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

You just sold your condo, you made a hefty profit and know you have to pay your taxes.

The bill might be more than you think.

If it’s your principal residence, there’s no tax, as long as you have the paperwork to prove it. The Canada Revenue Agency is taking a closer look at the condominium sector in what some in the industry have dubbed the “Condo Project.”

Even if you own up to it being an investment property, you may not be allowed the capital gains tax break and that means a bigger hunk of your profit going to Ottawa.

Let’s say your gain is $100,000 and your tax bracket is 46%. Capital gains are taxed at 50% so you would only owe $23,000 on that profit.

Not so fast! If the CRA says you are in the business of flipping condominiums, get ready to pay based on the gain being counted as income for a tax bill of twice the amount at $46,000. And, it gets worse. You could also face a fine of up to 50% of the tax owed for making a false disclosure.

With the deadline for filing taxes coming up April 30, you might want to think very carefully about how you record that housing sale you made in 2012.

Sam Papadopoulous, senior public affairs advisor-manager with CRA’s Ontario region, acknowledges that the strength of the condo sector has attracted the attention of the taxman.

“We do from time to time target some sectors more closely than others,” he said. “We look at the real estate market in general. Of course, [there is more focus], it’s a hot market.”

People in the industry have a different view.

Some suggest it fits in with the recent budget when Jim Flaherty, the finance minister, announced his government was taking a closer look at loopholes and tax cheats — hoping to shrink its deficit in the process.

One of the issues attracting the attention of the CRA is assignment clauses, where one person agrees to purchase a condo before it is built but ultimately sells his or her right to buy that condo before the building is even registered.

Builders usually collect a fee for that privilege but ultimately when title is registered at the land registry office the original purchaser’s name is nowhere to be found.

While most builders are unlikely to voluntarily supply a list of properties in their building that were assigned, they could be forced to cough it up if they are audited by the CRA.

Those people who have assigned their units to another buyer are going to be hard pressed to prove they planned to use the unit as an investment property rather just flipping — meaning the CRA is highly unlikely to allow them to count money made at the lower capital gains rate.

“If you keep [assigning property] then it is not capital gains, that’s trade and that’s income,” said Mr. Papadopoulous, adding you do it a “couple of times” and it’s income. “Of course, that’s part of [what they are investigating].”

The warning to people flipping property and thinking they can get away without reporting the gain is pretty clear.

“We live in the information technology age,” said Mr. Papadopoulous, who wouldn’t get into how CRA is tracking down the tax evaders. “We are putting our resources to work and following the trail where we can.”

Robert Kepes, a Toronto tax lawyer at Morris Kepes Winters, said he’s seen the CRA go after people who have been living in a property and still question it as a principal residence.

CRA starts with a letter to a taxpayer asking them for details about when and why they sold their property and people often fill out the questionnaire without legal advice.

The issue goes all the way back to 1971 when there was no tax at all on capital gains so everybody tried to avoid counting gains as income.

Mr. Kepes says the distinction between income and capital is as simple as the difference between a tree and the fruit that it bears.

“The tree is capital and it produces a fruit and the income is the profit that is derived when that fruit is sold,” he says.

If your condo is that tree and your rental income is the fruit and you make a profit from that rental income, that’s taxed as full income. You eventually sell the tree for more money and that’s just a capital gain, taxed at the 50% rate.

If your entire businesses is just trading trees and not producing fruit, that’s business income.

“The Income Tax Act asks what was your intention when you bought that condo,” said Mr. Kepes. “These principles are easy to describe but harder to prove in fact.”

The law is like a civil case, a judge doesn’t have to believe you beyond a reasonable doubt, but a judge does have to conclude you are more believable than the CRA.

“We have to bring all kinds of intrinsic evidence,” says Mr. Kepes, noting some clients will produce something as simple as a change in address on their driver’s licence to show they were using their condo as a principal residence.

If you never actually moved into the condo, it’s going to be tough to prove that it was principal residence.

You may never have produced income from the profit but that’s not to say you didn’t plan to, so perhaps you could get the capital gains exemption.

“The question can be ‘how did they come to sell the property,’” said Mr. Kepes, adding the CRA might look at whether you were advertising the property for sale.

Brian Johnston, chief operating officer of Mattamy Corp., says the CRA has ways to get information on sales.

“They audit real estate companies, look at the name on the contract and look at the final deed and see a difference,” said Mr. Johnston. “They see Bill Smith bought it and Joe Blow is on the deed. They want to know how this happened and follow the paper trail.”

He has some sympathy for consumers confused about the whole process.

“I think the government should make it a little simpler in terms of filing for principle residence exemption,” said Mr. Johnston. “It’s a real gray area of the law. The government has not done a good job for Canadians trying to specifically identify all the rules around [selling homes and paying taxes]. People might have inadvertently made mistakes.”

Condominium developer Brad Lamb, who has been audited several times, said ultimately it’s better to be more conservative when you’re filing — meaning just count the gain as income if you are in doubt.

“If you are prolific buyer or seller of properties, whether it’s condos or not, you have to govern yourself accordingly. If you don’t, you’ll get caught and be fined,” said Mr. Lamb. “I decided many years ago when I started buying condominiums, after talking with my accountant, you can pay [lower tax] or you can fight 50 years with Revenue Canada.”

Source: Garry Marr, Financial Post

New home prices in Canada rose by 0.2% in February, the 23rd consecutive month-on-month increase, pushed up by a buoyant market in Calgary, Statistics Canada said on today.

The advance matched analysts’ expectations. Calgary prices rose 1.0% from January — the largest month-over-month increase since May 2007 — on higher material and labour costs. Calgary is the center of Canada’s booming energy industry.

Overall, prices rose in 10 cities, stayed unchanged in nine and fell in two. On a year-over-year basis new housing prices in Canada rose by 2.1% in February, down from 2.2% in January.

The Canadian government, which imposed tighter mortgage rules last July, and the Bank of Canada have long expressed concerns the housing market might overheat.

The new housing price index excludes condominiums, which the government says are a particular cause for concern.

The largest monthly price advances in February came in Regina, where prices were up 1.4%, and in Halifax, where prices were up 0.9% from January.

The Regina increase was largely the result of higher operating costs for builders and a shortage of developed land, while builders cited higher costs for materials, labour and developed land as the primary reasons for the Halifax increase.

Monthly prices declined 0.2% in Ottawa—Gatineau for the second month in a row, while prices fell 0.1% in St. John’s.

Prices remained unchanged in the combined metropolitan region of Toronto and Oshawa following six consecutive months of increases.

Prices were also unchanged in eight other metropolitan regions surveyed.

Source: National Post Wire Services

The average first-time homebuyer in Canada is 29 years old and expects to be able to put down a down payment of $48,000 on $300,000 home, according to a recent poll by the Bank of Montreal.

But the study, released Tuesday, also found that price expectations vary widely, depending on where the homebuyer lives in.

Those in Atlantic Canada say they expect to spend an average of $224,000 on a first home, while those in British Columbia anticipate to pay an average of $454,000.

Vancouver topped the survey as the most expensive city, with buyers there saying they’re going to shell out an average of $539,000 for a home, followed by Calgary at $474,000 and Toronto at $446,000.

BMO mortgage expert Laura Parsons says like with any major purchase, it’s important for people be realistic and prepared.

“What we tend to do is jump in the market when we’re ready, instead of starting a plan now,” she said from Calgary.

“Let’s start getting ready for it so we can start giving you good advice all along the way. Don’t be afraid to get things going.”

And while a large down payment is impressive, it does not necessarily mean that young people are diligently saving for their first home. Instead, many may be getting help from their Baby Boomer parents or friends, said Parsons.

Forty-six per cent of those surveyed also they’ll choose a fixed mortgage rate when they buy, versus 20% who will choose a variable rate.

The study also found that the average first-time homebuyer plans on paying off the mortgage on their home within two decades, with 20% anticipating they’ll be mortgage-free even earlier than that.

Twenty-three per cent of those surveyed say they will still have a mortgage within 25 years; 16% say within 20 to 24 years and 20% say within 10 to 19 years.

On the opposite end of the spectrum, seven per cent say it’ll take them more than 25 years to fully own their home, while 3% say it’ll take them between 1 year to 9 years to pay it off.

The survey also found that 31% admit they really don’t know when they’ll be able to stop making mortgage payments.

Source: Linda Nguyen, Canadian Press