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.

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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.

Weekly rate minder provided by: Souchita Rattanarasy Dominion Lending Centres Optimum 780-932-2225. Explore Mortgage Scenarios with Helpful Calculators on http://www.souchita.com/

You are about to invest in your most valuable asset. Many home buying steps are standard yet there might be slight variations depending on the real estate laws and regulations where you live. Here are our top 10 recommendations to make you more confident as you embark on your home buying journey.

1. Your Credit Rating
Getting your finances in order is probably the most important step you should take. Your credit reports are an ongoing look at how you manage your finances. You must know exactly what your credit reports say about your financial history before you apply for a mortgage, because the reports play an important role in the mortgage approval process and in determining the interest rate and other loan terms that a lender offers you.

2. Understanding How Mortgages Work
Get familiar with the mortgage laws, structure and options. That way, you will be able to decide on the right loan and lender — crucial to your home buying success. It’s up to you to determine which lender is best for your needs, and it’s always a good idea to have at least a bit of background about the loan process before you talk to a lender.

3. Getting a Mortgage Pre-Approval
Do you know how much house you can afford? Probably not, unless you’ve talked with a lender. Pre-approval helps you in other ways. Consider this scenario. A home seller gets two similar offers. One is accompanied by a letter from the buyer’s bank that states she is pre-approved for a mortgage in the amount of the offer. The other has no supporting documents. Which offer do you think the seller will consider first?

4. Sorting Out Your Needs and Wants
Buying a home isn’t as difficult as you might think, even if you’re short on funds. But the process will go a lot smoother if you get familiar with your real estate market and narrow down your wants and needs before you start looking at houses.

5. Preparing to Work with Real Estate Agents
Real estate agents represent buyers, sellers, or both — and in some states they can work as neutral facilitators for either party. It’s essential to understand agent duties and loyalties before you make that first phone call.

6. The Great Home Search
The Internet is a great tool — you can spend endless hours searching the public version of the Multiple Listing Service website. Plus, your agent will give you multiple listing sheets to study. You can also pick up House For Sale magazines and read classified ads in your local newspapers. You might even plan afternoon drives to preview neighbourhoods. These are all excellent ways to see what’s available out there.

7. Pre-Offer Investigation
Deciding whether or not you want to buy a house involves a look at its structure and its features, but there are many other topics that are every bit as important to your purchase. Appoint a professional to conduct the home inspection. Study what kind of house is it — site built, modular or manufactured. Consider its market value and resale potential. Do others have a right to use the property? Can you live with the deed restrictions? Is the reported square footage accurate? Is the heating system efficient? And so on.

8. Making the Offer
There’s no one set of instructions that can cover all the differences in real estate laws and customs that exist throughout, so the mechanics of making an offer and its specific contingencies depend greatly on your location. That’s why you should sit with your agent, attorney or advisor to fine-tune your offer and take care of all the contractual considerations.

9. Avoiding Last-Minute Changes
As your closing date nears, everyone involved in your real estate transaction should check its progress on a daily basis, because staying on top of things means you’ll know immediately if there’s a problem that must be dealt with.

10. Before Closing
Most of your home buying concerns are behind you now and you’re on your way to closing, also called settlement, or the event that transfers ownership of the property over to you. You will encounter issues specific to your location and your transaction, issues that can best be explained and handled by your local real estate agent, your lender, your attorney, your closing agent, or others who are helping you complete the home buying transaction.

Never hesitate to ask questions. Ask as many questions as necessary to help you understand the entire home buying process. You are making a long term commitment and spending a major amount of money–you’ll feel much better about the transaction if you stay informed and understand what’s happening every step along the way.

The HGTV.ca Editorial Team

If you didn’t buy a house in July, the best time to buy may be running out, according to a new consumer-confidence survey.

The November Alberta consumer confidence index, released Saturday along with its sisteconomyer survey measuring business optimism by Leger Marketing and PricewaterhouseCoopers, show both groups expect continued economic recovery.

But while jobs will be more plentiful, consumers increasingly believe real estate will become more expensive in the near future.

The index of Albertans who believe buying a house in the near future is the best time to do so decreased to 147 in November, continuing its fall from a July peak of 164.

Survey questions in the study were used to produce index scores representing respondents’ confidence in a component of the economy. An index score above 100 represents an optimistic sentiment, and scores below 100 indicate pessimism.

“With signs of economic revival and potentially a real estate recovery, consumers may become less enthusiastic about purchasing a house in the future,” said David Bryan, an advisory partner at PriceWaterhouseCooper’s Edmonton office.

The overall consumer confidence index was 111, down slightly from 112 in September.

Consumers also continue to expect interest rates to rise as reflected by an index score of 63, steady from 65 in September.

Consumers’ optimism about the job market continues to increase. The future unemployment index improved for the fifth consecutive month to 106 in November, the report said. Confidence about employment crossed the 100 mark for the first time since May 2008.

“Overall, consumers are optimistic about the job market,” Bryan said. “Consumers continue to see these times as a good opportunity to buy homes and other major purchases, although to a lesser extent than in the previous quarter.”

But consumers remain conservative about major household purchases, with a November index score of 121, compared with 125 in September.

Meanwhile, businesses continue to become more optimistic about the economy: their overall confidence index rose for the fourth straight month to 109 in November.

In Alberta, 297 business leaders were surveyed in November, and 900 consumers were interviewed by phone. The margin of error is plus or minus 3.3 per cent, 19 times out of 20.

By Bill Mah, Edmonton Journal

The Canadian housing market is getting dangerously close to “bubble territory” and is likely headed for a correction in the second half of 2010, according to a top economist.

“We are certainly at risk of a full-blown bubble,” said BMO Nesbitt Burns deputy chief economist Doug Porter, who expects to see a “modest” market correction next year with prices taking a hit.

The extent of the correction depends on how much prices increase in the next six months, he said. After dropping at the start of the year, resale house prices have surpassed the peaks of the past year. Research by the bank to be released Wednesday says housing valuations are likely “richer than equity valuations” in the current market.

“The higher we climb, the bigger the risk of a correction,” Porter said.

He said characteristics of a bubble economy include speculative buying, a massive amount of credit on the market, and sales and prices of homes “going north without the economy tagging along.”

Cities such as Vancouver and Toronto, which have had significant activity, stand the most risk of a correction, he said. “You are seeing a lot of line ups at sales centres and speculative buying in those cities.”

Existing home sales rose for the third straight month in November, up 73 per cent from 2008, according to figures released Tuesday.

A total of 36,383 homes sold in November, according to the Canadian Real Estate Association. That figure is just under a percentage point short of equalling the November record for home sales set at the peak of 2007. The average price of a home was up 20 per cent year over year to $368,665.

In Toronto, sales hit 7,466, about double the total from last November, when the financial crisis set in.

The volatility means homebuyers continue to be nervous about the economy, according to a poll released Tuesday by Royal LePage of their 1,225 agents across Canada.

“This kind of unsustainable volatile market really creates uncertainty in people’s minds,” said Phil Soper, president and CEO of Royal LePage.

According to the poll, 38 per cent of Royal LePage agents say economic factors such as job security are the number one issue with buyers. Another 23 per cent said their clients fear they wouldn’t be able to get the price they wanted for their home, and 12 per cent said some customers are hesitant to sell because the market had not hit bottom. About 20 per cent said they had no concerns from clients.

Soper says that unlike the U.S., rapid price rises have been “a matter of weeks” during the second half of the year, compared with south of the border, where the bubble developed over more than four years.

“The market has a way of sorting through things and we hope it’s in a measured way. As affordability erodes one thing you will see is that more people won’t qualify for lending and activity will ease off,” said Soper.

Some good news for buyers is that the return of strong demand means that more sellers are returning to the market. Seasonally adjusted new listings rose 5 per cent on a month over month basis in November, the biggest monthly increase since January of last year.

Tony Wong
BUSINESS REPORTER

Weekly rate minder provided by: Souchita Rattanarasy Dominion Lending Centres Optimum 780-932-2225. Explore Mortgage Scenarios with Helpful Calculators on http://www.souchita.com/

EDMONTON – More houses and condos will be built, more existing homes sold and it will be a little harder to find an apartment to rent next year.

And existing homes and rents are expected to cost more in 2010, a comprehensive new report on Edmonton’s housing market said Monday.

This strong rebound predicted for 2010 comes after housing starts in the Edmonton area hit bottom this year — the third straight year of decline, the Canada Mortgage and Housing Corp. said Monday.

Builders are on pace to begin construction on 5,000 homes, 24 per cent fewer than the year before, said the national housing agency’s Fall 2009 Housing Market Outlook for the Edmonton census metropolitan area.

It is the lowest level of activity for the region’s homebuilders since 1997, said the report, and follows a 56-per-cent decline in total housing starts in 2008.

“While single-detached construction has staged a modest recovery since the summer, a continued downturn in the multi-family sector will hold down this year’s numbers,” the report said.

For 2010, the agency expects continued growth in single-family detached homes and a moderate rebound in multiples, boosting total starts by 29 per cent to 6,450 units. While that would be a considerable improvement over this year, it compares with an average of more than 10,600 units started every year from 1999 to 2008.

For 2009, a new single-detached home in Edmonton will be an average of $535,000, up 4.5 per cent over 2008.

Still, the CMHC predicts the average price will soften in 2010 by 2.8 per cent to$520,000 because of a “lagged effect” of when homes are priced and when they are completed.

On the other hand, the agency forecasts pressure for higher negotiated selling prices in 2010 from builders who had cut their margins over the past year to clear inventory. “With better economic times ahead, land and labour costs as well as material prices such as lumber and concrete are expected to increase.”

In the resale market, the CMHC predicts residential Multiple Listing Service sales will increase this year by eight per cent to 18,750 units. Last year was the slowest for Realtors since 2003, with saw sales falling 15 per cent to 17,369 homes.

“Provided the economy and interest rates perform as expected, CMHC looks for the upward trend to remain in place during 2010,” the agency said. Total MLS sales are forecast to rise another 9.3 per cent to 20,500 homes in 2010, which would approach the level in 2007, which was the second-best year on record.

The average residential MLS price will end 2009 close to $322,000, down 3.3 per cent from the 2008 average.

A balanced market in 2010 is expected to translate into modest price gains all year, with the average resale price rising 3.4 per cent to about $333,000, CMHC said.

Home-ownership costs will likely rise in 2010 as mortgage rates are at rock bottom and prices set to increase, the agency added.

In rentals, apartment vacancy rates across Greater Edmonton will continue to trend up this year. “But landlords should see a turnaround in 2010, provided economic conditions improve,” the report said.

The vacancy rate for October was an estimated four per cent, compared to 2.4 per cent a year earlier. It was the highest fall vacancy rate since 2005.

Factors in dampening demand for rental apartments were rising unemployment, more demand for home ownership and a steady influx of condominium units.

The agency sees the rental vacancy rate falling to 3.5 per cent amid fewer new apartments and strengthening demand.

CMHC expects its fall survey to show rents largely unchanged from October 2008. “With vacancy rates starting to subside in 2010, property owners will be looking to raise rents to offset rising operating costs, in particular utilities and property taxes,” the report said.

A typical two-bedroom apartment will rent for nearly $1,070 by October 2010, up about $35 a month on average compared with October 2009.

By Bill Mah, edmontonjournal.com

Well we may just have seen a reversal of the trend that we have been experiencing over the last few weeks where we saw the listings to sales ratio rise to a more neutral market.

As of this moring there are 1,500 single family dwellings in Edmonton proper listed on MLS.  That is a significant drop from last week in which we had 1,649 homes listed on MLS.

Also as of this morning there were 568 sales of single family dwellings in Edmonton proper that were listed on MLS.  That is an increas from last week’s number of 494.

This would give us a listing to sales ration of 2.64:1 down from last week’s ratio of 3.33:1.  Last week’s ratio was indicating that we were arriving to a neutral and balanced market.  But with this week’s number dropping to 2.64:1 that will put upward pressure on valuations.’

The next 4 weeks will be interesting to watch as historically is our slowest time of the year.

Who doesn’t need more storage space in their home? From closets and attics to kitchens and laundry rooms, we’ll show you some innovative storage ideas that can help eliminate the clutter around your home. So what are you waiting for? It’s time to get busy cleaning up that mess!

Closets

Closets are the first place to look when improving storage in your home. Replacing old hanging rods and shelves with adjustable metal shelving and wire baskets should be high on your priority list. It’s not that hard to do, and can make a great DIY project.

Here’s how to go about it:

• Start by cleaning everything out of the closet.
• Remove the old shelf and rod.
• Locate the wall studs and mark their position.
• Secure the horizontal track to the studs on the back wall near the top of the closet.
• Hang the vertical supports on the track and secure them to the wall.
• Cut the wire shelves to length with a hacksaw or reciprocating saw.
• Attach shelf supports to the vertical supports.
• Install hanging rods, shelves, and baskets.

Under Bed

A lot of good storage space can be found under your bed. To access the stored items, build one or more large open boxes that fit under your bed from plywood or medium density fiberboard (MDF).

 Install casters to the bottom of the box and a handle on the front to allow it to easily roll in and out.

Laundry Room

Your laundry room is another area of the house that can usually benefit from some serious organization. Some ideas for laundry room storage include:

• Add a store bought or built-in storage unit that has been sized to hold an individual laundry basket for each member of the family.
• Install shelving on your laundry room walls above the washer/dryer as well as along the area near the ceiling to store cleaning supplies and detergent, as well as tools and other items.
• A great DIY project that can make your laundry room more functional is to install a built-in ironing board, complete with an electrical outlet and storage for your iron, into the laundry room wall.

Attic

Attics are a great place to store items that aren’t damaged by extreme temperatures. To increase the storage space in your attic, consider building hanging shelves that are attached to the rafters.

Here’s how to go about it:

• Determine the pitch of your roof and the width you want your shelves.
• Using these measurements, build “L” shaped brackets cut from 2″x 4″ lumber to support the shelves.
• Use a chalk line to mark the position of the brackets on the rafters.
• Attach the brackets to the rafters with screws, making sure the shelf support is level.
• Slide 1″ thick shelving onto the brackets.

Kitchen

There are a number of ways, from lazy susans to sliding bins, to increase storage space in your kitchen. One simple way to free up a drawer and make the lids to your pots more accessible is to mount a bathroom towel rack to the inside of a cabinet door. Here’s how to go about it:

• Start by attaching one of the towel rack brackets to the cabinet door stile at the proper height.
• Next, hold the other bracket in place and measure the length of the towel rod.
• Cut the towel rod to length with a hacksaw.
• Insert the towel rod in the two brackets and screw the second bracket to door.
• Place lids on the towel rack with the handles facing out.

Bookcase

A DIY built-in bookcase in your living room or den makes the perfect place to store books or display memorabilia and photographs. Store bought models are also available.

To build a bookcase:

• Start by making a cutting list and cutting the stock (plywood, MDF, or solid wood) to size for the bookcase and shelves.
• Assemble the bookcase.
• Construct a separate recessed base below the bookcase.
• Assemble the bookcase and base.
• Attach a frame to the front of the bookcase.
• Prime and paint or stain and finish the bookcase and base.
• Install bookcase in room.

Bathroom

Bathrooms can always use some added storage space. There are a number of options available, including:

• Build or buy a shallow hanging cabinet to attach to the wall above the toilet for storing towels, soap, and toilet paper.
• Add a built-in window seat or a freestanding chest in your bathroom to serve as a place for clothes and to sit when dressing, as well as for storage space inside.
• Install a built-in, recessed medicine cabinet, such as Nutone’s locking bath cabinet on the wall above the sink in the space between two studs.

Charging Station

A recessed wall cabinet with an electrical outlet mounted inside is the perfect place to keep cell phones, iPods, and MP3 players while they’re charging. It also doubles as a convenient place to hang your keys.

 by Danny Lipford

OTTAWA – Canadian home sales jumped 73 per cent in November from a year earlier as the real estate market continued to recover from the economic downturn.

The Canadian Real Estate Association said Tuesday that 36,383 residential properties were sold last month, with Ontario and Quebec setting sales records for November.

“The current strength of housing demand stands in sharp contrast to weak activity recorded one year ago,” CREA said in its report, adding that activity was just 4/10 of a per cent below the highest level for the month recorded in November 2007.

“National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year,” said CREA president Dale Ripplinger. “As we predicted last April, the rebound in resale housing activity led the overall Canadian economy out of recession.”

The national residential average price was $337,231 in November, up 19 per cent from a year earlier.

Financial Post