Edmonton Real Estate Blog

Home ownership has become a political — and economic — hot potato. Politicians are handling it with care.

Buying a house is about a great deal more than providing you and your family with permanent shelter or making an investment. Home ownership is one of the most fundamental economic and political pillars of society — which is precisely why the government of Canada is being so terribly careful not to mess with it.

Amid increasingly vocal concerns (from none other than the CEOs of Canada’s chartered banks and former Bank of Canada governor David Dodge) about the possibility of a housing bubble developing in Canada, Finance Minister Jim Flaherty has just introduced measures designed to cool the market down — at least a little bit

Because the central bank has committed to keeping interest rates low for the first half of 2010 in order to help stimulate the battered domestic economy, the worry is that Canadians are taking on massive new debt loads that they won’t be able to service when rates eventually rise.

All the latest data from the real estate sector reinforces such fears. According to the Canadian Real Estate Association, existing home sales in January were up 58 per cent from the depths of a year ago. But more critically, prices were up almost 20 per cent in that period to an average of $328, 537. That despite the fact that the economy is hardly blazing and unemployment continues to be a stubborn problem, despite some recent improvements.

All of this led Finance Minister Jim Flaherty — who, as recently as January, insisted he saw no evidence of a housing bubble — to announce some changes to the way that real estate lending is managed in Canada.

As of April 19, there will be some new, standardized criteria for mortgages. But it’s nothing that’s going to drastically affect the affordability of real estate — especially for first-time buyers — this spring. All the changes apply to mortgages backed by government-backed mortgage insurance (from Crown corporation Canada Mortgage and Housing Corporation) — a mandatory insurance when a buyer’s down payment is less than 20 per cent.

Here’s a rundown of the new criteria:

• To qualify for mortgage insurance new borrowers will have to meet the criteria for a five-year, fixed-rate loan rather than just a three-year loan. The borrower doesn’t have to take those terms — although the five-year rate is currently the most popular. It’s just a test to be certain they could still carry that amount of debt against gross income (the acceptable ration is 42 per cent allocated for housing costs from gross income) in the event interest rates pop.
• Folks who plan to refinance their houses to improve liquidity or eliminate higher cost credit card debt, can now only borrow up to 90 per cent of the value of their home, rather than the previously allowable 95 per cent.
• Those who buy non-owner-occupied residential rental properties for speculative or investment purposes now have to plop down 20 per cent of the price rather than just five per cent.

In other words, these measures are more about the perception of action than a major credit crackdown. It’s a way for the federal government to flag its concern and to take some proactive measures without really dislocating the real estate market.

At the very most, the careful steps taken by Mr. Flaherty are expected to take some of the heat out of markets where ferocious bidding wars have been steadily driving up prices for houses and condominiums.

It’s part of a gradual process that started in July 2008. Although Mr. Flaherty continues to deny there’s a housing bubble, Ottawa announced back then that CMHC would only insure mortgages when there was at least a five per cent down payment. That basically squeezed out the zero-down loans which often saw purchasers borrow as much as 103 per cent of the value of their house (land transfer and other associated charges were folded into the mortgage).

At the same time, the government stipulated that mortgages could only be amortized over 35 years rather than 40 years. Flaherty is hoping to reverse the sudden increase in 2006 of amortization periods (before this, the long-time standard was 25 years).

For those people like Mr. Dodge, who’s been publicly fretting about the sustainability of the Canadian housing market for at least four years now, Mr. Flaherty’s cautious changes may not be quite as tough as hoped. But that issue brings us to the political heart of the matter.

Being elected is a popularity contest. Maintaining a favourable home buying climate is one of the most important things a government can do to maintain that popularity. Nothing says we’re working on your behalf like voters who are able to live their dreams.

It’s also conventional wisdom that home ownership is good for both a society and an economy. People who own homes are considered to be more stable and more politically engaged — they are more likely to feel like stakeholders in their communities. Which means they vote, pay taxes and generally get involved in positive things.

Home ownership also means that there is a reliable, fixed workforce available for businesses. And homeowners are the consumers who are constantly spending the money that makes GDP go round — for appliances, furniture, home renovations and so on.

All of this — along with a remarkably resilient period of general economic prosperity — has led to a pretty deeply-ingrained set of expectations around housing. In North America, there’s not much question that home ownership has come to be viewed as an inalienable right.

Because politicians – and governmental institutions like CMHC — are among those who’ve encouraged that fundamental sense of entitlement, they have to be very careful not to rock the boat — especially when conditions are already choppy. For that reason, Mr. Flaherty has borrowed a page from central bankers’ playbook and he’s essentially trying to “jawbone” the housing market into cooling down rather than taking more Draconian steps.

Let’s hope it works before Canadians hear the loud popping noise that confirms a real estate bubble not only existed, it’s now exploded.

Source: MSN Money – By Deirdre McMurdy, February 19, 2010

Planning on building, buying or improving your home this year? Chances are you’re thinking smaller, smarter and more family-centric.

“We continue to see a ‘cents and sensibilities’ approach when it comes to buying or improving a home, said Eliot Nusbaum, Better Homes and Gardens‘ executive editor for home design.

Nusbaum made the comment while presenting the results of the magazine’s Next Home Survey at the National Association of Home Builders’ International Builders Show in Las Vegas last month.

Price, energy-efficiency, organization and comfort are top priorities of potential new home buyers and homeowners who are planning improvements in the next few months, he said.

“Today’s homeowner is also looking for a home that fits the entire family-from a multi-tasking home office, to expanded storage space, to a living room that can adapt to advancements in home entertainment and technology,” said Nusbaum.

Later, speaking by phone from his office in Des Moines, Iowa, he said: “When someone says their highest priority is an efficient HVAC system, you know we’re not living the same dream as three years ago. That dream was having a showplace home-a McMansion with the emphasis on two stories, big public spaces and an expensive fit-and-finish kitchen.

“Now, those things have drifted to the back burner. Today it’s ‘what I need’ versus ‘what I want.’ People are being sensible and practical. They want low-cost improvements that pack a big punch,” he said.

There were no major surprises in the survey results, “Though I thought it was interesting the number of people-85 per cent-who expressed a desire to have a separate laundry.”

And Nusbaum was mildly surprised that 70 per cent of those surveyed wanted low-maintenance landscaping, “when gardening is supposed to be America’s top hobby.”

NEW-HOME TRENDS

Here are some of the results of Better Homes and Gardens’ Next Home Survey, and some of the trends that may influence new-home building and home-improvement projects in 2010:

87 per cent of respondents said a greener, more-energy efficient home is a priority.

68 per cent wanted an outdoor grilling and living area.

59 per cent wanted a home office.

36 per cent said their next home would be “somewhat smaller” or “much smaller.”

75 per cent said the economy has impacted their home-improvement plans.

52 per cent said now is the time to spend on needed repairs and maintenance, rather than major home-improvement projects.

Source: Better Homes and Gardens

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)

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada’s housing market and continue to encourage home ownership for Canadians.

“Canada’s housing market is healthy, stable and supported by our country’s solid economic fundamentals,” said Minister Flaherty. “However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing.”

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it,” said Minister Flaherty. “If some lenders aren’t willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families.”

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

Source: Department of Finance Canada

If you are thinking of buying you need to buy now.  Call us today to get pre-approved for a mortgage and help you find that perfect home for you today. 780-634-8151

   New Mortgage Rules: The Good, The Bad, The Ugly

Well the market is not improving if you are a buyer, and good news if you’re a seller.  As of this morning there are 1,523 single family homes for sale in Edmonton proper.  In the last 30 days there was 460 single family dwellings sold.  That would give us a listing to sales ratio of 3.31:1 which is lower than last week.

A ratio below 4:1 always indicates that there is an increase on upward pressure on the valuations of homes.  This is the second week in a row that this ratio has been below the ration of 4:1 – as a matter of fact the ratio this week is even lower than last week.

This means you should expect valuations to rise.  If you are a buyer it is time to “get off the fence” and start looking now before you have to pay more for the same home you want to buy.

Please call me if you have any questions about this, or anything else related to Real Estate – I would love to help you out. (780) 634-8151

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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.”

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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

LAS VEGAS, Jan. 19 – A survey of consumers and builders, conducted in 2009 by the National Association of Home Builders (NAHB) and the MetLife Mature Market Institute, has yielded a new round of data revealing the housing preferences of the 55+ consumer. This analysis of data – the third in a series – compared the preferences of the 55-to-64 year old age group to those of the 65+ group.

The data uncovered a strong similarity in housing preferences between the two groups, with a few exceptions. The younger age group showed more interest in technology-heavy features, while the older group expressed a stronger preference for a single-story floor plan or one with a first-floor master bedroom, and a variety of universal design features.

One striking difference, according to John Migliaccio, director of research at MetLife’s Mature Market Institute, related to the desire for home services and community services.

“Very telling, said Migliaccio, “is that the younger group of mature consumers reported enthusiastically that they want services like home maintenance and repair as part of their next home purchase, along with services typically connected to older homeowners, such as housekeeping, onsite health care and transportation,” noted Migliaccio.

According to Migliaccio, all of the aforementioned were ranked higher than the desire for organized social activities – a surprise, inasmuch as social activities and amenities have been thought to be valued quite highly by this group. This finding, he said, supports an emerging trend among builders to look for ways to partner with providers of such services to the residents of their active adult/lifestyle communities.

According to Mike McGowan, a 50+ builder from Binghamton, N.Y. and chair of NAHB’s 50+ Housing Council, “Most buyers in this market are looking for an easy-living lifestyle. They would like access to services that will free up their time from maintenance both inside and outside their homes. This data tells builders that the homes we build for older active adults will remain attractive to the consumers who will be entering that market for the foreseeable future.”

Paul Emrath, NAHB’s vice president for survey and housing policy research, pointed out that the share of households that will want lower-maintenance housing is large, and growing larger as Baby Boomers age into that segment of the market. He cautioned that the current financial situation has led to sharply decreased construction of communities that serve the mature market. Without a change in the availability of capital for development and construction, there could well be a shortage of such housing when it is most needed.

For more information on the MetLife/NAHB research, including the first two reports on the age group and consumer preferences, visit: nahb.org.

Source: HGTVpro.com

It can difficult to determine or predict when interest will go up.  But a survey done by MSN money came up with these results.  These are of course the opinion of people responding to a questionnaire on a website, and has no real scientific proof of when interest rates will go up.

• 1. Spring   17%
• 2. Summer  28%
• 3. Fall  36%
• 4. Not sure  19%

5284 responses, not scientifically valid, results updated every minute.