The BoC's Bombshell

Wait a minute. Weren’t rates supposed to go up this year?

If it wasn’t embarrassing enough to be a rate forecaster before, it is now. Today’s surprise Bank of Canada rate cut proves for the umpteenth time that “experts’” long-term rate predictions are not only futile, but potentially costly.

Here are 5 things to know about the Bank of Canada’s policy move:

• They really had to cut rates. Or did they?
  • Pundits are already debating whether the BoC jumped the gun today. The Bank said its rate reduction acts as “insurance” for the economy, given the shock of plunging oil prices.
  • But the BoC’s move comes despite its own expectations that core inflation (its key indicator) will settle at around 1.9-2.0%, both this quarter and this year—almost precisely on target. Moreover, we have a plunging loonie to consider (which could be inflationary) and lower rates (which will stoke a housing market that’s already near the boiling point in our two biggest cities).
• There are likely more cuts to come
  • In his press conference today, Governor Poloz said the Bank has the ability to “take out more insurance,” meaning further rate cuts. Financial markets are now pricing in roughly a 40-50% chance of another cut this spring.
  • Since the dawn of modern monetary policy, however, the Bank of Canada has never lowered the overnight target rate just once. If history is a guide, we could see another ¼-point reduction in the next few meetings. Barring that we’ll at least have an extended stretch at 0.75%.
• Lower funding costs will bring lower mortgage rates but…
  • There’s a big “but.” Lenders will pocket some of the improving spread, so we won’t see 5-year fixed mortgage rates match the drop in the 5-year government bond yield, at least not “beep for beep.”
  • While it is expected, banks have not yet announced any cuts to prime rate. It’s unlikely but there is precedent for them not to pass along a BoC rate cut. The spread between prime and the overnight rate was 175 bps in November 2008, but then grew to 200 bps in December 2008 where it has stayed ever since (until today).
  • We’re also waiting to see if the posted 5-year fixed rate drops. If so, it will become easier for people to qualify for a variable-rate mortgage (as well as 1- to 4-year fixed terms).
• The odds of new mortgage rules in 2015 just went up
  • The Bank of Canada acknowledges that household imbalances (the debt-to-income ratio) will likely get worse, but it says the oil price shock could lead to income and employment losses that make the housing market even more imbalanced. Ottawa’s only answer may be to tighten mortgage restrictions further.
• Don’t forget the penalties
  • If falling rates have you licking your chops about refinance opportunities, don’t forget that lenders have a little thing called “prepayment charges.” If you want to refinance to a lower rate and you’re in a big bank fixed-rate mortgage, the penalty and closing costs could easily offset most or all of your refi savings.

The next BoC rate meeting is March 4. If we get another rate cut then, it could make for a piping-hot spring housing market—possibly too hot for regulators’ liking.

 

Source: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2015/01/the-bocs-bombshell.html

How to get rich with real estate

Critics will argue that $1 million isn’t the same value as it used to be, but it still has a very nice ring to it. You can be a millionaire. Visions of Scrooge McDuck and the guy with the top hat in the Monopoly game come to mind.

Also note that, according to the World Wealth Report 2014: “There are now approximately 320,000 high net-worth individuals in Canada — that’s people who have at least $1 million in financial assets, excluding their principal residence”.

But how can you be sure to get into that select company, invest in real estate and hold onto that asset?

I bet you’re thinking: it can’t be that simple. You would be right. Yes, you must select a property in an area that has the right fundamentals, you must deal with tenants and you must sacrifice a few weekends a year to deal with issues. But in the end, you WILL be a millionaire.

Let me run through some of the numbers for you. Somehow, some way, get $600,000 of real estate under your control. That could be one, two or even three properties, depending on the area of the country. Not just any property will do. Make sure the property can generate enough rental income to support the expenses and debt financing.

If you look back in Canadian real estate history, a good area has doubled in value every 15 years or so. But for this example, let’s say it takes 20 years for your well-positioned property to double in value.

Your $600,000 in assets is now worth $1.2 million. Meanwhile, your mortgage debt is almost paid off and is sitting around $200,000. That doesn’t even take into consideration $1 in total cash flow.

You, my friend, used real estate to become a millionaire. As of 2014, approximately one per cent of the Canadian population has a net worth of investable assets. Let’s say that number jumps to between three and five per cent by 2035. I’m sure you’d be okay being one of the top five per cent richest Canadians in 20 years.

The key component between winners and “also-rans” in the real estate world is that the winners take action and continue to take action. Take those weekend courses, do your research, build your power team, then TAKE ACTION.

Real estate is really not a get-rich-quick scheme, but it certainly is a get-rich-for-sure scheme.

Source: http://www.canadianrealestatemagazine.ca/strategy/how-to-get-rich-with-real-estate-187097.aspx

Property assessments do not reflect market value

A recent rise in the assessment value of properties in Nova Scotia does not reflect market value in the province, say experts.

“There’s been a moderate increase when I don’t think there’s a reason to do so,” said Tim Harris, a Realtor at Tradewinds Realty.

The Property Valuation Services Corporation (PVSC) has mailed out more than 600,000 property assessment notices to Nova Scotia property owners.

Total provincial assessments came in at approximately $101.8 billion, which includes $78.7 billion in residential and $23 billion in commercial property.

Kathy Gillis, CEO of the PVSC, said that Nova Scotia saw a three per cent rise in residential property assessments and a four per cent rise in commercial assessments, a lesser increase overall than the previous year.

“Across the province, the overall assessment base increased by about $3 billion from 2014, which is less of an increase from last year,” she said.

She added that it’s the PVSC’s mandate to release assessments in line with market value, but Harris said this is not always the case, adding that the numbers for the market are overvalued and the cost of homes are typically driven by municipalities in Nova Scotia, adding they’re more like to do what works for them.

“It should have been reduced or held to fall in line with market value,” he said. “The market doesn’t reflect the increase in property assessments.”

A rise in assessment values typically indicates a rise in property taxes, which can be a problem for domestic investors as opposed to international ones.

“We have investors who come here from other places, such as England or the U.S., where taxes can be pretty high already, so they actually prefer the market here,” continued Harris.

“But for people who live here, they’re going to be paying higher taxes than their home’s market value.”

Source: http://www.canadianrealestatemagazine.ca/news/property-assessments-do-not-reflect-market-value-187134.aspx

Are open houses still useful for investors?

Technology has changed the way property is bought and sold; most people use the internet to start the search for a new investment property or to check out the competition before deciding to list a property for sale. It only makes sense to change your strategy to suit online demand.

But buying and selling property is still very much a people business and I believe there are valuable opportunities for investors, sellers and agents to connect at open houses.

When you're starting your hunt for a new investment property, you may need to look for ideas of what you want. Listings online or on paper only tell you so much. Getting a sense of a property's space is one important aspect, but so too is the neighbourhood.

If there is an open house in the neighbourhood in which you want to buy, I recommend attending. Even if you don’t love that particular house, it's an opportunity to see what your budget will buy in the area and to question the real estate agent about the local scene and amenities. If you are lucky, you may even overhear comments from other attendees about the property, neighbours and neighbourhood.

Doing research on the many housing styles, neighbourhoods, and by questioning several real estate agents in the area will also help you better define your needs and housing wish list when it’s time for you to put in an offer.

When I started my career in real estate, open houses were one of the agent’s tried, tested and true methods of selling a home and meeting potential new clients. I met a huge variety of people during those open houses – from the nosy neighbours and open house junkies to first-time lookers and potential homebuyers who later became my new clients.

The "looky-loo" type of house buyer does exist at open houses. But that shouldn't be used by agents as an excuse against open houses and that shouldn't deter investors from going to an open house to learn more about the property and the neighbourhood.

There may be people who are just attending an open house for a laugh or to pass the time, but for every one of those types, in my experience, there are more attendees who are genuinely looking for a new property or for ways to improve their own before listing it for sale.

Adapting sales strategies to meet the changing demands of the online market is one aspect of real estate success, but so is connecting with people. Open houses are a great way to do that because you never know when you’re going to walk into your next investment property.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/are-open-houses-still-useful-for-investors-186889.aspx