Edmonton Real Estate Blog

Interest rates are about to start rocketing higher. Savers, get ready

You now have roughly six to nine months to get a personal plan together for dealing with higher interest rates.

After that, the ride begins. Where it ends depends on how smartly the economy and inflation snap back, but we could be looking at a prime rate of more than double the current 2.25 per cent by the end of 2011. Let’s look at four ways you can prepare:

1. Home buyers, lock down your mortgages

If you absolutely must buy a house in the overheated market in some big cities, then consider insulating yourself against rising rates by taking a five-year fixed-rate mortgage. A quick scan of mortgage brokerage websites shows five-year terms priced in the range of 3.69 to 3.99 per cent, while the big banks are advertising specials as low as 4.19 per cent.

Forget the research that shows you’ll save on interest over the long term if you go with a variable-rate mortgage. If you’re stretching for family cash flow to buy a house, then cost certainty is more important than potential savings.

Anyway, today’s five-year rates are quite good by historical standards. Bank of Canada data show the average five-year rate over the past decade was 6.8 per cent, which compares with a typical posted rate today of 5.5 per cent at many banks (this rate is bogus – always ask about the kind of discounted rates mentioned just above).

Note that seven- and 10-year mortgages are available today for rates as low as 5.2 to 5.3 per cent. I’ll have to investigate further, but this sounds reasonable from a historical point of view.

2. Homeowners, face the music

If your mortgage comes up for renewal in the next few years, brace yourself for higher rates and, thus, potentially higher mortgage payments. Suggestion: ask your lender for your projected mortgage balance at maturity and then use an online mortgage calculator to figure out how much your payments would be at various interest rate levels. Try: canequity.com/mortgage-calculator.

One suggestion for accommodating higher mortgage payments is to reduce your overall monthly debt carrying costs by paying down your line of credit.

Emergency measure: lengthen the amortization period on your mortgage on renewal. This is costly in terms of extra interest, but it will take the pressure off in terms of your payments.

Longer amortization periods are only a remedy for people who went with the standard 25-year payback period when they arranged their mortgages. People who started with a 30- or 35-year amortization have already played that card.

3. Enough with the bond funds already

As of the end of November, bond funds had the highest year-to-date 2009 sales for all broad fund categories at $11.3-billion. Bond funds were an ideal refuge during the worst of the bear market, but now they’re vulnerable to rising rates.

Already, a rising rate outlook is hurting bonds. In December, the biggest bond mutual and exchange-traded funds in the country were down anywhere from 1 per cent to 1.6 per cent. If interest rates move up modestly and gradually, then gains in bond funds will be hard to come by. If rates spike higher, bond funds will be money losers.

Investors buying bond funds for safety might consider guaranteed investment certificates as an alternative, particularly those from smaller banks and credit unions (all should be members of deposit insurance plans). Returns at the high end are typically in the range of 1 to 2 per cent at best for a one-year term, but rising rates will help on this front.

Balanced funds are hot these days, too. Remember that the whole point of these funds is to mix bonds and stocks together. You could argue that this approach just adds to your risk right now.

4. Savers, get ready

The benefit of rising interest rates is better returns for savers and conservative investors who rely heavily on GICs and high-interest savings accounts. High-interest accounts today pay no better than 1 to 2 per cent and, frequently, even less. These accounts will automatically start paying more once rates start rising. Among the beneficiaries will be all the people who have used high-interest products for their tax-free savings accounts.

With GICs, you’ll want to have money maturing later this year and 2011 to capitalize on higher rates. As ever, the best strategy for the most people is to invest equal amounts in GICs with maturities of one through five years. This laddering approach means you have money available for reinvestment every year, which means you’re good for the next few years of rising rates.

Follow me on Facebook. I’m at Rob Carrick – Personal Finance.

***

Higher, but by how much?

Here are some recent forecasts of how high interest rates will rise this year and in 2011. The rate used here is the Bank of Canada’s overnight rate. Banks are currently setting their prime lending rate two percentage points above the overnight rate, which is currently 0.25 per cent.

A new report will be greeted as a good news/bad news proposition for Canadians, depending on which side of the home ownership fence they currently reside. Good news for home owners, who can expect housing values to end 2009 at an average of $318,000, up five per cent from 2008; and bad news for those still waiting to break into the market, as prices are expected to rise another 2 per cent by the end of 2010 – the highest level in Canadian history. Where are home prices headed across the country? Click to find out.

Canada
Average price in 2007: $307,265
Average price in 2008: $303,594
Average price in 2009: $318,000
Change in ’09: +5%
Average price in 2010: $325,000
Change in ’10: +2%
Source: CREA, Local real estate boards, RE/MAX

Edmonton

Average price in 2007: $338,636
Average price in 2008: $332,852
Average price in 2009: $321,000
Change in ’09: -4%
Average price in 2010: $330,000
Change in ’10: +3%
Source: CREA, Local real estate boards, RE/MAX

Edmonton’s healthy residential housing market was the first to emerge from the depths of the recession, with sales surpassing year-to-date figures for 2008 in June 2009. Low interest rates, greater affordability, and pent-up demand were behind the push for real estate early in the year, as consumer confidence levels slowly escalated. First-time buyers snapped up entry-level product at significant cost savings. By October, momentum had reached the top-end of the market, with sales over $750,000 moving ahead of 2008 levels. Given the solid percentage increases reported since June, the number of homes sold by year-end is expected to climb to 20,500 units, up 18 per cent over 2008, and on par with 2007 figures. Average price, after peaking in 2007 at $338,636, has since stabilized at $321,000-down just four per cent from 2008 levels. The balanced residential marketplace took both realtors and consumers by surprise in 2009, many of whom hoped for the best but prepared for the worst. However, economic performance, with a 2.8 per cent decline in GDP growth forecast for 2009, has been less than stellar. The energy sector continues to battle back in Alberta-oil prices are on the upswing and forecast to rise further next year. While challenges still lie ahead, some positive industry developments, namely the Kearl oil sands project, are hoped to return to the oil sector to a growth cycle or at least off set recent contraction.

The good news is that real GDP is expected to climb three per cent in Alberta in 2010, bolstered by housing, new construction, a recovering oil and gas sector, and consumer spending. Oil prices are expected to hover around the $80 mark-which should serve to kick-start activity in the mega sand projects. Improving global demand for commodities is forecast to place upward pressure on prices, while rising confidence and more normal crop conditions should also have a positive impact on economic performance in 2010. Retail sales at 5.6 per cent will be one of the top performers in the country, falling just behind British Columbia and Saskatchewan. Unemployment levels hover at approximately 7.1 per cent.

Building on the real estate recovery already underway, the number of homes sold in Edmonton is expected to edge slightly higher in 2010, rising to 21,000, up two per cent over 2009. Housing values, finally on the upswing, should reach an estimated $330,000 by yearend 2010-a three per cent increase over one year earlier. Inventory levels-at about 5,500-are forecast to remain stable, representing a three to four month supply. Market conditions should be balanced throughout much of the year, leaning slightly in favour of the seller. First-time buyers are expected to once again play a significant role, stimulating activity in virtually every segment of the market. It’s anticipated that demand for condominiums will be constant, given their affordable entry-point. An influx of new conversion units in months ahead should be absorbed relatively quickly but fewer multi-unit housing starts in 2010 overall may apply some pressure to the resale market.

With barely a month to go before the end of the year, it is time to get your house in order. Herewith, your top 10 end-of-year tax tips:

1. Tax-loss selling

This is the practice of selling investments that are in a loss position at year-end in order to offset capital gains elsewhere in your portfolio. To guarantee that a trade of public securities is settled in 2009, the trade date must be Dec. 24, 2009, or earlier. This will make sure that the settlement takes place in 2009 and that any losses realized are available to the taxpayer this year. Any trade made after Dec. 24, 2009 will not settle until 2010, so those losses would not be available until next year.

2. Fix your house

The deadline is fast approaching to qualify for the home renovation tax credit (HRTC). The HRTC is a 15% tax credit for eligible renovation expenditures made to your home or vacation property. The credit applies to any amounts spent over $1,000, up to a maximum of $10,000, producing a maximum credit of $1,350.

Although the deadline for the credit is Jan. 31, 2010, the Canada Revenue Agency (CRA) has stated that as long as any materials you purchase to be used in a renovation are acquired by this deadline, they will qualify for the credit, even if they are installed after January 2010. The same, however, does not hold true for labour expenses, as only work completed before February 2010 will qualify for the credit, even if the amount is prepaid.

3. Turning 71 in 2009?

If so, you must convert your RRSP into either a Registered Retirement Income Fund (RRIF) or a registered annuity by Dec. 31. In addition, you only have until Dec. 31 to make your last RRSP contribution — if you plan to do so. You don’t have the advantage of delaying until March 1, 2010. If, however, you have a spouse or partner who is under 72, you can continue contributing to a spousal RRSP in his or her name, provided you still have contribution room.

4. Contribute to your children’s future

If you have a child or grandchild who has never participated as a beneficiary in a Registered Education Savings Plan and who turned 15 sometime in 2009, Dec. 31 is the last chance to contribute at least $2,000 to his or her RESP to be allowed to collect the 20% Canada Education Savings Grant for 2009 and create eligibility for the grant in 2010 and 2011. If you miss the deadline, the child or grandchild will not be eligible for any grants in the future.

5. Give big

Dec. 31 is also the last day to make a donation and get a tax receipt for 2009. Keep in mind that gifting publicly-traded securities with accrued capital gains to a registered charity or a private foundation not only entitles you to a tax receipt for the fair market value of the security being donated, but eliminates any capital gains tax as well.

6. Contribute to a registered disability savings plan (RDSP)

The RDSP is a tax-deferred registered savings plan open to Canadian residents eligible for the Disability Tax Credit, as well as their parents and other eligible contributors. Up to $200,000 can be invested within the plan with no annual contribution limits. While contributions are not tax deductible, all earnings and growth accrue on a tax-deferred basis. Contribute before the Dec. 31 deadline to qualify for the 2009 matching Canada Disability Savings Grant and potentially, the Canada Disability Savings Bond.

7. Splurge on office furniture

If you are self-employed or a small-business owner, consider accelerating the purchase of new business equipment or office furniture that you may have been planning to do in 2010. You are permitted to deduct under the “half-year rule,” one-half of a full year’s tax depreciation in 2009, even if you bought it on Dec. 31. For 2010, you can then proceed to claim a full year’s depreciation. For computer equipment purchased after Jan. 27, 2009 and before February 2011, you can write off 100% of the cost in the year of acquisition — with no half-year rule.

8. Consider a low, low loan

The government’s prescribed interest rate is set at the all-time low of 1% until at least Dec. 31, 2009, providing couples with a significant income-splitting opportunity. Under this strategy, the higher-income spouse loans funds to the lower-income spouse at 1%, with interest paid annually by Jan. 30 of the following year.

If the loan is made before Dec. 31 while the prescribed rate is 1%, any investment returns above the 1% rate can be taxed in the hands of the lower-income spouse. Note that even though the prescribed rate varies quarterly, you need only use the rate in effect at the time the loan was originally extended.

9. Pay investment expenses

To deduct any investment-related expenses on your 2009 tax return, the amounts must be actually paid by year-end. Such expenses include interest you paid on money borrowed for investing, investment counselling fees for non-RRSP accounts, professional accounting services for tracking rental or business income and safety deposit box rental fees.

10. Get a head start for 2010

If you routinely get a large tax refund each spring due to RRSP contributions or child-care deductions, the CRA can authorize your employer to reduce the amount of income tax withheld on your employment income. Send a completed CRA Form T1213 “Request to Reduce Tax Deductions at Source,” with all supporting documents to the Client Services Division of your local tax services office.

 Financial Post

Think spending $50,000 on a total kitchen remodel or $10,000 overhauling the bathroom is the only way to add value to a home? If large, expensive projects are beyond your grasp, you’re in luck: Increasing the value of your home doesn’t have to involve large outlays of cash, especially when you’re willing to put in a little sweat equity. Why spend big money when there are so many low-cost, do-it-yourself (DIY) projects? Whether you’re planning on selling or just want a nicer place to live, read on to find out what you can do to add value to your home for as little as a few dollars.

House-Wide Updates

The following are some changes that can be undertaken for surprisingly little money.

Freshen Up the Walls
If your walls have scratches and dirty paint, an outdated color or tacky wallpaper, a few cans of paint can make a dramatic difference. If you’re trying to maximize the value of your home, it’s best to choose a neutral color scheme that unifies the entire house, makes the space look bigger and will appeal to a wide variety of potential buyers.

Install Crown Molding
This task is surprisingly simple but adds a lot of character. You simply buy the molding, which is nothing more than decorative strips of wood from a home improvement store, cut it to the size that fits your room (or have the store cut it for you), and attach it to the top of the wall with a nail gun. It may even come already painted. This involves a bit of woodworking skill as well as the right tools, but is very inexpensive if you can do it yourself.

Update Fixtures
Switch plates, outlet covers, curtain rods, light fixtures and doorknobs are often boring or overlooked, but a few bucks can add major pizzazz. Attractive metal switch plates and outlet covers can cost as little as $5 apiece but look much more expensive. Light fixtures and decorative curtain rods can be a little pricier, but sometimes you can make an inexpensive piece look elegant with the right can of spray paint. Again, make sure to choose items in colors and finishes that will appeal to a wide audience.

Install Ceiling Fans
Everyone likes to save money on electricity bills, making ceiling fans an appealing addition to any home. Using ceiling fans can definitely cut down on air conditioning costs, and in fact, they can also reduce heating costs by circulating warm air away from the ceiling. A basic fan costs about $50, and a nice one can be had for no more than a couple hundred dollars. If you don’t already have overhead lighting in the room or rooms you want to install fans in, the electrical work needed to install them can significantly escalate the cost of this project as well as take it out of the DIY realm.

Improve Window Treatments
The cheap vertical plastic blinds, paper shades, or horizontal aluminum blinds that may have come with your house definitely don’t add any value to your home. Consider replacing them with plantation shutters, wooden blinds or nice drapes. By the way, it doesn’t matter whether the drapes will come with the house if you are in the market as a seller. The important thing is that they make it look nice while it’s on the market and help you get top dollar for your home.

Reveal and Restore Hardwood Floors
Older homes in particular are likely to have hardwood floors lurking beneath carpet. If your floor squeaks, that’s a decent sign that you may have wood floors. If you’re not sure, pull up your carpet in an unnoticeable corner and investigate. If you do have wood floors, there’s a good chance you’ll have to refinish them to restore them to their original splendor, but that will be much less expensive than installing new flooring from scratch.

Bathroom

Redo the Bathroom Floor
Many people can learn how to do this task themselves with a simple class (your local home improvement store may offer one). Because installation makes up a major part of the cost of most home improvements, saving all that money on labor may allow you to pick nicer flooring than you could otherwise afford. Opting for a neutral-colored tile will add the most value.

Update Fixtures
If you have generic, cheap and/or outdated fixtures, replacing them with newer, more customized versions can make your bathroom sparkle. For about $40-$100, you can replace a shabby bathroom vanity or ceiling light fixture with something elegant. A similar cash outlay will get you a new sink faucet. A spa-style chrome shower head adds a touch of luxury for about $80. Towel bars are the easiest and cheapest fix at about $20-30. Sometimes the upgrade can even be more energy efficient, increasing not only the aesthetics of your home but “greening” it up as well.

Kitchen

Paint or Stain Kitchen Cabinets
You could buy all new cabinets and save money by purchasing prefabricated (rather than custom) cabinets and installing them yourself, but that’s more work and money than painting or staining your existing cabinets. White cabinets will brighten the room, don’t usually go out of style and are easy for future owners to repaint if they want something different. You’ll need to remove all the hardware from your cabinets, including removing the doors. You’ll also need to clean the cabinets first so that residue like grease won’t ruin your work. This renovation can be used to spruce up your bathroom cabinets as well.

Upgrade Cabinet Knobs and Drawer Handles
It’s surprising how a seemly innocuous element like a cabinet door knob can make your kitchen look cheap or dated. Updating this hardware can give your kitchen a face lift whether you redo your cabinets or not.

Living Room

Clean Fireplace Brick
If you have a brick fireplace and it’s ever been used, chances are some of the brick is stained with soot and creosote. Because a nice fireplace can be a major selling point in a home, you’ll want to make yours look as nice as possible. Just use a damp rag to wipe away some of the soot, then follow up with a fireplace cleaner designed to remove creosote. It will take some scrubbing with a stiff brush and possibly several applications, but you’ll have that brick looking spiffy when you’re finished.

Don’t Forget the Exterior

It may be easy for you to ignore your home’s exterior when you spend most of your time inside, but it’s the first and sometimes only impression that others get of your house. Here are a few simple ways to make it look its best.

Install a New Front Door
A very basic steel front door costs about $100, but for just another $100-$200, you can get a door with a lot more character that will improve your home’s curb appeal. If you can’t afford a new door, a fresh coat of paint in an inviting color may be all you need.

Replace the Front Door Mat
When you’ve had the same doormat for years, it can be easy to overlook how worn out or dirty it’s become, but it’s one of the first impressions people get of your home. This is one area where $20 can make a big difference.

Gutters
This is more an issue of maintaining your home’s value than increasing it, but it’s extremely important. Without properly functioning gutters, which are designed to carry water away from your home, rain may seep into your home or pool around it, causing problems like mold and mildew and eventually compromising the house’s structural integrity, leading to very expensive repair bills.

Power wash the Exterior of Your Home
For less time and money, a good washing can make your home’s exterior look almost as good as a fresh coat of paint.

Repaint the Exterior
If washing the exterior of your home didn’t brighten it up as much as you’d hoped, consider a new paint job. With the ladders and heights involved, this may not be a DIY task for everyone, but even if you have to hire others to do this job, it’s still pretty inexpensive as far as home improvements go and can make your house look almost new from the outside.

Power wash the Driveway, Walkways and Patio
As long as you’re renting the power washer, you might as well clean your driveway, your patio, and any walkways. You may be surprised by how new they’ll look afterward.

Upgrade Landscaping or Clean Up Existing Landscaping
Flowers and other plants are a great way to brighten your home’s exterior. Use greenery in front of your house and/or along walkways to draw attention to your house. To get the most for your buck, choose perennial plants, or ones that will come back year after year, rather than annuals, which will die in a year or less and not return. Patch any bald spots in the yard with fresh sod and trim existing trees and bushes to complete the yard’s new look.

Put on Your Tool belt
Upgrading your home doesn’t have to be expensive or difficult and it doesn’t have to involve contractors. There are a variety of projects for all price ranges and all levels of skill and enthusiasm that can improve your home’s value, whether to future buyers or, perhaps more importantly, to you. Putting a few of these home-improvement ideas into action will help you get the most value out of one of your biggest assets whether you’re staying in it or selling.

Article by: Amy Fontinelle Investopedia.com

“Fix it and flip it” is a phrase often associated with real estate investing. The idea behind the concept is that the completion of a few choice remodelling projects will add significant value to the price of a home. With this in mind, many homeowners undertake major renovation projects before putting their homes up for sale with the idea that sprucing up the place will result in big bucks. More often than not, these upgrades fail to pay for themselves. Read on to find out how to renovate strategically and which renovations really add value to your property.

The Difference between Investors and Owners
Updating an investment property is generally a sound strategy because successful advocates of the fix-it-and-flip-it philosophy buy run-down homes at bargain prices and save money on the repairs by doing most of the work themselves. A little sweat equity goes a long way toward making a real estate investment profitable.

Investors carefully choose their remodeling projects, focusing on those that will result in the most value for the least amount of effort and cost. Part of the process includes paying attention to the other homes in the neighborhood to avoid over-improving the property. If none of the other houses in the area have crown moldings and Corian countertops, adding these amenities is unlikely to result in a significantly higher selling price for the property.

Owners, on the other hand, often take a less strategic approach to remodeling when sprucing up their homes prior to putting them on the market. As a result, they can end up putting significantly more money into the project that they will get back out of it when they sell.

To make the most of your remodelling projects, it pays to keep four types of projects in mind : basics, curb appeal, value added and personal preference.

The Basics
The basic are the things that buyers expect when they purchase a home. This includes a roof that doesn’t leak, functioning gutters and downspouts, a dry basement, a good furnace, solid floors, walls that are in good repair, retaining walls that work and all of the other common sense items that you expect to find in a home.

In upscale properties, this includes air conditioning, a certain number of bedrooms, bathrooms and garages, and any other amenities that are common to the neighbourhood, such as a swimming pool.

Adding these items to a home that lacks them doesn’t add value, it merely brings the property up to the standard level of the rest of the homes in the area. Money spent on these items is unlikely to be fully recovered, but should at least result in ensuring that the home sells for a price that is comparable to other homes in the area.

Curb Appeal
Items that add curb appeal help the property to look good when prospective buyers arrive. While these projects may not add a considerable amount of monetary value, they will help the place sell faster. Curb appeal items include a nice green lawn, attractive landscaping, fresh paint inside and out, new carpet and new appliances. If you know that a prospective buyer is due to arrive at a certain time, baking an apple pie just before the arrival is an easy way to set the stage, make your house smell good and create a warm, inviting atmosphere.

Adds Value
The projects that add considerable value are big favourites of fix-it-and-flip it advocates. While most of these efforts will not recoup their costs, some will come close. Projects that offer the most bang for the buck include new siding, kitchen remodelling, bathroom remodelling, new windows, decks and the addition of living space. The National Association of Realtors cites siding, kitchens and windows as some of the most beneficial projects, often recouping 80% or more of their costs during resale.

Personal Preference
Personal preference projects are nifty items that you want but that other people may not like or be willing to pay to get. In most areas of the country, these include amenities such as swimming pools, tennis courts, hot tubs, wine cellars, basement game rooms and ponds. There’s certainly no harm in adding these items to your house, but don’t expect potential buyers to be willing to pay a premium to get them when you are ready to sell.

House and Home
Regardless of the project that you are considering, remember that your primary residence is not just a house, it’s your home. If you plan to live there for many years to come, add amenities that you want to have regardless of their impact on resale. When it’s time to sell, do the basics to get the property up to par for the neighbourhood and add some curb appeal, but don’t bother undertaking an extensive array of projects strictly in an effort to increase the value of the property. Even with the projects that are known to add value, the chances are good that you will spend far more money than you will get back in return.

Article by: Lisa Smith Investopedia.com

Source: Lee Politano, Mortgage Specialist (780) 264-1749    TD Bank Financial Group

HIGHLIGHTS OF THE WEEK

>>To view the full report click here<<

Source: Lee Politano, Mortgage Specialist (780) 264-1749    TD Bank Financial Group

HIGHLIGHTS OF THE WEEK

• Minutes of the FOMC reveal that the Fed has upgraded its economic growth forecasts. The central bank now expects a contraction of -1.5% to -1.0% in 2009 and growth of 2.1% to 3.3 in 2010%.
• U.S. retail sales recorded a better-than-expected +0.6% in June, led by auto and gasoline sales.
• Housing starts in the U.S. jumped up to 582,000 in June, marking the second straight month of gains.
• U.S. headline CPI advanced 0.7% in June, but remain down 1.4% Y/Y; core inflation was up 0.2% on the month and 1.7% above year-ago levels.
• Federal deficit hit $1.1 trillion during the first nine months of the fiscal year beginning in October.
• Canadian manufacturing sector continues to reel from outside pressures as the downward spiral in manufacturing shipments continued with a 6.0% decline in May
• The domestic economy looks set to recover as both auto and home sales improve.

>>To view the full report click here<<

I’m not sure if you were aware but we offer free very informative special reports for buyers, sellers, and investors! To see what reports we have available, click below and you can select which ones you would like to have e-mailed to you.

 <<Click here for a copy of this Special Reports>>

 The report below will be updated every Friday and is supplied by TD Canada Trust’s Lee Politano.  This report has valuable information for both buyers, sellers, and investors.  To see the full report click on the above link and have it e-mailed to you. 

Stay ahead of the game and keep informed by tuning back here and checking out the new report every Friday!

Weekly rate minder provided by:

Narish Maharaj

Dominion Lending Centres Optimum
(780) 238 – 7038
Apply online :
www.dlconline.com