More and more young people cannot afford or qualify to buy a home today, and it's not because of real estate prices. Thanks to new policies by the Federal Government, mortgage costs are way higher than they need to be. First the Government set a qualifying rate of 4.8% for mortgages. Did you know that you can get a 5 year fixed rate mortgage for under 3%? Think about it, we don't have qualifying rates for credit cards or car loans, maybe we should. Next the Government introduced new rules for insuring mortgages that eliminated many lenders for borrowers. Only the banks were able to do these types of mortgages. The end result has been that banks have increased both their market share and the interest spreads on mortgage rates this year. With less competition, consumers get to pay way more. So interfering with the market is never a good ...
Why Millennials Can't Afford to Buy Real Estate
September 7, 2017
The Trump Effect (On Toronto Real Estate)
December 13, 2016
With the election of Donald Trump in the U.S. people are asking me about the Trump effect on Toronto Real Estate. First, don't expect any Americans to move here, that was just celebrity talk. Do expect more people to move here from other parts of the world. That's all thanks to the Donald, who has made the U.S. less hospitable to immigrants. The other impact from this election is a jump in interest rates. Bond rates, which impact Mortgage rates are 1% higher today than the market low in the summer. However, they are still below rates in 2014. The primary reason for the rise is investors are worried about inflation and massive Government deficits from Trump's plan for massive infrastructure spending. My take? Not all the spending will take place, and there is still too much cheap money in the world. Rates will level off around these levels. In the ...
Implications of Canada's New Mortgage Rules
October 17, 2016
On October 3rd, a firestorm hit the real estate market when the minister of finance announced two changes to mortgage rules. Last week we discussed what those mortgage rule changes where. This week we want to take a look at what the implications will be of the new mortgage rules, especially those of people having to qualify for the posted rate as opposed to the actual rate for their mortgage. Will Prices Fall? First off, with buyers having less money to purchase, will prices fall? The answer is no. In real estate, if the Sellers don't get their price, that is what the last property sold for, they just take the property off the market. They do not reduce their price. What About First Time Buyers? First time Buyers will have two choices going forward, buy smaller, not low rise but condos, or continue to rent. For those trying ...
New Mortgage Rules
October 7, 2016
On October 3rd, a firestorm hit the real estate market when the minister of finance announced two changes to mortgage rules. Closing the Loophole The first rule was to remove the principal residence exemption for non residents. But think about it, how can a non-resident have a principal residence in Canada, Impossible! But now we're closing that tax loophole and that will have little impact on the real estate market. 'Stress Test' on Insured Mortgages The Second change is more serious. Now, both high ratio and conventional mortgages insured under CMHC and two other companies must be qualified under the posted rate, and not the actual rate. Remember, for people who took out 5 year mortgages, they used to be able to qualify at the actual rate. The bad news is that the posted rate is about 2% higher than the five year rate. People then will be forced ...
State of the Union When it Comes to New Mortgage Changes
October 5, 2016
The Federal Government continues to tinker with mortgage rules that it can control in an attempt to slow down real estate markets, particularly in Vancouver and Toronto. The first change, to remove the Principal Residence Exemption, for non-residents described as closing a tax loop hole is a nothing. Revenue Canada has never defined a Principal Residence and so non-residents claimed it. Think, how can a non-residenct have a principal residence in Canada? Impossible! But that is what you get from bureaucracy. Almost all non-residents buying property in Canada never considered this a factor in buying. Neither should you when advising clients. The second change, making BOTH high ratio and conventional (under 80% loan to value) borrowers qualify under the Posted Rate instead of the fixed five year rate of their mortgage will reduce the amount of money that people can borrow. The Posted Rate is the average posted rate ...
WHERE ARE THE MULTIPLE OFFERS IN THE TORONTO MARKET?
December 16, 2013Toronto Real Estate Market Forecast Mortgage Regulations City Land Transfer Tax CHMC real estate prices 2013
The media tends to sensationalize multiple offers – especially when the sale price goes a hundred thousand over list. The truth is, very few properties experience a bidding war, except for one particular property type. That property type is a resale freehold (you own the land and structure, so it can be a semi, row or detached house) located within the 416 area code. With more and more people wanting to live downtown, there is already an existing built up demand. Finally, it must be listed at and sold for less than a million dollars! So why is this type of property in such high demand? Again we can thank all levels of Government for interfering with market forces. First the City of Toronto introduced a second land transfer tax, payable by the buyer. You would think it would slow buyers down. Just the opposite. It has abnormally reduced the ...
GOOD DEBT VS. BAD DEBT - PART II: THE FALLACY OF 162%
November 13, 2012
The first part of our Blog pointed out the key difference between Good Debt and Bad. Good debt is that which produces an income or is used to purchase an asset that will appreciate over time. For example: borrowing money to invest in stocks, a business, and real estate. On the other hand, Bad debt happens when you purchase a consumable with no after purchase value. Examples would be unpaid debts for holidays, eating out, clothes, and even cars. As we stated in Part I, The Federal Government wants to get the Consumer Debt Ratio to Disposable Income ratio down from a record level of 162%! We say the ratio needs to reflect bad debt only, a new ratio needs to be developed. To prove our point, let’s consider two individuals, both with disposable income of $80,000 per year. Individual A has $30,000 of credit card debt and rents a ...
GOOD DEBT VS. BAD DEBT
November 7, 2012
The current focus of both Mr. Carney and Mr. Flaherty of our Federal Government seems to be: the ratio of consumer debt to disposable income: now sitting at 162%. This is at an all time high and both seem convinced that this will lead to a major housing correction and consumer bankruptcies. While this key statistic may have had some value when mortgage rates were above 10%, we think it has limited value today. But then Carney and Flaherty never had a 3% mortgage. That’s where good debt versus bad debt comes in. The Government feels that all consumer debt is bad. Our position is that if debt is used to purchase a consumable with no after purchase value, then that debt is bad. Examples would be unpaid debts for holidays, eating out, clothes, and even cars! Good debt is that which produces an income or is used to purchase ...
WHAT THEY DON'T TELL YOU ABOUT GETTING A MORTGAGE FOR A NEW RENTAL CONDO
November 14, 2011
Everyone gets excited when they buy a new condo from a developer on day one. Over the next few years it appreciates nicely. Now you are ready to close and rent it out. You apply for a mortgage and then the fun begins! First, do not put the condo in a company name! Lenders hate it – even with a personal guaranty. The primary reason is that these mortgages cannot be packaged easily for resale by lenders, which is how they do their business. Rather than turn you down, they will start making more and more demands/requirements before they will fund. And they keep adding to the list as you approach the closing date in the hopes you will go away. Note they never turn you down – you just don’t meet all their requirements at closing! So you put the property in your own name. With the new mortgage ...