If you want to include your home as part of your asset mix, Canadians may not be such bad savers after all.

The net worth of Canadians keeps rising – it reached $199,700 per capita at the end of the fourth quarter of 2012. But that wealth is being generated from our flourishing property prices, something that financial planners haven’t always considered in a retirement planning scenario.

An analysis of Statistics Canada National Households Balance Sheet by Carleton University professors Ian Lee and Vijay Job found Canadians have gross assets of approximately $8.8-trillion of which $3.5-trillion is held in primary and secondary residences and raw land, $3.7-trillion is in cash, mutual funds, equities, and $1.6-trillion is in registered pension plans. Taking away $1.7-trillion in debt, that leaves $7.1-trillion. While they concluded Canadians are actually much smarter savers than we are given credit for, others might see it as violating the No. 1 rule of investing: Don’t put all your eggs in one basket.

“Real estate makes up about half of our total assets, not including debt,” said Doug Porter, chief economist at Bank of Montreal. That’s a pretty high percentage to invest in one sector of the market.

While more than a few skeptics say the piggy bank known as your house is not that secure, prices have not dipped. The Canadian Real Estate Association said Wednesday that while April sales were down 3.1% from a year ago, the average sale price last month rose 1.3% from a year ago to an average of $380,588.

If you are worried that you are overweight in real estate, what can you do to take some money out of it and spread some of the risk around?

If you don’t want to sell there are a number of options you can explore to diversify your so-called savings. If you’ve got decent equity in your home, you can easily get a line of credit on it and use the money to invest and thereby diversify your overall wealth.

“If you have a $500,000 house with no debt on it and you get CPP, most banks will give you a $75,000 line of credit,” says certified financial planner Ted Rechtshaffen, president of TriDelta Financial Partners, adding the rate is about prime plus 50 basis points.

If you take that loan and invest the money, not only have you diversified your savings but you’ve created a deduction for any of the income you earn from the money.

“You can borrow at 3% and invest in something that pays a 5% [yield]. I’m not saying it’s without risk,” said Mr. Rechtshaffen, who doesn’t think over 50% of your net worth should be in real estate. Others in the investment industry suggest between 30% and 50% is appropriate.

“A significant number of people in Canada are well over 50% in real estate.”

Even with a loan you are still exposed to any downturn in real estate but your overall portfolio now has more assets with a larger debt component.

There’s nothing to prevent you from taking the profit from your home outright but if you decide to extract equity and downsize you can expect transaction costs in the 8% to 10% range.

You could really think outside the box and sell your house with a provision that allows you to lease it back from the buyer. A $1-million home that generates say $50,000 a year in rent, or 5%, might be a tempting deal for someone looking for an investment opportunity.

One of the more controversial schemes for extracting wealth from your home is a reverse mortgage, a product which can give you cash today at the expense of drawing down on the equity of your home when it is time to sale.

CHIP Home Income Plan, which is administered by HomEquity Bank, is the only provider of reverse mortgages in the country and originates about $250-million in mortgages a year.

Steven Ranson, chief executive of HomeQ which owns HomEquity Bank, says the average customer takes out about 33% of their equity and the average mortgage amount is $120,000. Consumers can take it up front or draw it down over a period of time like investing in an annuity.

“You get what you pay for. You are not making a payment and the loan is never going to be re-underwritten. You don’t have to worry again what happens in five years.” says Mr. Ranson, about his five-year rate of 5.4% which compares with rates as low as 2.7% available for a traditional mortgage.

You get to live in your house forever so the risk for CHIP is you end up living in your house so long that the equity in the property is worth less than the loan. It rarely happens that way — about 25 of 10,000 mortgages the company has ever written have ended up under water. The average client pays about 50% of their equity at the time of sale to CHIP.

Funny enough, Mr. Ranson is one who doesn’t really think consumers should count on their homes as savings instruments. “There are a lot of stats out there that a generation of people are not saving the way previous generations did,” he said.

BMO’s Doug Porter says the official savings rate was 3.8% in the fourth quarter of last year whereas it was once in the high teens in the 1980s.

“I think it is fair to count your house as part of your savings if part of the long-term plan is to downsize,” said Mr. Porter. “I would counsel that it is an asset and asset price can fluctuate. Until you sell you don’t know what that savings will look like.”

It’s one more reason diversifying makes sense.

Source: Garry Marr, Financial Post

Canadian home sales rose in April, the second straight monthly gain, as spring homebuying breathed life back into the slowing real estate sector and bolstered hopes that Canada will manage a soft landing rather than a U.S.-style housing crash.

Sales of existing homes climbed 0.6% in April from March, but year-over-year sales were down 3.1%, the Canadian Real Estate Association said on yesterday in a report that showed a small spring bounce in an otherwise slowing housing sector.

CREA’s home price index rose 2.2% in April from a year earlier, its smallest gain in more than two years. That echoed the 2.0% April gain in the Teranet-National Bank Composite House Price Index reported on Tuesday.

Prices, still above year-ago levels in most markets, typically lag a slowdown in sales activity as sellers resist pressure to lower asking prices and wait to see whether the market is truly declining.

Canada’s housing market began slowing in the middle of 2012, when the government tightened lending rules in a bid to prevent consumers from taking on too much debt.

“Today’s report further underscores our argument that tighter mortgage regulations have a transitory impact and the expectation for stabilization in the housing market. We expect this theme will persist over the balance of the year and into 2014,” Mazen Issa, Canada Macro Strategist at TD Securities, said in a research note.

He said the key markets of Toronto and Vancouver look more balanced after a period of moderation, which will help limit the downside in prices.

The April month-on-month uptick in sales was the second straight monthly gain. CREA said home sales improved in more than half of all local markets in April from March, led by gains in Toronto, Winnipeg, Calgary and Victoria.

There was some noise in the data. CREA chief economist Gregory Klump said the Easter holiday and extra full weekend in March lowered sales activity that month and boosted April sales.

The CREA report showed the national sales-to-new listings ratio inched up to 50.4% in April from 49.7% in March. It has held near the same level for the past nine months.

Nationally, there were 6.6 months of inventory at the end of April 2013, unchanged from the end of March.

The national average price, not seasonally adjusted, for homes sold in April was $380,588, up 1.3% from the same month last year.

Source: Andrea Hopkins, Reuters

The rental market in Toronto condominiums is heating up, with increasing numbers of units being leased rather than sold and rents continuing to rise in the first quarter of 2013, an analysis by the market research company Urbanation suggests.

There were 31 per cent more condo units leased in the first quarter than a year ago, Urbanation found, and rents were up 4.4 per cent, a gentler jump from the 5.9 per cent increase that occurred between the first quarters of 2011 and 2012 but still a significant rise, said Pauline Lierman, Urbanation’s director of market research.

The average rent was $1,856, or $2.33 per square foot, in the first quarter compared to $2.11 in Q1 2011.

That jump in rent of more than 10 per cent in two years is mainly a product of demand, with the most desirable units in downtown locations close to transit lines and amenities, Lierman said.

“The vacancy rate is barely over one per cent for rental condominiums,” Lierman said. “The market has remained tight.”

Investors who have bought condos are choosing to rent them out instead of selling them, Urbanation’s senior vice-president, Shaun Hildebrand, said in a news release.

“For the first time in a while, rents are rising faster than prices,” he said.

Of the 773 new condominium units listed in Q1 2013, 13 per cent were rented out, versus four per cent of listed units in Q1 2012. Only two per cent of the new listed units were resold, down from 2.8 per cent last year.

“You’re seeing a higher trading factor rather than a resale factor,” Lierman said. “What you’re seeing is more [units] are going into the rental market. These people may be investors or people who bought and aren’t going to use their units and are not putting their units into the market.”

Much of the increase in rentals in Q1 2013 is owing to the fact that more than twice as many condominium projects were completed that quarter than in 2012: 4,859 new units were registered in Q1 2013 versus 2,127 in Q1 2012.

Many condo projects were started in the volatile period of 2008-2009 and experienced construction delays because of the recession and are only now making up the deficit, which is in part why the number of available new condo units was so much lower last year, Lierman said.

Lierman says that another factor driving more people to rent condo units instead of buying them is the further tightening of mortgage rules last year, which shortened the maximum amortization period for government-backed insured mortgages and reduced the maximum size of home equity loans.

“The changes have definitely seen first-time buyers put off; they’re renting,” she said. “It’s hard to quantify, but you can definitely see the resale market has slowed down throughout the latter half of the year. Even the new sale market slowed down. We were ahead of the year before during the first half of 2012 and then everything eased off. Prices have flattened out.”

Source: CBC News

Prices of ultra-prime property in the world’s leading financial destinations are set to grow by more than a quarter in the next five years.

The value of residential homes worth more than £10-million in London, New York, Hong Kong and Singapore will rise 27% in the next five years, new data from leading property and finance companies predicts.

Nick Candy, Chief Executive of developers Candy & Candy says, “By 2017 the Ultra High Net Worth Individuals (UHNWI) population is expected to have increased by 20% and their wealth by 30%.

“A trophy safe haven property in a global city is typically at the top of the shopping list for wealthy individuals, and their continuing appetite for such investment is expected to exert even greater influence over global property markets in the next few years.”

In 2012 there were more than 300 residential real estate transactions of over £10million that together were valued at more than £6.6billion, Savills research shows.

The total is expected to grow by 400 per year up to 2017 to a total value of £8.4billion. This growth is expected to be both organic and incremental as ultra-prime area expand and new properties are built, driven by the direct impact of global wealth increases and sector price rises.

Global wealth is predicted to increase by around 5% a year from around $122trillion to $150trillion by 2017, figures from The Boston Consulting Group show.

The research, produced by Candy & Candy, Savills and Deutsche Bank, this growth is already underway, as the number of billionaires rose by over 10% in the past year and their wealth increased by 14%.

Much of this wealth creation is being generated in emerging markets such as Africa, central Asia, China and South Korea. Asia’s wealth creation is already rising 11% a year and in Russia, Eastern Europe and Latin America by 9% a year.

North America is home to over one third of the UHNWI population and New York has the highest share of this figure and residential property in the city is good value following price falls in the national property market, says the report.

But when it comes to property transactions over £10million, London is a bigger market than New York, with more than 70% of sales going to overseas buyers, many of whom are establishing a base to live and work.

The rapid rise in wealth generation in Asia has had an unprecedented impact on price growth in the prime residential markets of Hong Kong and Singapore, with property prices increasing by over 150% in each. Asia’s UHNWI population is expected to grow by 50% more than North America’s in the next five years.

The report also examines the real costs to buy, occupy and sell a £10million property in London, New York, Hong Kong and Singapore.

Yolande Barnes, director of Savills World Research, says, “Recent changes to the taxation of international buyers owning property, particularly to stamp duty in Singapore and Hong Kong have made these locations expensive jurisdictions in which to invest. They now rank alongside New York in this respect.

“London’s recent tax changes pale by comparison and the UK capital remains one of the cheaper of the four cities in which to own and occupy real estate.

“But wealthy owners face paying higher property taxes. Hong Kong and Singapore has experienced such rapid price growth that property transaction taxes have been significantly increased by their governments to control the markets. New York has a long established annual property tax and London has also raised its levels of stamp duty and continues to debate the merits of a mansion tax.”

Although tax changes have failed to have a noticeable impact on the buying habits of UHNWIs, there are fears that manoeuvres by governments will put off investors down the line, the report says.

“Evidence from different global markets suggests that the taxation of market transactions tends to reduce the incidence of these transactions so turnover rates have reduced after the introduction of stamp duty taxes,” explained Yolande Barnes.

“We won’t see the rate of ultra-prime house price growth abating significantly over the long term. It will be driven by the rarity value and desirability of homes in established world cities,” she adds.

Source: Overseas Property Professional

The high costs of development could be helping to drive up housing prices in the city of Vancouver, figures provided to The Vancouver Sun by the Urban Development Institute show.

Various city development fees, community amenity charges and sustainability requirements add tens of thousands of dollars to the cost of building a condominium unit in the city of Vancouver. Vancouver charges far more than Burnaby and Surrey, the figures show.

Sky-high land costs and slightly higher construction charges also add to the cost of development in Vancouver compared to other parts of Metro.

“The significant cost premiums of building new homes in Vancouver, compared to Surrey, leads to two observable results,” said Anne McMullin, president and CEO of the Urban Development Institute. “Either the increased costs will inevitably be passed on to homebuyers or the viability of building new market housing will be suppressed. Regardless, the end game is a more unaffordable and less socially sustainable city.”

She says the most obvious way to address affordability is to look at the costs and supply of housing.

“Costs affect supply — if it’s too expensive to build, you’re going to limit the supply. But we still have the demand. There’s always going to be a demand — there are buyers who can afford it.”

But Brian Jackson, the City of Vancouver’s general manager of planning, says market demand drives the price of housing much more than the costs of development.

“If we took $1,000 off the cost of the CACs or we took $1,000 off the cost of the DCLs,” Jackson said, referring to two types of city development fees, “is the developer going to take $1,000 off the cost of selling the house? I don’t think they would – they’re going to get the highest price that they could.”

Nonetheless, he acknowledges developers take a lot of risks when they build in Vancouver.

“I think it’s a tough game out there, especially when the market is becoming soft like it is now,” Jackson said.

It may be a risky game for developers, but the figures provided to The Vancouver Sun still show developers making a sizable profit: even with the higher development costs in Vancouver the expected profit is $80,694 per unit, in Burnaby $54,652 and in Surrey $34,668.

Source: Tracy Sherlock, Vancouver Sun

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Home sales in two of Canada’s biggest cities show the country’s cooling housing market may still have some spring in its step.

Vancouver home sales last month fell about 6% from the same time last year, but were up almost 12% on a monthly basis, according to the latest stats from the Real Estate Board of Greater Vancouver.

Home sales in Toronto fell 2% in April compared to the year-earlier period, but were up a whopping 24% from March, according to the Toronto Real Estate Board.

“Despite the headwinds we have experienced in the housing market this year, April sales came in quite strong in comparison to last year,” said Ann Hannah, president of the Toronto Real Estate Board. “As we move through the spring and into the second half of 2013, the demand for home ownership should continue to firm up relative to last year.”

It’s now been nearly a full year since the federal government enacted stricter mortgage lending guidelines that cooled what was then a hot housing market in Canada, and Ms. Hannah says it’s “realistic to surmise” that some households may be on the hunt again to buy a new home.

Those potential buyers may welcome this nugget of good news: the pace of home-price growth continues to fall, at least in Toronto.

The price of an average home in Toronto rose 2% in April to 526,335 Canadian dollars ($521,898), the real estate board said, and while higher, it’s the fourth-straight month the pace of price increases has slowed. In March, Toronto prices climbed 3.8% from the previous month.

Prices in Vancouver fell 3.9% to C$597,300 month-over-month in April, the same rate of decline recorded in March.

Source: David George-Cosh, Wall Street Journal

While homes in big cities may sell quickly, outside major centres homes can sit on the market for months and months. Sometimes it’s a slow market. Sometimes it’s silly mistakes made by sellers. Whether you are selling in the city or hoping to move your rural property into new hands, don’t make these mistakes:

Overpricing

You may have put a lot of love and a lot of money, into your home, but buyers don’t care. They aren’t comparing the home before you loved it with the one you’re selling now; they’re comparing your home to all the other options on the market. If you start off too high, you’ll stop all the people who might be interested from even looking at what you’ve got.

Limiting showings

Really? You’re trying to sell your home but you’re not making it available when buyers want to see it? While it might be a major pain being on call for showings at the drop of a text, if you want that puppy gone, you’ll have to make it easy for buyers to see it.

Failing to prepare

Would you want to buy a home that was full of clutter, needed repairs or had a front yard that had run to weeds? The guy who you’re trying to convince doesn’t either. Rumour has it that it takes only about 60 seconds for a prospective buyer to form an opinion about a home. I know that of the four homes I’ve bought, I knew it was “the one” within minutes of walking in the door. Clean out the rubbish, tidy up the cupboards and the garage, stash your excess stuff in a friend’s basement until the home sells. And make sure the place smells wonderful. (You’ll benefit from that too.)

Becoming offended

A low-ball offer hasn’t been made to offend you, it’s the buyer’s signal that the negotiation is going to be a rollercoaster ride. Buckle up, but keep smiling. Letting your emotions get in the way of a deal is immature. This is a business deal, treat it as such.

Thwarting inspections

If you’re afraid of what an inspection might turn up, rather than get in the way of the inspection process, hire your own inspector to highlight what you need to fix. If you aren’t prepared to replace the 34-year-old furnace or 15-year-old roof, be prepared for the buyer to negotiate the cost of a new one off your sales price.

Source: Gail Vaz-Oxlade, MoneySense

People are still shying away from investing in Vancouver real estate, April sales numbers show.

This April’s sales were the lowest April total since 2001 and 20.9 per cent below the 10-year sales average for the month, the Real Estate Board of Greater Vancouver reported yesterday.

“While the number of home sales remains below average, properties that are priced right are selling and we’re seeing greater balance between buyer demand and the number of homes listed for sale,” says Sandra Wyant, REBGV president.

There were 2,627 home sales in Vancouver in April, a decrease of 6.1 per cent from last April and an increase of 11.9 per cent from March.

In the Fraser Valley, sales were also up from March, but down from last year, the Fraser Valley Real Estate Board reported.

Board president Ron Todson said sales usually increase in the spring, and this year is no exception.

“What’s different this year is that a number of external factors, such as tighter credit rules and the government’s spotlight on consumer debt have made some consumers more cautious about buying or selling a property,” Todson said in a news release.

Despite sluggish sales, prices have been creeping up again across the Lower Mainland, the real estate boards said.

“There have been modest increases in home prices across the region over the last three months. This comes on the heels of home price declines of approximately five to six per cent in Greater Vancouver during the last half of 2012,” Wyant said.

The home price index composite price in Greater Vancouver is now $597,300 for all property types, the board’s numbers show. Although this is down 3.9 per cent from April 2011, it is up 1.6 per cent from this January.

In the Fraser Valley, the benchmark composite price is $426,900 for all property types, down 0.2 per cent from a year ago, but up 1.4 per cent from January, the RVREB numbers show.

“Pricing is incredibly important in slower than average markets,” said Todson. “We’re not seeing the rapid increases in home values of the last decade, which means that sellers may need to sharpen their pricing in order to be competitive, but buyers won’t see dramatic price drops.”

On April 1, the province reverted to the GST and PST tax structure. Buyers in April saved a bit of money on their real estate commissions under the new rules, because tax on real-estate commissions is reduced to five per cent from the 12 per cent HST.

The Fraser Valley region includes North Delta, Surrey, White Rock, Langley, Abbotsford and Mission, while the REBGV includes Vancouver, Richmond, Ladner, Tsawwassen, North Vancouver, West Vancouver, Burnaby, Coquitlam, Bowen Island, Maple Ridge, New Westminster, Pitt Meadows, Port Coquitlam, Port Moody, Squamish, the Sunshine Coast and Whistler.

Meanwhile, a new BMO report out Thursday found that Eighty per cent of prospective buyers know if a home is right for them as soon as they step inside.

The BMO Psychology of House Hunting Report says Canadians spent an average of five months house hunting and viewed 10 homes before buying.

Nearly 70 per cent of buyers are willing to settle for less than perfect, but one-third feel rushed into making a purchase, the report says.

Canadian homeowners spent an average of five months house hunting and visited ten homes before making the decision to buy, the report says.

Source: Tracy Sherlock, Vancouver Sun

Good news for our cousins south of the border as the pace of home price increases continued to accelerate in February, according to a reading yesterday that showed the biggest gain since near the height of the housing bubble.

The S&P Case-Shiller index of home prices in 20 major markets posted a 9.3% rise over the last 12 months. That’s up from the 8.1% rise in January. It was the biggest 12-month gain in the index since May 2006, which was just one month after the index showed record-high home prices.

The index showed a 12-month decline in prices almost every month over a five-year period through May 2012. But every month since then has shown a gain in home prices, and each month’s gain has been stronger than the one that came before.

“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

Stan Humphries, chief economist for home price tracker Zillow, said there are signs in the market that the pace of increase started to slow in March.

“Regardless what data you look at, home values are clearly rising at an unsustainable pace,” he said. He said the increases in the index need to be taken with a grain of salt, being distorted by the shift in transactions to private home sales rather than the foreclosure sales that had been dominating the market.

The housing recovery has been driven by a number of factors, including near record-low mortgage rates, a drop in foreclosures and reduced unemployment, all of which have helped lift both new-home sales as well as sales of previously owned homes. The rising home prices has helped bring back some buyers who had been reluctant to buy while prices were falling.

Mike Larson, real estate analyst at Weiss Research, said he’s concerned that much of the increase is being driven by investors flooding into some markets to buy homes in order to rent them out, outbidding the potential homeowners who want to live in a home.

“Prices are not at bubblicious levels, but you’re talking about a trend that can be destabilizing,” he said.

Mark Vitner, senior economist with Wells Fargo Securities, said part of the reason for the sharp rise in prices is the comparison to depressed prices a year earlier. He said comparisons will become more difficult later this year. and the pace of increase should slow.

Home price increases boost the overall economy. Besides the jobs created by a pick-up in construction and home sales, rising prices mean fewer homeowners are underwater on their mortgages, owing more than the home is worth. That allows more homeowners to refinance, saving money they can spend on other things.

Source: Chris Isidore at CNN Money