Canadian homes now more affordable

Houses have become “slightly” more affordable for the average Canadian but they will have to think small.
According to RBC’s latest Housing Trends and Affordability report, household incomes outpaced a modest rise in mortgage carrying costs associated with a buying a home in the fourth quarter of 2012.
"When you look at Canada's year-on-year affordability trend, 2013 was little changed from 2012, and even from 2011 or 2010, for that matter,” says Craig Wright, senior vice-president and chief economist with RBC. “That being said, this stationary trend also means that a divergence still exists - owning a detached home at market value is more of a stretch for homebuyers than owning a condo."
RBC says they expect home resales to rise 0.6 per cent to 461,000 units in 2014, keeping Canada’s housing market near its recent “not-too-hot and not-too-cold levels.”
Regionally, it was a mixed bag of results. While conditions have improved in B.C., housing affordability remains “relatively poor” while a surge in new listings in Manitoba has allowed greater affordability. Ontario remains unchanged while houses have become more in reach in Alberta

Canadian housing should stay afloat in 2014; Don't expect a crash

What’s in store for Canadian house prices in 2014? It’s hard to predict the exact increase or decrease, but I believe one thing can be said: the housing market should again avoid the crash that has been long predicted by a number of observers.
Sure, house prices have outrun household incomes to reach levels of overvaluation that put Canada at the top of international valuation rankings. But as I have discussed over the past two years, it’s difficult to see a hard landing when central bankers are going all out to pump up the economy, incomes and jobs—factors that increase the demand for owned accommodation.
Let’s begin with the U.S. Federal Reserve, whose actions have a substantial impact on Canada due to the close integration of U.S. and Canadian economies. The Fed currently is printing massive amounts of money to buy bonds (QE3) in an economy that has lots of spare capacity and low inflation. The result, if history is a guide, should be a strong pick-up in the U.S. economy with a spill-over into Canada
Meanwhile, the Bank of Canada has cancelled plans to raise its overnight lending rate, and is allowing the Canadian dollar to tumble. This is a dramatic easing since it slashes the prices of Canadian goods and services sold in foreign markets. Along with a ramping up of U.S. economic growth, it should give a boost to the Canadian economy through a jump in exports (with the usual lags).
As 2014 begins, there are few signs of stress in the Canadian house market. The national inventory of unsold housing is at a six-month supply and the sales-to-listing ratio is just over 1.5: both are at levels that indicate a balanced market. Plus, according to the latest annual report from the Canadian Mortgage and Housing Corp., only 0.31% of residential mortgages are three or more months in arrears, versus the average of 0.41% from 1990 to 2010.
True, the Fed plans to wind down its bond purchases and let long-term bond yields rise in 2014, as long as the U.S. economy is still expanding at a healthy clip. Some fear the impact of these interest-rate increases on the Canadian housing market, but income and job growth should have an offsetting impact.
What could be of concern is if inflationary pressures get out of hand and the Fed sought to cool things off by raising its overnight lending rate to the point where short-term lending rates exceeded long-term rates (known as “inversion of the yield curve”). Since commercial and other banks borrow short and lend long, they wouldn’t be able to make a profit on their lending operations; the flow of credit to businesses would dry up and trigger a recession.
But the Fed has pledged not to raise its overnight rate until mid-2015. And then it would take at least another year of steady increases to bring about inversion of the yield curve. Or possibly even longer: the 425-basis-point hike in the Fed’s overnight rate that preceded the 2008 U.S. housing bust was phased in over two years.
Moreover, U.S. and Canadian policymakers now have the experience of the 2008 U.S. housing crash hanging over them. It wouldn’t be surprising if they adopted more of a preventative approach to dealing with overheating in the economy. Instead of letting the economy rip and then slam on the brakes, central banks may tap them sooner and more often to avoid creating the runaway momentum that requires inversion of the yield curve.
Even if U.S. and Canadian economies do reach the overheated phase and short-term rates are driven above long-term rates, it’s not a foregone conclusion the denouement will be a U.S.-style housing crash in Canada. There are a number of reasons for this. For example, the oligopolistic financial system in Canada is a stronger one than the fragmented, competitive U.S. system, and the Canadian mortgage market displays far less of the excesses that plagued the U.S. mortgage market in the mid-2000s

Don't Overlook a Home's Potential

Home shopping for first-time homebuyers it's an exciting, albeit nerve-wracking, experience. If you're like others in the market for their first home, you probably have in mind exactly how your soon-to-be home will look.

But it's important not to fall into the bad decorating, dingy walls and dirt-bare back yard equals bad-home trap. If you don't see past the hideous wallpaper, funky light fixtures and avocado green carpeting, you may miss out on a home with great potential.

And, if you're looking for a home in a seller's market where homes are being snatched up as soon as they go on the market, you'll come to realize you can't be choosy if you want to make a competitive offer.

One of the first things to do is to get pre-approved for a loan and determine the maximum you can afford to offer for a house. Don't look at homes that are asking for more than 5 percent above your maximum, otherwise you'll be setting yourself up for disappointment if you find the perfect—but outside your budget—home.

So what to do?

The floor plan of the home is extremely important. If a floor plan isn't quite to your liking, consider rearranging it or adding on. If you're looking at an existing home and will need to remodel or expand to suit your needs, the estimated cost of renovation needs to be considered when making an offer.

 

Also, consider the features of a home:

• Walls. While these are among the easiest to remedy, they also make a huge first impression. If the walls need to be painted, are covered in wallpaper or are painted a color you find distasteful, picture them crisp and clean in the color of your choice—that's how they could look after you paint them.
• Floors. Like walls, carpet or floor surfaces that are old or outdated can be easily replaced. You could even ask for a carpet allowance in your bid, especially if you're in a buyer's market.
• View. Things like old, ugly—even dirty—windows and window treatments can make a view appear less desirable. Those things can be improved, so unless the only view you have is of your neighbor's clunker on the side of the house, don't get hung up on what is surely a fixable view.
• Landscaping. Your best bet is a moderately landscaped yard because you can always improve landscaping without spending too much. Worst case, even if you're looking at dirt, landscaping is one of the easier projects to tackle. Plus you get to design it however you'd like if you're starting from scratch.
• Closets and garages. You can never have too much storage space, which is why so many newer homes have three-car garages. But if you encounter a converted garage that is now a bedroom or storage room, don't give up. Converted garages can almost always go back to their original purpose without much cost or labor.
• Kitchen. The most popular room in the house, many homeowners want their kitchen to be large and have modern appliances. Don't let outdated color schemes deter you because there's nothing like a fresh coat (or two) of paint to make a kitchen your own. Plus, if you like the rest of the house enough to make an offer, you can give the kitchen a minor spruce-up with some new appliances or a major overhaul complete with new countertops, cabinets, and flooring.
• The exterior. If the home doesn't have good curb appeal, try to picture it with a fresh coat of paint and revitalized landscaping.
• Pools. If you want a pool, buy a home with a pool already built in. Pools are expensive and you will not get a full return on the cost when you go to sell. Let someone else lose the return. The cost of repairing a pool is less than putting one in, so if you're looking at a home with an old pool that looks like it's in bad shape, it's still a better bet than putting one in later.

When making an offer, consider what you can't live without, as well as your budget. Also, be sure you hire a professional home inspector to inspect the house. If the home's systems are in good working order and the house has everything you want except a minor item or two, make an offer accordingly.

Most importantly, keep in mind that unless you're building your dream home from scratch, you'll probably never find the perfect home. But seeing past a previous owner's bad decorating choices to the core of the home and its potential for livability will yield you the home you've always wanted. It may take some work, but hey—it's yours.

 

They're back ... 2.99% mortgage rates

The rate that attracted Jim Flaherty’s scorn is back, with at least two mortgage brokers offering a 2.99 per cent five-year fixed rate mortgage.
“(The) 2.99 per cent five-year fixed rates just re-appeared,” Ron Butler of Verico Butler Mortgage told MortgageBrokerNews.ca. “Must close in 60 days; otherwise a very normal product in terms of pre-payment and penalty.”
The news comes on the heels of a number of major banks jockeying for competitive advantage by lowering their own, though none came close to falling below the three per cent mark.
At the time of publication, only Verico Butler and Advent Mortgage Services offer a five-year rate below three per cent, with Scotia Bank’s -- the best major bank rate -- sitting at 3.49 per cent, according to RateSupermarket.ca. And for his part, Butler is staying mum about the lender backing the rate.
Of course, the Bank of Montreal made headlines in 2012 with its “2.99 no-friller” that is widely considered to be the catalyst for record-low mortgage rates Canadian homebuyers have enjoyed for over a year.
It remains to be seen whether any other brokers – or big banks – will follow the lead and cut their own rates.

Luxury house sales hit new records across Canada

Sales of luxury homes hit record levels in more than two-thirds of Canadian cities last year — including Toronto — thanks to surging stock markets, renewed consumer confidence and shortage of enough showcase homes to meet demand.

Even Hamilton/Burlington, Kitchener-Waterloo and London-St. Thomas smashed previous sales records for high-end properties in 2013, says the report released Tuesday, which looks at trends over the last five years.

Vancouver’s market, which saw a dramatic slump in both sales and prices in 2012, led the way in 2013 with a 36 per cent increase in high-end sales.

That’s largely because Asian buyers started snapping up grand properties again and developers expanded the “teardown trend” of razing older homes and replacing them with mansions, even on the periphery of desirable neighbourhoods.

However, even the sale of some 1,609 properties over $2 million, among them the most expensive condo in the country — a $25 million, 6,500 square foot penthouse in the Coal Harbour-area Fairmont Pacific Rim hotel — wasn’t quite enough for Vancouver to better its record 1,880 luxury sales in 2011.

Calgary wasn’t far behind with a 34 per cent surge in high-end sales, followed by Edmonton at 32 per cent, Hamilton-Burlington at 31 per cent, Kitchener-Waterloo at 27 per cent and Toronto at 18 per cent, with almost 2,000 properties changing hands in 2013, according to the ReMax report.

But there’s lots of room for negotiation: Most high-end properties tend to sit on the market for months and usually sell below asking price — almost $4 million less for that Vancouver condo — even if there are multiple bids.

As well, what amounts to “luxury” varies dramatically, from just $500,000 in smaller markets like London, according to ReMax, to $750,000 in Hamilton/Burlington, $1 million-plus in Calgary, more than $1.5 million in the GTA and $2 million and above in what remains Canada’s priciest city by far, Vancouver.

The demand for showcase homes in most of Canada’s major cities reflects a trend that’s taken hold in major global cities as economies have started to rebound, stock markets have surged and, along with them, the number of the world’s millionaires, which now stands at about 12 million people worldwide who have more than $1 million U.S. to invest.

In London in the UK, the report notes, sales of homes over $8 million climbed by 24 per cent, and U.S. homes priced at $1 million or more are outstripping other sales by three to one.

“Canada’s luxury housing market has undergone serious transformation in recent years,” says ReMax vice president Gurinder Sandhu. “The market is maturing and the appetite is unprecedented.”

Even condos are commanding sky-high prices. In fact, that two-level, three-bedroom Coal Harbour penthouse, with its library and rooftop terraces, sold for over $6 million more than the priciest Vancouver house, an 8,000 square foot home with tennis courts and views of both mountains and water.

Some 92 condos sold for over $1.5 million across the GTA in 2013, up from 80 a year ago, says ReMax. And there was a 75 per cent jump, year over year, in the number of condos, 49 in total, sold for over $2 million — the priciest being an almost 3,500 square foot condo, $6.3 million Yorkville condo.

Across the GTA, where a shortage of all price ranges of lowrise houses are impacting prices, realtors such as Barry Cohen are seeing an unusual phenomenon play out even in homes listed over $1.5 million — bidding wars.

Competition has been especially fierce among high net worth househunters in areas like Rosedale, Forest Hill, Lawrence Park, Bridle Path, Hogg’s Hollow and Oakville.

“In 2012, the high-end market just froze starting in July until the following June (of 2013), then it was like a green light came on,” says Cohen. He had his best year ever in 2013, including the sale of a Park Lane Circle mansion (albeit, at one time listed for $20 million), that sold for $13.4 million with five offers.

Cohen expects high-end sales across the GTA to break records again this year, driven largely by wealthy locals looking to move up and international investors looking for a safe place to park their money, and their family.

No slowdown on horizon for housing market

It’s the debate that’s destined to keep raging through 2014: Is Canada’s housing market too hot to touch, or set to keep climbing with no ceiling in sight?

“Talk of a ‘soft landing’ for Canada’s real estate market in the new year is misguided,” says one of the country’s biggest brokerages, early out of the 2014 gate, in its quarterly Royal LePage House Price Survey.

“We expect no landing, no slowdown, and no correction in the near-term.”

In fact, price gains are likely to average 3.7 per cent nationally in 2014 as buyers who’ve put purchases on hold the last year or two, expecting a major correction, have watched sales rebound and prices take off again, says Phil Soper, president and chief executive of Royal LePage.

“In the absence of some calamitous event or material increase in mortgage financing costs, we expect this positive momentum to characterize 2014. In fact, we expect a market tipped decidedly in favour of sellers for the first half of the year, after which we project a shift to a more balanced market.”

Those gains are likely to be even bigger in Toronto — Royal LePage predicts prices should climb a further 3.9 per cent in 2014 over average gains of 5.1 per cent in 2013 — as a shortage of lowrise homes in the 416 region continues to drive up average sale prices.

Things aren’t holding up quite so well on the new home housing front, however. Canadian housing starts, which started to cool in the latter part of 2013, are expected to continue their decline into 2014 as affordability, and a significant decline in condo construction, continues to impact sales.

Canadian housing starts slipped 4.1 per cent in December. As of the end of December, some 188,200 units had been started across the country, compared to 215,000 in 2012, according to figures released Thursday. December was the lowest level for low-rise housing starts in 17 years, apart from the 2008 recession, although the slowdown in multi-unit condo construction accounted for most of the decline in building in 2013, according to the figures from the Canada Mortgage and Housing Corp.

Canadian new home prices essentially flatlined, with growth as of November, the most recent figures available, coming in at just 1.4 per cent year over year.

Where housing is headed is really anyone’s guess, with some economists and analysts warning that sales have softened the last three months and could remain that way through the first part of 2014 in the wake of a rush of buyers into the market over the summer as long-term mortgage rates climbed unexpectedly.

One ReMax realtor, with a respectable record of calling the ups and downs of Toronto’s condo market, in particular, blogged this week that he’s heard from so many buyers fed up waiting for prices to drop, he expects to see 95,000 sales transactions this year across the GTA.

That would surpass the previous sales record of 93,193 back in 2007 and last year’s 87,111 sales.

The “moderate” price growth that defined the Vancouver market in 2013 is likely to continue through 2014, Royal LePage anticipates, with prices project to rise 4.4 per cent.

That’s because things are improving on the jobs and economic front, both major drivers of housing demand, notes the survey of some seven housing types in over 250 communities across Canada.

Interest rates are likely to stay put, as well, it says.

But Royal LePage’s most ambitious assumption may be that “aggressive government intervention” — such as further tightening of mortgage lending rules, which knocked many first-time buyers out of the market in the latter part of 2012 and first half of 2013 — is “unlikely to occur in 2014.”

Finance Minister Jim Flaherty has warned repeatedly that he’s especially watching the Toronto and Vancouver markets and is prepared to act again if needed.

Canada’s two priciest markets have had surprisingly rapid comebacks from what Soper terms the country’s “year-long correctional cycle of dramatically slowed sales volumes” that started in 2012.

The survey provides a breakdown of price gains in 17 major Canadian cities, and for three housing types: detached bungalows, standard two-storey homes and condominiums.

The average sale price of a Toronto bungalow was up 3.9 per cent in 2013, followed by 2.7 per cent for two-storey detached homes and 1 per cent for resale condo units, it shows.

The report doesn’t focus any attention on what to expect in the condo sector specifically in 2014, other than to point to a December report commissioned by Royal LePage which said that markets in Toronto, Vancouver and Montreal face some “instability” over the next two years as sales drop off from boom levels and starts outstrip demand.

Can You Afford to Buy a House?

Although the thought of paying a mortgage is more enticing than paying rent, it's important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners.

Potential buyers sometimes forget to factor in the down payment, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.

The days of calling up the landlord to fix your problems come to an abrupt halt when you're a homeowner. You'll be responsible for everything from malfunctioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you'll probably eventually encounter costly repairs, such as replacing the roof or windows.

 

To determine whether you can afford to buy a home, you should do the following:

 

1. Determine the property value of homes that interest you. The property value (what the home is worth) is determined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real estate agent will be able to provide this information to you.

 

2. Review different mortgage loan types and compare their required down payment amounts to the money you have available. Down payments, based on a percentage of the value of the property and determined by the type of mortgage you select, typically range from three to 20 percent of the property value. Don't forget to factor in private mortgage insurance, a policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3 percent down. Usually, the lower the down payment, the higher the PMI, which typically will cost somewhere between $40 and $125 a month.

 

3. Get an estimate of your closing costs, including points (the dollar amount paid to a lender for obtaining a lower interest rate on a loan—one point is one percent of the loan amount), taxes, recording, inspections, prepaid loan interest, title insurance (a policy that insures a home buyer against errors in the title search; cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller) and financing costs from your mortgage lender or a real estate professional. These will generally add up to between 2 and 7 percent of the property value. You'll receive an estimate of these costs from your lender after you apply for a mortgage.

 

4. Add the down payment requirements and the closing costs together to determine the amount of money you'll need right off the bat. But you're not done yet.

 

5. Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.

 

6. Property taxes. Many lenders will require an impound account in which monthly payments for property tax (and often insurance) are paid together with the monthly mortgage payment. You can figure your average annual tax rate will be about 1.5 percent of the purchase price of your home.

 

7. Next, budget for maintenance and repairs. HouseMaster, a home inspection company with 300 franchises nationwide, said that based on a study that evaluated 2,000 inspection reports, the typical costs of major repairs are:

• Roofing: $1,500 to $5,000
• Electrical systems: $20 to $1,500
• Plumbing systems: $300 to $5,000
• Central cooling: $800 to $2,500
• Central heating: $1,500 to $3,000
• Insulation: $800 to $1,500
• Structural systems: $3,000 to $1,500
• Water seepage: $600 to $5,000

Once you crunch the numbers and find you come up a bit short, investigate ways to reduce or creatively fund your down payment—it can come from a variety of sources. Check with your realtor or lender to find out what's available.

You'll also need to factor in the cost of homeowners insurance. In addition to the type of construction, age of the home, your credit history and past insurance history, new issues like litigating costly toxic mold cases are raising homeowners insurance rates.

In fact, the National Association of Insurance Commissioners reports that homeowners will spent an average of $822 on homeowners insurance in 2007, the last year data was available.

In your final analysis of whether you can afford to buy a home, you'll want to weigh the costs with the financial benefits—a consistent mortgage payment (unlike rent, which can increase), the tax benefits (you can deduct, in most cases, mortgage interest, closing costs, and property taxes), and the all-important appreciation factor—the rate of increase in a home's value.

And of course, you'll want to weigh perhaps the biggest benefit of all—having a place to call your own.