The Canadian housing market is calming rather than crashing, as the impact of tougher mortgage rules and cooling credit is partly offset by the supportive influence of low interest rates and continued income growth, according to a new report from BMO Economics.

“House prices have hit record highs in most regions across Canada, though the rate of appreciation has slowed,” said Sal Guatieri, Senior Economist, BMO Capital Markets.

Resale markets are largely balanced, though buyers have gained leverage in some provinces, including Quebec and British Columbia.

Steadier prices are expected in the year ahead amid decent job growth. A benign outlook for rates and income should support affordability this year, weighing towards relatively steady sales and prices in most regions.

Canadian Housing Market Balanced Mr. Guatieri noted Toronto house prices, though slowing, hit a record high in April; gains in the detached market more than offset slightly lower condo values. Alberta enjoyed decent price gains, while Vancouver’s prices have declined moderately.

“Nationwide, housing starts have adjusted to the reduced demand, returning to household formation rates,” Mr. Guatieri added. “Meantime, Toronto continues to build up rather than out to meet supportive demographic demand.”

BMO Housing Confidence Report found that nearly half of Canadian homeowners (48 per cent) intend to buy a property in the next five years — mostly unchanged from fall 2012 — signalling a high level of confidence in Canada’s housing market is continuing into 2013.

Laura Parsons, Mortgage Expert, BMO Bank of Montreal, noted that it is essential for both buyers and sellers to be aware of any changing conditions on the local level. “If planning to buy or sell a property, consider working with an expert who can help you make decisions that are appropriate to the health of your local market, and more importantly, that responsibly fit within your particular financial situation.”

Source: MarketWire, Vancouver Sun

Ever wonder about the costs associated with moving versus putting money into renovating your home? Garry Marr from the Financial Post added up the figures.

Here’s a way to get some value from your house without selling. Just be prepared to stay put and be ready for some headaches.

Renovating can make your home bigger and more valuable but without any of the enormous transaction costs that can easily top 10%, depending on where you live in the country.

The federal government might have made it more difficult with its tighter and tighter regulations over the last three years to extract cash out of your home to pay for renovations.

Whereas once you could refinance your home for up to 90% of the value, it’s now only 80%.

If you bought a $500,000 home with 5% down, it has to rise in value past $600,000 before you would be able to extract some equity for a renovation. With home price increases shrinking — they are not falling in most parts of the country despite the general negativity — that hasn’t left much opportunity for a major project.

But guess what? Canadians have other ideas. A new poll shows they are actually saving for major projects based on the results that reveal a majority of Canadians are paying for a renovation with cash.

A Bank of Nova Scotia study found 44% of Canadian homeowners plan to do a major renovation in the next two years. Among that group, 62% will fund the transaction with cash.

“The renovation market is quite large in Canada and quite consistent, people are reinvesting in their homes,” says David Stafford, director of real estate secured lending with Scotiabank.

The amount of money spent on renovations in Canada is still dwarfed by the money people spend on buying homes but it’s not small potatoes either. The latest annual data from Canada Mortgage and Housing Corp. put the market at $20.9-billion in 2011 across 10 major markets.

Unfortunately for the 2.6 million people in Toronto, they live in a jurisdiction with two land transfer taxes. You have to pay both the city and province which amounts to $16,200 on a $600,000 purchase or about 2.7% of the value. The only other city with an equivalent tariff is Montreal with its so-called welcome tax.

Consider some of the other costs associated with moving. Realtors charge about 4% to 5% commission on the sale of your home. Add in legal fees, moving costs and some of the soft costs like painting and minor repairs that come with any selling and buying transaction and it’s not hard to get to 10%.

“I wouldn’t say renovation is just a financial decision,” says Mr. Stafford. “People are looking to improve the quality of their environment. The financing and financial requirement are just part of that decision.”

It’s a good point. We’ve come to think of our houses as an investment because they can easily top 50% of our net worth but they are as much about consumption as anything.

Let’s say you do that $50,000 kitchen project. Is your house really going to be worth that much when it comes time to sell? Probably not but in the interim you get to enjoy all those years of cooking and eating in your fabulous kitchen.

“The reality is that very few renovations return a dollar for dollar,” said Mr. Stafford, adding one of the other reasons people choose to improve their existing home are qualitative. “They like the neighbourhood they are in.”

There’s no question not all renovations go as planned. One of the great perils of renovation is doing the whole thing in cash, to avoid HST, and without permits to avoid costly fees.

“It’s cheaper in the short run but maybe not the long run,” says Raymond Leclair vice-president of public affairs with the Lawyers’ Professional Indemnity Company.

The tax is ultimately something that your contractor is required to pay and there’s nothing technically illegal with a verbal contract. But when things go wrong, what do you do without a paper trail?

“It becomes a ‘he said, she said’ situation and you get into court before a judge and say ‘he painted it blue and it’s supposed to be green’. The other said says the opposite,” says Mr. Leclair.

And when it comes to permits, think twice about not doing it by the book. When you sell, the buyer may ask if that addition you built is up to code. The city can ultimately order any project done without proper permits to be taken down, says Mr. Leclair.

Doing a renovation on the books is going to cost you more money. For sure. But when you start by saving up to 10%, it’s worth it.

Should you buy or should you rent? There are many factors to consider and what is right for one person may not be right for you. The following is an article that addresses this dilemma which appeared in today’s Vancouver Sun.

My landlord’s email twisted my stomach into knots.

She informed me that she plans to sell the bright, spacious, perfectly located condo that I’d been renting for the past year and a half.

I would have to leave in three months, she said.

Once the initial shock wore off, I asked myself: “Is it time for me to finally grow up and buy place of my own?”

Farhaneh Haque, director of mortgage advice at TD Canada Trust, said the first factor to consider is whether or not you can actually afford to buy.

“Really have a good understanding of where you stand financially today,” she said.

That means finding out whether there’s enough money for a down payment — a minimum of five per cent of the home’s purchase price. It’s also important to look at what other debts you owe and how stable your employment is.

And the down payment is just one cost to consider. Haque recommends potential home buyers set aside another 1.5 to three per cent of the purchase price to take care of closing costs.

Once the papers have been signed and the property is yours, it’s not just the mortgage payments that you have to worry about after that.

Can you afford property taxes, condo fees, heat, electricity and repairs?

“When you own a home, you can’t call the landlord. Guess what? You’re the landlord,” said Haque.

“You have to create a cushion in your monthly budget to provide for these additional costs.”

Shannen Lazorko, a home financing adviser at Scotiabank, said those costs should be put into the context of the benefits of owning a property.

“At the end of the day, if you continue renting, you’re building someone else’s future,” she said.

Sometimes it does make sense to rent if you’re moving around frequently for work or if the money simply isn’t there.

“I would say, yes definitely it would make sense to rent, but always with the plan to build toward home ownership,” Lazorko said.

“Long term renting to me does not make any sense if you can build towards owning something.”

Steve van der Woerd has a different perspective. He ditched home ownership in favour of renting two years ago — more for lifestyle reasons than financial.

For five years, he owned a condo in Burnaby, B.C.

“There, I was able to get 1,200 square feet, a nice big deck — something I just couldn’t have found in the city of Vancouver for that price.”

But van der Woerd found he didn’t like feeling so disconnected from the cultural and social life in the city. He didn’t like the car-centric way of life and the chores associated with keeping up the condo.

Now, van der Woerd rents in the Vancouver’s South Granville neighbourhood, not far from downtown. He spends less time in his car and has considerably less stress.

“If you’re in Vancouver and you’re thinking of buying, inevitably you’re going to move into a less desirable area unless you’ve got lots of money. My advice would be don’t do that to yourself.”

As for me, I have enough saved for a down payment and the bank pre-approved me for a mortgage at a great interest rate.

But in the end, I decided to keep renting a little longer and build up more of a financial cushion.

When the adviser at my bank plugged the mortgage payments and the extra costs into a calculator, it added up to half my monthly income. That would mean less money for travel, lift tickets and nights out with friends — not to mention emergencies.

“That’s what’s called being house poor,” the adviser said with a laugh.

Source: Lauren Krugel, The Canadian Press

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

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

Most homebuyers shopping in a choppy market are taking their time. But, if you’re in the minority of people who have a deadline – because of an impending birth or a new job – this environment offers both opportunities and challenges.

Some people who move too quickly are motivated by timing pressures related to relocation, while others worry they’ll be living with their parents because they’ve sold their home a bit faster than expected.

But the bigger issue is often with stressed sellers who are simply too anxious to get out in a hurry.

When a homeowner is desperate to sell and a buyer is ready to fork over the cash, the truth about a house is often swept under the rug, experts suggest.

As a result, novice homebuyers need to watch out for those little fibs when house shopping, says real estate expert Barbara Corcoran.

For instance, some ‘motivated’ sellers will tend to forget about items like:

* Personality of neighbors and the neighborhood
* Status of home repairs, particularly the roof
* Insect and rodent infestations
* Elevated radon levels
* Legal trouble, like unpaid taxes, liens, and outstanding judgements
* Excessive airplane noise overhead
* Trouble with the building department due to un-permitted renovations and additions
* Water damage and frequent basement flooding
* Quality of local schools and institutions
* Possibility of future disruptive construction in the area

To protect yourself, stay in the driver’s seat and question everything. You’re under no obligation to please the seller; don’t cave even if they act like they’re disappointed or claim they never noticed any of these items.

Source: Gordon Powers, MSN, Money

Most Canadian home shoppers are not willing to get pulled into a bidding war to get the perfect place, although first-time buyers are more likely to pay above the asking price, says a poll released Tuesday.

According to a Bank of Montreal Home Buying report, 28 per cent of Canadians surveyed said they would enter a bidding war for a house or condo. That figure was higher among first-time buyers, with 39 per cent saying they would engage in a battle with multiple offers, which most often drives up home prices – to the delight of sellers.

There are indications that the housing market in Canada is finally slowing, although prices are still edging higher. Back when the market was red-hot, holding back bids and entertaining multiple offers was commonplace. Now, there are signs that in certain markets, some of the bargaining power is back in the hands of home buyers.

“Panic is normally part of a bidding war, on the part of the buyer. People get desperate, they think if they don’t get this house, they won’t get the next one, too. That sounds like the housing market of 2005 and 2006,” says Tsur Somerville, director of the Centre for Urban Economics and Real Estate at the University of British Columbia in Vancouver.

While bidding wars still happen, they tend to be focused on exceptional properties, he says. “The types of conditions that lead to bidding wars, the idea that affordability will get worse – that is no longer the case.”

Laura Parsons, a mortgage expert with BMO in Calgary, says first-time buyers – whose average age is 29 – can be inexperienced and less patient when it comes to housing. “In many cases, when they find a home they love they get excited and emotionally attached. So they can get caught up in the moment more than seasoned buyers.”

The biggest danger, she says, is overspending. Her advice to home buyers? “Don’t go past your budget. Do your homework before you go looking and make sure that you should even be bidding on this house. Know what your maximum is and stick with it.”

Lured by low mortgage rates, Canadians have taken on large mortgages. Economists and financial advisers are worried about debt levels among Canadians, and how they will be able to make their monthly mortgage payments once interest rates rise. In the BMO report, Ms. Parsons noted that total housing costs should not consume more than one-third of a household’s income.

Regionally, home hunters in Manitoba and Saskatchewan were most likely to engage in a bidding war, at 35 per cent. That compares with 29 per cent in Ontario, 30 per cent in British Columbia, 31 per cent in Atlantic Canada and 32 per cent in Alberta. Quebec had the lowest average, at 21 per cent.

Mr. Somerville says he’s not surprised that bidding war intentions are highest in the Prairies. “They have seen price appreciation and an increase of population recently, so the mismatch is greatest there.”

Nearly one in four, 23 per cent, of aspiring Canadian buyers polled by BMO said they are willing to make a bully bid – a strategy that involves putting in an offer before the appointed day, normally above the asking price. Toronto buyers were the most willing to make bully bids, at 30 per cent.

From the home sellers perspective, only 15 per cent of those polled said they would be willing to under-price their home to spark a bidding war, with owners in Toronto and Vancouver most likely to do so. Age played a factor, with 25 per cent of home owners under 35 expressing a willingness to do so compared with 8 per cent of those 65 and over.

The problem with buying a home through a bidding war is that it doesn’t give people enough time to evaluate the property – do important things like get a home inspection and think about the purchase, says Mr. Somerville. “It exposes the buyer to more risk than they should take on.”

The panic and stress that home buyers experience when competing in a bidding frenzy for a property is dangerous, he added. “When you are making a major financial investment, desperation is not something you should be going into it with.”

Source: Roma Luciw, The Globe and Mail