Edmonton Real Estate Blog

We have received an update from Canada Mortgage and Housing Corporation (CMHC) regarding the upcoming changes that we informed you about in mid-February. To briefly recap, fixed rate mortgages with terms of less than 5 years, as well as variable rate mortgages, will be reviewed for approval (qualified) based on 5 year rates, beginning April 19, 2010. It was not clear at the time of the announcement if the 5 year rates used for qualification would be discounted rates (currently 3.89%) or posted rates (currently 5.39%).

CMHC has now clarified that the qualifying rate for the affected terms will be the greater of the “benchmark rate” and the contract interest rate. CMHC defines the benchmark rate as the Conventional Mortgage – 5 Year rate published by the Bank of Canada (series 121764), which is currently 5.39%. The following are updated examples that illustrate the upcoming changes:

 Fixed rate mortgages with terms of less than 5 years will be qualified based on the greater of the benchmark rate and the contract interest rate, rather than the current method of qualifying clients based on their contracted interest rate. For example, a client selecting a 3 year fixed term today would qualify based on 3.40% (some lenders offer lower “sale” rates), the new criteria will instead require the client to qualify based on the 5 year benchmark rate (currently 5.39%). If however the client selected a 5 year fixed term (or longer), the client would qualify at the contract rate (currently 3.89% for a 5 year term).

Variable rate mortgages will also be qualified based on the greater of the benchmark rate and the contract interest rate. By comparison, variable rate mortgages are currently reviewed based on 3 year rates. Assuming that posted rates are used in both cases, a client will need to qualify based on the 5 year posted rate (currently 5.39%), rather than the 3 year posted rate (currently 4.30%), which reduces the maximum amount that a client can borrow.

 
Changes to CMHC policies re: Self-Employed borrowers
Effective April 9, 2010, self-employed borrowers with more than 3 years in the same business will be required to provide third-party validation of income (e.g. financial statements, contracts, T4s, Notice of Assessments, etc.). This means that the above category of self-employed borrowers will need to fully support their personal income with adequate documentation when obtaining a mortgage.

 
Shirley Froese
Mortgage Agent
CENTUM Elite Mortgage Corp.
Ph:   780-940-4813

Edmonton, March 2, 2010: Prices for residential property sold through the Edmonton Multiple Listing Service® changed marginally through February. Sales activity, however, was up dramatically when compared to last month or the same month last year.  

The average* single family dwelling price was $369,573 for February up just 1.4% from January; 5.6% from a year ago. Condominium prices dipped 3.8% in the month from $240,686 to $231,530. Duplex and rowhouse prices were up 3.3% to $315,390.

“While prices remained stable through February the increase in sales activity indicates that there is a demand for housing in the Edmonton area,” said Larry Westergard, president of the REALTORS® Association of Edmonton. “Listings also increased in February leading to a bigger month end inventory of homes and relaxing concerns that inventory may be too low to handle the spring buying season.”

In February, housing sales were up 33.9% compared to January with 1,184 residential sales. Total residential sales were also up 7.6% from last February. There were 2,505 residential listings added during the month resulting in a 47% sales-to-listing ratio and a month-end inventory of 5,449 homes. The average days-on-market was down 10 to just 47 days. Total sales through the Edmonton MLS® System (including residential, commercial and rural properties) in February were valued at $416 million (up 10.5% from last year).

“The upcoming changes to mortgage qualification rules and impending mortgage rate increases may prompt some buyers to enter the market earlier and cause some additional slowdown in the third quarter,” said Westergard. “As usual, REALTORS® will be challenged to be a voice of reason in the real estate transaction and work to meet the needs of their eager clients without putting their financial health at risk.”

A new and improved MLS® System statistics package is available to consumers at ereb.com with year-to-year comparisons and expanded reporting of the condominium market and new sub-market reports. The public will also find median prices in addition to the typical average price statistics.

Highlights of MLS® activity

¹. Residential includes SFD, condos and duplex/row houses.
². Single Family Dwelling
³. The middle figure in a list of all sales prices

* Average prices indicate market trends only. They do not reflect actual prices, which may vary.

Source: REALTORS® Association of Edmonton

Tips from the professionals on how to make your mark in real estate investing

With the Canadian real estate market – be it residential, industrial or commercial – showing resiliency in the wake of the recession, property as an asset class is drawing investors with the promise of higher returns on hard assets.

After watching their wealth evaporate on the stock market, many investors are drawn to the property market because they want to be able to look at what they just bought, said Queen’s University professor John Andrew, who specializes in investment real estate.

“Historically real estate has been a haven in times of inflation,” he said. “It’s also been a place where people feel they have an understanding of what they’ve just done – they can walk down the street and see their purchase.”

That said, it can be a risky proposition. If this recession has taught us anything, it’s that property values can plummet, and fast. You just can’t buy a building and walk away. But if you have the nerve, here are some tips from the professionals on how to make your mark in real estate.

Getting started

Real estate investment trusts are the most passive way to get involved. These companies have units that are publicly traded, which means you own a share of the REIT rather than a piece of real estate. The sector is small in Canada, with fewer than 20 publicly traded REITs, but the well-funded companies have been actively adding properties to their portfolios in a bid to generate more income for their investors.

The first few weeks of this year haven’t been particularly great for the REITs, with the S&P/TSX Capped REIT index (which tracks the companies) gaining 2 per cent, but it’s still above the overall market’s .9-per-cent decline. For the past 12 months, the index has gained 60.8 per cent.

“This is a good way for a passive investor to get involved with real estate with fewer of the headaches,” Prof. Andrew said.

A little deeper

While the $12-million office building around the corner keeps catching your eye, maybe you find the price tag a little hefty. If only there was a way you could pool your resources with other cash-strapped millionaires.

Turns out, there is. Brokers around the country are constantly putting together syndicates – groups of private investors who want to pool their money and share ownership of attractive properties.

Jason Shiner of Ottawa’s District Realty said most deals involve investments of $100,000 to $250,000. The key is to ask questions before joining.

“You want to look at who you are partnering with, what rules there are about who can join, what are the exit strategies,” he said. “You don’t want to be the weakest link, or the strongest, you all want to have about the same amount at stake.”

For the big player

These investors – and if you’re one of them, you probably already know this – tend to purchase retail and industrial properties and keep them in the family. When they want to do a deal, they pick up the phone and call someone such as Michael Turner, an executive vice-president at CB Richard Ellis who specializes in private investments.

The country’s most expensive cities aren’t their primary targets. They opt instead for smaller markets where pension funds and real estate investment funds couldn’t be bothered to go shopping.

“They prefer places like Atlantic Canada, or smaller Prairie cities,” Mr. Turner says.

Joys of rental properties

The dream of home ownership isn’t the motivating factor for those buying rental properties – it’s the dream of a steady stream of cash as dream tenants make their payments on time and take extra care not to scratch the hardwood.

Of course, you’re just as likely to hand over the keys to someone who looks trustworthy but then decides that paying rent is for chumps. Worse yet, your unit could sit empty for months as expensive classified ads fail to draw anyone to your doorstep.

But for this exercise, let’s ignore the nightmare scenario and focus on the deal. Interest rates are at all-time lows, which means more of the cash that is generated each month can go toward paying off your mortgage. And with a 5-per-cent down payment, the barriers to entry are actually quite low (one caution – you carry that mortgage on your personal credit report).

And unless you want to spend a lot of time doing maintenance, a property manager is a must.

“If you are not handy, then get a manager,” Ottawa property investor Chris Jurewicz said. “If you do not want to be tied to your cellphone 24×7, you need one. It sounds like a lot of money at 4 to 6 per cent of revenue, but see if you would want to do it for that amount of money.”

Source: Steve Ladurantaye of The Globe & Mail (www.TheGlobeAndMail.com)

Buying a home can be scary. It is likely the biggest purchase your clients will ever make and there are literally hundreds of details that have to be dealt with. Why not arm them with information before you start showing them properties?

• The REALTORS® Association will conduct a FREE home buyers seminar on Tuesday, March 2 at 7:00pm at the Association Auditorium.

The seminar will follow the Homebuying Step-by-Step Guide and Workbook provided by CMHC and will feature video clips from industry experts. A mortgage broker, lawyer and home inspector will be on hand to answer questions.

This session is intended for the general public only. REALTORS® are asked not to attend as we want this to be a no-pressure event for the public.

There is free parking, refreshments and no charge to register.

www.EREB.com

When you’re looking for a new home, how do you know what’s okay and what’s a red flag? Read on to find out!

DEAL BREAKER: Buried oil tank
A buried oil tank is expensive to remove and could create potential environmental issues. If the tank leaks oil into the ground — yikes! — the cleanup and repairs could cost up to $40K. Since you can’t see it, be sure to ask the sellers, or check if it’s noted in the fine print of the home’s listing information.

DEAL WITH IT: Old roof
An old roof doesn’t necessarily indicate a bad roof — so long as it’s not leaking, you’re okay to go. Just make sure you start saving money right away for when you do have to replace it.
PRICE TO FIX: $1,700 to $8,400 to replace asphalt shingles on a typical ranch home, depending on the location. Prices increase for a complete replacement as well as for different materials and types of homes.

DEAL BREAKER: Amateur plumbing and wiring
Novice plumbing could cost you big if you have to rip out pipes and replace walls and flooring due to leaks. There’s also a higher risk of a short leading to sparks and fires if the electrical work had been done by a non-pro. Look out for exposed wiring in the basement as well as S-traps under the sinks (professional traps look like a “P”).

DEAL WITH IT: Ugly wall-to-wall carpet
Consider the possibilities! You can rip it out and replace it with fresh carpet or gorgeous new tile. Or you could restore the original wood floor below by buffing or re-staining.
PRICE TO FIX: $13 to $20 per square yard for buying and installing inexpensive flooring.

DEAL BREAKER: water damage
See it low on basement walls where they meet the floor? The house may have huge drainage issues. These won’t typically be solved with simple grading. Think: An expert to dig around the foundation or basement and install drainage pipes…expensive! If you spot water damage high in the corners of most rooms, buyer beware. It can be a sign of a leaky roof or years of pipe damage.

DEAL WITH IT: Electric stove instead of a gas one
Have your gas company run a line into your home from a gas line in the street or the propane tank in your yard.
PRICE TO FIX: Approximately $300.

DEAL BREAKER: asbestos
Asbestos poses a serious health hazard (it’s a carcinogen). Check in attics and around the plumbing for asbestos insulation; it can either look chalky or like fiberglass insulation with little air chambers on the end. Pass on an older pad if the insulation is worn or disintegrating.

DEAL WITH IT: no central AC
Window units are a pain, but something you can live with until you get a system installed.
PRICE TO FIX: Installing central AC can cost anywhere from $2,000 to $3,000.

DEAL BREAKER: bad school district
A bad school district is definitely a red flag if you want children in the future. Even if you plan to sell before your own kids are old enough to attend school, the majority of family-oriented buyers won’t want to buy it, either.

DEAL WITH IT: gross wallpaper
This is a pretty easy fix. Pick up a wallpaper scorer at your local paint or hardware store and score the paper (to make holes). Use a mixture of white vinegar and warm water to loosen the glue, carefully peel off the pieces of paper and remove any excess glue from the walls once the paper is completely pulled down.
PRICE TO FIX: Under $50, unless the home’s wallpaper is hiding a multitude of sins.

Source: Alexandra Kay of www.TheNest.com

Edmonton’s ever improving economy continues to bolster residential real estate activity in the city. The number of homes sold in Edmonton is up 21 per cent to 884 units, while average price has largely stabilized at $314,783. Balanced market conditions have, for the most part, re-emerged in 2010. Values, still off peak 2007 levels, have hit a plateau, as buyers take advantage of opportunities at all price points.

The oversupply of listings available for sale throughout 2008 and 2009 has largely been absorbed, with inventory returning to more normal levels. Active listings now hover at 4,864, a decrease of 26 per cent from one year ago. While new listings have fallen off, the supply of homes listed for sale is adequate in most price ranges and neighbourhoods. First-time homebuyers continue to represent the lion’s share of activity in the marketplace, driving sales of homes priced from $300,000 to $350,000. Multiple offers are starting to occur, but they are the exception, rather than the rule. Move-up buyers have ramped up activity as well, spurred by exceptionally low interest rates. Condominiums have been moving steadily in recent months, but supply still exceeds demand.

A strong spring market is forecast for 2010, supported by a serious upswing in consumer confidence levels. Recent announcements regarding major investments in the oil sands have tremendous potential for Edmonton’s economic future. The provincial government is also co-operating with the major players in the oil industry to create a positive business climate and is expected to return to surplus budgets within three years. While there may be some skeptics in the audience, it’s hard to ignore the city’s growing optimism.

Active listings down in 81 per cent of markets in January

Lack of inventory will be the greatest challenge facing housing markets across the country this Spring, according to a report released by RE/MAX.

The RE/MAX Market Trends Report 2010, which examined real estate trends and developments in 16markets across the country, found that unusually strong activity during one of the traditionally quietest months of the year has led to a sharp decline in active listings in 81 per cent of markets surveyed. The threat of higher interest rates, tighter lending criteria, and in British Columbia and Ontario, the introduction of the new Harmonized Sales Tax (HST) have clearly served to kick-start real estate activity from coast-to-coast, prompting an unprecedented influx of purchasers. As a result, 87.5 per cent of markets posted an increase in sales in January. Average price appreciated in 81 per cent of markets surveyed.

Affordability is the catalyst for the vast majority of purchasers in today’s housing market. While homeownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.

Markets experiencing the tightest inventory levels include Toronto (- 41 per cent); Kitchener-Waterloo (-33 per cent); Ottawa (- 30 per cent); Victoria (- 30 per cent); Greater Vancouver (- 27 per cent); Halifax- Dartmouth (- 19 per cent); London-St. Thomas (- 18 per cent); Regina (- 16 per cent); and Winnipeg (- 13 per cent). Conditions were still balanced, but starting to tighten in Calgary, Edmonton and Saskatoon, particularly in the single-family detached category.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent). Western Canadian cities dominated the list of centres with the highest increases in price appreciation. These included Victoria at 25.5 per cent, Kelowna at 22 per cent, Greater Vancouver at 19.5 per cent, and Winnipeg at 17 per cent. St. John’s (23 per cent) and Toronto (19 per cent) were also among the frontrunners for price growth.

There have never been so many motivating factors in play at once. We’re in for a heated Spring market that will, in all probability, spill over into the summer months as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies.

While buyers are taking advantage of favourable conditions, sellers too are reaping the rewards. Competing bids are a factor in the marketplace once again, with well-priced listings-especially at the entry-level price point-experiencing multiple offers. Properties priced at fair-market value will likely sell quickly for top dollar. The overall pressure on sales and price is significant across the board – and it’s not likely to subside unless more inventory comes on-stream.

The level of frustration is growing, as pent-up demand builds. For every successful offer, there are those that will walk away empty-handed. They’re thrust back into the buyer pool and the process starts all over again. Some buyers are upping the ante, while others are considering alternate housing options. Still, purchasers remain cautious in their bids, with most careful not to max out debt service ratios.

Recent revisions to lending criteria will add fuel to the fire in the short term. Buyers considering a variable rate mortgage will step up their plans for homeownership in the next month or so just to get in under the wire. In the longer term, buyers will adjust, but move forward. Compromise has long been a reality-particularly in the larger centres. This simply means they may go smaller or further in their pursuits.

It’s been a 180 degree turnaround from this time last year. It’s clear that real estate from coast to coast has roared back to life and markets are once again firing on all cylinders. The vast majority of markets are now recovered and fully-evolved, with all segments working in tandem. At the luxury price point, activity was brisk in seventy-three per cent of centres surveyed, with momentum ramping up in the remainder. Opportunity exists in some areas, but the question is for how much longer?

Source: RE/MAX Market Trends 2010

This won’t hurt a bit, homebuyers.

The mortgage rule changes announced Tuesday by Financial Minister Jim Flaherty will weigh a bit on real estate speculators and heavily indebted people who want to fold their high-rate credit card debt into a lower-rate mortgage. But for rank and file homebuyers, the changes will barely be perceptible when they take effect on April 19.

“This should have a limited impact on what I see daily,” mortgage broker Peter Majthenyi said in an e-mail he fired off after Mr. Flaherty’s announcement. “I believe it’s more a message that ‘Big Brother’ is watching and cares.”

Olympics aside, the favourite Canadian diversion of the moment is to debate whether there is a bubble in the housing market. Those most worried about the housing market plunging have urged Mr. Flaherty to raise the minimum down payment for a home and reduce the maximum payback period.

But the 35-year amortization, favourite of first-time buyers across this land, remains. So does the 5-per-cent down payment, which is heavily relied upon in high-cost cities like Vancouver, Calgary and Toronto.

All the measures announced by Mr. Flaherty affect mortgages covered by government-backed mortgage insurance, where the buyer puts less than 20 per cent down. The key change for typical home buyers is that, regardless of what term or type of mortgage they choose, they’ll have to be able to afford the five-year rate.

This is a sensible way of building some slack into the system as we look ahead to a cycle of rising interest rates. If someone chooses a variable-rate mortgage, where the interest rate can be as low as 2 to 2.25 per cent today, they’ll have to be able to handle the payment at the current five-year rate. Right now, the posted rate at the big banks is 5.39 per cent.

You won’t have to actually make the higher payments required by the five-year mortgage. You’ll just have to theoretically be able to carry them and still remain within the limitations lenders set out on how much of your gross income can be consumed by debt (it’s 42 to 44 per cent, just so you know).

Mortgage brokers report that a lot of lenders were already ensuring clients could afford the payments on a three-year mortgage. So bumping up that up to a five-year term will only have a marginal effect.

“Are we going to see the odd borrower have to come up with more money or not buy they house they want? Absolutely,” Mr. Majthenyi said. “But will it have a dramatic effect? No.”

Another reason why the changes won’t be jarring is that a huge number of homebuyers are actually choosing five-year mortgages these days. A study issued by the Canadian Association of Accredited Mortgage Professionals last month showed that fixed-rate mortgages accounted for 86 per cent of mortgages in set up in 2009 and, of those, 70 per cent were for a five-year term.

People who borrow to buy investment properties to either flip for a quick profit or to generate income are also affected by Tuesday’s announcement. If you buy a property you’re not going to live in, then you’ll have to put down a minimum 20 per cent to qualify for mortgage insurance. That’s up from 5 per cent.

But Mr. Majthenyi said not all lenders even require clients to have mortgage insurance if they put 20 per cent down. He also said that stiff mortgage insurance premiums already discouraged people from putting 5 per cent down on an investment property.

“In my office of 10 brokers, I don’t think I know of one client we’ve processed on a high-ratio rental property,” he said.

The final mortgage change restricts the ability of existing homeowners to refinance their mortgages to take on more debt. The new ceiling is 90 per cent of the value of your home, compared to the current 95 per cent.

Mortgage broker Jas Grewal said one group that will be affected by this is recent buyers who made a small down payment and are struggling with high credit card balances and other debts. By folding these debts into their mortgage, they can reduce their interest rate from as high as 19 per cent down to something closer to 3 or 4 per cent.

“Let’s say you put 10 per cent down – if we go from 95 to 90 per cent, you’re not going to be able refinance,” Mr. Grewal said. “You’re going to have to wait until your house value goes up and gives you some equity.”

Source: Rob Carrick of the Globe and Mail (www.TheGlobeandMail.com)

Early signs indicate that Canada’s hot real estate market surged again in January. Among the cities to report data, sales rose an average of more than 60 per cent, and prices more than 14 per cent, from a year earlier in Toronto, Calgary, Edmonton and Ottawa, BMO Nesbitt Burns said. In Toronto, sales jumped 87 per cent and prices 19 per cent. Earlier this week, the Real Estate Board of Greater Vancouver reported that, excluding apartment properties, sales rose 141 per cent in January from a year earlier, and prices 19.5 per cent.

www.TheGlobeandMail.com

Edmonton, February 2, 2010: Single family homes sold through the Edmonton Multiple Listing Service® System sold on average for the same amount in January as at year-end while condominium prices dipped 2%. Month-to-month sales slowed by 6.8% as compared to December but the number of new listings in January doubled the December numbers. 

The average* residential price was $314,783 for January, down 1.4% from last month and down just 0.7% from a year ago. Single family home prices on average were stable increasing minutely from $366,761 in December to $367,747 in January. Condominium prices dipped just 2% in the month from $244,174 to $239,006. Duplex and rowhouse prices were up 1.5% to $300,563.

“There will be month-to-month fluctuations in prices for all types of properties,” said Larry Westergard, president of the REALTORS® Association of Edmonton. “We expect that the local market will continue to be robust and prices will trend upwards through the year.”

Compared to December, housing sales were down in January with 524 single family sales and 288 condominium sales. Total residential sales were 884 units – 154 ahead of last January. There were 2,199 residential listings added during January resulting in a 40% sales-to-listing ratio and a month-end inventory of 4,864 homes. The average days-on-market was 57 days. Total sales (including residential, commercial and rural properties) in January were valued at $315 million (up 19% from last year).

“While the low prices may have motivated some buyers, the continuing low interest rates are probably a bigger factor for first time and repeat buyers,” said Westergard. “The inventory increase shows that current owners are poised to enter the market and to offer their homes for sale. Buyers and sellers should consult their REALTOR® to work out an appropriate strategy for their situation.”

-30-

Highlights of MLS® activity

¹. Residential includes SFD, condos and duplex/row houses.
². Single Family Dwelling
³. The middle figure in a list of all sales prices

* Average prices indicate market trends only. They do not reflect actual prices, which may vary.

Source: REALTORS® Association of Edmonton