Thursday, April 15, 2010

The stars are lining up

If you're following the real estate and mortgage markets, you know what I mean. I feel like a kid in a candy shop with a pocket full of cash and no other customers. Soon, old man behind the counter, you will be begging me for my money, not the other way around. Heh.

151 comments:

Bubble 'n Fizz(le) said...

Dream on, HHV. Victoria is a micro-market. House next door to me sold last January (2009) for $965K and last week for $1.35M. Victoria has demonstrated it is a seriously expensive market, but frankly it doesn't have the size and volume of Vancouver or Toronto that makes it vulnerable to a sharp correction. Flame away, people, but if you are priced out now, you are priced out forever around here.

Robert Reynolds - GBA said...

Ugly house of the day award goes too...
1735 EMERSON ST
MLS 276762

How did they match the pain to the shoes?

Robert Reynolds - GBA said...

*paint


Also, Ya HHV's back!

Furthermore, I heard bubble talk on CBC Radio 1 all day today.

Skeptic said...

Bubble 'n Fizzle said:

Flame away, people, but if you are priced out now, you are priced out forever around here.

No logic to your tired,old rant. If a bunch of bears with a good down payment are priced out of the market who is left to buy houses in the future??

Your viewpoint is typical of the fools that bought into this market lately. An unshakable belief that real estate always goes up with no understanding of economics or market forces.

This is just like May 2008 all over again. As soon as the market gets shaky and the news media says the boom is over all these nervous homeowners show up on this blog with their shallow comments. If you are nervous today list tomorrow - it will only get worse from now on.

a simple man said...

B&F - There has been a large increase in prices since Jan 2009 for certain; but, the price decline has yet to occur - this is the peak, or close to it (some would say Dec 2009).

I hope you still come around here in the fall (after the fall?) and then if things are unchanged I will eat a large slice of humble pie and buy you a beer.

And you are right, it is different here. But, it is not immune to common sense.

a simple man said...

just on cbc website...

"The number of B.C. homeowners whose mortgages are in arrears has increased sharply, says Robert McLister, who runs the website Canadian Mortgage Trends.

A homeowner is considered in arrears if no payment has been made on their mortgage for three consecutive months.

In 2008, there were about 700 homeowners in the province who were in arrears. So far in 2010, there are more than 2,200."

Read more: http://www.cbc.ca/canada/british-columbia/story/2010/04/15/bc-mortgage-arrears.html#ixzz0lEaqeDLp

Bubble 'n Fizz(le) said...

I hope you still come around here in the fall (after the fall?) and then if things are unchanged I will eat a large slice of humble pie and buy you a beer.

I've been posting contrarian notes here a lot longer than you. See you in the Fall and you can buy me a beer.

Animal Spirit said...

Bubble - you sound like a good guy - want to go to the Bent Mast for a beer?

Think (from the last post) - my data shows an increase in SFH listings of 18 in the last two days. No listings get posted on MLS on Monday. SFD listings are up 46% from March 1 to today. Less than 1M is up 55M, 1M+ is up 15%.

Phil said...

BnF said: "House next door to me sold last January (2009) for $965K and last week for $1.35M."

That's great, but you've always been able to rent it for $2500 a month so this market is in a bubble. Period.

maniac78 said...

I just want to clear up a misconception about the new rules and how they affect existing homeowners with a CMHC insured mortgage. The CMHC insurance policy covers the mortgage for the entire life of it as long as the mortgagee doesn't increase the amortization schedule and doesn't increase the mortgage amount. So when it comes time to renew they can go with any lender and since they already have CMHC insurance no need to qualify for it again.

Rhino said...

"Victoria has demonstrated it is a seriously expensive market, but frankly it doesn't have the size and volume of Vancouver or Toronto that makes it vulnerable to a sharp correction."

Thats just total bull. Any market that has the ability to appreciate sharply has the same ability to depreciate sharply. Its just common sense.

Double-Agent said...

Maniac78,

Most of what you said is correct except for one important fact.

CMHC insurance is for the entire life of the loan provided that you do not change the amortization schedule or the amount of the loan. If the loan is re-financed to a higher amount it will be subject to re-qualification (income, LTV etc.) and additional premiums will apply.

When the fixed term (i.e. 5 years) of the loan is nearly over the lender will usually decide to renew the loan and will issue a renewal letter in the mail outlining the interest rate and term options. If the owner finds the terms acceptable they sign and return the documents. Savvy buyers will haggle with the lender and try and get the interest rate reduced. Surprisingly, many don't do this. A good tactic, if they have a perfect payment history and household income has not gone down, is to mention switching to another lender.

If the owner wishes to switch the loan to another lender they are able to do so and the CMHC insurance is transferred provided that the original terms and loan amount are the same or less. However they need to re-qualify for the loan with the new lender and have an income and credit check done. The new lender will want to protect their interests since they have had no previous financial relationship with the applicant. CMHC insurance is only a measure of last resort for lenders and they don't want a bad borrower on their hands especially if the real estate market is in a downturn.

JustWaiting said...

Todays news headlines:

Financial Post - Canada's Housing Bubble: It's Not Different This Time

In Vancouver, there seems to be a prevailing logic that “Vancouver is unique therefore prices are justified?” People in Miami or San Diego probably felt the same way a few years ago.

As James Chanos, the renowned hedge fund manager who is shorting Chinese stocks - said in a recent television interview – it is not high prices that mark the existence of a bubble but rather high levels of debt punctuated with a lack of rational behavior.

Likewise, for Vancouver or other Canadian cities, it cannot be said that there is a real estate bubble just because prices have run up. That logic is linear and simplistic.That is too easy a hurdle to earn the bubble label. Rather, it is the herd mentality and the belief that somehow “this time is different.” Those four words are often said to be dangerous to one’s financial well being.



Does Your City have the Most Overvalued Real Estate in Canada?

When it comes to home prices and price-to-rent ratio Victoria is at the top beside Vancouver.

PainInThe said...

Barf&Fart, you are SUCH a notorious liar.

And a fool if you believe your own BS, and a bloodsucking vampire if you don't.

PainInThe said...

We'll have to buying Barf&Fart a beer in the fall because they'll have lost so much in their house they won't even be able to afford one beer.

Just Jack said...

It does seem like they are hammering in two new listing signs for every sold sign they pull out of the ground.

Since the 1st there have 235 detached homes listed for sale in the core municipalities but only 86 reported sales.

Skeptic said...

Just Jack,

Thanks for the stats update. Any idea what March stats were like in the same area?

86 sales and 235 new listings is a sales/new listings ratio of 37% which is indicative of a buyers market. Seems more like 1 sold sign being pulled out for every 3 going into the lawn.

If I had my house up for sale now I would be getting more nervous with each passing day on the market. Where are those buyers?

Mark said...

CBC piece on poor saps that bought pre - completion and now down 60% I have to wonder how many of these folks were looking for the flip....hmmmm

http://cosmos.bcst.yahoo.com/up/player/popup/index.php?rn=222562&cl=19142794&ch=&src=canadanews

JustWaiting said...

Mortgage Trends reporting that high ratio and conventional mortgage loan applicants will be subject to the same lender guidelines at major banks. This means all applicants will have to qualify at the 5 year posted rate for loans under 5 years at these institutions. Even those with a healthy down payment ( >20%) will see the maximum loan they can qualify for drop next week. Under these conditions, fewer applicants will take out variable or 1-4 year fixed term loans. In effect, maxed out borrowers are funnelled into 5 year fixed rate mortgages that just had a .85 % increase over the last month.

Read all about it by clicking here

Another nail in the boom coffin!

maniac78 said...

JustWaiting you're like a little kid with selective hearing. TD and Scotia are doing what you said but other lenders are not. So in other words the only affect this will have is less business for TD and scotia which I think the shareholders may have a problem with.

JustWaiting said...

Maniac78,

Just keep trolling. Maybe somebody will bite :>)

Skeptic said...

Interesting Globe & Mail Article..

Canada's brewing debt storm

Canadian borrowers are fast approaching a day of reckoning.

The end of the free-money era has left consumers more vulnerable than ever, and those who threw caution to the wind could soon face costs they can't handle.

Household debt has surged three time faster than income in recent years and now stands at a record high of more than $1-trillion. Put another way, Canadians owe about $1.47 for every dollar of disposable income.

With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses.

Most of the increased debt, roughly 70 per cent, has been in mortgages, reflecting the still hot housing market in much of the country. That has left many households struggling to meet monthly payments on hefty mortgages and more susceptible to rising rates.

Inglishmagor said...

I have a short question. Reading the different assessments of the new CMHC rules, it looks like around 25% of first time buyers will no longer qualify for CMHC. On top of that we've seen a little increase in the lending rates. It's still rather low, but I'd think it's enough to price out another 5% of first timers just able to slide in under the wire.

So is it fair to assume after April 19th, 30% of the first time buyers will be removed from the market?

Phil said...

"So is it fair to assume after April 19th, 30% of the first time buyers will be removed from the market?"

Sure, but only until prices drop to what they can afford to pay.

omc said...

It is pretty hard to determine what the % of FTBs that will be affected by rule changes in this market. The data I have seen has not included buyers who need the income from suites or mortgaged amount vs income ratios.

Rhino said...

Another bearish story:

http://www.timescolonist.com/news/victoria/Rental+buildings+selling+slowly/2919548/story.html

My PCS account is getting hammered with Price Changes, substantial ones too. Just like last time when inventory gets above 220 on my PCS prices start going down. Should be an interesting next couple of months.

Reid said...

I talked with realtor I know today and he told me that houses with suites are now dead especially in places like Saanich where these suites are "illegal" because under new mortgage rules banks cannot apply any of the rental income to the mortgage process unless it is a legal suite.

Interestingly he said many of these SFH buyers are now moving towards townhouses. He claims the demand for townhouses under $450k in incredible right now with places getting up to 10 offers whereas demand for entry level suite homes is almost non existant.

He expects lower end townhouse prices to rise and SFH suite homes prices to come off. This just confirms once again my theory that real estate prices are highly correlated to the credit made available to buyers.

Animal Spirit said...

Reid - interesting angle - if that is true, we'll likely see a whole series of new townhouses start to be built - the obvious next ones would be in the Railyards.

From a lot of perspectives, it would be a good trend - quality average price townhouses for people who work in town rather than those who invest/speculate.

patriotz said...

"So is it fair to assume after April 19th, 30% of the first time buyers will be removed from the market?"

Further to what Phil said, 100% of the people who have always had to sell will still have to sell.

So how do they sell then?

a simple man said...

The cascade starts slowly.

Tomorrow a house with a suite in it is not worth as much as it was a week ago, prices fall to reflect this.

The discounted house with the suite sells, but the other house on the same street without a suite must now discount its price to stay competitive.

FTB are buying townhouses instead of SFH, driving down prices in SFH.

I am noticing large price drops and many folks trying desperately to sell partially built homes asap on UsedVic and Craigslist as the writing is on the wall.

Tomorrow the puck drops on Canada's other national game.

PainInThe said...

Give it time. Townhouses that cost more than SFH (for the privilege of having noisy neighbors on either or both walls; TRUE hell) will be going down too.

Soon enough. All in due time.

Everything will be going down in this market; there will be no "winners" among sellers; only buyers.

Robert Reynolds - GBA said...

Listening to housing doom and gloom on CBC radio 1

awesome

I will post the podcast when it's up

oh man the pumper sounds clinically depressed this is gold!

Bitterbear said...

I just bought a boat from a very pleasant young guy who was selling cheap to sell fast. He volunteered he was trying to make a mortgage payment to keep his house which he had just purchased last year.

Also I saw something strange yesterday. I was driving through Broadmead and I saw a RE agent's sign in front of a house. Plastered on the sign was a sticker with these letters on it S,O,L,D. Any thoughts on what that might be?


-BB ;)

Muriel said...

Please do post when you can - I listened to it too - Danielle Park was awesome - she's my hero!

Robert Reynolds - GBA said...

Danielle Park I'm in love!

Robert Reynolds - GBA said...

Muriel

I've subscribed to the Podcast RSS feed so I will know as soon as it is posted. Once its posted i will link to it here, very worth the 15-20 minutes.

Double-Agent said...

Here are the board MLS stats for April 1-18.

Total MLS sales - 386
New listings - 1040
Active listings - 3997

Graphs and commentary to follow...

Robert Reynolds - GBA said...

LOL worthy graph on Vancouver Westside condos from Housing-Analysis

Double-Agent said...

I heard from agents and mortgage brokers that last week was very busy. Buyers were scrambling to get subjects removed from conditional offers before the April 19th deadline for new CMHC rules. Once sales went unconditional agents quickly updated the board database with many sales recorded on Thursday and Friday.

Total sales for the month stood at 386 as of yesterday. There were 191 for the week vs. 144 for the week before. This may seem like a lot but is less than the 206 recorded in the last week of March. However it is in line with weekly sales in April last year.

Chart - Sales & New Listings

Listings were another story as shown above. Listings continue to surge and have been over 400 a week for the last few weeks. Active listings broke the 4000 mark this morning. Active listings do not peak until late summer and I expect that we will surpass 5000 this year. This will be higher than 2008 when the Victoria RE market had falling prices.

Graph Active Listings

It is always important to look at the trends and not focus too much on weekly sales. The chart below shows activity over the preceding 4 weeks and is calculated every Monday. Readers will notice that sales have flatlined while new and active listings are rising.

4 Week Totals

Prediction - I expect sales this week will be similar to last week. Many sales that went unconditional in last weeks stampede will be reported this week. The last week of April should have fewer sales as the new CMHC rules take hold. Monthly sales should hit 730 which is less than the 747 of April 2009 and far less than the 789 recorded last month.

Bob leftcoaster said...

You can hear the interview of Danielle Park and Gregory Klump at the Current's website.

http://www.cbc.ca/thecurrent/

Leo S said...

Starting to look promising! We just moved into a new rental to get off the ground floor, so we're banking on at least another year before it makes sense to buy.
However, a few weeks ago I was thinking it might be closer to 2 years, now I'm thinking that one year might actually be realistic.. It's going to be a fun ride!

JustWaiting said...

I posted this last week and here is the update based on Double-Agent's stats.

Victoria MLS Sales - Is April the turning point?

Any comments?

Robert Reynolds - GBA said...

you beat me too it Bob

Link to Current Webpage, click Part 2

Re: Cathy the caller at the beginning.

WAHH BOOHOO I need to have a HUGE 5% down payment, It's so unfair.

Contrary to what Cathy says they did NOT increase the requirements for down payments, it is still 5% down. You can't save 5% you can't afford a home, simple as that.

Waaa, I'm self employed I can't qualify for a mortgage.

Personally ,as someone who is self employed I have no problem getting credit, I have my personal tax returns as well as financial statements from my company. Banks have no problem lending to me, but I have to SHOW THEM what I actually earn, not just some made up number.

/Rant

Give it a listen its a great interview.

Gregory Clump is the pumper, he is the chief economist for the CREA. He sounds so depressed, he sounds defeated before he even starts. He sounds like someone who doesn't believe the words he's saying.

CD said...

Klump seems to think people will act rational on the way down or during the sideways movement. Works great in theory but we all know human nature. BUY BUY BUY BUY.... *catalyst*.... SELL SELL SELL

Fear/Greed - case closed.

JustWaiting said...

Robert said:

Contrary to what Cathy says they did NOT increase the requirements for down payments, it is still 5% down. You can't save 5% you can't afford a home, simple as that.

Actually Cathy was correct because she is self-employed with no verifiable income. New rules, effective April 9th, require 10% down.

Insured Stated Income Programs Tighten Up

Therefore, effective April 9, CMHC is adding more restrictions to its Self-Employed stated income product..

For one thing, it’s reducing the maximum allowable loan-to-value.

Self-employed borrowers who choose to apply under this program, and not verify their income using traditional means, will have to put down 10% when purchasing a home (instead of 5% today).

Robert Reynolds - GBA said...

@JustWaiting

Touche, I stand corrected.

Robert Reynolds - GBA said...

Actually, I just read that closer, the 10% down only applies to "Stated Income" so my example where I use my tax return and corporate statements would still let me qualify at 5% down.

Skeptic said...

All these new rules are going to take a bunch of buyers out of the game in Victoria until prices drop.

Buyers in Victoria, unlike many other cities in Canada, have had to go for the biggest loan they could get just to buy a starter home. The new rules and the recent increase in interest rates will have a big effect here. Things should slowdown fast. What will sellers do then?

Over in Vancouver an agent is blogging about the slowdown already.

Larry's Blog

Too bad we don't have any agents that blog the truth over here on the island. I guess they are afraid of getting ostracized by their fellow realtors.

Leo S said...

I don't know if there will be a crash, but when the CREA's chief pumper is predicting prices to decline, you know it's not a good time to buy. If we get a sideways market like they say then it will be good not to buy, if we get a crash it will be excellent not to buy. No matter who you believe, it _definitely_ not the right time to buy.

Double-Agent said...

Pre-approval letter may expire today

I just watched the CREA pumper, Gregory Klump, misinform the public about pre-approval letters on CHEK news.


Here is the real story. There are buyers out there with pre-approval letters issued weeks ago. The mortgage loan amount stipulated in that letter is only valid if it was based on a five year or longer fixed rate.

If the pre-approval letter was based on a variable or 1-4 year fixed rate the mortgage loan amount is no longer valid if it is higher than what they would get today based on a 5 year fixed at 5.85% (6.1% as of Wednesday). The rate hold is still effective but this doesn't help the buyer if the new loan size is too low to buy what they want.

Start watching your MLS for deals collapsing as buyers check with their bank after they make a conditional offer and find their financing has fallen apart.

Double-Agent said...

Follow up to last post.

The following graph is for a household income of 100K. Using CMHC borrowing guidelines, 4K annually for taxes and heat the max. payment is $2400 per month.

How much money can you borrow to buy that dream house? Interest rates are a huge factor.

Loan Amount vs. Interest

You can clearly see that recent CMHC rule changes and interest rate increases are going to have a big effect on what people can spend. Sellers that need to unload will have to accept lower offers.

Here is a great mortgage calculator with lots of features. Try it out...

Mortgage Calculator

Just Jack said...

Robert have you thought about your incorporated company lending you the down payment for your mortgage or even giving you the entire mortgage?

For example, say your company had retained earnings of $100,000. You could borrow that money at prime from your company.

Then you could borrow a $100,000 for the corporation from the bank at a prime plus. This would make the bank interest rate tax deductible while you pay your interest rate back to your company.

The acutal way that you do this is important to pass CRA rules, so you should consult your tax accountant.

Robert Reynolds - GBA said...

JJ

Yes it had crossed my mind, I don't think it is going to happen as there are other shareholders other than myself and they would have to approve it. Our retained earnings are earmarked for the purchase of another block of business should the opportunity arise.

There would be a deemed taxable benefit (shareholders benefit) on any interest rate reduction below what I would pay normally. So say I borrowed from the corp at 2.25% but the best I can get personally at my bank is 5%, I would have a shareholder benefit of 2.75% and I would have to pay tax on that amount. Still a good deal though.

Again, I'm not an accountant.

Paul said...

Vancouver is in real trouble. Over 16k listings now in Vancouver and on track for 17k by month end.

http://paul-northvancouverhomes.blogspot.com/

Just Jack said...

Paul;

Is that 17,000 listings just for Vancouver or does that include the Fraser Valley too?

We ended just three listings less of 4,000 and that's for everything from businesses for sale to islands.

Paul said...

Hi Jack, That's just the Greater Vancouver area (GVRD) and residential only.

Are you at record inventory levels yet? We are.

Check out this chart on Vancouver Condo Info. (Was just updated)at the bottom.

http://vancouvercondo.info/forum/topic/its-the-16k-party

patriotz said...

Hi Jack, That's just the Greater Vancouver area (GVRD) and residential only.
Just to clarify, it's the REBGV, which does not actually cover all of the GVRD. South of the river - Delta, Surrey, Langley - are covered by the Fraser Valley board and the 17K does not include these cities.

Just Jack said...

I'm trying to get a sense of how large the Vancouver and Fraser Valley Market is in relation to Victoria. So how many listings are the Fraser Valley and Vancouver?

Just Jack said...

Its hard to say if there has been a mad rush to sell before the CMHC changes. It will take a few days for the agents to upload the data and have it processed.

Generally, what I saw was that sellers were not worried about the changes, hence very little movement from the asking prices. Unless, the property had been exposed for a longer than typical period.

I found that in the last few days, on average, the longer the property has been listed for, the larger the drop to affect a sale.

So, if the human emotions of fear and greed were the only motivators. I would find most of the buyers in fear mode, and most of the sellers holding onto the greed side of the equation.

I certainly would like to see more choice in the market and I'm looking forward to an increase in listings. Now, that there is a "more equal" playing field between people wanting a home to live in and those buying properties to hold or rent.

I also think, that we are starting to see a serious glut of rentals. Sometime, next month, CMHC will publish the vacancy rate for Victoria. I think its going to be a whopper of a change from the last time.

We may need an emergency bylaw to restrict the number of real estate signs on corners, as it may become unsafe for joggers, pedestrians and cyclists.

JustWaiting said...

I suspect many of you caught the news last night and heard CREA's Klumper the Pumper say that prices wouldn't drop much with higher interest rates and the new CMHC rules. I think anyone with memories of 2 years ago would be able to see through this hype.

Lets take a look back to May 2008 when the phones were hardly ringing at local real estate offices. Prices dropped about 2% a month until Nov. 2008 as shown in this VREB graph - click here.

Why did this happen? Because prices hit an affordability wall. Until May 2008 prime and fixed mortgage interest rates had been dropping. In May 2008 prime stopped dropping and held steady at 4.75%. Fixed rates started rising and peaked in Dec. 2008. Buyers moved to the sideline during this period and prices fell as sellers took what they could get in a slow market.

Historical interest rates - click here

The financial crisis erupted in October 2008 and governments worldwide lowered interest rates to record lows. Canadians, aided by government policy, took on record levels of debt without regard for the consequences. Buyers, spending what they considered "cheap money" paid whatever sellers asked and prices went up dramatically.

A month ago history repeated itself. Fixed rates jumped .6% and another .25% jump was announced last week. The finance department virtually cutoff access to prime rate loans by making applicants qualify at the 5 year posted rate. The rules were also changed for buying homes with suites, investor/speculator down payments were increased to 20% and the self-employed mortgage requirements were tightened up. Today the Bank of Canada released a hawkish statement and markets are now expecting an increase in the bank rate in June instead of July.

If you just look at the facts and use common sense you can see where the Victoria market is heading.

JustWaiting said...

Bank of Canada announcement this morning had a big impact on the market:

- Loonie jumped 1.5 cents against the USD and is now trading above par.

- 5 Year Government of Canada bond yield increased .15% to 3.21% after the announcement. This is the benchmark bond rate used by banks when setting 5 year fixed mortgage rates. If this continues mortgage rates will be moving up again.

Reid said...

What I found most interesting about the CBC discussion yesterday was the CREA (Gregory Klump) commented that house prices were only 6% overvalued and that his modeling suggested that prices would stay flat for a decade or so.

If I phoned my broker and he suggested I buy a stock that is somehat overvalued and will likely not see any capital appreciation over the next ten years, do you think I would take his recommendation? Of course in real life this would never happen as my broker is not financially illiterate and he is a real profession not a "real estate professional".

Just Jack said...

The pressure that Flaherty is under has to be tremendous. The bankers are standing toe to toe with him and showing charts of price drops, saying "this is where we are going, and that means the Conservatives are going down too. You got us into this mess, now you fix it!"

How long before Flaherty craters?
Can he pull one more trick out of his hat? Will Harper shuffle him out of his portfolio? I bet Harper is wishing one of our Volcanoes would erupt right now.

McJay said...

I have one worry. And i admit to a poor understanding of many factors, so if someone can quelch my fear i will be grateful.

I'm excited about the idea of dropping prices of course. I agree with all the fundamental arguments why should never have reached the idiotic heights they have. I loved Danielles comment about 'hopelessly naive' faith in the canadian economy.

But with the loonie so strong, is it not in the BOC's interest to minimize the increase in long-term rates? They will fight the rising currency by not offering a greater return on their offerings. This will effectively limit the increases in mortgage rates. No?

This does nothing to assuage the out of whack income to price ratios, but it is one factor that i see as a possible false card in the equation of a crash.

McJay said...

Flaherty could yet pull the australian trick of a one-time sizeable cash incentive for new buyers.

mln said...

McJay, that's exactly right. The Bank of Canada must balance rate increases with a soaring loonie, which will hurt exports.

It's unfortunate that these new CMHC rules were not introduced at the same time that emergency interest rates were brought in. Maybe one would have balanced the other.

It's obvious (in retrospect) that rates were lowered before the recession had any effect on consumer confidence, and people got MUCH further into debt during what was supposed to be fairly bad recession. Like Danielle Park said, you're supposed to pay down debt during a recession, not get further into it.

Reid said...

McJay, BoC primary driver with its interest rate decision is to manage inflation for which their target is no more than 2%. In Feb we exceeded 2% and March numbers will be out soon.

Although f/x rates are an important consideration, BoC will not hold back on rising interest rates once inflation is evident in the economy. Other central banks are rising rates or plan to do so soon.

The interesting part will be once interest rates rise, I assume house buying, home construction and renovations activity will start to slow. Given how important these activities are in today's economy, this slowdown will likely keep inflation in check which should keep a lid on on-going interest rate hikes.

Greenspan has now admitted he kept US interest rates too low for too long after the technology meltdown and it create a real estate bubble, so I sense that the BoC will not want to repeat that mistake.

Skeptic said...

McJay said:

But with the loonie so strong, is it not in the BOC's interest to minimize the increase in long-term rates? They will fight the rising currency by not offering a greater return on their offerings. This will effectively limit the increases in mortgage rates. No?

The chief mandate of the Bank Of Canada is to keep inflation in check. Their target is to keep inflation in the range of 2-3%. The difficulty they face is that their is a long lag between the time they raise or lower the bank rate and when it has an effect on inflation. So they have to gauge where inflation is heading and act accordingly. Now that the economy is starting to recover they have to move away from the low emergency level of 0.25% or inflation will blow through the roof.

Long term rates are not set by the Bank of Canada. They are established in a free and open trading market. Billions of $ of bonds, of all kinds, are bought and sold daily. Government bonds and treasury bills are periodically auctioned off by the government to meet financing requirements. In the US and Canada governments are borrowing considerable sums to stimulate the economy and buyers are now demanding a higher interest rate. Commercial banks also get their funding in this market and if the pay more interest to borrow so do their customers.

The exchange rate of the dollar and the strength of the economy are secondary factors for the BOC. Inflation always comes first. The bank can always threaten to intervene in currency markets by selling lots of reserve Canadian dollars and thereby devaluing the Cdn. dollar but this is rarely done.

In summary, homeowners should not expect the government to help them out and keep rates low. Rates will go up as the economy improves and those that are overextended with credit will get a harsh lesson. Those who have been getting the short end of the stick lately, like savers and those on fixed income, will benefit. That is the nature of financial cycles.

Skeptic said...

Many people seem to be under the impression that the government will step into the market and rescue homeowners if there is a downward trend in house prices. Too many people look to the government to bail them out of their bad decisions. I believe that they will be sorely disappointed. The government did not intervene in past real estate market downturns and given their huge deficits won't help out this time either. Housing prices go in cycles and if you bought at the top too bad.

Resale housing does not have the same effect on the economy as new housing. The former contributes somewhat to GDP due to furniture sales, real estate commissions and home inspection services. It is new house construction that really stimulates the economy. Construction jobs, lumber and forestry jobs, building supply manufacturing etc. are a much bigger driver of the economy. If house prices fall gradually like they did in 2008 there will be more incentive for buyers to opt for new homes in a year or so.

Those that bought prudently and stay in their home will not be impacted in the short term. Anyone with a fixed mortgage that can make their payments will not lose their homes. What they will lose is bragging rights about the value of their home at cocktail parties and at the watercooler.

Those that got in over their head or can't take the heat of ever increasing variable mortgage rates will sell at a loss. They will grumble but will get little notice from the government or other taxpayers that have been cautious and prudent with their financial affairs.

Double-Agent said...
This comment has been removed by the author.
Double-Agent said...

Over on KIV there is a post by a mortgage broker about the mortgage rate increases and CMHC rule changes. What was missing was a discussion of the impact on pre-approval letters issued before April 19th. Some of you post there and might like to let the readers know the following:

There are buyers out there with pre-approval letters issued weeks ago. The mortgage loan amount stipulated in that letter may not be valid unless it was based on a five year or longer fixed rate.

If the pre-approval letter was based on a variable or 1-4 year fixed rate the mortgage loan amount is no longer valid if it is higher than what they would get today based on a 5 year fixed at 5.85% (6.1% as of Wednesday). The rate hold is still effective but this doesn't help the buyer if the new loan size is too low to buy what they want.


Further details @ Pre-Approvals After April 19
http://dusheing.notlong.com
.

patriotz said...

This will effectively limit the increases in mortgage rates. No?

No. The bond market sets fixed term mortgage rates, under which variable rate borrowers must qualify as well.

The bond market has been showing the BoC and GoC who's boss lately, and you'd better believe Carney and Flaherty know it, whether or not they want to admit it.

Phil said...

"so I sense that the BoC will not want to repeat that mistake."

It's wayyyy too late for that now. Our bubble here in the great white north is arguably much worse than it ever got in the US. There is no doubt Vancouver is totally out of control with it's 1 mil average. Interest rates have been the biggest fuel for that fire, amongst all the other classic bubble factors.

JustWaiting said...

Patriotz said:

The bond market has been showing the BoC and GoC who's boss lately, and you'd better believe Carney and Flaherty know it, whether or not they want to admit it.

You are right on the mark.

5 Year GoC Bond Soaring

Muriel said...

Many of us were impressed/enthralled to hear Danielle Park on the radio the other day, sticking it to the Klumper.

Here's a link to her blog. It's got the same name as her book, which I see is available through the GVPL.

http://www.jugglingdynamite.com

Bob leftcoaster said...

Lately I've been thinking of reducing our down payment and moving money into retirement savings. I am prepared to put down 30% on a house today. Perhaps I should only put down 30% on a house when I actually buy.

The advantage sticking with the higher dp is lower principle, faster path to full ownership. The advantage to the lower dp is a significant increase to retirement savings and time for it to grow.

Now let's keep in mind that falling prices will mean a faster repayment no matter which choice I go with. My wife and I have our eye on a certain size house and that won't increase with falling prices.

What are your thoughts on this line of thought?

JustWaiting said...

Bob Leftcoaster,

Have you thought of putting the money into an RRSP (if you have contribution room) and getting a big tax refund which you then put into a TFSA for use later as a downpayment. Your money will grow tax free in the RRSP and can be withdrawn tax free using one or both of these methods:

- RRSP Home Buyers plan allows you and your spouse to withdraw 25K each, tax free and repay it back to the RRSP over 15 years

- Having your self-directed RRSP underwrite a mortgage for your house purchase. Details here. I found TD has the lowest fees to setup and administer this type of mortgage.

CD said...

20% down payment to avoid CMHC and then invest the 10%.

or

Or 30% downpayment, use a heloc and then buy RRSPs. You then can write off a portion of your mortgage interest. The heloc is variable + though.

or

Judging by what your saying, maybe you are considering investing that money borrowed at a fixed rate (~4.5%) for 5 years. That may work out for you. If fixed income investments rise a couple percent. You will be ahead even on fixed income. The bad news is that you have to pay CHMC so you are giving up some right from the start.

JustWaiting said...

CD said,

Or 30% downpayment, use a heloc and then buy RRSPs. You then can write off a portion of your mortgage interest. The heloc is variable + though.

Interest on a loan used to make a contribution to an RRSP is not tax deductible.

Robert Reynolds - GBA said...

I agree with CD

Use at least 20% down to avoid the CMHC tax.

The tax deductible mortgage strategy is also attractive if you don't mind the risk.

The self directed RRSP mortgage is also a good idea, if you have the requisite funds in your RRSP to manage it.

Ultimately, it is going to come down to how much risk you are willing to take. If you are invested in GIC's paying 2% you are better off paying down the mortgage at 5%. If you think you can beat the spread after-tax on your investments and are willing to risk it if you don't, go for the RRSP.

Ever done one of these?

Robert Reynolds - GBA said...

JustWaiting said...

Interest on a loan used to make a contribution to an RRSP is not tax deductible.


Correct, but just so everyone is clear interest is tax deductible on Non-registered investments.

CD said...

Just Waiting, you are correct, RSP loan interest can not be deducted. You can only deduct it if the investment is not registered.

Bob leftcoaster said...

Thanks for the interesting viewpoints. As I sold my last principle residence in 2008, I'll be eligible for HBP again in 2012. Let's see how quickly or slowly prices correct. TFSA and RRSP are already contributed to the max. I would love to hold the mortgage within RRSPs but asset room isn't great because of my pension adjustment.

If we were to reduce DP, the investment money would go to max out wife's RRSP room and our future TFSA space. Remainder would be non-registered investments with tax rules in the back of our minds.

When we purchase, we hope 5yr rates are in the 7-9% range and variables somewhere near. At that point, the best choice may be to apply the original down payment on the future home.

Just Jack said...

Well there were 2,786 residential properties for sell today in the Greater Victoria Area. So our market is between one fifth to one-sixth of Vancouver (not including the Fraser Valley. If Victoria's population is 350,000 would that be similar to Vancouver's?

I need some math wizzard's here

Marko said...

"The tax deductible mortgage strategy is also attractive if you don't mind the risk."

How does this strategy work? Buy a property, pay it off, and take a mortgage on it for investment purposes?

Thanks, Marko

Animal Spirit said...

Just Jack - this was too easy - 5.5* 2786 = 15323, so we may be running a little bit lower than the 16200 in listings in Vancouver Area. That said, we might need to include Mill Bay, Shawnigan, Cobble Hill and Duncan as a lot of people commute from there

Animal Spirit said...

Metro Vancouver's population is 2.5 million - though that includes Delta, Surrey, etc.

Robert Reynolds - GBA said...

Marko

This is commonly called the Smith Maneuver,

Say you have $250,000 in non-registered investments and a $250,000 mortgage. The mortgage interest is non-deductible.

Sell your $250,000 in investments, and pay down your mortgage. immediately take out a HELOC for the same $250,000 and rebuy the investments with the borrowed funds.

Using borrowed money with the intent of earning investment income makes the interest expense tax deductible. (Be careful what assets you buy though as you need to have capital gains or dividends, I don't think interest bearing assets qualify, talk to your accountant blah blah blah)

In a nutshell you are in the same asset/debt position as before, but your money is working smarter. The risk is if your investments crash, you are on the hook for the loss as well as the interest on the loan, margin calls etc.

CD said...

Animal Spirit: Surrey, Delta are not in the Greater Van real estate area. They are considered in the Fraser valley for real estate. Inventory for all of Greater Van and the Fraser Valley is 23,000 aprox.

talus said...

Rent vs Buy NY Times...
http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html

CD said...

How is the sales this week? Any body know? Are they backing down or picking up? I took a glance at Vancouver and sales and listings seem to be going up like crazy.

Just Jack said...

Maybe, the agents are exclusively listing properties which do not show up? I just know that in my target area, the sales and listings are what I expect for this time of the year.

Granted I am looking in an urban area where typically house prices are the last to change. Those of us looking in the more outlying areas may have already seen a change.

a simple man said...

In Oak Bay, listings were slow at the start of the week but are picking up now. Some large, rapid price reductions (ie. Elgin street $750K to $699K, listed 2 weeks and one on Monterey for $749K to $699K after a week). Many of the pending sales are for below asking, including one on Florence for about $110 under asking and below appraisal. One house on Cubbon was bid above asking, though (asking $679K, sold for $718K).

No major shift yet, but definitely seems like it is softening.

Skeptic said...

Speaking of listings and sales reports...

Where is Think??

Last week he was talking downturn and eagerly waiting for the Monday sales report and this week no comments.

Has he gone to the dark side and made an offer on something?

think said...

Skeptic,

ha ha, no I haven't gone to the dark side... I'm actually very happily enjoying watching the market continue to soften and just haven't had much to say about it! Double-Agent had some fabulous posts and I enjoyed reading them so much I was at a loss for words :) I've been noticing a lot of price changes on my PCS and sales well below asking. I'm just holding my breath and waiting for the next few weeks to unfold as they are critical. The end of month stats this month are a very big deal... I'm just waiting....

ps Just to clarify - I'm a "she" not "he" (I wouldn't want to misrepresent myself on this blog) ;)

Rhino said...

Good to see the growing number of female uber-bears!

think said...

Tons of new listings on my PCS today :) The trend continues :) Anyone who is not an uber-bear now is either misinformed or in denial (or a bit of both)!! The crash has arrived!

Just Jack said...

Yeah, I'm starting to see the listings build now. Victoria has about 111 and Oak Bay 85 detached homes for sale. From memory that's about an all time high for the last half dozen years. I think at the beginning of the year Victoria and Oak Bay were tied with about 65 each.

So the tulips and the spring market have arrived. More listings and an increase in canceled and expired listings to follow.

Its a case of building the right shoulder of the price graph for a while, followed by a steep drop mirroring a similar slope to the increase in prices of the last several years. Or not.

Skeptic said...

Think,

Thanks for the reply. Sorry for making an assumption.

Recently I have been seeing lots of listings and price reductions on my PCS. Sales seem down this week...

Animal Spirit said...

We've reached a 50% increase in SFH listings in Victoria since March 1. Most of it it is less than 1M (up 59%).

Not much movement in median listing price, though the absolute bottom end (350-400) is finally getting a few more listings. This time last year that range had 80 listings. Today 18. A long ways to go.

patriotz said...

Say you have $250,000 in non-registered investments and a $250,000 mortgage.

Which includes just about nobody. Anyone who knows anything about investing and taxation would not have gotten themselves into this position in the first place. You're much better off just paying down the mortgage or making an RRSP contribution, rather than buying a non-registered investment.

That's the problem with the "Smith Manoeuvre" - it's essentially irrelevant to most people, Particularly those who have not maximized their RRSP.

Just Jack said...

BEWARE THE IDES OF APRIL

CMHC's black Monday has come and gone, but I find it too soon to crunch postmortem numbers. So that leaves one with anecdotes such as:

I have this friend, who got a offer on his home and a back up offer $9,000 higher. The subject's were to be removed Tuesday. Both offers collapsed.

Now, the property was not in Victoria, but in the interior of BC. Having said that, I do not think this would happen here, simply because the agent would have invoked a 48 hour clause on the first offer to remove subject's before April 19th. Thereby by putting the original prospective buyer into a duress circumstance with an inadequate time to make an informed decision.

The difference, in rural town BC, the agents have to live within the community. In "big" city Victoria, they just roll up the window of their Lexus and pass on by.

It's time that agent practices be regulated by the government to protect the public - CREA can't and what is worse will not do it. And the owner of the real estate company should be nailed twice as hard. Because next time he/she will watch over his commissioned employees more closely instead of just creaming off the top of the commission.

All I ask for is:

Accountability and Responsibility

Just Jack said...

Here's another interesting thing about CMHC and switching lenders.

Suppose, you're home has fallen in value and the CMHC mortgage is more that the house is worth. Can you still switch lenders?


Yup, since the mortgage is CMHC insured that lender does not have verify the property's market value.

The above is a generalization, not all lenders would take on a mortgage knowing that the house value is less than the mortgage paper. And CMHC never checks.

CD said...

I have been following Vancouver's daily numbers over the past two weeks since I was curious about the April 19th dead line.

From what I have seeing, listings are up this week ands its the same listing growth (%) we have seen in Victoria. Lots of price changes to the downside. More sales than last week. No word on pricing, but the Realtors are noticing a trend down.

I think we wont like this weeks numbers in Victoria. But it is still a sign that we are at the top.

Resources: yattermatters and vancouvercondoinfo

Skeptic said...

You can't reasonably compare real estate in Vancouver to Victoria (IMHO). Different factors are driving the market. The economy is much more diverse, demographics are different and there is a much larger pool of fools to draw from.

It is similar to comparing Ottawa to Toronto. Toronto has lots of market craziness, just like Vancouver. Ottawa has had a slower pace of increases and is a narrower economy just like Vancouver.

Double-Agent said...

CD said:

I think we wont like this weeks numbers in Victoria. But it is still a sign that we are at the top.

In my Monday post I predicted that listings would continue to pile on this week. From Monday to Thursday there were over 300 new listings and we still have 3 days to go before the weekly stats are released to agents.

There have been plenty of price reductions this week. Some have been by builders trying to close a deal while pre-approval letters are still valid and to secure a deal before HST kicks in July 1st.

Sales are continuing at last weeks pace as I predicted in my Monday post. Agents are still reporting deals that went unconditional at the end of last week. Next week will start to get interesting because it will be the the first week that has some post April 19th deals to report.

I will not be able to give weekly reports and graphs for the next few weeks. I am leaving on holidays tomorrow. Think seems to have access to them and maybe she will post the numbers.

Just Jack said...

I think you probably could compare Vancouver and Victoria, because they are being driven by almost identical social, economic and environmental forces.

Having said that, I would say it would be a real stretch to compare us with a different country. Especially when you have to use an questionable exchange rate to equate wages and money.

We could also compare ourselves with Nanaimo or the Fraser Valley which might be a better comparison, as we are much closer in population to these areas, than Vancouver. But, being human we would rather compare ourselves to a prince rather than a pauper.

Skeptic said...

Oops,
Last line of previous post should say.. "Ottawa has had a slower pace of increases and is a narrower economy just like Victoria."

think said...

Have a wonderful holiday Double-Agent, we will miss your posts!

mln said...

Inflation rate falls to 1.4%

5-year bonds dropped about 0.08% on this news--that is to say not very much, but it doesn't seem likely that we're going to see a 50 bps increase as some were predicting.

omc said...

I am going to sound like a nay sayer here, but my PCS is showing lots of sales this week.

JustWaiting said...

OMC,

I see about the same number of sales as last week on my PCS. I agree with Double-Agent that these are pre-April 19th sales. Stands to reason there would have been a real push on to beat the deadline.

We have to be patient. In my opinion I don't expect to see a big drop in sales until May. By then the new rules will be having the full effect.

Paul said...

The REBGV nets a gain of about 100 listings every day. I haven't seen the inventory go down no matter how strong the sales. We're sitting at 16,500 listings now on track for 17k by month’s end.

20k listings by the end of May is a very real and very destructive possibility for the Vancouver real estate market.

jesse said...

"You can't reasonably compare real estate in Vancouver to Victoria"

Actually you can. Victoria has followed a nearly identical price pattern to Vancouver. Seattle and Portland are highly correlated as well. Geographic proximity and economic coupling are plausible reasons for this.

CD said...

I just read a report saying that foreign buyers are driving up our real estate. If that was the case, wouldn't the United States be more desirable? I dunno, if I was making an international purchase. I would be shopping stateside. just my opinion...

Marko said...

A house on Players Drive (Bear Mountain and not a very desirable portion of BM) listed at $899k sold for $896k.....I thought I saw everything, but this is incredible.

Dave said...

I am following saanich west on my PCS, has any one seen any false sales reported? I have seen 2 places show as sold over list(after months on market) that actually never sold.
1-2 months ago we couldn't get above 55 sfh for sale, now up to 122, lots of price reductions.
Dave#1

Deanna said...

@Dave: Yes!

There was a house on Wyndeatt in the Gorge area that was a veritable soap opera when we started asking around.

Estate sale in July or so of a 3 bdrm, 1 bath, 1100 sq ft house on a 6600 sqft lot with unfinished basement- a realtor/developer scooped it up immediately for $479,000, fixed up the upstairs and listed it for (if I recall correctly) $579,000. It did not sell. It kept coming down in price while the reported sq ftge kept going up. I know they got an offer of $490,000 that they refused - eventually they took an offer of $519,000, which fell through. It sat around a while longer then went off the market. Shortly after it was listed again at $539,000 - and then a day later it was reported as sold at $589,000. And by this time, the basement was listed as finished, adding a few more hundred sq feet to the reported size of the house. I'm told that it wasn't actually any more finished than it was when it started - although the listing on the last day was changed to 4 bdrm, 2 bath.

msr said...

@Dianna

I can believe that. I've seen several listings adding bedrooms that don't actually qualify as bedrooms.

Just Jack said...

Carla Wilson does it again. An advert disgused (badly) as journalism.

In the Business section of the TC "Smaller, cheaper builds the new reality".

S2

Skeptic said...

S2,

At least Carla had this to say in that article:

Smaller, cheaper builds the new reality

Tight lending conditions remain as construction market recovers

Housing starts are picking up again, but caution governs developments as economic aftershocks are still coming in.

Dormant developments, deeply discounted condos, companies struggling under debt -- all this remains. Uncertainty over interest rates, tighter federal mortgage rules, ramifications of B.C.'s looming harmonized sales tax, and provincial government job cuts add to an uneasy mix.


When the VREB report comes out and reports lower sales than last month and last April we might see more realism in the TC articles.

Skeptic said...

Do people tell you that you just don't understand that real estate is different and prices will continue to rise. Just send them this article.

http://tinyurl.com/22krzk7

Canadian housing market correction in the cards, says economist

Get set for the great Canadian housing market correction. At least according to one prominent economist.

Home prices are overvalued, and the real estate market is looking at a correction of at least 20 per cent in the future, says Bay St. guru David Rosenberg.

“The question is not whether home prices slide especially in bubbly Toronto and Vancouver, but just how much froth is there to come out,” David Rosenberg, chief economist for Toronto-based investment firm Gluskin Sheff + Associates, said in a report Friday.

“It would not be out of the realm to see a correction, using nationwide average home prices as the benchmark, of at least 20 per cent.”

Rosenberg, the former chief North American economist for Merrill Lynch, was among the first to call for a housing crash in the United States.

mln said...

Another round of mortgage rate increases happening:

RBC hikes mortgage rates again

think said...

April month-to-date stats (April 26th)

sales 607
new 1436
total 4078

So, as double-agent had predicted this week was fairly brisk for sales as this week a lot of sales were reported that were done just before the 19th cut-off. That being said, with only 5 days left in the month sales for April are still looking like they are going to be down from March (which had 789 sales), and down from last year this time (747 sales), and down from April 2008 (768 sales). Inventory contines to build nicely. Sales to new ratio is 42% (bearish), and sales/active listings is 14.8% (bearish). MOI is 5.17 and continuing to build quickly. In a nutshell - the trend continues, we are transitioning from a sellers market to a buyers market and as inventory continues to grow prices are going to be coming down. This spring is for the bears - going to be hard to spin this months stats :)

Just Jack said...

THE BABY BOOMER AFFECT

According to Phil Soper the president of Royal LePage Realty.

House prices have increased on average at 2.4% a year after inflation since 1960.

The baby boom generation is roughly between 1945 to 1970. Or from when the WW2 vets came home and had families of 5 or more kids. Raising them on puffed wheat and powdered milk to when the birth control pill was prescribed and parents chose to have only 2 kids but lavished them with beanie baby's, baby gap and continuous mini van trips to and from hockey and ballet classes.

So the very last baby boomer is now 40 years old. For housing that means the end of the baby boomer affect. Averaged real returns of 2.4% are, like the boomers, now history.

Those little yellow pills of the late 1960's caused the birth rate to plummet as people delayed having children. And created the baby bust and echo generations aged roughly between 20 to 40. A generation that should, under normal conditions, be buying the boomer's homes. But, for the last five years, the low interest rate and easy lending policies have been bringing this generation's demand for housing forward. So effective has this forward demand been, that we have seen a vastly greater rise in house prices than even the boomer's created in the early 1980's.

If this MASSIVE multi-generation of buyers just kept a real return on housing at an average 2.4%, what will a dearth of purchasers do to that rate of return over the next 25 years?

Who is left to buy all of the housing created by the boomers and the bust generation created. Well they're easy to find some have the letter "N" in the back window of their cars and others will be learning to ride a bi-cycle this year. But chances are that this generation is not going to want to buy real estate, after seeing the devastation that their parents went through when their homes fell and fell and fell in value.

Oh well, at least we've got the little blue pill now, the affect of which may be the only thing the boomers may see rise for the next 25 years.

reasonfirst said...

AND don't forget that youth are probably looking at a longer time frame than most for good jobs to be created for them after this recession. In this recession, youth unemployment sky-rocketed (as per usual), will be slower to recover, and house buying for them will likely be pushed even farther into the future.

Dave said...

Robert Reynolds - GBA said...
Ugly house of the day award goes too...
1735 EMERSON ST
MLS 276762

How did they match the pain to the shoes?

April 15, 2010 9:03 PM

UGLY house just sold the other day???

kabloona said...

As if everybody didn't already know this.....

5-year mortgage rates rise - again.

http://www.financialpost.com/news-sectors/financials/story.html?id=2952380

Up by a full percentage point to 6.25% in just 4 weeks. I'm guessing 5-year posted rate will be at least 7% by the end of the year if this keeps up.....

Be careful out there....

;-)

Skeptic said...

Will seniors and boomers have to sell their home shortly after they retire??

Almost half of Canadian seniors retired with debt: RBC poll

Four-in-10 Canadians over the age of 50, who have assets of at least $100,000, retired with some form of debt and nearly one-quarter entered retirement with a mortgage on their primary residence, according to the first annual RBC Retirement Myths and Realities poll...

The majority of retirees - 70 per cent - feel it is still important to be able to save part of their income, yet more than one-quarter - 28 per cent - have acquired new credit products since they retired.

Greedy bankers love the debt in retirement idea - more customers and profit

"More and more, Canadians are carrying debt into retirement, which is not necessarily a bad thing," said Lee Anne Davies, head, Retirement Strategies, RBC.

Robert Reynolds - GBA said...

Skeptic said...

Will [many] seniors and boomers have to sell their home shortly after they retire??


Yes

CD said...

We always tell children and teenagers to think of the long term consequences of their actions. I guess people never learn.

Robert Reynolds - GBA said...

patriotz said...

That's the problem with the "Smith Manoeuvre" - it's essentially irrelevant to most people, Particularly those who have not maximized their RRSP.


True Dat.

The only time I have run into it is when someone has a large tax-free inheritance coming too them, and then they always prefer to simply pay off the mortgage and be done with it.

What is more realistic is with newer mortgage products, (the one I am most familiar with is the Manulife ONE) you can use your house as a ATM and buy non-reg investments with any equity in your property.

So if your property value went up or as you pay down your debt, you reborrow and invest the equity in non-reg investments. You can set it up so for every dollar of principle you pay off you automatically purchases a dollar of a specific mutual fund. It can be slow going at first. It is also very risky.

IE: your monthly mortgage payment is $1000 @ 5%, of this $700 is interest and $300 is principle. You make your payment, immediately borrow back the $300 in principle and buy $300 in non-reg investments. You pay $15 in interest on the $300, you can write off $15 from your income, assuming a 50% tax bracket you just saved yourself $7.50 in tax.

Downside is, if your $300 investment looses 2.5% of its value you break even, anymore and your are in the hole, and paying interest for it. When people see this on their monthly statement, they flip out.

Leveraged investing is scary business.

Disclosure: I don't sell these. I am not an expert in how they work. All numbers in my example are super rough and made up off the top of my head.

omc said...

I am surprised no one has linked to these yet.


Bear scat



More of the same

Skeptic said...

OMC,

Hmmm.... Now we have the Bank of Canada talking about a cooling market. Last week, Gluskin + Sheff economist David Rosenberg suggested Canada's housing market was in for a 20 per cent price correction. And today Edward Jones analysts Kate Warne and Craig Fehr, issued a report saying Canadians should prepare for “the possible impact” of a housing downturn.

But the leading economists at CREA, BCREA and CAAMP say there is no problem.

Who should we believe? Independent analysts/economists or those who are paid by organizations that make money from house sales?

Robert Reynolds - GBA said...

I hate it when the talking heads make comments like "Canadian real estate is 20% overvalued"

Are they referring to the average price across Canada or Toronto or Vancouver prices or ?

Prices are so divergent across the country, Vancouver @ $1M, Toronto @ $450K, PEI @ $140K. 20% here means a lot more than 20% in PEI.

If prices in BC came down 40% and the rest of the country stayed the same, we would probably see the national average drop 20%

Mr.4AM said...

The ANTI-HST PETITION IS IN VICTORIA FOR A LIMITED TIME!

Remeber the GST?
"Fool us once, shame on you . . . fool us twice, SHAME ON BC!"


I know a lot of us here are counting on the HST to further bring down house values come July 1st, but the reality is that once these type of taxes are implemented, we ALL lose out for years (decades??) to come.
So please seriously consider getting out there and signing THE ANTI-HST PETITION (main anti-hst website).

PLEASE PASS THIS ALONG TO ALL YOUR BC FRIENDS, FAMILY AND CO-WORKERS ASAP!

LIST OF VICTORIA LOCATIONS TO SIGN PETITION

200)
CITY/TOWN: Victoria
RIDING:: All Greater Victoria Ridings
ADDRESS: White Eagle Hall - Polish Association | 90 Dock Street, James Bay
DATES: April 10, 2010 - June 27, 2010 | Saturdays - noon to 8pm; - Sundays - 2pm to 6pm
DETAILS: Open weekends only. Please do not call the White Eagle Hall.

198)
CITY/TOWN: Victoria
RIDING:: All VICTORIA RIDINGS
ADDRESS: SERIOUS COFFEE | 230 COOK ST
DATES: FRIDAY APRIL 30, 10AM to 2PM


199)
CITY/TOWN: Victoria
RIDING:: All Greater Victoria Ridings
ADDRESS: Indoor Jungle | 2624 Quadra St
DATES: Every Tuesday & Wednesday - to June 30, 2010 | 9:30am - 5:30pm

194)
CITY/TOWN: Victoria
RIDING:: Victoria-Beacon Hill
ADDRESS: Serious Coffee Downtown | 1280 Broad St
DATES: Wednesday, April 28, 2010 starting at 9AM

201)
CITY/TOWN: VIEW ROYAL
RIDING:: ESQUIMALT-ROYAL ROADS / JUAN DE FUCA ONLY
ADDRESS: SERIOUS COFFEE | 1701 ISLAND HIGHWAY
DATES: SEE - BELOW | FOR - DETAILS
DETAILS: THU APRIL 29 8:30AM to 11:30 + SAT & SUNDAY (May1&2) 10-2PM. PH#778-430-5282

OTHER POSSIBLE LOCATIONS, CALL TO ASK FOR DATE/TIME:

193)
CITY/TOWN: VICTORIA
RIDING:: ALL RIDINGS
ADDRESS: SERIOUS COFFEE (BY VANCITY/MAYFAIR) | 3075 Douglas St
DATES: see - below | for - details
DETAILS: 250-381-6179 (call for date/time)

195)
CITY/TOWN: Victoria
RIDING:: All VICTORIA RIDINGS
ADDRESS: La Fiesta | 1001 Douglas St (at Broughton)
DATES: FRIDAY - APRIL 23, 2010 | 12 - 1:30

197)
CITY/TOWN: Victoria
RIDING:: All VICTORIA RIDINGS
ADDRESS: Old Towne Deli | 1009 Government St
DATES: TUESDAY - APRIL 27, 2010 | 11:00 - 13:30

196)
CITY/TOWN: Victoria
RIDING:: All VICTORIA RIDINGS
ADDRESS: SERIOUS COFFEE | 1609 Blanshard St
DATES: SEE DETAILS - BELOW | See Details - Below
DETAILS: Call to ask: 250-385-1100

CD said...

So if this petition wins and the government nixes the HST then what? Where do they get the 1.5 Billion the feds promised plus the lost revenue from the new tax? Is that in the petition? Hmmm

Mr.4AM said...

Good point. There are no good alternative options on the table, but that's my whole point. I'm hoping they stop the HST, and then sit down for a few months and figure out something that's not so rushed and across the board.

Ultimately, I'm not a believer that lack of funds is an excuse to introduce new taxes, because as I've already said, once the tax is in place, it ain't going away. I would much prefer cuts to government and spending in various sectors TEMPORARILY until the debts are paid off, even if temporarily means 3 years... but at least at the end of 3 years the cuts will end and we'll be back to normal.

If you implement a new tax or change its name and extend it to a whole slew of new items, they will never remove it when all the debts are paid off.... they'll just find new places to spend the revenue on and even go into more debt... because hey, we can just add yet another tax to make up for the debt.

Just my 2 cents.
Mr.4AM

CD said...

Mr 4am. The problem I have is the HST was planned out and not a surprise to anyone but us. It has been in planning by the governments since the GST was introduced a long time ago. HST is not new and its a poison pill for ever implements it. If the liberals mentioned the HST was coming do you think that the people would vote them in... no... They would vote the NDP because they promised not to lie. Well at least not until they got into power.



You mention tax cuts. I looked up the tax rates in 2000 prior to the liberals taking power. 8.4% of your income up to 30K and 12.4% from 30-60K was BC taxes.

In 2010,,,, its 5.06% upto 36K and 7.7% upto 72K

Stick your income and compare the rates. Its quite significant. The liberals have the right intentions, they just seem to screw up in implementing things. Personally I would have waited at least a year after the election to tell the public. :)

Dave said...

We aren't losing 1.5B if we nix the HST. It's just robbing from Peter to pay Paul.

I oppose the tax because of the way the Liberals went about bringing it in. They should have made it an issue during the election or at least have discussed it with the public after the election. But, they just pushed it down our throats in an arrogant way.

I think this is the end of the BC Liberals reign and quite possibly the party. It's too bad that this will mean an NDP win by default and I find the whole thing very disappointing. We just started having good government and they royally screwed things up.

NDP = bad for real estate... and pretty much everything else.

Grasshopper said...

Has everyone seen this? http://www.crackshackormansion.com/original.html

Just Jack said...

Finally after 7 years on the market the penthouse at Shoal Point has sold. At one time listed for 4.5 mill and after numerous price drops and increases depending on the astronomical chart of the agent, the property has sold for some 2.75 mill.

GST would still apply on the sale as seller is the developer, but I suppose the rush was to purchase before the HST of some $294,643 versus $130,952.

To pay that amount of coin for a condominium, you have to love Victoria a lot. And if I were a banker I would want this property insured through CMHC because the downside exposure is greater than the average condominium.

JustWaiting said...

TC keeps on pumping. This week it is all about the virtues of buying a property with a suite.

The pros and cons of taking a tenant in home or condo

Most first-time single family home buyers in Victoria look for houses that have the potential for a basement suite, say mortgage experts. There's a reason these suites are referred to in advertisements as "mortgage helpers."

"If you don't mind the loss of privacy, renting a downstairs suite is the easiest way to augment your income," says Ted Jones, an accredited mortgage professional. "It enables you to buy up -- to afford more of a mortgage than one just based on personal income."

Trevor said...

They must be running out of things to pump - the change in the application of rental income will reduce most FTB's ability to afford a house with a suite by 40%. This is probably the biggest impact of the new April 19th rules.

omc said...

I noticed the TC isn't running the bubble scare article under the green bannered homes section like the vancouver sun.
instead there is nothing. It is the first time I have seen the TC not run the same article in the same space.

CD said...

Grasshopper, they made a sequel to the crack shack or mansion. The lime light is getting to them.

http://www.crackshackormansion.com/

Robert Reynolds - GBA said...

Talked to a mortgage broker, apparently Genworth is NOT following the CHMC rules for add to income rental suites, for two markets in Canada, Vancouver and Victoria.

JustWaiting said...

Robert,

So what formula is Genworth using for buyers of homes with rental suites?

Just Jack said...

If Genworth is not following the CMHC rules for only two areas in Canada - then that's a form of predatory pricing.

Genworth may just get a bitch slapping on this one by the government, since it is Flaherty that stuck his neck out.

CD said...

Sidebar: With respect to rental income, Genworth will deviate slightly from CMHC on 2-unit owner-occupied properties in Victoria and Greater Vancouver. Genworth will allow 100% of the gross rental income to be included in the borrower's gross annual income (as opposed to CMHC’s 50% guideline).


http://www.canadianmortgagetrends.com/canadian_mortgage_trends/page/2/

Just Jack said...

So you have two houses with suites that are across the street from each other. One is in Victoria and the other is not.

Genworth - too many MBA's not enough common sense.