Warmer Weather Keeping Housing Starts Strong

January and February have been good months for the house-building industry. CMHC says that new home construction in urban areas is at its second-highest level since 1948.

Alberta and British Columbia had housing starts up 19% and 23% respectively. However, starts are expected to drop to between 208,000 and 209,000 for the year, which is less than the 225,481 for 2005.

While housing starts are up, the number of people saying they will be very likely to buy a home in the next two years is 10%, down from 13% a year ago, according to a Royal Bank report.

In Alberta and BC, this seems a bit shocking, since the only thing hampering the market is the shortage of supplies and labor.

Dr. Sherry Cooper, a chief economist with BMO Nesbitt Burns, says that: "While we look for housing activity to temper this year, the report indicates that the sector is still robust. A solid employment picture and still-low borrowing costs will maintain the momentum clearly evident in this sector, but at a slower pace."

You can read the full article from the National Post, March 9, 2006 edition. Article title, "Warm Winter Gives Housing Good Start", by Garry Marr.

Cemeteries Make Good Neighbors

According to a Financial Post article in the February 21, 2006 edition, entitled "Cemeteries Big Draw for Condos", people in Toronto are willing to pay 15 to 20% more for a view of a cemetery.

Apparently, people are considering it a bonus to live next to a cemetery. They know they will have quiet neighbors, and that nothing will ever be developed on top of the cemetery, thus ensuring their peaceful and tranquil setting and views. People in Toronto treat the cemetery as a "park-like setting".

According to Ms. Lewis, whose firm was involved in the sale of the condo units in Toronto near Park Lawn Cemetery, "There are few people who don't think overlooking a cemetery is a plus." "We sold out the cemetery side months before the street side. The cemetery side is magnificent."

I personally agree with Ms. Lewis. Cemeteries can make good neighbors and ensure long-lasting great views. Of course, I don't believe in superstitions either.

BC Home Owner Grant Increases

Now owners of property assessed up to $780,000 will be eligible to receive the full $470 home owner grant. This is up from $685,000 in 2005.

The grant is reduced $5 for each $1,000 of assessed value over $780,000. The new phase-out level is $874,000.

This means 27,000 more homeowners will receive a full grant, and will cost the province an estimated $5 million a year.

This increase is the third year in a row that the Real Estate Board's Government Relations committee has effectively lobbied for this increase.

For more detailed information about the Home Owner Grant go to: www.rev.gov.bc.ca/hog

Vancouver Housing to Rise 4.8% in 2006

The forecasted average house price for 2006 by the National Post is $445,000. This is up from $424,536 (Jan. to Nov. 2005).

The big increases are expected in Montreal and Quebec City for 2006, the only two cities with double digit expected increases.

The article states that the housing activity will slow next year without collapsing.

Michael Polzler, Exec. VP, Re/Max Ontarior-Atlantic Canada states that "interest rates could climb as much as two percentage points before we see any real impact on the housing market."

So those of you waiting for the bubble to burst had better act now. No bubble bursting is expected in the near future, just further increase in prices. Waiting will price you out of the market. I've seen it happen too many times to count in 2005.

Shrinking Lots

December 29, 2005, National Post article states that due to rising land values since 1970, lot sizes have been shrinking.

The article goes on to say, "according to housing experts, by the end of the decade Canadian homes, especially in major urban centers, will be bigger and have more amenities on the inside, but the backyards may be tiny."

Frank Clayton of Clayton Research, states that city planners are promoting more compact lots. Even though lots are shrinking, more home is being squeezed on to that lot. This trend is happening almost soley in large urban centres like Vancouver, where population growth has outpaced that of the country as a whole.

This population growth, along with an ageing population has created a large demand for multiple density housing; i.e. condos. The Canadian Home Builders' Assoc. states that condo starts made up 30% of all housing starts as of last year.

It appears that owning a house on any size lot in major metropolitan areas is going to be a luxury for most. For those of us in the "X" generation, the idea that we don't have a backyard is still hard to comprehend. We grew up in our backyards and roaming the neighborhood streets. Unfortunately, roaming the streets without adult supervision has become an oddity for a whole different reason than no longer having a backyard!

Condo Speculation

Across Canada, new construction hit a 17-year high in 2004, and this year's numbers are expected to be very close.

Canada Mortgage and Housing Corp. says we'll continue to see more than 200,000 new dwellings built on an annual basis into 2007. That's about 20% to 30% more than we need, based on demographics. You can chalk up much of that extra demand to investors hoping to cash in on the condo craze.

Real estate experts such as Derek Lobo, a condo consultant, estimate that up to 20% of condos under construction are being bought by investors (about 12,000 per year). In Vancouver, the condo capital, condo units account for 2/3 of new starts.

Most worrisome is the proliferation of buyers who purchase small units on lower floors, ultimately as rental properties. "Those are the cheaper units," says Mr. Lobo. "There's going to be an overflow of apartments that come on to the rental market."

The crash is already here, he maintains, pointing out that rental prices for high-end apartments have plummeted. "They have absolutely come down," he says.

Mr. Lobo sees a scenario building in which investors won't be able to cover their costs--including mortgage payments, condo fees and taxes. He predicts a degree of panic when all the condo investors buying unfinished units today try to rent them.

Mr. Maoschini, a 35-year old civil engineer, who has invested in condos just can't see prices dropping in the Lower Mainland. "Vancouver is eventually bound to become the New York of the West Coast. Maybe it will slow down a bit--10% maximum--but it's not going to crash like they say."

Really? Take a look at what happened in Vancouver about 10 years ago. The average selling price of a home there peaked at $307,747 in 1995 and dropped to $278,659 three years later. It wasn't until 2003 that the 1995 peak was surpassed, and that's not counting inflation.

As in this case, what goes down, does go back up, it is all a matter of whether you can afford to ride the downward spiral long enough to get back on top.

From what I am seeing in the market as a realtor now, there seems to be a "throw caution to wind" attitude among buyers. I have seen properties sell for amounts I didn't think possible. There seems to be no lack of uneducated buyers out there trying to navigate the real estate market, and the sellers are cashing in! The market has picked up to the frenzied pace it was earlier this Spring. Condo units I sold in a complex this Spring, are now selling for $25,000 more and they aren't even as nice as the one I sold in the Spring. The crazy thing is, people are buying them and thinking they got a great deal.

I have seen buyers who should have bought last Fall or early this Spring, but didn't and are are still looking. They have been priced right out of the market. They now can no longer afford the same unit they could have purchased this past Spring. So, can you afford to put off buying? At this moment, it would appear not.

This information (other than the last 3 paragraphs) was taken from the article, "Condos: Boom fated to Bust?", October 5, 2005, National Post.

No Money Down Mortgages--Wise or Risky?

Earlier this month, the National Post ran a week long special of reports on the real estate industry and markets. This summary is from the article entitled, "No Money Down; Big Risk in Future", dated October 5, 2005, by Lori McLeod.

Some would consider the 100% mortgage the ultimate speculative tool for getting into the real estate boom. They are banking on the fact that housing prices are going to continue rising.

According to Paul Mims, VP of CIBC Mortgages, "...housing prices are only up in a strong economy. Just around the corner they could drop, and you're going to have to pay it all back." He goes on to say the product might work for one of the target markets cited by advertisers--young professionals like doctors and lawyers who have great credit and strong income potential, but also have big student loans and no savings.

According to Vince Gaetano, Sr. Mortgage Consultant with Monster Mortgage, few people in this category are actually going for no-money-down mortgages. It works more for those people trying to keep up with the Joneses.

The drawback with this type of product is the big premium associated with it. On a $300,000 home, a person taking on a 107% mortgage (the 7% is for closing costs), would pay an average of 5.9% interest on a 3-year fixed mortgage. That compares to a rate of 4.25% to 4 .5% for a customer with a 10% down payment for the same term.

Given this scenario, based on a bi-weekly mortgage payment and a 25-year amortization, and interest compounded semi-annually, the principal and interest paid works out to:

107% mortgage: Paid off $18,658.23 of principal and paid $54,496.76 in interest.
10% down at 4.5%: Paid of $18,884.42 of principal and paid $34,913.15 in interest.

The 107% mortgage pays $544 a month more in interest for the same home, and at the end of 3 years, their mortgage will still be $2500 more than the price of the home. This will be a costly loan if home values decline.

However, there is a lower forfeit rate on higher-borrowing mortgages. This is attributed to a more rigorous screening process to qualify for the loan.

The low-rate environment, combined with soaring hydro and energy costs, could definitely get homebuyers with no cushion into trouble, says Mr. Gaetano. "There's no wiggle room in houses. My income's not going up 30% like the cost of these staples." In his opinion, part of the blame falls on Canada Mortgage and Housing Corp., which "isn't responsible enough to look at revising qualifying ratios at times like this."

High-borrowing mortgages aren't intended for people looking to flip a house quickly for profit, says Mr. Goode. But they are a good option for young professionals, students who live in the dwelling (up to a four-plex) and rent the other units for income, or newly divorced people with good credit but depleted savings after splitting up their assets.

For the truly house-hungry who have no savings, Mr. Gaetano says they'd be better off to exercise a little patience and reap the rewards of putting something down on their homes. He leaves investors with a final thought to chew over when mulling a 100%-plus mortgage: "It's never no money down. It's a transaction that feeds a lot of people--realtors, bankers, appraisers, everybody else except you."

July Real Estate Statistics

Greater Vancouver's residential housing market reamins brisk this summer, with demand continuing to outpace supply, as it has done for much of the year. While year-to-date sales increased 5.1 percent, year-to-date residential housing listings decreased 8.4 percent, representing approximately 3,000 fewer homes on the market this year compared to the same period in 2004.

According to the MLS, sales of attached properties increased 33.4 percent, with 647 units sold in July 2005 compared to 485 units sold the same month last year. According to the Board's Housing Price Index (HPI), the benchmark price of an attached property reached $336,343, up 10.8 percent from 2004.

Sales of apartment properties increased 18.6 percent in July 2005 to 1,567 sales, compared to 1321 sales in July 2004. The benchmark price of an appartment property in Greater Vancouver is $267,814, up 16.5 percent from one year ago.

Sales of detached properties in July 2005 totaled 1,438 units, and increase of 18.5 percent compared to 1,213 sales in July 2004. The benchmark price of a detached home increased to $539,815, up 11.8 percent from a year ago.

Why Use A Realtor

In this age of instant information through the internet, I know, as a realtor, I find many buyers and sellers feeling like they have no need for a realtor. They feel they are qualified to locate the listings and do their own negotiations. For some, that may be true, but I don't find that true for many others.

Here is a list that the Greater Vancouver Real Estate Board compiled on why you should use a realtor.

When dealing with large sums of money, and real estate is one such transaction, do you generally use people skilled in that area of expertise? Would you deal with a legal issue of $100,000 or more without a lawyer? Would you handle a tax matter of $100,000 without a CGA? Why is it then that you will go without a realtor in a transaction many times that size?

Ten reasons for a realtor:
1. Efficient handling of the paperwork for a sale.
2. Knowledgable with trends, assessments, future development, zoning, etc.
3. Recommend other professionals needed in a real estate transaction, such as lawyers, insurance agents, movers, home inspectors.
4. Help you consider properties based on your lifestyle needs.
5. Information about the community where you plan to buy; such as schools, shopping, etc.
6. A realtor will help you stay focused on what you can afford and where your buying power will benefit you the most.
7. Network of other realtors to get you into properties quickly.
8. A realtor can save you time by matching properties to your needs and in your budget.
9. Realtors help take the stress out of the transaction and help you negotiate.
10. Realtor is committed to you. They have a legal obligation to uphold the integrity of their client, and protect and promote your interests.

Feel free to go it on your own, but when you are ready to call in a professional, give me a call (604-435-9477), or visit my website at www.sandraenriquez.com.

Credit Ratings--What Do They Mean?

In a recent article from Canada.com News, by Michael Kane of the Vancouver Sun, he shares what credit ratings mean for you and how they affect your ability to borrow money.

You can order a free guide on how to obtain and interpret your credit report and credit score from the Financial Consumer Agency of Canada, at 1-866-461-3222, or visit www.fcac.gc.ca.

Your file, must, by law be accurate, and you must be given a chance to review and correct your file. Your file has room for a consumer statement which you can use to explain a particular situation; such as, a dispute with a financial institution.

Your credit report not only tells whether you have paid your bills on time, written bad cheques, been referred to a collection agency, filed for bankruptcy, etc., but also lists who has inquired into your credit history.

Financial advisors say it is a good idea to check your file once per year, or after a major event such as a death of a spouse or divorce, and before you apply for a large loan.

A scale from 300 to 900 (higher scores meaning less risk to the creditor) is used to determine your creditworthiness. This scale tells you where you rank in relation to other Canadians.

Here's the precentage breakdown on scores:

Up to 549: 4%
550 - 599: 4%
600 - 649: 6%
650 - 699: 11%
700 - 749: 19%
750 - 799: 27%
800 - 849: 24%
850+: 5%

Here's the precentage breakdown on delinquency rates based on those same scores:

Up to 499: 78%
500 - 549: 60%
550 - 599: 39%
600 - 649: 23%
650 - 699: 12%
700 - 749: 5%
750 - 799: 2%
800+: 1%

Source: Equifax Consumer Services Canada

In the largest block, a rating of 750 - 799 (27%): it is unlikely a credit application will be turned down, most lenders consider offering you attractive rates, many lenders will provide you with instant approval.

If you haven't done so in a long time, or ever, now is a good time to check your credit report. You can obtain one on-line (with a credit card for payment) from Equifax or TransUnion.