Wednesday, December 11, 2013

Re/Max forecasts 'exceptionally healthy' 2014 housing market

A pleasure to see some positive forecasting for next year!

| The Canadian Press

Canada can expect an "exceptionally healthy" housing market in 2014 thanks to improvements in the overall economy that helped produce a surge in the latter half of this year, a leading real estate group said Wednesday.
Re/Max says that nationally, home sales are expected to climb two per cent to 475,000 units next year after a three per cent increase to well over 453,000 projected for 2013 when all the numbers are in.
At the same time, the value of an average Canadian home is forecast to escalate three per cent to $390,000 in 2014 after rising four per cent to $380,000 in 2013, according to a survey of the group's independent brokers and affiliates.
Meanwhile, the outlook is for the residential housing market to remain in "clear balanced territory" throughout 2014, although some pockets and price points may see continued shortages.
Re/Max says its optimism is largely based on an improved outlook for Canada next year which is expected to see the country enjoy economic growth second only to the 2.8 per cent rate of the United States among Group of Seven countries.
And it says that while Canada's economic growth is currently forecast at 2.3 per cent , it could move higher given the impact of strengthening global economies on the Canadian manufacturing sector.
“Canadian housing markets are on solid ground after a somewhat harrowing first and second quarter of 2013,” said Gurinder Sandhu, executive vice-president and regional director, RE/MAX Ontario-Atlantic Canada.
Better than expected economic performance, relatively stable inventory levels and the threat of higher interest rates down the road "proved mid-year game changers, providing the stimulus necessary to jump-start home buying activity," Sandhu said.
As a result, the momentum that emerged in the latter half of the year is expected to spill over into 2014, setting the stage for continued growth and expansion in most residential markets, Re/Max said.
Overall, 23 of 25 markets surveyed, or 92 per cent, are set to experience average price increases by year-end 2013, with Hamilton-Burlington the leader at 7.5 per cent, followed by Barrie, Ont. and District at seven per cent, Calgary and St. John’s, NL, at six per cent, and Greater Vancouver, Winnipeg and the Greater Toronto Area at five per cent.
The forecast for 2014 shows the upward trend continuing, with values expected to again climb in 92 per cent of markets surveyed, led by Greater Toronto at six per cent.
Quebec and Atlantic Canada have been the exceptions to the rosy performance in 2013, with sales expected to fall below 2012 levels.
But even there things should improve next year, Re/Max said.
"Both regions should rebound in the new year, led by Halifax-Dartmouth (five per cent), Moncton (three per cent), Greater Montreal (two per cent) and Quebec City (two per cent)."
Although there are several factors that are expected to contribute to rising housing prices on a national basis, one of the most pressing is build out, Re/Max said.
"Nowhere is that more obvious than in Vancouver, where the mountains and the ocean have prevented further growth, and the Greater Toronto Area, where the greenbelt has stymied future development."
"As such, the availability of low-rise homes relative to the population is expected to contract, placing further pressure on prices," it said.
“We’re definitely seeing a greater commitment to higher density at a municipal level,” said Elton Ash, regional executive vice-president, RE/MAX of Western Canada.
“In fact, the trend already underway in Vancouver and Toronto, has gained serious momentum in smaller markets where cities are moving to infuse vibrancy into the urban core through mixed-use residential/commercial/retail development."

Wednesday, December 4, 2013

Pay your mortgage and save too? Here's a formula to build your wealth

Rob Carrick The Globe and Mail Published Wednesday, Jan. 30 2013,
As false assurances go, there’s nothing like your bank telling you the house you’ve got your eye on is affordable.
Maybe the mortgage you need will truly fit your budget. But you won’t know for sure until you try my new measure of how balanced you are in terms of what you’re saving and borrowing.
It’s called the Total Debt Service + Savings Ratio and it was introduced in a column last month on how smart management of big costs such as home buying is a better way to find money for saving than obsessing over little things like lattes.
The TDSS ratio is a guide to balancing debts, saving for things like retirement and spending on essentials and luxuries. If you can keep your TDSS in the right zone, you can do it all.
Think of the TDSS as a riff on the Total Debt Service Ratio, which all lenders use to qualify mortgage customers.
The Total Debt Service Ratio is a comparison of your monthly mortgage, property tax and heating costs plus other debt payments against your monthly gross household income.
There is but one purpose to this ratio: Determining whether you will be able to repay what you borrow.
In no way does it indicate whether you’ll be able to balance debt repayment, saving through registered retirement savings plans or tax-free savings accounts, and spending on non-essentials.
The TDSS does exactly that by adding the cost of saving to the analysis of what’s affordable. Now, you’re measuring all your housing and debt costs plus a monthly savings commitment of 10 per cent of your paycheque. If you can keep your TDSS in line, you’re good to spend what’s left.
Here’s why lenders don’t automatically do this kind of number crunching: Mortgage lending is an important generator of revenues and they won’t do anything to prejudice a deal.
Tell a young couple they can’t afford a home and still manage a 10-per-cent savings plan? Won’t happen.
Banks could actually benefit by using the TDSS to sell their investing products, however.
The conversation might go something along the lines of, “Here’s how much of a mortgage you can afford and still contribute 10 per cent of your pay to an RRSP or TFSA. And, by the way, here are the investment options we offer.”
But banks evolve the way the Toronto Maple Leafs improve – so slowly that you doubt it’s even happening.
It’s up to you, then, to see whether you’ll be able to save and carry a mortgage.
To get you started, we’ve created an online TDSS spreadsheet. Just plug in your numbers and let the spreadsheet calculate your TDSS. (Click here to download it.)
What you need to get started:
  • Gross monthly household income: Simply divide the combined annual pre-tax salaries for you and your partner, if applicable, by 12.
  • Your projected monthly mortgage payment: If you plan to pay biweekly, multiply your estimated payments by 26 and divide by 12 to get a monthly amount.
  • Monthly property tax cost: Get the most recent annual property tax bill for the home you’re considering, increase it by the inflation rate and then divide by 12.
  • Heating: Find out what the monthly heating bill is for the home you’re looking at, or ask your real estate agent what a typical cost is.
  • Other monthly debt payments: Add your car loan or lease payment and whatever else is applicable.
  • Savings: Block out an amount equal to 10 per cent of your monthly take-home pay for contributions to RRSPs, TFSAs or emergency fund savings accounts.
Some background for interpreting your numbers: Lenders may let a client’s Total Debt Service Ratio go as high as 44 per cent, but 40 per cent is a common ceiling.
If you can keep your TDSS ratio in that same zone or lower, you’re doing well. Because you’ve left room for savings as well as repayment of your mortgage and other debts, there’s room in your finances for extras like lattes, and also for extra savings.
If your TDSS is in the 40- to 50-per-cent range, affording the home you’re looking at will be tougher.
You can do it, but your ability to spend on luxuries without incurring more debt will be at least somewhat compromised.
TDSS scores that are even higher suggest you need to keep building your down payment before buying a house.
One last thing: It’s a good idea to lock in your 10-per-cent savings commitment by arranging automatic electronic transfers to a savings or investment account every time you get paid.
Lenders ensure they get paid by deducting money directly from your account. Give your savings the same courtesy.!

Thursday, November 28, 2013

With inflation below 1%, prospects for higher interest rates recedes further

Julian Beltrame, | The Canadian Press – 22 Nov, 2013
A major drop in the price of gasoline and declines in several other goods and services pushed down Canada's inflation rate to 0.7 per cent last month, adding further justification to the Bank of Canada's reluctance to raise interest rates any time soon.
October's inflation rate was down four-tenths of a percentage point from September and the lowest level since May. On a monthly basis, overall prices in October were down 0.2 per cent from September. Both declines were twice as large as economists expected.
Analysts said the soft inflation reading supplied ample justification for the Bank of Canada's decision last month to jettison a tightening bias on monetary policy which had been in place for 18 months.
At the time, governor Stephen Poloz explained that he was concerned about slack in the economy, a message he reinforced this week in saying he disagreed with an OECD opinion that Canadian interest rates might need to be raised as early as late 2014.
Many now don't expect the Bank of Canada to raise its key short-term rate from a very low 1.0 per cent until mid-2015.
Bank of Montreal chief economist Doug Porter said October's low inflation reading is worthy of attention but added it's too early to start worrying about actual deflation, a period of widespread price declines.
Deflation can be economically distructive.
It increases the real level of debt held by firms and households at a time when profits and income are likely to be flat. As well, it could lead to consumers delaying purchases because they expect prices to fall further, pressuring producers to lower prices and wages.
Porter said the risk of deflation is relatively low but can't be dismissed when the inflation rate is near one per cent.
"The concern would be if it starts to head even lower. Then we get too close to deflation for comfort and that can be a tough circle to get out of," Porter said.
"If something else came along and hit the world economy, we could be stuck with real deflation."
But at the moment, there are no signs that prices are headed lower on a sustained basis, particularly as wages are rising a close to two-per-cent annually and growth is also near two per cent.
As well, October's big decline came primarily in the price of gasoline, which tends to fluctuate, sometimes widely.
A better measure of what is happening to consumer prices is core inflation — which excludes volatile items such as gas and fresh foods — and that only slipped one-tenth of a point to 1.2 per cent in October, still within the central bank's broad one-to-three per cent sweet spot.
As for the headline number, Statistics Canada noted that "lower gasoline prices were a factor in all provinces in October, with Saskatchewan (-8.6 per cent) recording the largest year-over-year decrease and Ontario (-1.8 per cent) posting the smallest."
Pump prices plunged 5.1 per cent in October from the previous month and were 4.3 per cent lower than October 2012.
Still, the overall inflation picture in Canada remains the tamest in years.
Consumer prices rose at a slower pace year-over-year in seven out of the 10 provinces, with British Columbia registering an outright decline of 0.3 per cent. As well, prices fell from last year in three of the eight major components the agency tracks — clothing and footwear (-0.7 per cent), transportation (-0.1) and health and personal care (-0.5).
Of the major items that saw price increases, food rose a meek 0.9 per cent and shelter costs rose only slightly more by 1.3 per cent. Of the major components, only alcohol and tobacco rose above two per cent, and only slightly so at 2.3.
On a monthly basis, hotels, natural, electricity and fresh vegetables were all lower than in September.

Rising prices, mortgage rates hits home affordability in Canada: RBC

Julian Beltrame, The Canadian Press Nov 27, 2013

OTTAWA - Higher prices and an increase in mortgage rates have made home affordability more of a problem for the average Canadian family, says a new report from the Royal Bank of Canada (TSX:RY.TO - News).
RBC's latest research on the portion of average household income needed to maintain a home shows that affordability deteriorated over the summer, the second consecutive drop in as many quarters.
The level of deterioration differs from region to region and between types of homes, but for the average bungalow the affordability measure rose 0.7 of a percentage point to 43.3 per cent nationally in the third quarter, after a 0.3-percentage-point gain in the second quarter.
That means the average household would have needed to devote 43.3 per cent of its pre-tax income to service the cost of owning a bungalow at current market values, including mortgage payments, utilities and municipal taxes. The higher the rating, the less affordable a home is to any particular family.
For two-storey homes, the affordability reading rose 0.6 or a percentage point to 48.9 per cent in the July-September period.
Owning a condominium was the most affordable option, with a cost measure of 28 per cent of pre-tax income, and the most stable, up just 0.1 of a percentage point from the previous period.
RBC chief economist Craig Wright attributed the deterioration in affordability to higher prices and what has been a tightening mortgage market reacting to an expectation of firming interest rates.
"By the third quarter, strong resale activity across Canada heated up home prices a few degrees," he explained. "At the same time, Canadian bond yields rose in tandem with those in the U.S., climbing in anticipation of the Fed (U.S. Federal Reserve) tapering its bond buying program."
The most recent Canadian Real Estate Association report pegged the average resale price of a home at $391,820 in October, 8.5 per cent more than a year earlier.
Wright said recent months has seen a divergence in prices for Canadian homes, with price gains for bungalows and two-storey structures outpacing condominiums.
Affordability deteriorated in many of the large markets, but while the average number is only moderately higher than historic norms, RBC notes there is a wide disparity in the associated costs depending on markets, with some appearing out of reach of the average family.
It would take 84.2 per cent of an average household's pre-tax income to maintain a home in Vancouver, a rise of two percentage points from the second-quarter reading.
In Toronto, the affordability measure rose 1.3 percentage point to 55.6 per cent, the second worst in the country.
Most other major markets had affordability scales that were closer to historic norms: Montreal rose 0.3 of a point to 38.3 per cent; Ottawa was up 0.4 of a point to 37.3, Calgary up 0.7 of a point to 33.7 and Edmonton up 0.5 of a point to 32.9 per cent of household income.
The report says the biggest risk to maintaining manageable affordability levels would be a sharp rise in interest rates, but many analysts believe that is unlikely to occur as long as global economic growth remains moderate and inflation pressures soft.
The RBC says it does not expect the Bank of Canada to start hiking rates until sometime in 2015 as bond yields, the main driver of fixed mortgage rates, are projected to drift only "gently" upwards in the next year or so.