing a number of buyers from your pool. For those that must buy a property though, the economy will play less of a factor in the decision to purchase, but it may give them power at the bargaining table, and it may be more difficult to get the desired price. Interest rates figure into this as well. The lower they are, the more your pool of buyers may increase as well, as the cost to borrow comes down and people, in theory can borrow more.

Springtime

In a country like Canada, where there are four distinct seasons, seasonal influences play a large part in creating good selling conditions.

Wintertime brings with it a series of challenges, among them the weather, holiday distractions and lack of interest from buyers.

When the snow thaws though, and greenery re-emerges from the ground, buyers tend to re-emerge as well. The spring tends to be the peak of the market, simply because the timing suits people in general. The weather is more favourable, properties generally can be better displayed, and moves and property closings can more reasonably be managed through the summer months, so for those with families relocating is less disruptive.

According to data, home sales begin in February, with closings peaking through late May, June, July and August- and this has been a consistent trend since the early 2000’s. For sellers then, they will likely have the opportunity to engage more traffic and interest in their homes.

Patience is a Virtue

While the springtime may typically be a more optimal time to sell, there will typically be more competition on the market. Sometimes, if a seller is flexible on their dates, it may be advisable to wait until the spring market to list, simply because of the flood of buyers onto the market. Often, a property will sell for more, and sell much faster because of volume.

As there will be more properties on the market, the seller really needs to take time to make their property stand out, using the slow winter months to actively prepare their homes to list. For some, it can take weeks, or even months to de-clutter and re-organize their properties to best reflect the space, and the positive attributes.

Advise sellers that, even though you may list in the spring, the selling process begins now behind the scenes. Think staging before selling.

CURRENT PRIME RATE IS 3.00%

Lower rates may be available in certain regions, or to those with higher credit scores or higher net worth – be sure to check with us for full details.

Rates are subject to change without notice. Fixed mortgage rates shown in table above and quoted variable mortgage rates are available nationally to qualified individuals.

Bank of Canada


Bank of Canada maintains key rate

The Bank of Canada today announced that it is maintaining its key policy rate. In its statement the Bank said that it expects a weaker international outlook "to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar."

The Bank also said that it expects that the inflation rate in Canada will continue to decline owing to "reduced pressures from food and energy prices and ongoing excess supply in the economy."

The prime rate at most lenders will stay at 3.00%, which means those with variable-rate mortgages will still enjoy relatively low rates. A new variable-rate mortgage can in many cases be obtained by qualified borrowers at Prime minus 0.20%, or 2.80%. Home equity lines of credit and variable-rate credit cards are also typically linked to the prime rate. The pricing for new fixed-rate mortgages is influenced by trends in the bond markets, rather than the central bank's key policy rate.

The Bank's next rate announcement is scheduled for January 17, 2012.

A Mortgage Check Up

Get the Most from Your Financing with a Mortgage Check Up

Have you thought about your mortgage lately? Your financial picture can change significantly over time, and having the right mortgage strategy is an important part of making sure your financial needs and goals are met.

A personalized mortgage check up is an easy, no-obligation way to:

· ensure that your repayment approach suits you, for example with payments structured to maximize mortgage principal reduction,

· ensure any consumer debt you may have (such as credit card balances) is transferred to a lower interest rate,

· ensure you have access to the lowest-cost funds for renovations, education or other major expenditures.

Common reasons for a mortgage check up:

· You are planning to have children

· You want to explore your investment options

· You or your spouse have had a change in employment

· You are looking to start or buy a business

· You would like to renovate your home

· You would like the assurance of fixing your mortgage payments

· You are trying hard to manage your payments

· You can't remember the last time you assessed your home financing strategy

Smart Home Renovations

Why not do a home renovation project that allows you to live better now and make your home more saleable later? Think cost-effective improvements that enhance curb appeal or boost energy efficiency.

The Appraisal Institute of Canada compared typical costs for renovations versus the impact on a home's selling price to come up with a "payback range" for common projects.

Bathroom reno: 75% to 100%
Kitchen reno: 75% to 100%
Installing a deck: 25% to 75%
Exterior siding: 50% to 75%
Flooring upgrade: 50% to 75%
Basement reno: 50% to 75%

Talk to us today – we can introduce you to your renovation financing options, to get you started on making the most of your home.

Make most of your Home Buyers Plan

First time buyers: Make the most of the Home Buyers Plan

If you're a first time homebuyer, you can use the federal Home Buyers Plan (HBP) to take out funds from your registered retirement savings plan (RRSP) to use towards the purchase of a qualifying home.

The Plan allows first time buyers to withdraw up to $25,000 from their RRSP (or, up to a maximum of $50,000 per couple) tax free, and have 15 years over which to pay the funds back into their RRSP.

While 44 percent of first-time homebuyers are using the HBP to make a down payment, 46 percent of recent first-time buyers have no RRSP savings to use toward a down payment, according to mortgage insurer Genworth Financial Canada. If you do not have RRSPs, we can show you how to establish an RRSP with borrowed funds, and use the resulting tax refund for a down payment or a lump-sum mortgage payment.

Call me for awesome mortgage brokers who can help!!!

GTA condo sales this year smash record

Condominium sales are taking over the Greater Toronto Area new housing market and some parts of the country are following closely behind as rising costs push consumers into vertical housing, a new report suggests.

The Building Industry and Land Development Association said there were 23,747 condo sales in the Greater Toronto Area through the first 10 months of the year, smashing the previous high of 22,316 in 2007 — with two months yet to go.

High-rise sales accounted for approximately 61% of all sales in GTA from January-October. At this point last year high-rise sales only accounted for 57% of the overall market.

“It’s very much becoming a condo market,” said Joe Vaccaro, acting president of BILD. “Ten years ago the split was 25% high-rise versus 75% low-rise.”

The trend appears contained not just to Toronto’s urban core but is now moving to the suburbs. “There seems to be a new trend setting in over the last couple of months with the 905 [suburban] areas outperforming Toronto when it comes to [condo] sales,” said Mr. Vaccaro.

Suburban land costs have skyrocketed because of what the industry refers to as regulatory inertia with no new land developments approved in the suburbs over the last five years. It has led to the hoarding of land and rising prices for single detached homes.

A report Tuesday from Altus Group suggests the GTA will not see any sort of slowdown in new condo construction in 2012.

“New condominium apartment sales in Toronto and Ottawa continue to hum along, which will continue to buoy apartment starts in Ontario through 2012,” said Altus.

Peter Norman, chief economist for the Altus Group, says population growth has supported the Toronto condominium market. “That number of people generates a fair amount of housing demand no matter what is happening,” says Mr. Norman. “Add in the interest rate environment, and them not going up, and that adds to it. There has been a restriction on [new] lots and a lot of people have been shoved into apartments.”

The group looked at 10 real estate markets across the country and found only Alberta is set to rise in 2012. Regina, along with Toronto, is forecast for flat sales.

“Calgary and Edmonton employment growth in 2011 has more than made up for 2010’s declines,” says Altus. “Although employment growth will be more moderate in 2012, the strong showing this year is favourable for stronger housing starts in 2012.”

Altus is forecasting apartment starts to jump to 5,475 in 2012, up from 3,975 in 2011. Single family construction is also forecast to jump to 22,325 in 2012 from 20,906, putting high-rise construction at almost 20% of the Alberta market.

Phil Soper, chief executive of Royal LePage Real Estate Services Inc., says his company has noticed the trend in top condominium apartments in its corporate owned franchises in Toronto and Vancouver. “There is the cost of the commute, the hard costs like gas and insurance but then there is the soft costs in time,” he said, noting consumers look for housing that is closer to subways and urban cores.

If anything, he says Canadian cities, including Toronto, are playing catchup when it comes to high-rise construction. “Look at big established mature cities like New York. They have much more vertical living per resident than we do, they just don’t have as much on per capita basis that is new,” says Mr. Soper. “We have hundred of thousands of new Canadians that have to be accommodated in Toronto.”

Fixed or Variable?

Find an article which addresses the age old question, "Should I take a fixed rate or variable rate mortgage?"
Rates are historically low so either option is attractive in the short term. Lenders have stopped aggressive discounting of the variable rate option so borrowers might expect to pay prime today (3%) while qualified quick closing 5 year money is available at 3.29%.

I prefer the fixed rate option because the rate difference is negligible and one gets 5 years of peace of mind. In years past it was normal to see a 1.50% spread between short term and 5 year funds.

A recent Bank of Montreal study says that variable-rate mortgages have worked out to be better than fixed-rate mortgages 83 per cent of the time since 1975.

I believe we are now in the 17-per-cent zone.

Here are three key reasons:

Protect yourself from interest rates you can’t afford
Today, Canada’s debt-to-income ratio has reached 150 per cent – an all-time high. To me, this is rational. If you can borrow money at 2 per cent or 3 per cent, it can make financial sense to borrow a lot.
Mortgages: Variable or fixed rate?

The big issue is whether these same borrowers would have borrowed as much if interest rates were 5 per cent or 6 per cent. Based on the history of five-year mortgage rates since 1950, it is rare to get a 5-year fixed mortgage for under 6 per cent.

We don’t know where interest rates will be over the next five to 10 years, but what percentage of borrowers today will have financial difficulty paying their debt at 6 per cent? For those that will be in rough shape in that scenario, a variable-rate mortgage today is a real risk.

The only way someone can eliminate that risk is to lock in their mortgage rate. Today, you can get a five-year fixed mortgage for as low as 3.2 per cent. While you still need to worry about where interest rates will be in five years, you will be protected from any interest rate increases until late 2016.

For those who are truly risk averse, you can get a 10-year mortgage today for 4.69 per cent. While a 10-year mortgage is not the right solution for many people, for some stable and risk-averse people, this could be an ideal solution to avoid any interest rate risks for a decade. Keep in mind that for most of the last half century, a mortgage rate of 4.69 per cent would have been a blessing.

The premium on fixed mortgage is very small
For most of the past year, Canadians have leaned very heavily to variable-rate mortgages. Earlier this year, five-year variable mortgages were being offered at rates as low as prime minus 0.95 per cent (2.05 per cent at current prime rates). With the latest financial worries, lenders have raised variable rates. It is now difficult to find better than prime minus 0.5 per cent on a five-year variable mortgage. At today’s prime rate, this translates into 2.50 per cent.

Traditionally, a five-year fixed-rate mortgage would be 1 per cent to 2 per cent higher than the five-year variable rate, depending on the prevailing yield curve. The yield curve shows the difference between short-term rates and longer term rates.

Today, if you can get a variable rate mortgage for 2.50 per cent, and a five-year fixed at 3.2 per cent that is just a 0.7-per-cent premium. That is a steal on a historical basis.

Now factor in the fact that today’s prime rate is among the lowest in history and there are very few people who believe that interest rates will be the same or lower three years from now. If ever there was a time to take a hit of 0.7 per cent (on the front end) for the benefit of having a locked in rate for five years, today might be the day.

Peace of mind
There are a lot of things to worry about in life. For those with a large variable-rate mortgage, I know from our clients, that every Bank of Canada interest-rate announcement brings some anxiety. Having a fixed-rate mortgage simply eliminates that extra worry for at least a few years.

On its own, peace of mind is not a strong enough reason for most people to go fixed versus variable, but in combination with interest-rate history and the exceptionally low premium for a five-year fixed-rate mortgage, I believe now is the right time to lock into a fixed-rate mortgage.

Even if you are currently in a variable rate mortgage that doesn’t come due for a while, now might be a good time to consider moving to a fixed-rate mortgage and locking in the lowest rates in history.

We may just look back at today’s fixed rates and wonder how we could have ever considered not locking in.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.

Appearantly we get it!

RBC’s Nixon cites lack of loan demand for economic malaise

From Thursday's Globe and Mail

Gordon Nixon, the head of Canada’s biggest bank, says he’s desperate to lend and do his part to kick-start the economy. There’s only one problem: wary businesses and indebted consumers don’t want his money.

“Our biggest challenge right now is to put credit out,” the Royal Bank of Canada chief executive officer said Wednesday at a conference in Washington. “Loan demand is very low.”

Mr. Nixon’s remarks come amid a contentious debate over the role of banks in the economic recovery – or lack thereof.

In some quarters, there is a feeling that financial institutions are restraining economic growth by applying unnecessarily strict lending standards after getting burned by the financial crisis. The RBC chief insists that is not the case with him, nor is it the case with his rivals, with whom he is engaged in “fierce” competition.

“We have never been more aggressive,” Mr. Nixon said during a panel discussion on the financial crisis hosted by Thomson Reuters, the University of Toronto’s Rotman School of Management, the Atlantic Council and the Government of Canada. “We have balance sheet to go at all levels,” Mr. Nixon added, using bankers’ jargon to say that he’s sitting on plenty of cash that he would like to lend to households, businesses and investors.

Business loans to Canadian residents by chartered banks was little changed between June and September, oscillating between a monthly average of roughly $177-billion and $178-billion, according to the Bank of Canada’s most recent data.

Companies are uninterested in taking on debt because the global economic outlook is uncertain, clouded by the likelihood that the European economy will tip into recession. Businesses also are sitting on record profits built up during the initial burst of growth that followed the 2008-2009 recession, allowing executives to finance operations with cash on hand.

Households in Canada appear to be thinking twice about record debt levels. For example, the monthly average of personal loans by chartered banks surged to $68-billion in August from $56-billion in January, 2010, a 21-per-cent increase. But the growth of personal loans suddenly stalled in September, according to the Bank of Canada data. The monthly average of outstanding credit-card loans was $63-billion in September compared with $64-billion in April.

Mr. Nixon was participating in a day-long event hosted by the Canadian embassy meant to highlight Canada’s relative economic success during the financial crisis. Financial regulation figured prominently in the discussion, and Mr. Nixon’s remark about the weakness of demand for loans had the effect of undermining the international bank lobby’s case against tighter scrutiny.

The Institute of International Finance, the Washington-based lobby for more than 450 financial institutions, has sought to push back against the Group of 20’s move for tougher banking rules by arguing the effort is hindering the banking industry’s ability to lend.

Bank of Canada Governor Mark Carney, who was appointed to lead the Financial Stability Board of international regulators this month, has countered that argument by saying the reason banks aren’t lending is because demand is weak – precisely Mr. Nixon’s observation on Wednesday.

It was unclear whether Mr. Nixon realized he was stomping on one of the key messages of the bank lobby. Regardless, the RBC chief was on message for most of the rest of his presentation, saying the G20’s regulatory push addresses “some of the wrong problems” and that rules have become needlessly complex.

Mr. Nixon contends the financial crisis was primarily caused by poor U.S. housing policy that encouraged households to take on too much debt and banks that were allowed to let their lending grow out of proportion to the amount of assets they had in reserve. But authorities, he said, have created rules that go well beyond these core issues.

“It’s very important that we have regulation that isn’t overly complex,” Mr. Nixon said. “Unfortunately, that’s not the way the regulatory environment has evolved.”

Be careful when buying U.S. property, experts say

The Canadian dollar is virtually at par. And there’s that gloomy weather outside. That can only mean that Canadians are thinking Florida.

Experts say consumers should be even more careful than normal when purchasing down south. Buying a home in the United States just got a little riskier, after all 50 states launched an investigation into the mortgage industry this fall.

The U.S. government is looking at whether banks used possibly fraudulent paperwork to get homeowners out of foreclosed homes.

This has caused deals on foreclosed homes to stall in areas such as Arizona and Florida, where nearly half the deals done there are foreclosures.

Investigators are looking at whether banks used robotic signers to sign hundreds of affidavits a day without reviewing them properly.

“This will help foreclosed households stay in their homes rent-free for longer, but watch sales activity dry up in coming months since it was foreclosed sales that were really impacting the turnover in recent months” said economist David Rosenberg of Gluskin + Sheff & Associates.

The freeze isn’t expected to last for long. While there was a drop in foreclosure filings in October, a new wave of foreclosures is expected to hit the market once the regulators play catch up.

However, Brian Ellis, vice-president of Brampton based Florida Home Finders, says Canadians should always be wary of buying foreclosed properties.

“There is a lot of due diligence that you have to do, and this will spook the market even more,” said Ellis.

Philip McKernan, the Vancouver-based author of Fire Sale: How To Buy U.S. Foreclosures Now!, Says Canadian buyers have to do their due diligence before purchasing.

“In the U.S., you always have to be prepared to do a little more digging especially with a foreclosed property,” said McKernan.

Many of the best foreclosed properties are already purchased by large private equity corporations or hedge funds, said Ellis.

“Unless you have boots on the ground and you have time to sniff around, it’s tough to find that diamond in the rough,” said Ellis.

However, there are lots of other properties on the market that are “distressed priced” but not in foreclosure, he says.

Ellis’ company, for example, has an inventory of developers who are trying to sell empty units that were built during the boom.

You could get a one bedroom condo in Sarasota Florida that would have cost more than $200,000 during the peak for $59,000, he says. A one bedroom in Orlando is going for $66,000 compared with $150,000 at the peak.

Still, analysts say the market could fall even further over the next year, as more foreclosures come on the market. In the short run, inventory will be low as in States such as Nevada and Florida, foreclosures are as much as half the market.

Canadians are the largest foreign buyers of property in the U.S., representing 23 per cent of all sales according to the National Association of Realtors.

Henry Wolfond, CEO of Bayshore Capital, says unlike smaller investors, corporate and larger investors have not really been affected by the foreclosure documentation crunch.

“With the very large transactions there is normally a greater oversight and due diligence,” said Wolfond, who says his recent transactions have not been affected.

“But it has certainly affected people at the consumer level.”

Wolfond says some transactions are now taking longer than normal as the market has stalled.

“You see this in cases where the mortgage broker may not have got all the proper paperwork because they were rushing things through,” said Wolfond.

Wolfond says it doesn’t matter the size of the deal, but Canadians should be careful when they sign the dotted line.

“I think Canadians were all excited about the deals a year ago, and now they’re wondering if the bottom will ever come, things have spiralled downhill so badly, it’s just overwhelmingly bad down there,” said author McKernan.

And just because the house may go into a foreclosure auction, doesn’t mean the price is right, he said.

“There are lots of homes that don’t sell, and the bank takes them back and resells them later for a cheaper price. This is also the better route because unlike the foreclosure, you’re not getting something ‘as is’,” said McKernan.

McKernan recommends that buyers get a lawyer to review their transaction in the U.S.

Unlike Canada, many transactions are done with title insurance companies doing the paperwork without the benefit of a lawyer.

“I think Canadians are obsessed over taxes, so they hire an accountant first, but they forget that they could also use legal advice, especially to make sure you have a clean title, and to make sure that your deal will close,” McKernan said.

Buying a home: 10 things you need to know

Buying a home is the largest purchase you’ll likely make. No wonder you’re stressed. Where should you look? Can you afford it? What will happen if interest rates rise? It may all seem daunting, but you can make it more manageable with a little planning. Here are a few things to figure out before you make the leap.

1. Get your financial house in order

Figure out your net worth, which is your assets less your liabilities. Assets are things like cash, investments, savings, cars, boats and so on, while liabilities are things you owe – car loans, amounts on lines of credit, overdrafts, credit cards. Subtracting one from the other tells you what you’re worth. Hint: If you get a negative number, you should probably re-think the whole thing.

The bigger the down payment the less interest you will pay in the long run. Well before you start looking for a house or condo, build a budget that will allow you to put some money away each month for that down payment.

2. Talk to a broker or your bank

Choosing a mortgage is like going to an ice cream parlour – there are dozens of choices and different flavors.

It may be time for a mortgage broker or adviser at your bank. A mortgage broker will shop around, much like an insurance broker, to find you the best deal. Your banker will sell you a mortgage offered by the bank. That doesn’t mean you can’t negotiate with your bank. The posted rates are a starting point and you can usually get a better deal. If they won’t negotiate go somewhere else.

Don’t be afraid to ask questions. If you go to a broker, ask how long they’ve been in business, what kind of products they offer and if they have references. Often the best way to find a broker is word of mouth. Ask your friends.

3. Terms and rates

The next decisions revolve around how long you want to lock the mortgage in and than will determine the rate of interest you pay. This is called the mortgage term and can be as little as six months or as long as seven years. It locks you in to a set of payments for the length of the term. Shorter terms have lower rates of interest.

Along with this is the amortization period, or the amount of time it will take to pay off your loan. It might run anywhere from say, 15 to 35 years.

The longer your amortization, the more interest you will pay. It may be worth considering a weekly mortgage. The monthly payment is divided by four, but the advantage is that you make four extra payments a year which are applied to principal. It’s a painless way to pay down your mortgage faster.

Once you’ve settled on a rate, term and amortization period, you get a mortgage pre-approved by your lender.

4. Get a real estate lawyer

While your dentist can likely do a fine root canal, an endodonist will likely do a better job. In some cases there won’t be a substantial difference in cost, but it could save you some pain down the road. Similarly, having an experienced real estate lawyer looking over your purchase agreement, checking for outstanding taxes and liens or claims against the property can be a lifesaver down the road.

Line the lawyer up in advance and explain your plan. That way, there’s no surprise when you put in your offer and come back to him with the deal.

5. Have realistic expectations

First time buyers often start with a wish list that may not be realistic given their resources. Starting big is fine, as long as you recognize that along the way you’ll make trade offs between location, size of house and features.

First, assess your lifestyle . If you are single, enjoy walking to Starbucks for a latte and hate cutting grass, then a detached home in the suburbs is likely not for you.

Make a list of the things you want. Do you need a two car garage? Space for a home office? Are you going to have children? Is it a good location? [hotlink to 10 things story] Don’t look at the house in isolation. Make sure the neighborhood, schools and surrounding amenities and services fits your needs.

Now start looking around. Use the internet, newspapers, and real estate magazines to get up to speed. Go to open houses to get a sense of what’s available at what price. Knowledge is power. A good place to start is with your local Multiple Listing Service site.

6. Stick to your plan

Understand what your spending limit is and don’t go over it. A pool might be nice, but it is not a necessity. Buying a home is ultimately a compromise of needs versus wants.

Try not to get emotional. In a hot market, bidding wars can be tough on buyers. But you could end up with a whole pile of buyer’s remorse if you think you overpaid.

Or what may look like a lemon. Homes that are in disrepair or need fixing up can usually be purchased for less. Don’t be hung up on the wallpaper, or the fact that the kitchen isn’t pristine.

Use a little imagination. Yes, it’s going to take work, but the savings could be worth it. Because when life gives you lemons, a slap of paint and a trip to the hardware store will Increase housing value like you wouldn’t believe.

7. Buyer agency agreement

Make sure that your agent represents you. A buyer agency agreement helps to reduce conflict of interest since the brokerage represents you exclusively. The seller’s agent represents the vendor.

A buyer’s agent for example, will tell you why you shouldn’t be buying a particular home. Make sure that the guy or gal on your team is batting only for you.

8. Get a home inspection

You wouldn’t buy a used car without checking under the hood, so why buy a house without a home inspection?

A home inspector will check for structural and electrical defects, roofing and foundation problems. This can come back to haunt you later. It also gives you some negotiation room when you put in your offer.

In hot markets, sellers may press to have the inspection waived. Don’t give in and get swept away in the heat of the moment. Walk away.

At the end of the day, it boils down to your risk profile. I have a friend who sometimes drives without a seatbelt. My cousin meanwhile, loves the fact they have somehow managed to invent car airbags for her knees. My theory is it’s better to have somewhere soft to land.

9. Don’t be afraid of being a landlord

One way to pay your mortgage off faster is to have someone help you. Buying a duplex or triplex is not a bad way to go, particularly in urban areas where prices have been bid up. Renting out the basement in a single detached home or a spare room is also a smart idea if you’re not using the space. And the extra money in your pocket may mean that you can afford a nicer home in a better neighborhood.

10. Maybe you should rent

Just because all your friends have put money down on a new condo doesn’t mean that you have to follow suit. Depending on your circumstances, it might make more sense to rent than buying a home. A rent versus buy calculator can help you figure it out http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca01821.html

Taxes, maintenance and utilities can add up. A low interest rate environment can tip the rent verses buy equation into the buy side, while higher interest rates, which make buying less affordable, can make it more favorable to rent.

In many cases, it is much cheaper to rent than it is to buy. Most studies show however, that in the very long term, it is better to buy. However, if you tend to move a lot, don’t like to deal with maintenance issues, and want to free up some money for other things, then renting might be the best lifestyle choice.

Fall Home Maintenance Guide

With colder weather on the horizon the time is now to do some routine annual maintenance on your home. Here are 4 areas to give some extra attention before winter strikes:



1. The Structure: If necessary fill cracks and holes with epoxy and re-caulk foundation seams to prevent water damage or cold air over the winter. Also replace weather stripping around doors and windows to keep them air tight. Any steps taken to increase the air tightness of your home is going to increase its energy efficiency and ensure you stay warm all winter long.



2. Heating, Ventilation & AC: Have your furnace inspected and cleaned by a licensed technician to ensure that come time to turn it on, it is working properly and efficiently! Also if your AC unit is outside, cover it (don’t wrap it) to keep leaves, snow and debris off until spring.



3. The Chimney: If you have a working fireplace the chimney should be professionally cleaned and inspected for any maintenance needed once a year; ideally before you need to use it!



4. Drainage: Cleaning your eavestroughs and downspouts is an easy way to keep your drainage from backing up over the winter. This should be done one time in the Spring and one time in the Fall.

Bank of Canada Keeps Key Rate Steady

As expected by most economists, the Bank of Canada announced earlier today that it is keeping its key policy rate steady.

In its statement the Bank noted that it expects "growth in Canada will be slow through mid-2012 before picking up as the global economic environment improves, uncertainty dissipates and confidence increases." The Bank also projected today that the Canadian economy "will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013."

The prime rate at most lenders will stay at 3.00%, which means those with variable-rate mortgages will still enjoy relatively low rates. A new variable-rate mortgage can in many cases be obtained by qualified borrowers at Prime minus 0.20%, or 2.80%. Home equity lines of credit and variable-rate credit cards are also typically linked to the prime rate. The pricing for new fixed-rate mortgages is influenced by trends in the bond markets, rather than the central bank's key policy rate.

The Bank's next rate decision is scheduled for December 6.

ANALYSIS PARALYSIS

Are you so overwhelmed by the home-buying process that you find yourself unable to move forward? If so, you may suffer from buyer’s paralysis.

Luckily, this condition can be cured. Here’s how.

Make a “needs vs. wants” checklist and use it to measure
how each property stacks up. Sometimes, it’s the sheer
amount of choice, or the thought of ending up in a home
that’s not right for them, that leaves buyers stymied. A
checklist helps narrow your focus and prevent you from
purchasing a home that doesn’t meet your needs.

Talk to a mortgage consultant. A home is a big financial
commitment, and that can leave some buyers feeling
paralyzed, as can wondering if they can afford it. A
mortgage consultant can give you an idea of what you
can afford, tell you what you qualify to borrow, and
discuss borrowing options with you to find the best fit.

Let go of “the one” idea. For some buyers, it’s the idea
that there’s such a thing as the perfect home that
causes them to miss out on a good thing. The reality is
that no home is perfect; there will always be something
about every property you wish you could change. The
question is, can you live with those imperfections?

Work with a real estate sales representative. The
home-buying process can be intimidating; some buyers
are so fearful of making a misstep that they can’t
take the next step at all. Team with a professional
and you’ll have someone on your side whose job it is
to explain each stage of the process and look out for
your best interests.

Ready, Set, Move!
Most buyers, especially first-time homebuyers,

agree that finding a property in “move-in ready”

condition is important to them. So, sellers, it’s

time to roll up your sleeves and get to work.

Making your home move-in ready doesn’t necessarily
mean doing costly kitchen and bath renovations. It does
mean addressing safety issues, as well as performing
maintenance tasks, both minor (such as fixing leaky
faucets and drawers that stick) and major (like fixing
faulty appliances or problems with your heating/
cooling system). To that end, consider having your home
professionally inspected before it goes on market; the
inspection report can serve as your to-do list, ensuring
your property is all fixed up — not a fixer-upper.

Getting your home in move-in condition also means
making sure it’s thoroughly clean and neutral in décor.
Ideally, buyers want to be able to move into a property
where they can apply their personal touch without
having to first remove yours. In other words, your décor
should be a blank canvas — so give your walls a fresh
coat of paint in a neutral tone, and, if not already a
neutral shade, replace your carpeting, too.

Just as buyers want a move-in ready home, you want
top dollar for your property. So, while putting work and
money into your home only to turn around and sell it
might seem counterproductive, doing so will help to justify
a higher asking price than you could set for your home if
it required more work on behalf of its new owners.

CONGRATULATIONS, MORTGAGE-SAVVY CANADIANS!

The Canada Mortgage and Housing Corporation (CMHC) provided

some interesting — and positive! — insight into the way Canadian

mortgage holders view their mortgage obligations, according to

the CMHC 2011 Mortgage Consumer Survey.

Overall, Canadians appear to enter the housing market with
both eyes open, doing extensive research before they purchase,
and then are diligent in their mortgage management following
their purchase. After all, as Pierre Serré, Vice President, Insurance
Product and Business Development at CMHC noted, “Buying a home
is one of the biggest financial decisions most Canadians will make
in their lifetimes.”

The survey showed that Canadians take, on average, 11 months to plan
their purchase, and 88 percent of homebuyers indicated they had a
good sense of how much mortgage they could afford before purchasing a
home. Many of these homebuyers no doubt took advantage of the research
provided to them through their mortgage brokers, whose job it
is to provide homebuyers with a comprehensive insight into
all their borrowing options.

Following their home purchases, 75 percent of recent homebuyers
surveyed felt it was very important to pay off their
mortgage as soon as possible. To achieve this, 39 percent of
recent buyers indicated they had arranged for higher mortgage
payments than the minimum required, while 20 percent had
made a lump-sum payment since taking out their mortgage.

Whether you have questions about your current mortgage,
or are thinking about taking out a new loan, please remember
that you can call at any time for a discussion and advice, with
absolutely no obligation.

Why living downtown has become more attractive

When Jeff Walker purchased his home a decade ago in downtown Ottawa, environmental sustainability and transportation costs were a big reason.

“I had to sacrifice 20 per cent more space and yet pay 20 per cent more for the home, but I figured it was worth it,” said Walker, who is a vice-president and chief strategy officer at the Canadian Automobile Association. “I think it’s a calculus that many home owners do, especially since transportation in terms of time and money becomes a significant monthly overhead.”

The Toronto Board of Trade says the most pressing issue for the Toronto area is gridlock, costing the region $6 billion annually. A poll conducted for the board released last week says 61 per cent believe traffic congestion is at “crisis proportions.”

According to a Statistics Canada survey released in August, the Greater Toronto Area was once again the worst place to commute in Canada at 33 minutes.

Commute times and gas prices are two very big reasons that some buyers like Walker are avoiding the suburbs, even if they can get a bigger bang for their buck.

According to a recent U.S. based survey of agents by realty firm Coldwell Banker, the high cost of gasoline and long travel times is a major factor in influencing some home purchasing decisions.

Three quarters of agents said the a spike in gas prices influenced their clients’ decisions on where to live. Another 93 per cent said if gas prices continued to rise, more home buyers would choose to live somewhere closer to work.

“There is an implicit price that has to be paid for the length of a commute, whether it is in gas or in time,” said Phil Soper, CEO and president of Royal Lepage Real Estate Services. “The invisible hand of commerce is in the decision making process of urban verses suburban. People get a discount if they live in the suburbs and a premium when they live downtown.”

The 2004 documentary The End Of Suburbia argued that suburban sprawl is unsustainable. And that was when domestic crude was in the $37 range - where it has more than doubled today.

“America took all its post war wealth and invested it into something that has no future,” say the filmmakers.

That same year a study by University of Toronto civil engineering professor Eric Miller concluded that commuting costs and the extra expense of running a larger suburban home often eat into any mortgage savings.

What surprised Miller was that a similarly valued home in the suburbs also ended up costing more to run. That’s because you get more space for the dollar in the 905 compared with the 416.

But more space means higher utilities and maintenance.

The study didn’t include the value of time spent in the car traveling or the environmental impact of more pollution.

“I think the finding was that there is no such thing as cheap land, the further out you go, the more it will cost you,” said Miller. “And that comparison would be even more dramatic today since the cost of gas, cars and parking has gone up since then.”

The study didn’t factor in the fact that downtown areas, which are becoming increasingly more attractive to buyers, tend to increase more in value than suburban areas.

(A 2008 study by Royal LePage found that a standard detached bungalow in Toronto would have appreciated by 104 per cent over a ten year period compared to a similar bungalow in the 905 at 78 per cent.)

“As gas prices rise I think there is an implicit discount on suburban prices, because there is a greater cost to the consumer,” said Soper. “You see that in so many areas of Toronto. There are neighbourhoods that are a ten minute commute from downtown, but you are paying a lot more for a tiny plot of land because of that.”

Gina Gokaldas, 24, says she moved downtown after a year and a half living in a new Markham condominium because of the long commute.

“It just took too long to get to work,” said Gokaldas, who moved to Markham from Montreal in 2009. “I just spent way too much out of my day traveling.”

Gokaldas says she chose Markham initially because of the value.

“Everything in my price range was like a shoebox downtown, so when I saw the property in Markham I was sold,” says Gokaldas.

Gokaldas paid about $300,000 at the time for her 900 square foot apartment. Similar apartments she said were almost half the size in the downtown area.

But the commute finally got to Gokaldas. Earlier this year she sold her home. She is now renting an apartment a block away from the Eaton Centre and it takes her 20 minutes on the subway to get to work.

“It’s night and day, although I miss the space I had,” says Gokaldas, who now lives in about 500 square feet until she decides to buy again.

Still, despite the dire predictions, sales in the suburbs have been doing well, even with high gas prices. While many potential home buyers are looking for places closer to the central core because of high transportation costs, affordability in the 416 has become a serious issue.

“Gas savings are certainly an incentive, but we have a lot of clients looking at the 905, not because they don’t like the 416, it’s because they can’t afford to find a house in their price point down there,” said Dave Elfassy, an agent with Right At Home Realty. “You might save some money in transportation costs, but you’re really giving up on space. They’re figuring it will tack on another 45 minutes to go to work, but they can live in a monster home in Richmond Hill, as opposed to a semi or a condo downtown.”

So, bigger space, or a stress free commute. While the dilemma for home buyers isn’t new, the reality is that the divide has never been more dramatic in an era of rising energy costs and home prices.

“Maybe the answer is to find that job in the burbs or work from home,” laughs Elfassy.

Renewing Your Mortgage – A Valuable Opportunity

Think of your mortgage renewal as a valuable opportunity. A chance not only to take advantage of today's great rates, but also get a mortgage product that better fits your current needs.

When you receive a renewal form from your current lender, don't simply sign it without knowing all your options. If you do so, you could be paying a higher rate, and end up with a mortgage that might not be best suited to your needs.

Instead, talk to us – we will discuss your interest rate options, and can arrange a rate hold for you.

We will also help you with a customized mortgage strategy. By the time your mortgage comes up for renewal, you are most likely in a different financial position than when you first obtained the loan. As our financial and life circumstances change, so does the mortgage product that is best for our needs and goals. For example, you may wish to access your home's equity to consolidate other debts, or perhaps help pay for post-secondary education.

At renewal time, make sure you get the most from your financing. We can speak to any concerns you may have about interest rate trends and advise you on what to do as your mortgage renewal approaches.

Mortgage Fraud - Protect Your Investment Against Mortgage Fraud

Many homeowners are unaware of the dangers posed by identity thieves when it comes to their real estate investment. Unfortunately, real estate title fraud is on the rise. According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), real estate industry insiders now peg the average case of real estate fraud at $300,000. In comparison, the RCMP estimates the average credit card fraud case in Canada to be $1,200.

Help to protect yourself and your investment with these tips:

1. Check your credit reports (www.equifax.ca, www.transunion.ca), financial and bank statements regularly for inconsistencies, unknown charges and unauthorized credit inquiries.

2. Don't give out personal information in person, over the phone or on the Internet unless you know who you are dealing with, how it will be used and if it will be shared.

3. Protect your mail, be alert to billing cycles and when bills or mail haven't arrived.

4. Shred any documents or materials with personal or financial information prior to discarding them.

5. Seek advice from a real estate expert who is licensed in your area when shopping for a home.

6. Speak to a mortgage professional about how title insurance could help protect your investment.

Sizing up a home - How to look past the home staging

More and more home sellers are turning to home staging to put their property in its very best light. As a buyer, you need to look beyond the décor and any staging tricks such as trendy furniture and take an objective look at how the home will fit your needs.

Pay attention to the floor plan. This will get you thinking about how you and your family will use the space. Your home needs to fit how you live, both now and in the years to come. Don't forget to check for adequate closet space and storage areas.

Look for necessary renos or repairs. For major renovations, you may wish to include the cost in your overall home financing – ask your mortgage broker if this is the strategy for you.

Also, if the seller has completed renovations, make sure the workmanship and materials are good quality. A sub-standard reno won't last for the long term, which means costs for you down the road.

Assess the location carefully. The house may be perfect for you, but the neighbourhood also needs to be a good fit. Schools, restaurants, shopping, transit, and area "walkability" all are factors to consider.

Remember the home inspection. Especially for older properties, a home inspector will examine the main systems of the home, such as electrical, plumbing and heating, as well as the roof and foundation.

Top tips for moving up

Move up buyers include many types of people: growing families needing more space, couples with grown children who want a smaller home closer to urban amenities, or multi-generational families living together who need a home with both space and privacy.

If you're thinking about whether the time is right for a change, moving up begins with a careful understanding of your needs and wants:

Get an accurate picture of your financial situation.
How much of a mortgage payment can you reasonably afford? Factor in other debts and expenses as well as long- and short-term savings goals like postsecondary education expenses for the kids and retirement for you.

Be realistic...
...about how much you can sell your home for and how much of the proceeds you'll have available for a down payment on your next home.

Know your financing options.
Many mortgages are portable between properties, and may have a "blend and extend" provision allowing you to keep a favourable rate. Also, getting pre-approved for a mortgage means you'll know how much house you can afford.

Be specific about your needs.
If you have two kids with another on the way, be on the lookout for houses with plenty of bedrooms and areas to entertain and raise growing children. Take play and study spaces into account.

Consider the neighbourhood.
If you have kids, check out the reputation of the schools that your children would be attending. And finally, factor in the neighbourhood's proximity to work, shopping, restaurants, and other important places you'll be frequenting.

Fall Financial Inventory

As our summer holidays wind down, the fall real estate and financial markets tend to go into higher gear. Autumn appears to be a season where we all start paying closer attention to our financial goals.

Real estate values in the GTA keep on rising… moderately, but rising nonetheless despite recent economic woes in the U.S. and Europe. Our housing market has been sustained by recent lower unemployment, steady immigration, and mortgage rates that are expected to stay low for the foreseeable future. Remember that even if rates begin to gradually rise next year, they are still considered low… ask your parents! It appears that a combination of all these factors has created a more "balanced" market where supply and demand seems to be more in sync.

Recently, the bond market had generated some "crazy" low five-year fixed rates, as low as 3.25%, which is an all-time historic low. Yet this does not mean we should all stampede to go with a fixed term. Variable mortgage rates are not based on the bond market, but are based on what the Bank of Canada (BOC) feels should be done to keep the economy in balance. The BOC meets eight times a year to address inflation, productivity, and the general health of the economy. In a normal market they usually adjust the Prime rate (which variable mortgages are based on) a couple times a year to either stimulate, or cool off the economy. I think we can all agree that there's no hot economy in sight that needs to be cooled down, and Canadian economic growth is moderate, therefore interest rate reductions are not required. Expect this overnight rate to be flat for a few years to come making a variable mortgage a very attractive choice.

Despite the interest rate, variable mortgages tend to be safer than fixed mortgages because you can change to another mortgage term for free anytime. Conversely, fixed rates lock you down with huge discharge penalties to get out of them early. You likely know someone right now who is upset about the discharge penalty on their fixed mortgage. You also know someone who is absolutely thrilled that they stuck with a variable mortgage and did not waver even though at times interest rates were rising… am I right, or am I right?

The information age has made variable mortgages even more popular than ever. Now anyone can browse online to quickly determine which mortgage may best suit them, where in the past we oddly enough only relied on our Banker's advice… how much sense does that make? The internet has made us all more financially literate, which may not be the best thing for a mortgagee (the lender). I believe where our parents' generation was coached to take a basic five-year fixed mortgage, our children's generation will instinctively choose variable mortgages.

Now that so many borrowers are opting for five-year variable mortgages, the mortgagees (lenders) needed to change their pricing and tactics. To be profitable, all mortgagees have cut back on the discounts they were giving on variable mortgages. Prime less .9% no longer makes financial sense for them, where prime less .5% makes them the profit they need to keep shareholders happy. Generally speaking, mortgagees tend to promote a closed fixed term, which is more profitable for them. A fixed mortgage may be good for you and a variable mortgage may be good for you, but don't let someone else make that decision for you. Do your research and understand where your money is going and why? Having the lowest interest rate does not translate into paying less interest. Usually there's more savings in the mortgage terms, privileges and strategy. A mortgage savvy "independent" Certified Financial Planner could make a significant difference in operating your finances at maximum efficiency. If you don't watch out for your money who will? Leaving that to your Banker is like leaving the monkeys to watch over your bananas.

Finance Home Upgrades with a Purchase Plus Improvements Mortgage

If you intend to buy a home that needs some immediate upgrades, a "purchase plus improvements" mortgage may be right for you. This type of mortgage covers the purchase price of the home, plus any renovations that would increase the value of the property, such as finishing a basement or redoing the kitchen. For current homeowners, a "refinance with improvements" option may be available.

Let us guide you through the process:

Step 1: Mortgage pre-approval
Arranging a pre-approved mortgage not only protects you if interest rates increase, it also gives you a clear price range for your new home.

Step 2: Obtain cost estimates for upgrades
Once you have found a home, you need to get written quotes from licensed contractors on the renovations you plan. These quotes will be used as the estimate for renovation funds that will be forwarded to you after the projects are completed.

Step 3: Mortgage application
When you are applying for the mortgage, your lender will add the estimated costs of the renovation into the lending agreement. For example, with a 5% down payment, your mortgage broker would apply to a lender for 95% of the "as improved" market value, which will be higher than the actual purchase price.

Step 4: Finalize purchase
Your Realtor and mortgage broker will walk you through this part of the process. The funds for renovations will be sent to your lawyer "in trust" when the mortgage closes.

Step 5: Complete upgrades
The lender will "hold¬ back" funds for the renovations until the work has been completed and inspected, at which time the contractor can be paid.

Pay down mortgage vs. RRSP - which should come first?

If you have received a salary increase, should you use your extra cash flow to pay down your mortgage faster or to contribute to your RRSP?

It depends on whether your RRSP growth rate can exceed your mortgage interest rate.

You can use an online calculator to project and compare the size of your RRSP at a particular future end date, such as age 65, under two competing scenarios. Suppose, for example, that you are age 40 with a mortgage of $200,000 and a five per cent interest rate. In both scenarios, keep the total amount of your mortgage payments plus RRSP contributions constant at $2,116 per month. That's how much is required to completely pay off your mortgage in 10 years.

In the first scenario, you quickly pay down debt. Make your $2,116 monthly mortgage payments over 10 years and no RRSP contributions. Then, once you're debt-free at 50, you would start depositing the same $2,116 amount to your RRSP monthly for the 15 years to 65.

In the second scenario, you favour RRSP contributions. You'd make only the $1,163 payments required to pay off your mortgage over 25 years. At the same time, you deposit the $953 (the difference between $2,116 and $1,163) monthly to your RRSP over the whole 25-year time frame.

Under both scenarios, you can accumulate an RRSP worth over $500,000 by 65. But the second scenario, with the early start to the RRSP, can give you a significantly larger RRSP at 65 provided that your RRSP growth rate beats your mortgage interest rate.

In the first scenario, you need discipline to make large, voluntary contributions to your RRSP after your mortgage is paid off at 50. Resist the temptation to trade up to a fancier home requiring you to make new mortgage payments.

How do today's mortgage interest rates compare to the average RRSP growth rates?

Mortgage rates are currently around five per cent - or lower for short terms. Mortgage rates could conceivably remain this low for a couple of decades mainly because of the huge age wave of 10 million baby boomers retiring.

When you combine a growing supply of cash to lend with declining demand by borrowers, it is reasonable to expect that interest rates could stay low for several decades.

The question is: Can your RRSP growth rate beat a five-per-cent mortgage rate? If the RRSP growth rate you expect exceeds the mortgage interest rate, you would have more incentive to begin RRSP contributions before paying off your mortgage.

A risk-averse investor probably has an RRSP growth rate below five per cent. Of course, an RRSP investor can beat five per cent by hiring the best investment managers and doing no market timing.

However, generally, unless your RRSP returns exceed the interest rate on your mortgage, it is prudent to pay down your mortgage first. Paying down debt is a risk-free investment.

Terry McBride is a member of Advocis (The Financial Advisors Association of Canada). This article provides general information and should not be considered personal investment or tax planning advice.
© Copyright (c) The Vancouver Sun

Average House Prices a Misleading Gauge of the Health of the Canadian Real Estate Market: CIBC

Detailed analysis shows a highly segmented market that will see prices drop over time, but preconditions for a market crash don't exist
TORONTO, July 7, 2011 /CNW/ - The Canadian housing market is becoming highly segmented and multi-dimensional which is making traditional measures, like average prices, increasingly irrelevant in gauging the health and state of the sector, finds a new report from CIBC World Markets Inc.
"Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable," writes Benjamin Tal, Deputy Chief Economist at CIBC, in his latest Consumer Watch Canada report.
"Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming."
He notes that while the average house price in Canada rose 8.6 per cent on a year-over-year basis in May, that number slows to 5.6 per cent if you take Vancouver out of the picture. Remove Vancouver and Toronto and the average price increase drops to 3.7 per cent.
By digging into the details on the high profile Vancouver market he found that the gap between average and median prices is reaching an all-time high. While the average house price climbed 25.7 per cent on a year-over-year basis to more than $800,000 in May, he found that by removing properties that sold for more than a $1 million there was a much more moderate price appreciation in the market. It also reduced the average sale price by $220,000 to just over $590,000.
"What makes Vancouver abnormal is the high end of its property market," says Mr. Tal. "And in this context many, including Bank of Canada Governor Mark Carney, point the finger at foreign—mainly Asian wealth—as the main driver here."
Data on the extent of the role that Asian investors have played in Vancouver housing prices is quite limited. Mr. Tal's analysis of data obtained from Landcor Data Corporation suggests that only 10 per cent of the nearly 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000.
According to the information provided by Landcor, foreign money accounted for only 2.6 per cent of all sales during the same period. However, Mr. Tal believes that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. "There are many reasons to believe that a significant portion of what is perceived to be buying by offshore investors is, in fact, driven by Chinese immigrants that are integrated into the community but still maintain strong links to mainland China, with many residing and working in China while their family establishes roots in B.C."
"Looking beyond the average price numbers reveals a highly segmented and multi-dimensional market that is probably influenced by different forces," says Mr. Tal. "But even a multi-dimensional market can overshoot—and the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation. Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction."
Mr. Tal feels the price correction in Canada will be gradual as the two key triggers for a price crash - a significant and quick increase in interest rates and/or a high-risk mortgage market that is very sensitive to changes in economic factors - are not at play in Canada.
"In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking."
He also believes that the country is in relatively good shape when assessing the two sub-segments of the mortgage market that traditionally account for most defaults: mortgage holders that carry a debt-service ratio of more than 40 per cent and those with less than 20 per cent equity in their house.
Just over six per cent of households have a debt service ratio of more than 40 per cent—a number that has risen by a full percentage point since 2008. "However, this ratio is still well below the ratio seen in 2003, when the effective interest rate on debt was more than a full percentage point higher, and no correction in house prices ensued," adds Mr. Tal.
"All other things being equal, even a 300-basis-points rate hike by the Bank of Canada would take this ratio to only just over eight per cent. Not surprisingly, Vancouver has the highest ratio of households with high debt-service ratio, followed by Toronto."
A little more than 17 per cent of the Canadian residential real estate pool is in properties with less than a 20 per cent equity position, a number that has been rising over the past few years. More than 80 per cent of households with less than a 20 per cent equity position are first time buyers.
"Digging deeper and looking at the households with both low equity positions and high debt-service ratios, we found that this fragile segment of the market accounts for only 4.6 per cent of total mortgages—a number that has been on an upward trend over the past few years," says Mr. Tal. "Shock the system with a 300-basis-points rate hike and that number would rise to a still-tempered 6.5 per cent. Historically, even in that group, the default rate has been well below one per cent. Thus, short of a huge macro shock, there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.
"As a result, while house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual. That could still entail a period in which housing under performs other assets as an investment class, until rising incomes and a tame price trajectory bring the market back to equilibrium."

Are we headed for rapid rate rises?

Financial Post Staff OTTAWA — Consumer prices were up 3.7% in May from a year earlier, the biggest leap since March 2003, Statistics Canada said Wednesday.
Economists polled by Bloomberg expected 3.3% annual inflation in May.
Gasoline prices were cited for the main reason for such a high inflation rate last month.
The core inflation rate, which factors out volatile items such as energy and certain foods, was 1.8%. Economists anticipated 1.5%.
The Canadian dollar firmed to a session high of $1.0280 after the data was released.

Bloomberg News Central banks need to start raising interest rates to control inflation and may have to act faster than in the past, the Bank for International Settlements said.
“Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks,” the BIS said in its annual report published Sunday in Basel, Switzerland. “Central banks may have to be prepared to raise policy rates at a faster pace than in previous tightening episodes.”
While policy makers in Asia and Latin America are already raising borrowing costs to damp price pressures, rates remain near record lows in the world’s largest developed economies. Central banks in the U.S., U.K. and Japan have signalled they intend to keep that stimulus in place for some time, with only the European Central Bank moving to gradually tighten credit as inflation risks increase.
“Global inflation pressures are rising rapidly as commodity prices soar and as the global recovery runs into capacity constraints,” said the BIS, which acts as a central bank for the world’s central banks. “These increased upside risks to inflation call for higher policy rates.”
With U.K. inflation running at 4.5%, more than double the Bank of England’s target, the BIS said “one wonders how long its current policy can be sustained.” The pound rose half a cent in early European trading to $1.5985 before retracing to $1.5931 at 9 a.m. in London.
Crude oil prices have gained 20% in the last 12 months, putting pressure on companies to increase wages and pass on higher costs to consumers.
“The price pressure is there,” said Carsten Brzeski, chief European economist at ING Group NV in Brussels. “One of the lessons of the financial crisis is that you shouldn’t leave rates too low for too long. Now is the time to remember that lesson.”
BIS General Manager Jaime Caruana said global headline inflation has risen a percentage point to 3.6% since April 2010. At the same time, short-term interest rates adjusted for inflation “have actually fallen in the past year, from minus 0.6% to minus 1.3% globally,” he said in a speech in Basel Sunday.
“The world economy is growing at a historically respectable rate of around 4%,” Caruana said. “The resurgence of demand has put concerns about deflation behind us. Accordingly, the need for continued extraordinary monetary accommodation has faded.”
The ECB in April raised its benchmark interest rate from a record low of 1% and has signalled another quarter-point step is likely in July.
By contrast, the Federal Reserve last week repeated a pledge to keep its policy rate close to zero for an “extended period,” while the Bank of Japan this month held its benchmark near zero and kept credit and asset-purchase programs in place.
Minutes of the Bank of England’s last policy meeting this month, at which the key rate was held at 0.5%, show some officials see the potential to extend bond purchases to boost a faltering recovery.
The BIS said that in “some advanced economies” policy tightening still needs to be balanced against the “vulnerabilities” associated with balance-sheet adjustment and financial sector fragility.
Still, “undue delay in the normalization of the monetary policy stance entails the risk of creating serious financial- market distortions,” it said. Furthermore, a “timely tightening” of policy in both emerging-market and advanced economies will be needed “to preserve a low-inflation environment globally and reinforce central banks’ inflation- fighting credibility.”
The BIS said central banks should reduce the size of their balance sheets, though it would be “dangerous” to cut them “too rapidly or too indiscriminately.”
In response to the financial crisis, the Fed and the Bank of England “sharply” increased their total assets from about 8% of gross domestic product to just below 20%, while the ECB expanded its assets from 13% of GDP to more than 20%, according to the BIS.
“Balance-sheet policies have supported the global economy through a very difficult crisis,” it said. “However, the balance sheets are now exposed to greater risks — namely interest-rate risk, exchange-rate risk and credit risk — that could lead to financial losses.”
The BIS also urged governments to pursue fiscal consolidation, saying the biggest risk is “doing too little too late rather than doing too much too soon.” In Europe, policy makers must fix the region’s debt crisis “once and for all,” it said.
“Nowhere is the link between fiscal sustainability and financial health more apparent than in parts of Europe today,” Caruana said. “There is no easy way out, no shortcut, no painless solution.”
The BIS warned that a failure of the U.S. to tackle its budget deficit could become a source of instability, with potentially “far-reaching ramifications for the global economy” should a rapid depreciation of the dollar result.
“The current ability of the United States to easily finance its deficit cannot be taken for granted,” the report said.
The BIS holds currency reserves on behalf of its members and provides policy makers with a forum for discussion. Attendees at the annual general meeting in Basel Sunday included ECB President Jean-Claude Trichet, Fed Chairman Ben S. Bernanke, Bank of Japan Governor Masaaki Shirakawa and Bundesbank President Jens Weidmann

Toronto condo sales set May record

The Greater Toronto Area condo market set a sales record for the second month in a row, with May sales up 37% compared to a year ago.

Realnet Canada Inc. said there were 4,289 new homes and condos sold in May in the Greater Toronto Area, with sales of low-rise housing up 25 per cent and high-rise condos up a “whopping” 50 per cent.

Sales this year are 12 per cent ahead of where they were last year.

BILD Toronto attributed the boost to “relative affordability (compared with low-rise here and high-rise globally), low interest rates and, to give the builders their due, some great building and suite designs in some great locations.”

The Toronto Real Estate Board recently released its market update for the first two weeks of June, and said the average resale price for a condo in the GTA was $326,750, up six per cent from a year ago. A detached home, meanwhile, sold for an average $599,208 up 11 per cent from a year ago.

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The Big Picture

Recently both the U.S. Federal Reserve (the Fed) and the Bank of Canada described the economic picture as “unusually uncertain.” And this was before the unrest in the Middle East and Africa and before the devastating development in Japan. Add to this scenario the recent downgrading of Spain and Portugal by Moody’s, and you have a world that is even more uncertain than “unusually uncertain.”

If the real measure of intelligence is what you do when you don’t know what to do, then the next few months will test the economic IQ of both the Fed and the Bank of Canada. Given the increased uncertainty, it is reasonable to assume that both banks will be extremely conservative when it comes to monetary policy.

While short-term volatility will continue to influence markets in the near term, the focus should be on the big picture, which is much more predictable. And this big picture is changing. The great recession gave birth to a dramatic shift in the engines of economic growth in North America, and any successful investment strategy must incorporate this information.

The near 3% growth rate projected for gross domestic product (GDP) in 2011 masks the dynamics of powerful economic forces pulling in different directions. A vibrant business sector will gradually take over an exhausted consumer and restrained government.

Government spending was a buffer for economic activity during the downturn, but with ongoing gains in business activity, the coming years should see the government hand the reins of growth back to the private sector. Significant reductions in spending will come by late 2011, when infrastructure stimulus projects wrap up. Additional cuts to program spending should see compensation expenses drop on wage restraint, employment attrition and select job cuts.

On the other side of the scale, corporate Canada is doing much better. By any measure, the current recovery in capital spending is impressive. The rate of return on capital employed is back to its mid-2008 level, and despite the surge in investment, corporate Canada’s cash position is at a record high (in relation to both equity and sales). Large corporations can still raise funds relatively cheaply, and cash-starved small- and mid-sized firms can now borrow more easily, with overall credit outstanding to this sector starting to show signs of life after being in negative territory for the past two years.

In fact, the manufacturing sector is already positioned to start expanding — with its current capacity utilization reading of 81%, it stands above its long-term average and a record six points above that of the rest of the economy. The last time the utilization gap approached this level was in 1995, and manufacturing investment advanced by an average annual rate of more than 10% for the following three years. With relatively elevated capacity use and rates of return on capital employed in the manufacturing sector approaching a 10-year high, look for business investment in manufacturing to rise strongly in 2011, joining the upswing in western oil sands projects.

While current economic uncertainty will continue to influence markets and lead to sharp swings in commodity prices and related equities, the new mix clearly suggests that investors should focus on the improving the conditions of corporate Canada, in general, and the manufacturing sector, in particular. With supply-chain opportunities arising south of the border as a result of the U.S. manufacturing sector’s increased exposure to emerging markets, look for growing opportunities for high-end Canadian exporters in the coming years with positive implications for their valuations.

Another opportunity in this environment is the dividend-paying segment of the market. The recent increase in risk aversion will benefit this sector directly, as it tends to attract conservative money, and indirectly as increased uncertainty will limit any potential upward pressure on interest rates

Construction starts on first phase of Underpass Park

Crews broke ground this week on a park in an unusual and unsightly place -- under a series of overpasses near King and River Streets.

Waterfront Toronto first announced its plan to build Underpass Park just over a year ago. The project is the biggest of its kind in Canada and the first in Toronto.

The abandoned cars, old tires, garbage and broken chain link fences currently sitting under the Eastern Avenue, Richmond and Adelaide Streets overpasses between Cherry Street and Bayview Avenue will be replaced with café seating, children’s play and climbing structures, ball hockey and basketball courts and a community garden.

"What makes Underpass Park so unique is the inspiration came from the overpass structure," city Councillor Norm Kelly, Chair of Parks & Environment, said. "I am looking forward to the completion of the park so everyone in our city can take advantage of what will be a beautiful, open public space.”

The first phase of park construction takes place on the east side St. Lawrence Street adjacent to a new condominium development and a new affordable housing complex and should be done by the end of this year. The second phase will be built on the west side of St. Lawrence Street.

Underpass Park is part of the metamorphosis underway in the West Don Lands where the industrial landscape is being transformed in preparation for the 2015 Pan Am Games. The Athletes Village will sit on a redeveloped 80-acre site next to the Don River.

GTA New Home Sales Had Strong Q1

March saw a multitude of new home sales in the GTA, ultimately tipping Q1 into strong territory, according to new figures released by the Building Industry & Land Development Association (BILD) through a report by RealNet.

Altogether, there were 3,434 new homes and condos sold in March 2011. During Q1 there was a total of 9,374 units sold which signals a drop of 8.5 %, year-over-year.
“Last year, we experienced the new home sales equivalent of March madness as 4,569 new homes were snapped up by homebuyers in a single month. The 3,434 new homes sales in March of this year, albeit down 25 per cent year/year, represents a healthy but much more stable level of activity," said BILD President and CEO Stephen Dupuis.

"While the demand side remains strong, the interplay of factors like the HST and the new mortgage financing rules are certainly keeping the froth factor at bay as the new housing market moves into a state of sustainable equilibrium," he added.

Looking at Q1 completely, RealNet Canada President George Carras pointed out that high-rise sales were steady with those seen in Q1/2010, partly attributed to the $75,000 price differential compared with low-rise. The current high-rise price index sits at $446,965 while the low-rise product is a staggering $522,034 for low-rise product.
"You can't sell what you don't have," Carras explained, noting that as at March 31, 2011, there was only 5.5 months of supply of low-rise new homes. "Active new home inventories are well below the long-term average levels."

Looking at various regions through the GTA, the York area saw the biggest drop, down by 40.7%, followed by Toronto proper at 25.8%. On the other side, the biggest increase was in Halton, where sales increased by 43.1%- which, incidentally is the only region to register an increase.

GTA Prices Up, Sales Down

According to GTA Realtors, April has started off in a promising manner, although sales in the first two weeks have actually dropped by 3% year-over –year. Similarly, there was a drop of 21% year-over-year in the number of new listings
There is hope that April will finish with a bang, though. “Sales activity was quite strong during the first two weeks of April. If this level of activity is sustained for the remainder of the month, we could see April transactions close to last year’s record result. Positive economic news has kept households confident in their ability to purchase and pay for a home over the long term,” said TREB President Bill Johnston.

While listings and sales numbers have dropped, average prices have increased. According to TREB’s report the average selling price for firm deals reported through the first two weeks of April was $483,165; this signals a 12 % increase over the average price of $430,271 year-over -year.

“The number of homes listed for sale so far in 2011 has been below expectations. Market conditions have tightened, resulting in increased competition between home buyers and accelerating rates of average price growth,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
There is incentive to jump into the market now, and they are banking on the lure of price appreciation to bring more sellers to market: “The strong rate of price growth reported for the first two weeks of April should entice more households to list their homes for sale. This would result in more balanced market conditions and more moderate rates of price growth,” continued Mercer.

TREB Releases Promising March Figures for the GTA

According to the March figures just released for the GTA, March 2011 was the second strongest March on record, with 9,262 sales recorded; a number that is only 11% lower than the records broken last March.

“The strong home sales reported in March and throughout the first quarter of 2011 have been based on a solid affordability picture and improving economic conditions in the GTA and country-wide,” said Toronto Real Estate Board (TREB) President Bill Johnston.

Looking at average selling prices, March 2011 saw prices go up 5% year over year to $456,147. Condos and semi-detached homes saw the greatest increase in price, both rising by 7%.

A general tightening of the market itself contributed to the appreciations in value. “Market conditions were tighter in March compared to last year. With more competition between buyers, we have seen a strong but sustainable rate of price growth,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

“The spring market, in particular the months of March and April, is an ideal time for home owners to list their properties for sale. It is in these critical months where the momentum of demand will cycle to its highest, while the supply of good housing stock will be at its lowest."

"Buyers active since the autumn,who, for whatever reasons, did not secure a purchase become fully keen house hunters at the beginning of the New Year. Already suffering from buyer’s fatigue from several months of searching, these buyers become highly motivated. The problem for them is not their lack of motivation, but the limited supply of property.”

As the spring, and the busy season continues, the question remains- will this uptick in sales, and steady price appreciation continue?

Based on good old fashioned, supply and demand- regardless of what else is going on. “I'm optimistic for Toronto's downtown freehold housing market. In fact, I'm confident enough to predict the ongoing lack of supply will outstrip the burgeoning demand for all of 2011, regardless of the economic climate.”

Expect demand to remain healthy

April 1, 2011 -- Existing home sales in the Greater Toronto Area remained strong in February. There were 6,266 transactions reported through TorontoMLS® representing a 14 per cent decline from the record result reported in February 2010. While not representing a record, February 2011 sales were 50 per cent higher than the number reported in February 2009 during the recession and slightly higher than the average February sales over the previous ten years.

In my opinion, one of the key factors underlying the number of transactions we see in the resale home market is consumer confidence. If people are confident in their ability to purchase and pay for a home over the long term, sales levels will remain strong. Continued improvement in the GTA economy over the past year has arguably kept confidence levels high. We have seen steady growth in the number of people employed, the unemployment rate has receded markedly from the recessionary peak and income growth has accelerated.

RBC recently released the results of their annual Home Ownership Study. The results confirm what we have experienced in the housing market over the past year. The percentage of Canadians who said they would likely purchase a home over the next two years was at 29 per cent – down from 31 per cent in 2010 (the highest level on record), but the second highest reading since 2006. The percentage of Ontarians planning on purchasing a home over the next two years was slightly lower than the national average at 28 per cent. I asked Jason Mercer, the Toronto Real Estate Board's Senior Manager of Market Analysis to comment.

"The RBC survey results follow the trend we have seen recently in the GTA. Last year this time home sales were running well-above what the level of population dictated. In 2011 and 2012, the pace of sales is expected to be more sustainable, meaning in line with the expected level of population and population growth. Expect to see between 80,000 and 85,000 transactions through TorontoMLS® this year, and other 85,000 to 90,000 sales in 2012."

I also asked Mr. Mercer to provide his views on the direction of price over the next couple of years. He is confident that we will continue to see growth through the end of 2012, albeit at a more subdued rate.

"Average existing home selling prices are expected to increase by three to five per cent annually over the next two years. Even with expected mortgage rate hikes in 2011 and 2012, the share of the average GTA household's income dedicated to mortgage principal and interest, property tax and utilities will remain manageable in relation to accepted lending standards," continued Mercer.

"Recently, average price growth has also been supported by relatively tight market conditions. While sales have remained quite strong, the number of new listings has been low from a historic perspective. There has been enough competition between home buyers to promote price growth," added Mercer.

Market conditions through the recession-recovery period between 2008 and the end of 2010 can certainly be characterized as volatile. Over the next two years, by most accounts, it seems like the housing market in the GTA is getting back to normal.

What effect will the mortgage rule changes have on the property market in Canada?

Tougher mortgage rules starting today are getting a failing grade by mortgage industry professionals who say the federal government effectively dropped the ball in a half-hearted attempt to deal with rising consumer debt.

If Ottawa were genuinely interested in tackling high amounts of personal debt, it needs to address other means of high-interest loans such as credit cards, personal loans and lines of credit, they say.

“We need more legislation on access to other types of loans,” says Claire Drage, a mortgage agent with Dominion Lending Centres Home Capital Solutions Inc. in Oakville, Ont.

“Do you really need a Chase card? Capital One? Visa and Mastercard? Sears? Bay card? There’s so much easy access to high interest consumer debt.”

As for how the mortgage changes will affect the housing industry, Drage suspects it will be business as usual for the most part.

“The demand will still be there,” she says. “Consumers might have to cut their choices a bit. It’s like going to an arcade and winning coupons and instead of getting to choose prizes from the bottom three shelves, now you get to choose from the bottom two.”

In January, federal finance minister Jim Flaherty announced he would shorten the maximum amortization on Canadian mortgages to 30 years from 35 years, and lower the refinancing limit from 90 per cent of a home’s value to 85 per cent. The government also announced it would withdraw insurance on home equity lines of credit.

The move came after reports about the rising debt load of Canadians. Statistics showed household debt in Canada surpassed the U.S. for the first time in 12 years. Statistics Canada reported the average Canadian debt-to-income ration hit a record 148.1 per cent.

Kristian Harris, a mortgage broker with Monstermortgage.ca in Toronto believes the government’s mortgage changes will have little impact.

“The government’s purpose of making these changes is to slow down the housing market,” Harris says. “They’re worried about consumer household debt. I think this is a sign the government doesn’t think interest rates will rise substantially over the next 12 to 18 months so they felt the need to implement these new rules. If the government thought rates were going to increase significantly, they wouldn’t need to make these changes.”

Although many focus on the mortgage market when it comes to consumer debt, they should also look at the easy access available to many Canadians for other types of credit, he says, adding that the government should eliminate giving credit cards out to students and distributing Visa card applications at hockey games.

Furthermore, Harris doesn’t think the changes are going to impact the industry or the real estate market all that much. The reduction on a mortgage’s amortization period to 30 years will, however, impact some borrowers as to how much they can qualify for. But at about $100 a month on a $300,000 mortgage, the amount is not overly significant.

“It’s only $35 for every $100,00,” he says. “It’s not a huge difference at the end of the day.”

Adam Hawryluk, a mortgage consultant for INVIS Mortgages in Nananimo, B.C., believes the government’s mortgage changes are a step in the right direction. But he would like to see more sweeping changes that also target education and credit regulations addressing the whole spectrum of debt.

Canadians would be better served if they were somehow educated about debt and money issues, he says. In addition, Hawryluk would like to see the government step in to either lower the interest rates that credit card companies are allowed to charge or make access to credit cards more stringent.

“When people are financially extended beyond their means, it’s a scary situation for the whole country,” says Hawryluk. “The mortgage changes are a step in the right direction because we’ve learned from U.S. housing industry.”

The issue of Canadians carrying debts close to or over the edge has been a challenge for many mortgage professionals. Hawryluk recalls an experience with older clients whose monthly debt payments on credit cards and loans climbed to $3,100. The couple had the added burden of being on a fixed income. Fortunately, they had some equity in their home and Hawryluk managed to consolidate their debts in a new mortgage, giving them much-needed breathing space.

“The woman was crying in my office,” he recalls. “They know they’ll never be mortgage free but on a month-to-month basis, they can survive now. They wished they would have come to me years ago.”

Robert McLister, a mortgage professional who writes about the industry for Canadian Mortgage Trends, gives the new mortgage rules a varied critique. Given Canadians’ record debt levels, McLister believes the government had to pull in the reins on borrowing. He’s just not wild about what they decided to focus on.

“The spirit behind it is wise and well intended,” says McLister. “But I think the actual execution of it is poor because it reduces the probability of excess borrowing overall which is great but, at same time, it handicaps highly qualified borrowers that present virtually no default risk for no good reason at all.”

There are many reasons, says McLister, why a borrower might need an additional five per cent on a refinancing. And they don’t have to do with luxury items. He’s referring to being suddenly faced with an illness or a divorce or perhaps having to send your child off to university. The rules also penalize the self-employed person, who might save the extra funds in a mortgage with a 35-year amortization to keep as a back up for their lack of steady income.

“Removing the flexibility from the market in general for people that are extremely low risk makes no economic sense whatsoever,” he adds.

Calgary’s Marty Laframboise, a mortgage broker with VERICO: Mortgage Planning Central, is critical of the changes. He thinks the government should have mandated that if those with strong credit scores wanted to stay on a 35-year amortization, they could do so with biweekly accelerated payments, which would automatically reduce the mortgage term down to 30 years.

“I don’t like the changes,” he said. “They should have been handled differently. It really does take a lot of people out of the price range they’re shopping in.”

Laframboise points to a client who had found a house he liked for $425,000, affordable thanks to the 35-year amortization period. The client had the additional stress that his wife wouldn’t be able to see the house until the end of this month, which means the couple will only be able to afford $395,000 on the new 30-year limit.

“The client is now faced with a situation of having to decide whether to take a leap of faith and hope that his wife will like the house or wait until she comes back and look for something $30,000.00-$35,000.00 cheaper.”

Drage agrees that the country’s overall financial literacy needs a boost. She thinks money, budgeting and debt should be taught to Canadians once they’re in high school. That, she believes, would help prepare post-secondary school students, who are often introduced to credit cards during their college and university days.

Drage has taken some extreme measures with clients struggling to manage their debt loads. She’s taken scissors with her to a client’s home when working on a refinancing application.

“They wanted to swipe and play instead and swipe and pay,” she says.

She’s even advised clients to tear up all but one main credit card. If the client insists on keeping a second card, Drage has advised that the client keep it frozen in ice in an old plastic container in the freezer.

“There’s a way of thinking that it’s easy to get, so it’s easy to spend,” she says. “It’s just a matter of looking at your situation and being realistic. Have a budget and a plan and spend within your means."