Time to Panic?

In the weeks following Finance Minister Jim Flaherty's mortgage rule changes, the media has been full of stories debating whether we're on the brink of a soft landing, a crash, or neither.

While it's obviously always good to stay on top of the real estate market, it's important not to read too much into the opinions of "experts"?. Not only does the media love to sensationalize real estate, for some reason (think of how many times these same reports have told you to "lock in" over the last few years), but it's very, very difficult to paint the entire Canadian real estate market with one brush. Heck, it's even hard to paint the real estate markets in one city with the same brush!

With that in mind, try to push all the extraneous chatter out of your mind and narrow your focus to encompass your situation and your situation alone. If you're thinking about moving in the near future, try to look at these factors, rather than those of the market as a whole:

1) Are you ready to move?
If you're not ready to move - namely, your finances aren't in order, your credit is a mess, and your home needs a lot of updating - don't rush into listing it just because you're worried the market is going to tank. You'll likely not get top dollar for it anyway, and you might end up spending more money on a new mortgage if your credit isn't in good shape.
2) What does your competition look like?
Are there a lot of properties on the market in your area right now? If so, you may want to wait a bit to list. The more homes you're up against, the higher the chances that there are places nicer than yours. If those places sell quickly, not only are they off the market, but you'll also be able to benefit from their selling price.
3) What's going on in your area?
If there are lots of improvements scheduled for your area, you might want to hang onto your place a little longer. While the market as a whole may slow down, there might be an increased demand in your area if you're getting a new transit line, or new improvements to your neighbourhood.
4) Who's likely to buy your home?
It's been said that first-time buyers are the group that's going to be hit hardest by the new mortgage rules. If your home is a starter home, you might want to sell sooner rather than later. On the flip side, if it's more of a second home, you may be able to afford to hang onto it for a while.
Obviously, no one can predict the future and, like all investments, real estate comes with its fair share of risks. If you focus on what makes sense for you, rather than everyone else, however, it will be a lot easier to justify your decisions and be happy with them.

How will mortgage changes affect prices?

As a homebuyer (or seller), you probably have one main question when it comes to the Federal government's new mortgage rules: How will these rules affect me? 

To be honest, nobody knows for certain - and anyone who seems certain is a downright liar who's probably trying to sell you something. We can, however, hypothesize.
For example, we can assume that with maximum amortizations set at 25 years, limits on refinancing, and the disappearance of mortgage insurance for million dollar-plus homes, those at the bottom of the financial pyramid will have a more difficult time buying homes. But if there's a lack of demand, we'll have to see a drop in prices, right? Well, that's where it gets a little tricky.
According to this article in the Vancouver Sun http://www.vancouversun.com/opinion/Mortgage+rules+lower+prices/6890026/story.html), if you live in a land-constrained area - like Vancouver, Toronto, or Montreal - chances are a curb in demand isn't going to curb housing prices, because there's still a shortage of land to go around. The argument is that, when there's not very much supply anyway, a little less demand isn't going to cool the housing market.
While we don't really agree with that theory - if there's zero demand, it doesn't matter how much supply you have - we definitely see the argument. And while the pool of buyers in those areas will likely become smaller, there are still a lot of high-spenders willing to inflate housing prices. Compared to the rest of the world, Canadian real estate is cheap - and foreign investors see it as a great opportunity to get in at the ground level. Many of them are also dealing with cash, so the mortgage rules don't affect them.
The notion of rising interest rates deflating the hotter housing markets is also a concept up for debate. While many believe that housing will become more affordable once the Bank of Canada starts increasing rates, others are sceptical. After all, rates were increased in Australia and New Zealand with no affect on escalating housing prices.
It should also be noted that a 1% increase in interest rates will cost $100 more per month on a $200,000 mortgage (with a 25 year amortization). So while other people are being affected by affordability, you will be, too! That being said, even a little less demand will make it slightly easier to breathe in Canada's hot markets. Maybe instead of 10 people bidding on a home, there will only be 5. Or maybe that fixer-upper will go for list, instead of $50,000 above. Only time will truly tell...

Why I Don’t Get Racial Profiling (Stories from the Trenches)

One day over my morning coffee I read an article in a National Newspaper about the struggles of immigrants and why someone would walk into a tourist mall and unload bullets from a hand gun.  It brought to light the “racial profiling” and how being a different colour automatically makes you a suspect.  I guess it happens but I found the article shocking.

Here’s the deal from an average Canadian (me).  In my work as a mortgage broker I see, and in my mind profile, a very different immigrant.  While all the events were taking place and the up roar was going on I was working with a young family who had emigrated here from Kenya.  They had worked hard in average paying jobs, saved money, built credit and were buying their first home.  They drive a nice car, have three young children going to school and live a very normal life.  And such is the case with anyone I meet that moves here from somewhere else.  Yup that pretty much sums up my profile.  I see immigrants as brave, because I can’t imagine moving somewhere totally foreign, they are hard working and accomplished.  They have what it takes to succeed.  

So when I read articles like the one in the paper I’m shocked.  I am not disputing so called facts and figures but I am wondering why we don’t get to hear the success stories as well.  Or maybe they are just too “average”.    In my world the average are the normal and the only profiling I would consider is of a criminal who walks into a crowded area with a hand gun to extract revenge no matter what colour. 

Now here’s an idea for a future article.  Why not try to explain why all the high profile psychopaths in the Kingston jail are white males.   Really, that would be just as stupid. 

The low-down on mortgage insurance

There's been a lot of talk about Canada Mortgage and Housing Corporation (CMHC) and its mortgage insurance portfolio lately. With that kind of news peg, we thought it was time to clarify some myths and questions about this time of mortgage insurance:

- CMHC isn't the only provider of mortgage insurance in Canada. There are also two private companies - Genworth and Canada Mortgage Guaranty - that offer the same product.

- The type of insurance that these companies offer is technically called "mortgage default insurance"? and actually protects the lender - not the homeowner - if the homeowner fails to pay their mortgage. They then pass that cost of that insurance onto the homeowner. The homeowner has the option of either paying in one lump sum or over the life of the mortgage.

- Lenders typically acquire mortgage default insurance when a homeowner has a down payment that is less than 20% of the value of the home, although they might also get it for other reasons - like if your credit rating isn't quite where they would like it.

- The premium is calculated as a percentage of your mortgage loan and the rate is based on the size of your down payment.

- The lender typically chooses the mortgage default insurance provider, but you can definitely put a word in for the provider that you prefer. For more information on mortgage default insurance - or anything else mortgage-related - feel free to give me a call!

Tips on How to Pick Your Perfect Neighbourhood

Whether you're looking to move up in the real estate market or downsize, finding an ideal neighbourhood can be difficult. Not only is affordability a prime concern, but you want to find an area that you're going to enjoy living in as well. While only you truly know what you're looking for, below are a few online resources that can help make your neighbourhood hunt a little easier: 1. Walkability While it's not important to everyone, a lot of people are looking for neighbourhoods where they can park their car in the driveway and get a bit of exercise when they're not at work. If you'd like to see how walkable a prospective neighbourhood is, check out www.walkscore.com. It will map out the closest grocery stores, coffee shops, restaurants, parks and other amenities and give your potential future home a score out of 100. 2. The Starbucks Effect While you may not necessarily like its coffee, a Starbucks can say a lot about your prospective neighbourhood. This article outlines the effects the coffee shop chain has on property values, and the type of neighbours it attracts. http://www.remaxprestige.com/blog/the-starbucks-effect-how-real-estate-prices-are-influenced-by-starbucks/ 3. Schools If you have school-aged children, chances are you want to move to an area that not only has a school nearby, but a good school. The Fraser Institute puts together an annual report of school rankings that can prove to be very helpful when finding a good one. Check it out here: http://www.compareschoolrankings.org/

Not All Variable Rates are the Same.

Choosing the mortgage that's right for you involves a little bit more than merely deciding whether you're a fixed or variable type of person - particularly if you opt for a variable rate mortgage.

It's not enough to choose a variable rate mortgage based solely on rate - you also have to consider what type of variable rate you'd prefer. Below is a breakdown of the most common types:

1. Adjustable Rate Mortgage
An Adjustable Rate Mortgage, otherwise known as an ARM, will see your mortgage payments adjust with every Bank of Canada announcement that causes the Prime rate to increase or decrease. Some lenders will change your mortgage payment immediately, while others - like ING Direct - will evaluate it every three months.
2. Standard Variable Rate Mortgage
A Standard VRM will allow you to maintain the same monthly payment throughout your mortgage term, but the percentage of that payment that goes towards interest will change according to the Bank of Canada's prime rate.
 3. Capped Variable Rate Mortgage
A Capped VRM comes with a built-in limit as to how high your mortgage payment can go within a given term (usually the cap is equivalent to the 5-year fixed rate at the time of signing). While your interest rate may change on a monthly basis, your payment remains the same. If interest rates rise above the capped rate, your mortgage payment won't change.
Each type of variable rate mortgage comes with its list of pros and cons, so it's important to ask a lot of questions and make sure you understand each product before signing on the dotted line. Remember, we're here to help - so ask away!
 

Things to think about when investing

The real estate market can be a lucrative investment tool if you play it right. The thing is, finding a successful investment property is quite a bit different than finding a primary residence. Below are a few things to consider when hunting down a stellar investment property:

1. Put yourself aside.
When searching for a primary residence, you're looking at each home as a place where you could potentially envision yourself living. When searching for an investment property, you're looking at it through the eyes of a business person. Don't get your two personas mixed up. The components that make a good investment property are quite different from those that make a good primary residence.
2. Find an up-and-coming market.
While established, highly-coveted areas will likely attract plenty of rental demand, they are more than likely also highly priced - which means it will be difficult, if not next to impossible, to generate positive cash flow from your rental property. Seek out smaller areas where homes come with smaller price tags but where you're able to charge a high enough rent to balance your books. A low rental vacancy rate is also a good sign that you won't have difficulty finding tenants for your property.
3. Pay attention to local economic factors.
To make sure that your prospective area is a lucrative one, take a moment to look beyond the real estate market. You want to find a place that has a growing population, is generating new jobs year after year, and where wages have either remained flat or increased over the last few years.
4. Think like a tenant.
While it's true that you won't be living in this property, someone will be. And, in all likelihood, they'll value things like proximity to schools, highways and public transportation. Keep an eye out for proposed improvements to a specific area - if the government is setting up to improve public transit, or if a new factory is going to be built a few blocks away, your property will likely be more in demand, and worth more money down the road.