Who is watching your back?

In our zeal to qualify for a mortgage, we strive to meet the debt service ratios used by all major mortgage lenders. The rule of thumb the lenders use is your mortgage payments, property taxes and heating bills should be less than 32% of your gross monthly household income. 

They also consider other monthly obligations like car payments and credit card payments, and decree your total housing costs and debt payments should be less than 40% of your gross monthly household income. 

It always seems to me the standard calculation of household expenses is out of date and does not reflect reality. Every household I encounter in my business has a monthly hydro and water bill for example. They also have cable costs, internet costs, cell phones and often land line phones. 

And almost all houses need to be maintained. Who cuts the grass and ploughs the snow? Who fixes things when they break down? And then there are unforeseen major expenses like roof repairs, leaking basements, termite flare ups, ant infestations etc. And if you have a pool, that’s almost $1,000 just to open and close the pool each year, plus weekly cleanings and chemical treatments, and the extra heating and hydro pools while the pool is open. 

And what about your children and your pets? Or the aging parent who may live with you? The lenders don’t ask if your teenage son plays hockey five days a week at an annual cost of more than $15,000 after tax dollars! They don’t (at least not obviously) care if you have one child or four – but we all know the monthly financial burden of raising children is not cheap. 

They don’t stop to consider whether or not you plan to contribute towards your kids' post secondary education, or the increased costs of medication and care for your elderly parent. 

No, the harsh reality is the only person who cares about all this stuff is you. 

But we are conditioned to buy as much house as we can possibly afford – using metrics and approaches that are hopelessly out of date and not reflective of life’s realities. 

Most home buyers we meet in our business stretch their budgets to the max to get into their ‘dream home’. They have no back up plan, no savings, and are often only one or two hiccups away from financial chaos. 

These hiccups inevitably lead to the use of readily available credit such as lines of credit or credit cards. Balances accumulate, often at high interest rates, and a further monthly minimum payment obligation is slapped on top of an already over worked monthly budget. 

Ah, budget. Yes, we all talk about “the budget”, but very few households actually have a set budget and even fewer live within the means of that budget. 

I am sure that’s why we are seeing record levels of financial stress in Canadian homes – and that is with interest rates at all time low levels. God help us all when they pop higher in the years ahead. 

Do yourself a favour, and take an honest hard look at the totality of your monthly obligations, and make sure you are not setting yourselves up for stress and failure. Some enlightened industry experts argue your household expenses should in fact be no more than 25% of your total household income – and they have a valid point. 

Every one of our mortgage or credit counselling clients are given a detailed budget and financial framework to work with for going forward. Our concern is not just with fixing the problem of the day, but more importantly, making sure we set you up for success and happiness. 

If you don’t take these considerations into account, no one else will. The lenders are protecting their behinds with their outdated approach to assessing your ability to make the mortgage payment – who is watching your back?

MLS system heading for a total revamp

The winds of change were blowing outside a St. John’s hotel Sunday afternoon, as representatives of the country’s 101 real estate boards voted 97 per cent in favour of a deal that some warned could mean the end of the Canadian Real Estate Association.

At the very least, it will change the current face of the Multiple Listing Service (MLS).

The controversy began earlier this year when Competition Bureau Commissioner Melanie Aitkin announced she was investigating complaints of anticompetitive behaviour, including concerns CREA kept its members from offering services that would lower costs for consumers.

Some of the biggest complaints involved the popular MLS system, with complaints agents were charging full commission just to post a listing. If clients didn’t use an agent, they couldn’t list their property on MLS.

That sparked intense negotiations between CREA and the Competition Bureau in the months leading up to Sunday’s vote. And if CREA members didn’t vote in favour of the deal, there were looming threats of a court battle next spring with the federal government.

CREA president Georges Pahud said he welcomed the decision to ratify the agreement and end the Competition Bureau battle.

“We are pleased that after careful consideration and reflection, real estate boards and (local real estate) associations from across Canada have endorsed the agreement.”

“The commissioner and CREA have agreed that its rules as well as those of members should not deny or discriminate against realtors wishing to offer mere posting services. CREA does not believe that such rules exist today, but if they do, they must be repealed or boards will lose their license to operate under the MLS trademarks” Pahud said in a statement.

Reaction from Canada’s estimated 100,000 agents was swift.

“If this vote goes through, it’s time for the full time real estate sales people to leave the CREA,” Greg Chiang, of ReMax Omega in Newmarket, Ontario, wrote in an email prior to the vote.

“We will pull all our listing(s) from the MLS system. Let all the FSBOs start their own MLS system …It takes money to build up a great real estate system, (and) that is why most discount systems fail. The FSBOs want to take a free ride on our backs …use the system that we as full time realtors have paid for many years to develop and make what it is today.”

Others questioned why the Competition Bureau was even getting involved.

“I don't understand why the brokerage community has been targeted, and why
the system we have built up with our fees over the years should be treated
like public property,” Steve Glogowski, an associate vice-president of Royal LePage Signature Realty in Toronto, said in another email.

“Brokers do not have a monopoly on selling property. Everyone is free to advertise and negotiate their sale in the newspapers or on the web and not use the MLS,” he added.

Glogowski suggested instead of “caving in”, CREA should disband and hand over the MLS system to its members. “How can a system with dozens of owners be considered a monopoly?” he asked. “If people think they will save a few bucks by selling on their own, they are sadly mistaken.”

The deal with the Competition Bureau could result in buyers listing at an unrealistic price and not getting serious offers, not negotiating effectively based on experience and having a have increased chance of fraud, he said.

As rumours of the deal filtered out in advance of the vote, some entrepreneurial realtors saw opportunity. Details emerged late last week that the largest of those private sale companies, Moncton, N.B.-based PropertyGuys.com, had signed a deal with Harvey Real Estate Co. Ltd, a tiny brokerage in Hamilton, Ont.

The arrangement would see Harvey listing PropertyGuys.com client’s properties in Ontario on the MLS site for a fee, if the client wishes. The MLS profile would then link to a client’s customized PropertyGuys.com profile.

The broker has been posting PropertyGuys.com listings for a week now and there is still a backlog, according to a report in the local New Brunswick Business Journal. It added PropertyGuys.com expects the overall opening of the marketplace to boost their listings by 30 to 40 per cent in the next year alone.

How to avoid mortgage fraud

October 18, 2010

Six suggestions for avoiding mortgage fraud

By DIANNE NICE
Globe and Mail Update

Don't be talked into a deal that's too good to be true

Whenever the housing market starts to heat up, so does mortgage and real estate fraud. Buyers rush through deals to avoid losing out, but can end up being scammed if they're not careful.

While there are no statistics on these types of fraud in Canada, in the United States, it is estimated to cost victims between $4-billion and $6-billion (U.S.) a year.

"Mortgage scams are carried out in all different forms and involve a multitude of people, some who don't even know they're being taken advantage of," says Diane Scott, president of the Calgary Real Estate Board.

Ms. Scott says at least two types of mortgage fraud have occurred in Calgary this year. One is property flipping, in which a dishonest seller artificially inflates the value of a property using a phony appraisal and then sells it for a large profit. The phony appraisal often remains with the property through multiple transactions, making it difficult to determine the property's true worth, and the end buyer is left paying for a mortgage that is much higher than the home's value.

The other involves "straw buyers," who are offered money to lend their identity and good credit record for use on fraudulent mortgage applications. The fraudster uses the information to apply for a loan, then disappears with the money, leaving the straw buyer on the hook for the mortgage payments.

Other types of real estate scams include title fraud, where your identity is stolen and used to assume the title of your property, which can then be used to sell your home or get a new mortgage. The criminal takes the mortgage money and runs. You may not even find out about the fraud until the lender contacts you or someone pulls up in a moving van, claiming to be the new owner of the house.

And there's also foreclosure fraud, in which a homeowner having trouble paying a mortgage is offered a loan in exchange for up-front fees and an agreement to transfer the property title to the scammer, who is then able to take the victim's loan payments, sell the house or remortgage it and leave with the money.

While a lawyer, realtor or licensed mortgage broker can help ensure all legal precautions are taken, it's still important to do your homework before you buy, Ms. Scott says. Here's her advice on how to avoid becoming a victim of fraud:

1. Beware of unusual offers. Never lend your identity to anyone or sign documents you do not fully understand. "If it sounds too good to be true, then it probably is," Ms. Scott says.

2. Do the math. Look at the listing history on the property and do a comparative market analysis. Check the number of sales and price ranges for the community. If the home's listing price is much higher than the average value of neighbouring homes, it could mean someone is flipping the property or has had it fraudulently appraised.

3. Don't assume the seller is honest. Get your own realtor or independent representation for your purchase. If the seller objects, something is wrong.

4. Do a land title search. This will show the name of the property owner, any mortgages or liens registered on the title, as well as previous sales and transfers. You can also buy title insurance to protect against title fraud.

5. Get your own appraisal. You may want to include, as part of your offer to purchase, the option to have the property appraised by a member of the Appraisal Institute of Canada [http://www.aicanada.ca].

6. Secure your deposit. Make sure your money is being held in a real estate trust account by a realtor or lawyer. This will ensure your money is safe until the deal closes.

Housing price correction looming?

The current high buy/rent ratio may indicate a vulnerable housing market said Desjardins Securities, but others aren’t placing too much weight on the measurement.

 

Canadian house prices rebounded from the recession, hitting a new record in May and bringing the buy/rent ratio to about 1.85x. This means mortgages are increasingly difficult to afford compared to rent, as house prices increase and rents remain stable.

 

So, excluding major factors such as taxes and maintenance, homeowners pay about twice what renters pay.

 

“This is precipitously close to the 2.3x level reached in December 2007 and the 2.5x level reached in 1988, which preceded house price corrections of 13 per cent and 10 per cent, respectively,” Ed Sollbach and Deep Jaitly of Desjardins wrote in a research note.

 

They added that when the buy/rent ratio hit an “unsustainable” 3.6x in Toronto in 1989, it was followed by a 29-per-cent decline in house prices.

 

However, at that time unemployment was also rising and a spike in interest rates to 14 per cent forced many homeowners to sell.

 

The problem with the rent/own ratio is that half of the provinces employ rent control, so prices can’t rise with the broader housing market. For example, house prices in some Toronto neighbourhoods have gained 30 per cent in the last year but Ontario limits rent increases to 2.1 per cent.

 

“Maybe that’s just telling us that rents are just too low,” said Gregory Klump, the chief economist at the Canadian Real Estate Association in a recent interview with The Globe and Mail. “I’m not a fan of the price-to-rent ratio because it’s so skewed by the fact that rents are subject to rent control.”

FIRST TIME HOME BUYERS

First-Time Buyers represent the largest group of purchasers in today’s real estate market. Recognizing this, Lenders and Insurers have developed progressive ways to allow for many Canadians to purchase their first home, which would otherwise not have been possible under traditional programs. The most common program utilized today by First-Time Buyers is the 95% high-ratio financing program through both the Canadian Mortgage and Housing Corporation (CMHC), and Genworth Financial (formerly GE Mortgage Insurance). Learn more about High Ratio Mortgage Insurance.

There are other programs available for First-Time Buyers in order to assist them with the purchase of their first home. Applicants are often enticed by some lenders with 5% down by offering cash back programs for the down payment or for the purchase of appliances etc. Just be aware that these mortgages are offered a significantly higher than discounted rates, and the cash back is pro-rated in the case that you re-finance your mortgage.

There are also programs available through Genworth Financial and secondary mortgage lenders through a self-insured program, that allow for 95% financing with higher premiums for the greater risk they take on these types of transactions.

These can vary significantly and applicants should consult with a mortgage professional for details on how these programs work. CMHC also permits first-time buyers to borrow their 5% from any other source under certain conditions. For further assistance in understanding these programs and how they work, please feel free to contact us at 416 989 1000.

Minimum down payment requirements for non-owner-occupied homes will increase to 20% from 5%, and the way that rental income is considered has been scaled back as well. This rule will have the most dramatic impact of all three changes, but only on real estate investors.

The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $25,000, from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. For more information please click on the link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

If you buy land or an interest in land in Ontario, you must pay Ontario's land transfer tax. If you are a first time home buyer, you may be eligible for a refund for all or a part of the tax. For more information, please follow this link. http://www.rev.gov.on.ca/en/tax/ltt

Land Transfer Tax Calculator:

 http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.html

HST and real estate

Do I have to pay Tax?

The harmonized sales tax introduced by the Liberal Government in Ontario went into effect in July 2010. Although tax is collected at a rate of 13% on the sale price of good and services, it doesn't apply to every type of home or every type or real estate.

New Home purchases are subject to HST but may qualify for an HST rebate.  Resale homes are sold without HST.  Land may be exempt from tax, but realtors and other professionals must charge HST on the purchase price.  However, if the home is going to be your primary place of residence, it may qualify for a partial HST rebate, depending on sale price.

You can get the HST Rebate application here

You do not have to pay HST on the purchase price of a used residential home.  Revenue Canada defines "used residential property" to include a previously occupied house, condominium, summer cottage, vacation property or non-commercial hobby farm.

HST applies to most of the services provided in completing the real estate transaction.  For example, 13% HST is applied to the commission a realtor charges for facilitating a sale.  The tax is paid by the person responsible for paying the commission - generally the seller. 

HST also applies to many of the other services involved in the real estate transaction, including appraisal feed, referrals, surveys and legal assistance.  HST is charge on these fees regardless of whether the house purchase is itself HST exempt or not.

One exception is that mortgage broker fees are HST exempt if the fees are charged separately from any taxable real estate commissions.  As well, mortgages and interest on mortgages are HST exempt.

HST is not normally due and payable when the real estate transaction is completed - generally the "closing date".  In some cases, HST could be payable on transfer of possession.  Your realtor can answer your questions about closing dates and HST payments.  For additional information contact you local Revenue Canada Tax Services Office.

$ reasons why homeownership makes sense

Home ownership can be the best investment you’ll ever make – despite the regular headaches. If you’re in the market to buy a home, think about a few tax tips that could save you a bundle in taxes.

1. Principal residence exemption. You’re likely aware that selling a home can be a tax-free event. The reason? Each “family unit” is entitled to designate one property as their principal residence. A family unit consists of you, your spouse or common-law partner, and any unmarried children under age 18. You have to ordinarily inhabit a place to call it your principal residence, but you’ll be entitled to an exemption to shelter any capital gains on a sale of your principal residence later. If you own more than one property, speak to a tax pro about the exemption because the rules can be complex.

2. Home Buyers’ Plan (HBP). The HBP will allow you to borrow, tax-free, up to $25,000 from your registered retirement savings plan (RRSP) for the purpose of buying or building a home.

You must be a first-time home buyer, which will be the case if you or your spouse (or common-law partner) haven’t owned a home that you occupied as a principal residence in the year of the RRSP withdrawal or the preceding four years.

You generally must repay the amount back to your RRSP over a 15-year period. Be aware that I’ve simplified the rules here. Check out Canada Revenue Agency’s publication RC4135, available at cra.gc.ca, for more.

3. First-Time Home Buyers’ Tax Credit. The 2009 federal budget introduced a new tax credit for first-time home buyers. If you buy a home and you and your spouse (or common-law partner) haven’t owned a principal residence that you occupied in the year of your purchase or the preceding four years, then you may be entitled to a tax credit worth up to $5,000, multiplied by 15 per cent (the applicable percentage for 2010), or $750. The credit can be claimed by either spouse, or both, as long as the total doesn’t exceed the allowable $750.

4. Deducting expenses. You may be entitled to claim a deduction for a portion of home costs such as mortgage interest, property taxes, utilities, repairs, landscaping, and more. How? Two ways.

First, think about establishing a home-based business and a home office which is your principal place of business, or is used on a regular and continuous basis for meeting clients. If this doesn’t suit your fancy, then consider renting out part of your residence to a tenant.

Your property will still be considered your principal residence even when you use it to earn income (from rents, or a business) as long as the partial use of the place for income-producing purposes is ancillary to the main use as your principal residence, you don’t make any structural change to the property, and you don’t claim capital cost allowance (CCA) on the property. Finally, don’t forget to claim moving expenses if you make a qualifying move to a new residence.

5. Multiplying exemptions. It may be possible to shelter the capital gains on more than one principal residence. This generally involves putting each property into separate names rather than holding them jointly. The rules are complex enough to make your head spin, so speak to a tax pro for more details.

With thanks to Tim Cestnick, who is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

New home sales in USA plunge 33%

Alan Zibel, AP Real Estate Writer, On Wednesday June 23, 2010, 10:37 am EDT

WASHINGTON (AP) -- Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.

"We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note. "After all, unemployment remains high, job security is low and credit conditions are tight."

New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And it's the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005.

Analysts were startled by the depth of the sales drop.

"We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away."

Economists surveyed by Thomson Reuters had expected a May sales pace of 410,000. April's sales pace was revised downward to 446,000.

The government offered an $8,000 credit for first-time buyers. Current homeowners who buy and move into another property could receive up to $6,500.

New-home sales fell nationwide from April's levels. They dropped 53 percent from a month earlier in the West and 33 percent in the Northeast. Sales in the South dropped 25 percent. The Midwest posted a 24 percent decline.

Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in March fell 0.5 percent to 213,000, the lowest level in nearly 40 years. But due to the sluggish sales pace in May, it would still take 8.5 months to exhaust that supply, above a healthy level of about six months.

The median sales price in May was $200,900. That was down 9.6 percent from a year earlier and down 1 percent from April.

New-homes sales made up about 7 percent of the housing market last year. That's down from about 15 percent before the bust.

The drop in new-home sales means fewer jobs in the construction industry, which normally powers economic recoveries but has remained lackluster this time.

Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.

In USA, 500 people arrested for mortgage fraud

Nearly 500 people have been arrested in a U.S.-wide crackdown on mortgage fraud since the operation began March 1. Federal officials found that Las Vegas was one of the major centres where scams were situated to falsley inflate house prices.

"I heard this many times," said Scott Hunter, a Las Vegas FBI agent who has interviewed hundreds of people lured into buying homes by crooked real estate agents, brokers and loan officers, to the Associated Press. "They said, 'Don't let your good credit go to waste. You can purchase these properties. This is how you acquire wealth.'

And when the party stopped and they were not able to keep inflating the prices on these houses, the whole thing collapsed."

Daniel Bogden, Nevada's U.S. attorney, said 123 defendants were charged, convicted or sentence within his state since the crackdown, named Operation Stolen Dreams, began. According to AP, Bogden estimated the losses in Nevada at almost $250 million.

Frantic housing market ready for calm

Supply shortages still expected in big centres, but wave of new listings elsewhere will be boon to buyers

STEVE LADURANTAYE From Tuesday's Globe and Mail Published on Tuesday, Mar. 16, 2010 12:00AM EDT

After a historic runup in prices, the Canadian resale housing market is set to cool down as a wave of new listings hits the market, providing badly needed inventory for hungry buyers. The number of homes on the market nationally increased for the third consecutive month in February on a seasonally adjusted basis, according to the Canadian Real Estate Association. The industry group said yesterday there were 4.7 months of inventory available in Canada in February, up from 4.5 months in January. That trend has put buyers and sellers in an equilibrium not seen since before the market downturn began about two years ago.

The ratio of new listings to sales, an indicator used by analysts to gauge the health of the resale housing market, left the "favourable to sellers" range to the "balanced market" range in February, according to National Bank Financial. It's a sign of stability for a sector that has seen wild price appreciations as buyers competed ferociously for the few homes on the market. "Further expected supply increases will continue to take the steam out of housing markets as the year progresses," said Gregory Klump, chief economist at the Canadian Real Estate Association. "There are still a number of major markets where sales negotiations favour the seller due to a shortage of inventory, but supply has begun rising."

More listings help prevent bidding wars and could slow house-price gains this year. The association expects prices nationally to decline slightly next year. Still, some major markets such as Toronto and Vancouver will be slower to add listings this year, industry officials said. "You still see a supply shortage in the big centres because the people who need to sell and move up just don't see anything they want to buy," said Phil Soper, president of Royal LePage. "But we're ahead of the curve on new listings in February, and March will be absolutely critical if that trend is to continue."

The Monday following Ontario's March Break is traditionally the busiest listing day in Canada, as the weather turns favourable and parents who will need to relocate their children realize the school year is coming to an end. "That's the day everyone puts on their game face and gets chopping," Mr. Soper said. "It happens every year - it's like the summer blockbuster season." The busy spring will have consequences, however. Many of the homes will be put on the market earlier than in other years as owners look to cash in on the hot market. The flurry of activity is expected to dampen sales in the last half of 2010. "I think we'll see a sharp up-tick in sales, followed by a massive pullback," said TD Bank economist Millan Mulraine. "We're taking sales from the end of the year and moving them up. Then you should see a market that is more in line with fundamentals."

In the meantime, the number of home sales continued on a tear in February with a 44 per cent year-over-year gain from recessionary lows a year ago, CREA figures showed. The average price of all homes sold on the Multiple Listings Service in February was $335,655, up 18.2 per cent from a year ago. The relentlessly strong price gains since last year's lows have fuelled worry about the formation of an asset bubble. Finance Minister Jim Flaherty is watching the country's mortgage market carefully but does not believe there is a housing bubble, he said in an interview with Bloomberg.

Anything that helps prices stabilize would be a welcome development for policy makers, who are taking steps to make it more difficult to qualify for a mortgage in a bid to cool off the market. While more listings are expected this year, buyers are expected to be out in full force for the foreseeable future. Buyers are expected to rush into the market in the coming months to avoid changes to mortgage application rules in April, anticipated higher interest rates by midsummer and the introduction of harmonized sales taxes in Ontario and British Columbia in July.

Mortgages getting tougher on self employed folks

CMHC is tightening the criteria needed for self-employed borrowers to get mortgage insurance, changes that will come into effect on April 9, according to Canadian Mortgage Trends.
 
Borrowers who apply under CMHC's self-employed stated income product will need a 10 per cent down payment instead of the five per cent down payment now required. These borrowers will also only be able to refinance up to 85 per cent loan to value instead of 90 per cent.

Debbie Thomas, partner and broker of record at The Mortgage Group, recently told CMP she has noticed a trend of insurance guidelines tightening for self-employed borrowers, who often write off a large portion of their income for tax purposes.

"The whole issue of reasonability has now been forced back and self-employed deals that used to be approved are not even close to being approved today," said Thomas. "It hasn't been an announcement or anything that has come out from the lenders or insurers, but it's something we've definitely noticed."

Insured Stated Income Programs Tighten Up

CMHC has felt for a while that too many people apply for stated income mortgages who shouldn’t.

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).

Stated income applicants who wish to refinance will be limited to 85% loan-to-value (instead of 90% today).

CMHC says:

• The Self-Employed program is intended for self-employed borrowers “who have difficulty providing documentation for their current income level.” These are often people who’ve recently begun to work for themselves.


• Self-employed borrowers in the same business for over three years will no longer be eligible for approval without traditional proof of income.


• A business license, GST license, or articles of incorporation will be required to validate the applicant’s length of self-employment.


• Commissioned employees are no longer eligible for approval under the Self-Employed program.

As insurers pull back further from the stated income market, some expect uninsured lenders to eventually fill the void.  Self-employed borrowers, with hard-to document income, will then pay notably higher rates and fees as a result of using such programs.

How long can interest rates stay so low?

I hate to sound like everyone else – it often pays to be different, but we must recognize  most economists and experts are forecasting interest rate increases beginning as early as this Summer.

The Bank of Canada rate was 4.25% in January 2008, and now it is only 0.25%, and has been there for almost a year. This has resulted in the lowest consumer borrowing (and saving) rates ever!

The Central Bank sets its interest rates to keep inflation at around 2%. But the Canadian economy grew at an annual rate of 5% in the last three months of 2009 – a very healthy growth rate – but this is bringing inflation fears into the picture. If inflation sets in, interest rates can only go up.

Historically, economists are never that reliable in predicting where interest rates will be in the future – but they do usually get the direction correct! Most see increases of one to one and half percent by the end of the year. Next year and the year after, who knows?

What does all this mean for us?

If you have invested money in savings accounts and GIC’s, now may not be a good time to lock in for five years (which is traditionally the term offering the highest interest rates.) Keep your holding periods short, in the hope that higher rates are around the corner. The major banks are quoting five year rates at only 2%, and a “high interest” savings account might only be yielding 0.75% right now.

If you have a car loan

Your rate is most likely fixed, so none of this should concern you much.

If you are using your personal or business lines of credit

You can expect to see your minimum monthly payments increase at the same time as interest rates are rising.

If you are buying a home now, or your current mortgage is coming up for renewal,

If you qualify for the best interest rates, that means a five year fixed rate mortgage would be around 3.69%, but a variable rate mortgage might be as low as 1.95%.

Many homebuyers are very attracted to the 1.95% rate and make their buying decisions today based on this low rate with its very low monthly payment.

For my money, I want to sleep at night and not worry about this stuff. I like five years at 3.69% -it’s amazing! But that’s me – I am a bit conservative.

If you already have a mortgage

You may not be able to do anything yet, since penalties to break existing mortgages can be very high. You should ask your mortgage specialist what your penalty would be, and then decide.

Some people have variable rate mortgages from a few years ago, where their rate today is as low as 1.15% . They will be reluctant to do anything different unless they really feel pressure – I don’t blame them.

But remember, the key word is “variable”. It can go up or down. Hard to go lower than 1.95% or even 1.15%, but if rates start going up and up, variable mortgage rates could become very uncomfortable one day.

It’s an individual decision, and depends on many things. Talk to your mortgage specialist if you want an informed second opinion.

Be careful with those offer to purchase agreements

My thanks to Mark Wiesleder for his very useful article published in today's Toronto Star

February 05, 2010 

Mark Weisleder

Special to the Star 

One of the side issues in the recent bidding wars in cities across Canada is that buyers and sellers are not taking the necessary time to review and understand what is included in the fine print of most real estate agreements. 

As these clauses can have dramatic impacts on the rights of buyers and sellers, it is important that they review the agreement form in detail with their real estate salesperson before signing anything. 

Here are some topics to be aware of: 

Time limits: If the buyer is late in delivering the deposit or any notice that is supposed to waive a condition, the seller can, in most cases, cancel the agreement. Buyers, be very careful to make sure that you follow all of your obligations in a timely manner. 

Closing date: The agreement states that vacant possession cannot be given any later than 6 p.m. If the seller is late leaving the home, the buyer can sue for any increase in moving costs that result. Sellers, if you know you will need more time to move, say so in the agreement. 

Easements and covenants: Buyers agree to accept any minor easement for utilities and any restrictive covenants on title that the seller is complying with. This can cause the buyer problems if they want to make any changes to the property after closing, such as building an addition, swimming pool or even something as simple as installing an antennae. Buyers should inquire in advance as to any easement or covenant that affects the property. 

No representations or warranties outside of the agreement: What this means is that if the seller told you something about the property that is important to your buying decision, then it must be included in your agreement. For example, if the seller tells you that there are hardwood floors under the carpets throughout the house, then have that included in the agreement. Otherwise, it is hard to prove or sue the seller about this after closing. 

Bank and private mortgages: Buyers agree to permit sellers time, after closing, to discharge bank mortgages because it is very difficult to obtain a discharge from a bank or trust company on the actual closing date. However, this does not apply to private mortgages, which must be discharged on, or before, closing. 

In a recent case, a buyer was able to cancel a deal on closing because the seller could not discharge a private mortgage in time. Sellers, if you know that there is a private mortgage on your property, discuss this as soon as possible with your lawyer so that arrangements can be made in time to discharge this from your title on, or before, closing. 

Understanding the fine print in advance will assist buyers and sellers in preventing issues on or after closing. 

Mark Weisleder is a lawyer, author, public speaker for the real estate industry and contributor to Real Estate News. mark@markweisleder.com. 

Canadian real estate market on fire

A tale of two real estate markets

In Canada, damn our winters, it’s always been tough to sell a home this time of year.

Not listing your house in the winter has even turned into a real estate rule of thumb. Traditionally, the market just dries up.

So you can imagine the surprise of many realtors today when news broke that Canada had its best-ever December for home sales. Best. Ever.



“Sales activity in 2009 came in like a lamb and went out like a lion,” Canadian Real Estate Association (CREA) president Dale Ripplinger told the Star.

According to the CREA’s numbers, 27,744 existing homes were sold last month, up 72 per cent from December of 2008.

Not only was the average sale price up for December ($337,410, an increase of 19 per cent) versus last year’s stats, but for the whole year as well ($320,333, an increase of 7.7 per cent from ‘08).

So, what’s all this about?

For starters, economists warn the emerging market is “getting dangerously close to bubble territory,” according to the Star.

“Cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer,” said CREA Chief Economist Gregory Klump.

Still, though, listings in December were up 4.8 per cent from 2008 – the first year-over-year gain in 2009 – and the response from Canadian home buyers is tough to dispute.

This data is interesting, of course, because things aren’t quite the same south of the border.

While Canada’s real estate market shows signs of strength in the winter months, all accounts point to the opposite in the U.S.

The country’s Pending Home Sales Index plummeted 16 per cent in November, at least – a sign surely pointing to a further drop in December.

Check out the visually dramatic dip here.

By Jason Buckland, MSN Money

Posted at 05:29 PM | Permalink

Bank of Canada takes stance on housing bubble

Bank of Canada takes stance on housing bubble

Tuesday, 12 January 2010

A Bank of Canada official called talks of a Canadian housing bubble premature in a speech in Edmonton Monday, adding higher interest rates are not the solution to cooling the current surge in housing demand and prices. "If the bank were to raise interest rates to cool the housing market now - when inflation is expected to remain below target for the next year and a half - we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession," said David Wolf, an advisor to Bank of Canada governor Mark Carney. "As a result, it would take longer for economic growth to return to potential and for inflation to get back to target." The central bank's comments came on the heels of the CMHC's latest report on housing starts, which showed a 6.6 per cent jump in urban starts across Canada compared to November. They also follow federal finance minister Jim Flaherty's recent comments about introducing new rules to cool the housing market. In his speech, Wolf said housing bubbles are usually caused by credit expansion as opposed to temporary factors like low interest rates and pent-up demand, and these factors cannot continue to sustain the high numbers of sales and prices seen in Canada over the past few months. Wolf also said the central bank is monitoring the housing market closely, adding it required "vigilance, not alarm."