The Market Slow Down; Gearing Up

July and August have been relatively quiet compared to what we have experienced in the mortgage industry earlier this year. However, comparatively speaking, a distinct impact has been felt over these past few weeks. We are starting to hear, and see, the effects of the new mortgage rules enforced by the government of Canada and FICOM.

Upon reviewing the headlines, the common tone was “chilling”. Canada’s market was, and is, experiencing a steady fall, with Vancouver seeing the lowest sales drop since 2000. CREA recorded a 2% drop for July. With Vancouver’s market heading for retreat, RBC has declared that Toronto is not experiencing a bubble.

US was hopeful for the start of a recovery with sale prices increasing in June even though sales dropped, but July told a different story with existing home sales and new home sales up 2.3% and 3.6% respectively, but with housing prices dropping along with housing starts.

The global economy is believed to be far removed from the early days of an upturn while the European markets have a dark outlook. One can easily feel the tension, doubt, pessimism and uncertainty constantly overshadowing any positive announcements put forward; the positive outlooks are few and far between.

However, Mr. Carney has announced that we, as Canadians, should experience domestic strength with moderate growth. Inflation dropping to 1.3% in July confirmed that interest rates would remain low for the time being. However, RBC and TD have taken it upon themselves to raise their 3-year fixed rate 0.2 percentage points to 4.05%.

Time magazine recently stated that Canadians are now richer than Americans for the first time, but not surprising, when factoring in the 2008 financial crisis’ effect on many Americans’ net worth.

CMHC is projecting a softer market with no major decline and CIBC weighed in with their expectation that the 25-34 demographic will edge off the housing downturn. “This is actually the first generation that the parents are better off than the kids and those parents will write a nice cheque,” said Benjamin Tal, deputy chief economist at CIBC World Markets.

Many commenters opposed Tal’s projection mentioning the “sandwich generation”, taking care of aging parents and costly family expenses and managing their own retirement investments will have little funds to support the necessary down payments required for the 25-34 demographic wanting to enter the market.

A Leger Marking study for CIBC supports the Tal commenters, proving that over 50% of Canadian’s aged 50-59 are planning to work after retirement to supplement their income; they have less than $100,000 in savings.

Even though some believe that the new mortgage rules will help Canadians manage their debt better, many others believe it has the potential to easily over-extend homeowners while qualified and secure young families will not be able to get the financing approval they need. RBC released this week that Canadian homes have become less affordable during Q2, which could encourage many potential buyers to choose to rent instead.

With all things considered, we are still nearing record levels of home ownership in Canada, 70%, the same percentile US hit before the big bust.

For mortgage brokers, we have yet another lender looking to exit the mortgage market and broker channel. ING direct, a 15-year-old e-bank, has Scotia, National Bank and TD lined up as potential buyers.

Are these all signs of bigger, more challenging times to come? Quite possibly, but also note that we are currently one of the strongest economies on the globe today, and if we navigate these pressures successfully, it could lead to unprecedented change for Canada’s global position and economic power.

Making Storage Beautiful

I love beautiful storage.  It makes my life easier, it makes me appreciate my home more and in some cases it can add value to your real estate investment.

Here are some great websites recommending ways to get organized and add some beauty to your home.  So many ideas that can lead to even more creative ways of using your closet, wall space, and shelves.

Four Tips to Organizing Your Closet “People wear 20% of what they have 80% of the time,” says Donna Smalin Kuper, a professional organizer and author of How to Declutter and Make Money Now!

50 Cool Jewelry Storage Ideas Take care and show off you beautiful stones, pearls, and beads. 

Clever Built in Storage Ideas “These images are completely inspiring and really display how every nook in a home can be functional with a bit of ingenuity…”

House Tours: A Stylish Home with Practical Storage “After she lost most of her possessions in Hurricane Katrina, Amanda Catalanotto, professional organizer and homeowner, rebuilt her family’s house with style and function in mind.”

Ideas for Strategic Organization & Storage “Stop clutter from clogging up your home by taking an orderly approach to fixing pain points, such as your entry, kitchen, and closets…”

Add Brackets for Neat Stacks “Prevent folded clothes and linens from toppling with wooden dividers.”

When renting is an appetizing option

I am always amazed when I read these types of articles.  More often than not, the couples they interview are in very good financial positions and have a number of options when considering to purchasing real estate.  Yet, every time advisors advise them to wait and buy later.  Save more money for 4-5 years and then consider buying once you have a LARGE savings built up, around 25%.

Why is this the only solution given?  Especially when dealing with a volatile product such as real estate? Waiting 4-5 years could do good, however, considering the market were in, buying in 1-3 years might be a better use of your money should prices drop and interest rates remain low.  By sticking with a 5-year buying plan, thousands of dollars in built up equity could be missed.  By not looking outside the 3-bedroom house dream and considering a smaller unit, say a condo, potential ownership could be postponed for longer than hoped.  What if prices don’t lower, interest rates get higher and mortgage rules change again.  I always believe there is some “extra” value in entering the market with a lower cost investment to start. Refinancing options can give opportunity to use the equity when you are ready to upgrade, while possibly keeping your first property as a rental.

I urge couples and individuals to take a serious look at your financials. Understand that timing is important, but to take advantage of it, you also need to be watching the market.  A plan that doesn’t involve watching and understanding what’s happening in the market and how interest rates are changing, is a plan that could potentially cost you.

Work with a financial planner and a mortgage professional so you have an expert working with your best interests in mind.  Consider filling out a mortgage application, even if you feel your not ready to buy now, it will get you an idea of what you can afford. Do it again in a year or year and half.  Review what has changed and learn how theses changes effect your buying power.   By doing that simple step, you will be able to identify when the time is right for you to purchase, taking into consideration your current income, down payment, expected mortgage approval, and the market prices.

…”Although their income will more than double once Carrie begins working, “we don’t feel we can buy into the Vancouver real estate market because the costs are still astronomical,” Jordan writes.

They are looking for a three-bedroom house because they are planning to start a family at some point.

“We’re dead set against moving to the fringes of the city just to afford a house,” Jordan writes. “We’d rather rent than give up our lifestyle.”

Their question is twofold: What should they do with the down payment money they have saved – proceeds from the sale of their previous house plus savings – until they can afford to buy; and how long must they wait before they take the plunge into the high-priced Vancouver real estate market?”…Read More.

Investment alert

Dorchester Circle 233, 7297 Moffatt Road List Price: $235,000 Floor Area: 740 Taxes: $907 Maintenance Fee: $135.73 MLS: V965302

If you have some money burning a hole in your pocket and would like to consider investing in real estate, this is the type of property I would suggest putting your investment dollars.  Main reason: location.  The location has an excellent walk score (70 out of 100), with it being close to restaurants, shopping, coffee shops, schools, community centres, parks, and transit.  Perfect components for a rental unit.  The complex is also situated on a beautiful quiet and welcoming cul de sac, a nice place to call home.

The unit was renovated in 2008 and still looks like new.  There is decent closets/storage space within the unit and a separate storage locker.  The bedroom is large and currently has a king size bed with two large dresser units filling the 143 sqft room.  The bathroom is compact, with the a small tub, but it has been upgraded to match the rest of the condo.  The den is a great size that could be converted to a second room or used as an office.  Although the kitchen is small, the open living area provides a nice flow through the unit.  The patio is a good size and the view, along with all windows of the unit, face an open court yard.

Its a large building with amenities including a pool, steam room and exercise centre.  Considering those extras, the maintenance fees are very reasonable.

Before anyone considers to buy an older property, I recommend some due diligence to ensure that no surprise bills are expected in the near future.  That being said, this building has finished replumbing in 2008 and more recently painted the exterior walls and replaced the roof.  The complex has an on-site manager and is known to be excellently maintained.

If investing with a 20% down payment, your $47,000 would leave you with payments of approximately $800/month at a 3.09% interest rate and a 30-year amortization.  This particular unit was rented out a few years ago at $950.00   Depending on the market now, it is possible to cover your full property costs (mortgage, maintenance fee, and taxes).

If you’re considering buying, a 5% down payment of $11, 750 would give you payments just under $1100.00 at a 3.09% rate and 25-year amortization.  You would need an income of around $50,000 to support a $229,400 mortgage (inclusive of mortgage default insurance).

PROS

1. Location, location, location
2. Priced better (per sqft) than the other 1-bedroom unit available in the building (and it’s not renovated).  Comparisons
3. Amenities included
4. Quiet and nice cul de sac
5. Nice renovations
6. Great den
7. Welcoming and functional layout
8. On-site management
9. Building upgrades recently completed

CONS

1. Small bath tub
2. Hallways have “mixed” smells from cooking and smoking units, however, the unit is not effected by this
3. Long walk from entry to unit, however, there is a shorter route from parking garage
4. Older building, may need additional maintenance upgrades over time

From my home to yours - Irene

It’s got potential

5182 Moncton Street, Richmond MLS Listing: V964472 List Price: $1,088,000.00 Floor Area: 3030 Taxes: $3664

A whooping 7 bedrooms, 5 bathrooms and 4 different living areas makes up this over 3000 sqft home.

The kitchen is large and spacious with exceptional cupboard space, an eating area, office space and an additional family space.  The living room and dinning room are comfortable, however, for the size of the house they are not as spacious as I would have expected.   The upstairs is basically comprised of the bedrooms and bathrooms to one side of the house with the eating, social areas and decks on the other. The downstairs has three more complete rooms with a fourth option off the garage.  There is a bathroom and finished kitchen that can be enclosed to act as a mortgage helper.  The suite currently has one bedroom, but can include a second and/or third if a section of the garage was converted to a bedroom.

A true bonus to the home is that there are TONS of closets and storage spaces, something I feel is always overlooked in modern developments.  For this particular unit, it adds great value to the home  There are two very large closets/pantry upstairs with a crawls space, closet, laundry area and garage storage down.  The bedrooms are not exceptionally large, but they have basic layouts with decent closet space.  The master bedroom had a walk-in closet, which is a nice feature to an otherwise basic master unit.

There is a deck facing the street (north) as well as one facing the backyard (south) with a patio below.  This provides a space in the sun on either end of the house depending on the time of day.  The yard is a good size and can be landscaped to add more value to the home.

The home is only 5-years old, however, there is some wear and tear on things such as the closets, doors, and stairs, however, a little TLC can refresh the home to top quality.

The space is not a fit for everyone, but for the right family, this home could not only offer the space and comfort for raising youngsters, but provide an additional income generator with the rental suite to offset some of the monthly mortgage costs.

PROS

1. Lots of storage
2. North and south facing decks
3. Large yard
4. Rental suite option
5. Granite counter tops in bathrooms and kitchen
6. Close to Steveston village
7. Closet to Steveston Community Centre, Parks and Schools
8. Lots of garage space, pad parking and street parking

CONS

1. Some touch up work to be done
2. Construction work needed if converting rental suite to 3-bedrooms
3. Landscaping improvements to consider
4. Lots of bathrooms to clean 

Mortgage Notes

It is difficult to determine the exact income required, however, assuming no assets or debts and a good credit rating a income of $105,000 should be able to support a mortgage of $870,400 with a 20% down payment of $217,600.  This is estimated with a 3.09% interest rate, a 30-year amortization, and a rental offset of 80% with an estimated rental rate of $1000 per month.  Total monthly mortgage payments would be $3,702.72.

Due to the mortgage rule changes, one would not be able to purchase this home with less than 20% down unless an offer of under a million was accepted.  At $999,999.00 with 5% down, a 25-year maximum amortization for an insured mortgage, and maximum 50% rental offset, the income required to support this mortgage at 3.09% would be approximately $150,000 (no assets or debts factored in).  Total monthly mortgage payments would be $4664.66, with the inclusion of CMHC default insurance.

From my home to yours… - Irene