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Canada’s New Mortgage Rules for October 2016

Every once in a while the federal government takes action to either stimulate or suppress Canada’s housing market. In the last few years their only concern has been to the latter.

The Vancouver and Toronto housing markets have been on fire for several years with foreign buyers bidding up prices on houses and condos. Vancouver in particular has seen ridiculous home valuations to the point where an average 3 bedroom bungalow is now worth over 1 million dollars. Wealthy Chinese people have been buying up properties with no regard for price. Some are using money that was made through criminal enterprises as a form of money laundering. The average person cannot even hope to own a home in the greater Vancouver area, because incomes could not possibly keep up with Mortgage moneythe price increases.

Toronto has seen much the same happen, specifically with their condo market. Downtown Toronto is littered with cheaply built shoebox condos that are blocking out the sunlight. There, it is still possible for the average person to buy a home, but they have to settle for much less of a home than they would have just a few years ago.

The rest of the country is not experiencing similar problems, in fact Alberta is experiencing a brutal recession caused by low energy prices, so homes are going down in price if anything. Saskatchewan is doing ok, but they are also being affected by low oil prices. Quebec never really booms or busts, they just stay pretty flat all the time, and the Maritimes suffer from chronically low employment.

Regardless of the fact that most of the country’s real estate market is not overheated and required no action, the government of Canada decided they needed to do something to slow down Vancouver and Toronto. One measure aimed squarely at them is the new rule that requires you to report on your income tax return if you sold a home that you claimed as your principle residence. This will make it harder for foreign buyers to claim they lived in the home when they were actually away for the whole time they owned the property.

The measure that is going to have a large impact on the whole population, especially lower income Canadians is the stress test that will now be applied on everyone that applies for a mortgage that needs to be insured by CMHC or Genworth. This test means that you now must qualify for your mortgage at the posted rate instead of the discounted rate. The banks all post a higher rate than is generally available to most people with good credit. For example, their posted rate for a 5 year fixed rate mortgage might be 4.75%. However, their discounted rate might be 2.5%. Before this change you could qualify for a mortgage at the discounted rate of 2.5%. However, after the change you must qualify at the posted rate of 4.75%.

This means that you can’t qualify for as large of a mortgage as you could before, which means you have to settle for a much cheaper home. For example, before the change you may have qualified for a $400,000 home and after the change you would only qualify for a $325,000 home. That is quite a large difference.

In addition, many mortgage brokers are reporting that even with the change, they are finding it hard to get their people approved.  Talk to mortgage broker to get more details and watch the video below.

 

Second Quarter 2016 Edmonton Real Estate Update

The Edmonton real estate market has been extremely resilient in the last three months considering the fact that the economy in Alberta has been nothing short of terrible. The pain and suffering has been much more evident 3 hours to the south in Calgary where the bulk of the energy related layoffs have occurred. Things have gotten so bad that the vacancy rate in Calgary’s downtown office towers is over 20% and is projected to go even higher with the completion of 3 new buildings in 2017.

One mitigating factor in the case of the Edmonton market is all the government employees that reside there. These highly paid bureaucrats do not have to worry about layoffs or even salary cuts like everyone else in the province. The NDP government is a friend to big labor and their unions, so you can expect them to protect all their union supporters and friends. Because of this fact, Edmonton’s real estate market has fared much better than just about any other jurisdiction in Alberta.

Sales have been down dramatically in April, May and June compared to the same time period in 2015. While this undoubtedly has a negative effect on prices, the decreases have been relatively minor. In April  prices were essentially the same as April of 2015, while prices decreased by 2.9% and 1.8% respectively in May and June when compared to 2015.

Inventory was up in all three months which is no surprise, and could certainly be seen as a positive if you are a buyer just entering the market. There is a lot of product to choose from and you can take your time to find the best home that suits your needs. Another thing that is keeping the market from being too depressed is the persistently low interest rates that we have had for several years now. You can still get a 5 year fixed mortgage for under 2.5% which is extremely low when compared to the last 30 years.

I am starting to believe that mortgage rates will not be allowed to increase substantially for a long time to come. This is because there are so many people in Canada that have bought homes that they can barely afford even at these historically low rates. If rates were to go up to 5% there would be an avalanche of foreclosures when those 5 year terms expired and the home owners had to renew at the much higher rate, which would effectively almost double their payments. Things would be especially bad in places like Vancouver and Toronto where the prices are out of control. If they ever had substantial price decreases, it would throw a lot of people under water on their mortgages which would also cause a lot of foreclosures.

Here are some infographics that show all the numbers for April, May, and June  courtesy of Team Eskiw at RE/MAX Edmonton

April Real Estate statistics for Edmonton

 

 

May real estate statistics for Edmonton 2016

 

 

June 2016 real estate statistics for Edmonton

 

First Quarter Edmonton Real Estate Market Update

The Edmonton real estate market seems to be doing pretty well considering all of the negative news that seems to come out pretty much on a daily basis. You have to remember that the media loves negativity and those shocking headlines that get people’s attention.

You see it on TV, radio and on the internet. Just check out the newspaper websites like the Globe and Mail and the Edmonton Journal. These websites love to use what we call “clickbait” to get people to click on an article. Clickbait means that they use a sensational headline that makes you want to click on the article.  I have seen many of these headlines for stories about Alberta real estate such as “Alberta real estate set to crash” or “Don’t buy Edmonton real estate”. Usually the actual articles are not as negative as the headline, but the problem is that some people only scan the headlines and may get a more negative impression of our real estate market than they would have if they had read the article.

Having said all that, Edmonton is doing quite a bit better than Calgary mostly because of the fact that they have all those government workers that have very nice salaries. Despite the enormous deficit that will be over 10 Billion dollars this year, there have been no layoffs and no pay cuts in the public sector. In contrast, Calgary has experienced thousands of layoffs from high paying energy jobs and also from collateral damage in unrelated industries.

A very important thing to remember is that real estate is local. A great example of that is Vancouver. If you compare Edmonton to Vancouver, you are comparing apples to oranges. They are totally different markets with very different influences. Vancouver prices are still skyrocketing because of wealthy foreign investors that are buying expensive properties without even seeing them. So, when you see a general headline that says real estate in Canada is still going up, ignore it, because it has nothing to do with Edmonton.

Even within Edmonton, there are hot neighbourhoods that may be increasing in price because of being close to transit, schools, and shopping. However most neighbourhoods have decreased in price when compared to this time last year. You have to compare sale prices of homes in the same neighbourhood or similar neibhbourhoods. You also have to compare similar sized homes with similar features.

Here is an infographic that shows the statistics for Edmonton in the month of March

March real estate stats for Edmonton

 

 

 

Why You Should Choose an Accelerated Bi-Weekly Payment

When it comes to paying off your mortgage, you need to to take advantage of all the strategies available to you. If you are diligent and stick to a plan you can potentially save thousands and even tens of thousands of dollars over the course of your mortgage amortization.

Since the shortest amortization you can get in Canada right now is 25 years, if you start implementing these strategies right away, you could be relatively young when you have your home paid off.

When it comes to your mortgage payments, you basically have three choices.

  1. Monthly payments – This just means that you pay a set amount every month, so you will have 12 payments a year. If your amortization is 25 years, it will take you 25 years to pay off your mortgage. The math is simple, for example if your monthly payment is $1295 per month you will make 12 payments a year for a total of $15,540
  2. Bi-weekly payments – This means that you make a payment every two weeks for a total of 26 payments with each payment being calcultated with this formula ($1295 x 12) / 26 for a total payment of $597.69 every two weeks. This also results in a total of $15540 being paid every year.
  3. Accelerated Bi-weekly payments – This means that you are still making your payment every two weeks but in this case you are paying a little bit more with each payment. The formula is $1295 / 2 which results in a payment of $647.50 every two weeks. The total paid over the course of the year is now $16,835. So of course if you are paying an extra $1295 dollars on your mortgage every year, you will pay off your mortgage a few years earlier and save a lot of money in interest charges.

As you can probably see it is usually not that difficult to come up with an extra $49.81 every two weeks. Most people will just get used to it and not even notice the increased payment. Accelerated Bi-weekly payments are the easiest way to shave a few years off of your mortgage while saving a lot of money. When you combine this strategy with making even one extra payment every year, you will be even further ahead.

There are plenty of youtube videos and websites that have a ton of other strategies that you can use to reduce the duration of your mortgage and how much you end up paying in interest. Just make sure you talk to your lender to see what their prepayment privilages are. Most big banks are pretty flexible in letting you make extra payments at least once a year and some allow it every month.

 

Should Use Your Bank or a Broker?

When you need mortgage financing  for a new home or rental property, which would you use?

It is troubling that the big banks that all make a nice quarterly profit of over a billion dollars, don’t have your best interests in mind. When you try to contact them, you are often put on hold for 30 minutes or more because they don’t care enough about their customers to hire enough staff to answer the phone any quicker. You would think that even just as a public service they could hire more people to help out the communities that they operate in by creating employment. Why wouldn’t they do that to keep their customers happy? Because all they care about is profits and making even more money.

So, having said that, we think that using a mortgage broker is the obvious choice since these individuals will want to make you happy since they rely on referrals from happy customers. They will go that extra mile to make you happy. Do you think that bank representative really cares about you? Their job is to sell you as many products as possible, including those terrible mutual funds they peddle to people. Those funds have so many fees that by the time all the commissions are paid, you get almost 0% return even if the fund does well.

A mortgage broker has access to at least 30 lenders including some of the big banks. Those same big banks will give a better rate to a broker than they will give to their loyal customers that have been with them for 20 years. In addition, if you have a questionable credit history, brokers can find lenders that will be willing to work with you. The banks may just say no.

Here is more on why you should use a broker instead of your bank that is only interested in profits.

 

 

How Low Will Home Prices Go in Calgary?

With the price of oil still in a downward trend, we have to first ask the question how low will oil go? This week black gold went below $30 a barrel and many people are now predicting that it will go down to $20 a barrel. Continuing weakness in the Chinese economy and dramatic losses in their stock market recently are not helping the situation with oil at all.

That, combined with a steady increase in supply from fracking, the Saudis and Iran, has caused a freefall in the price of oil. Saudi Arabia started this whole thing a little over a year ago when they decided they would try to force higher cost producers in the United States and to a lesser extent, other countries out of business by flooding the market and causing prices to drop.

So far no one has blinked, with the exception of the Alberta oilsands who have one of the highest cost structures of any oil producer. So most people expect prices to stay below $50 for the next several years. If that happens, the effect on home prices in Calgary and Alberta in general will not be good.

Prices have been surprisingly stable to this point in the beginning of 2016 with only small price decreases. For the month of December 2015 the average price of a single family home declined by only 3% when compared with December of 2014. For condos the news was a little worse with a decrease in price of 4.5% compared to December of 2014

So where do we go from here? If we continue to get mass layoffs and the unemployment rate continues to rise, we can expect prices to continue to decrease, but I do not think we will see a freefall. This is because even though there will be less jobs, Calgary is still a a very good place to live.  In addition, as long as the housing markets in other Canadian cities remain stable, I believe that will help to prop up the market here. Sure some people that moved here only a few years ago may decide to pull up stakes and move back to their home province, but there will always be new immigrants to take their place.

2016 will not be a good year for the Calgary real estate market, but it won’t be a horror story either. As long as mortgage rates stay low we shouldn’t have too many foreclosures, although they will increase in number. If rates did go up dramatically, there would be a problem everywhere in Canada, not just Calgary.

Thanks to Carmen Paradis of RE/MAX for this infographic

Calgary real estate infographic

 

Do Your Homework Before Buying a Home

Here is a great post on planning before you make one of the biggest purchases you will ever make in your life. If you don’t know exactly what you want, you could get stuck with a home that doesn’t suit your needs. To make matters worse, if you buy in a bad neighbourhood or on a busy street, you could have trouble selling the home when you want to move.  Make sure you use an experienced realtor that can guide you through the fairly complicated process of buying a home.

Here is the article:

The thought of purchasing a home is something that is constantly on the minds of those without one. Sure, the apartment might be nice, but it doesn’t feel like it’s yours. Houses are definitely beneficial to well-being and happiness of potential buyers. A home sets the foundation of a family, which is important. Almost everyone knows that a family is what makes a home, so carefully planning your investment in your future is vastly important.

Without planning your purchase, you could be regretting your decision in the near future. Without a solid plan, and efficient time for that plan to take effect, the whole process could fall apart. The last thing you want to happen after finding a home you like is for that home to slip away from you. Even worse, you could not be able to afford your purchase and be forced to leave it behind.

What key parts of this plan should you include in yours? Well, when purchasing a home in Canada, there are multiple things to take into consideration, but the most important thing is to take your time.

Plan, Plan, Plan

Okay, so you’ve decided that you’re going to take this crazy idea of buying a home more seriously… Now what? Well, now would be a good time to get it all down on paper—or wherever you might take notes. Create a list of things you would need to have/do so this crazy idea can become a reality (BankRate).

Place the more important things at the top of the list, while leaving the bottom for things that could either be done quickly or can be done at a later time. How do you know the order those things should be placed? Well, a key part of planning is research, research, and research! Some potential candidates for your list will be covered later on.

Be Proactive

You should wait until a few months prior to your purchase to look up your credit score for the first time. You should check your credit score every few months, but not too often. Checking your credit score too often can actually harm your credit score!

Look up your score and take note of anything that may be bringing your numbers lower than you’d like them to be. Whether it’s collections or credit card debt, it can all be taken care of a bit at a time. If your debt is looming over you, then increase the time span of your plan to purchase a home. It will end up saving you money in the long run, due to lower interest rates (BankRate). Be sure to get your report from a reputable company/website! Information that isn’t current will set you off course.

Another way to be proactive is by increasing the cash flow to your savings account. This will not only show how serious you are about this, but it will help you get into the mentality of a soon-to-be home owner! With the number in your savings account rising, your focus will increase and you’ll become an unstoppable home buying machine!

Plan Some MORE

At this point, you may either hate making lists or you will start to love them. Lists serve as visual incentive as to how far you’ve come along in this journey. The more items you cross off your list, the more that you need add, it seems.

The type of planning you should focus this time around is your finances. Look at how far along you’ve come with your savings and try and estimate how large this number will be by the time you’re ready to pull the trigger. Use that number to get another number, this time about what you believe you’ll be able to afford (BankRate).

Now, make sure you have a clear definition about what “afford” entails. You shouldn’t define afford as being able to purchase the home, but being left with close to nothing afterwards. Your financial plan should clearly define how much you’ll be able to spend on the down payment of the home, while still being able to afford any fee’s after the deal is closed. In addition to the fees, you should leave room for furnishing—if needed—and grocery money. Your plan shouldn’t stop at the day you purchase the home, but rather months, if not a year or so after (TheSimpleDollar).

Even if the money you’ll have available for the home might be less than you originally anticipated, this doesn’t mean you should lower your expectations about your future home. Having less doesn’t automatically require you to settle, but instead take some extra time to either consider different options or give yourself extra time to save.

It is highly recommended that any changes in savings, especially an increase in deposits to the account, don’t infringe upon your current financial responsibilities. It’s important that you find the balance between chasing your dream and holding everything together while doing so.

Again, Don’t Settle

When you feel forced into a purchase, due to numerous circumstances, this can lead to the resentment of your purchase. If you decide to go ahead with your search, although you have lower funds, you should still expect to find a house you really like. Canada is filled with beautiful and affordable homes, so the right one for you might be just around the corner! Keep a positive attitude and don’t stop looking until you’ve found the right home.
When you feel that you have completed your search, get your home inspected. It is important to pay attention during this inspection, because the financial responsibility behind repairing a home could be surprisingly costly. Once you’ve gotten your inspection, consider getting a second opinion (TheSimpleDollar). A fresh set of eyes could find something the previous inspector did not. If everything seems in order and you’re finally ready to set the purchase in motion, take some time to sleep on it. The home isn’t going anywhere, so if you wake up and you’re still sure then go for it!

The post Planning Ahead Before Buying a Home appeared first on Jencor Mortgage Corporation.

 

Want to Know What an ETF is?

Even though Exchange Traded Funds have been around for a lot of years, most people don’t have a clue what they are and how they can use them. Here is a great article that was originally published on ratehub.ca

A survey by asset management firm BlackRock finds only 20% of Canadians say they’re familiar with ETFs.

There’s also a gender difference when it comes knowledge about and investing in ETFs. Twenty-seven percent of men have a greater awareness of ETFs compared to just 9% of women.

Men also seem to have a better understanding of the benefits of ETFs. Men say the top reasons for using ETFs are because they’re easy to use (37%) and they’re low cost (17%). Nearly half of women (49%) say they use ETFs because their financial advisor recommended them.

If you’re not sure what ETFs are, here’s a quick primer:

  1. What’s an ETF?

Like a mutual fund, an ETF is a fund that holds a basket of stocks or bonds and is managed by a portfolio manager. And like a stock, an ETF is traded on a stock exchange.

  1. What are the benefits of ETFs?

Buying an ETF allows you to diversify your portfolio because you hold a variety of stocks or bonds. Most ETFs track an index like the S&P/TSX Composite Index, which is a passive management approach. Most mutual funds take an active management approach and try to beat the index. This makes mutual funds more expensive to own.

  1. How much do ETFs cost?

There are two fees associated with ETFs. First, you have to pay a fee (called a trading commission) each time you buy or sell an ETF. Most discount brokerages charge about $10 a trade. Second, there’s the management expense ratio (MER), which pays for the fund’s operating expenses. According to investment research firm Morningstar, the average MER on an ETF is 0.61% while the average MER on a mutual fund is 1.86%, which means you’ll end up paying almost three times as much to own the mutual fund. BMO, Vanguard, and iShares offer some ETFs with MERs as low as 0.05%.

  1. How do I buy an ETF?

In order to buy or sell an ETF, you need to open up a trading account either with a full-service investment firm or a discount brokerage. A full-service firm will advise you on what types of investments to make and you’ll pay higher fees for their services. Using a discount brokerage means you get to choose your own investments and best of all, it’ll cost less. There are even some discount brokerages that don’t charge commissions on ETF trading so it pays to do some research.

  1. Can I hold an ETF in my TFSA?

Yes, besides GICs and high-interest savings, ETFs are another one of many investment options for your TFSA. You can also hold an ETF in an RRSP or RESP.

 

2.84% for a 5 year fixed rate

Right now you can get that rate if you have decent credit and a possession date that is not too far out.

It seems like the experts have been saying for years now that rates are going up, but all that seems to happen is they stay the same or go down. I think that rates will be low for the next few years because it will be a disaster if they go up dramatically with the prices we have right now. For example a starter house costs over $400,000 in Calgary, Toronto, Edmonton, and way more in Vancouver, so if a young couple can barely qualify at 2.84% what is going to happen to them if rates were to go up to 4% or 5%? They would have to come up with nearly double the mortgage payment every month.That would cause a lot of foreclosures and pain. If anything, rates will have to rise very slowly to avoid that scenario.

Fixed rates are tied to the bond market, and variable rates are tied to the Bank of Canada prime rate. So when you hear on the news that the prime rate is going up ( we have not heard that for years) it will only immediately impact variable rates.

My advice if you are planning on buying in the near future is secure that rate right now – that will protect you from any rate increases for next 90 to 120 days and if rates go even lower, you will get that rate.