Tuesday, January 31, 2012

Renters are eager to purchase a new home

It’s not all bad news in the world of real estate and home buying. Despite gloomy headlines about Canada’s slow recovery and talk about housing bubbles, a new online study conducted by our company, TMG the Mortgage Group, has found that renters are eager to get into their own homes and there is potential for an increase in homeownership demand by 12%. Not only that, they are looking at home ownership with a new attitude and that’s good news for the financial stability of the country. 

Renters are looking at two areas: mortgage rates and mortgage features.  Flexibility in repayment terms is high on the list of what first time home buyers look for. That says a lot – they want to pay off their mortgages quickly. That would potentially free up a lot of capital to be used in other areas such as consumer spending and investing.

With the Bank of Canada holding its prime rate at an historic 1%, which will likely stay there for most of 2012, coupled with the recent news that the U.S. Fed is leaving their rates unchanged until 2014, bodes well for new home owners.  The economy is set to grow at a very modest pace of 2%, which will keep inflation low. Consumer confidence has risen with many believing that the economy will be stronger in the next six months.

Low fixed rates have created an interesting market. Where once variable rates ruled the day, fixed rates are now so attractive, and are trumping variables, that the decision to lock into a mortgage is an easy one. These rates will continue to a fuel the Canadian housing market, with housing prices expected to moderately increase along with an increase in the number of properties sold.

Not only is it a good time to buy but renters can also get started planning for that buy by working with a mortgage broker who can tailor a mortgage loan to a client’s particular need. TMG’s study found that renters like the idea of working with mortgage professionals who can show them options, thereby saving both time and money.

You can read more about the study here: http://www.mortgagegrp.com/site/bc/news.asp?id=731

Tuesday, January 24, 2012

Record low fixed rates and what to do about them

It’s been hot news these past few weeks. The Bank of Montreal announced a five-year fixed rate of 2.99% -- the lowest advertised rate for such a popular mortgage term by any major Canadian bank, ever. Other lenders followed suit by offering the 2.99% on four-year terms. Some lenders also lowered their fixed rates for seven-and-10-year terms.

So what's driving all these rate plunges? And should consumers lock in?

First of all, fixed rates are directionally based on bond markets and bond yields have been plunging lately, which means there is more cash available. With shaky stock markets and highly volatile commodity and currency markets, investors have been putting their money into Canada bonds, which drives up the prices and lowers the yields.

Variable mortgage rates have not been affected since they are based on the Bank of Canada (BoC) overnight lending rate, or the rate they charge banks and other lenders. Last week, the BoC’s governor Mark Carney kept the rate at 1% for the 16th straight month.

So what does this mean for variable rate mortgage holders and the estimated three million Canadians who currently have a fixed-rate mortgage? 

Well for variable rate clients, it’s hard to not to consider locking in at these low fixed rates, unless you are one of the lucky ones who were able to get a highly discounted variable rate mortgage. Those homeowners are smiling because some of them are paying anywhere from 2.1% to 2.6% and are in a good position even when Prime starts to go up, which some economists suggest will be later in 2012 or 2013.

However, lenders stopped discounting their variable rates late in 2011 so many new buyers were looking at variable rates of approximately 3%. For these mortgage holders it may make more sense to lock in to these lower fixed rates. One very attractive product is the 10-year rate currently at 3.89%.

It’s another story for fixed-rate mortgage holders. For one thing, there's the penalty you pay if you do want to make a change if you have a closed mortgage.

The cheapest fixed-rate mortgages are closed mortgages – meaning you can't escape the interest rate you agreed to pay for five years unless you pay the lender compensation for the interest it would lose by letting you switch from a higher interest rate mortgage to a lower one. 

There are two main variables that determine the prepayment penalty to get out of a fixed-rate mortgage early:
  • The difference between your higher-rate mortgage and the current mortgage rate, known as the interest rate differential penalty; and
  • The amount of time remaining in your mortgage's term. The longer the time, the bigger the penalty.
It’s not an amount that’s easy to figure out because each lender has its own way for calculating it. Some base their calculation on the posted rate (the current posted rate for a fixed five-year mortgage, for example, is 5.29 per cent – far above the actual 2.99 per cent lenders are now charging.) Some lenders, though, use their discounted rates to do the calculation. 

And the penalties can be huge. The only way to know for sure whether you'd be further ahead is to ask. Once you have that number it’s fairly easy for your mortgage professional to figure out whether it's worth your while to make the switch. 

The Canadian Association of Accredited Mortgage Professionals estimated recently that the 1.35 million mortgage holders who renewed their mortgages in the past year saved an average of $2,000 a year in interest costs – or $2.7 billion a year in total.

That’s something to think about.

Friday, January 13, 2012

New Year’s Habits

Today's blog is written by a guest writer, TMG's own Dan Pultr, Director of Sales for British Columbia.

New Year’s Habits

Every year, the vast majority of us set out creating lofty New Year’s Resolutions for ourselves.  We enjoy extra time with family, eating, drinking too much, and exercising too little.  Then on New Year’s Eve, someone asks you, “Hey, so what’s your New Year’s Resolution?”  Some of us truly have a whole laundry list of goals for the new year and others say, “Why bother?  I’m just going to forget about the list by the middle of January.”  Don’t worry; you’re not alone!

A quick scan of a few top 10 lists on the top resolutions for 2012 and you get the following top 5.

1.     Spend Less, Save More, Payoff Debt
2.     Get Fit
3.     Enjoy life to the Fullest and Stay Happy
4.     Learn Something New
5.     Organize and plan everything

Now, it doesn’t take a rocket scientist to figure out that New Years resolutions rarely work.  This simple science experiment may prove my point:  
Go to any gym the first week of January around 5:30pm, it will be the busiest place you’ve ever seen, one may say too busy for a decent workout.  Now, visit that same gym the first week of March on the same day and time, and I can promise you there will be far fewer people.   In fact, a study in 2007 showed that 88% of those who set New Years resolutions for themselves failed. 

Now, I don’t want to sound all dreary about this because there is a way.  The same study from above also showed that the likelihood of success was higher if one had a plan with measurable goals.  So in order for your resolution to be successful you must turn it into a habit.  Ok, but how?

1.     Create an activity schedule
Create a realistic list of activities and goals you can achieve for 21 days.  Most psychological studies show that it takes 21 days to create a habit and a lot longer to break them, which of course is great news if you want it to stick

2.     Write it Down
Take the time to create a well thought out realistic set of habits you’d like to use to reach your goals, and keep it somewhere you can see it 

3.     Share with those you care about
Share what you’d like to achieve with your loved ones.  They will help you achieve your goals, support you and positively reinforce you when the going gets tough.

4.     Celebrate Milestones
That’s right, more positive reinforcement as you cross those hurdles.  You’ll be on a high of your own success.

5.     Leave Procrastination at Home
Pretty self explanatory really, but the truth is, we are our own worst enemy.  You’ve built the road map, now you just need to walk the walk.

Now I know I haven’t reinvented the wheel here, but you can use this simple formula for business, diet and any personal goals you may have.

I am looking forward to seeing you in the gym the first week of March.

Thursday, January 12, 2012

Why Canadians think we are in a recession

Blame it on the conflicting headlines. For the last six months media reports, more specifically, media headlines have been rife with messages of doom and gloom, which have dominated over any positive financial reports.  While it’s true there has been much volatility in the world when you look at what has been happening in the US and Europe, that by no means is a reflection of what has been happening in Canada. By reading past the headlines we can get a better picture for what’s truly happening. 

Has the Canadian economy fully recovered? No; and yes, that is a reflection of what has been happening around us. But the economic news for Canadians is pretty good. Strong economic policies, a strong banking system and overall financial conservativeness have helped us weather the storm and continues to do so.

Economists, Statistics Canada and the Bank of Canada have said we are out of a slump but Canadians don’t believe it, choosing instead to buy into the gloomy headlines and the opinions of a few. According to an annual tracking poll by Pollara Strategic Insights, released on January 5, Canadians are the most pessimistic they’ve been in over a decade – and fully 70 per cent believe the nation is in a recession despite the economy’s relative strong health.  There really is no good reason for this pessimism.

Consider these factors:
* On average, economists expect Canada will realize a 2-per-cent gain in gross domestic product in 2012, according to the survey firm Consensus Economics. This is moderate growth despite the turmoil in the world, which is affecting our exports and manufactured goods.
* The Bank of Canada prime rate is holding steady at 1% and will likely continue well into 2012, which keeps us ahead of inflation.
* 17,500 jobs were created in December – reversing two previous months of declines. In the US the unemployment rate fell to 8.5 per cent in December, its lowest level in almost three years, adding 200,000 non-farm jobs in December.
* Still on jobs: The government’s Labour Force Survey, released on January 5 reported the manufacturing sector added 30,000 jobs in December after losing almost 80,000 in the prior three months. 

Let’s take a look at the debt-to-income ratio which has been in the new s lately. Curiously, the rise to 151% has happened despite a slowed pace of borrowing. A recent report by CIBC’s deputy chief economist Benjamin Tal, determined that it is not a debt problem now but an income problem. The pool of Canadian households with debt was divided into three categories: heavy borrowers, medium borrowers and light borrowers. Heavy borrowers are defined by those with a debt-to- gross income ratios of more than 160%. The age of this group is 45+ and they account for only one-third of total borrowers but have over 70% of the total debt.

The report also found that the number of heavy borrowers is rising. In addition, their net financial position has worsened because the growth of their assets has not kept pace with those in the medium and light borrower categories.  So the biggest financial burden and the largest part of that 151% debt-to-income ratio belongs to heavy borrowers aged 45+. The medium and light borrowers have reasonable debt loads.

Another poll just released on Monday, January 9, found that consumer confidence in the economy has risen. The Nanos Economic Mood Index found that about 19 percent of those surveyed said the economy will be stronger in the next six months, up from 16 percent, while the share who said it will be weaker declined to 31 percent from 39 percent.

The poll also showed more consumers said their economic situation had worsened over the past year than in the third quarter, while optimism about the future increased and 34 per cent said their personal debt will decline in the next six months.

What will have a more profound impact on the economy is the business community and what they see for 2012. The Bank of Canada’s Business Outlook Survey was released on Monday, January 9 and the mood of the business community is cautious but not overly negative. They plan for modest investment increases and intend to slightly increase employment. This, despite the fact they are also seeing an increase in borrowing costs and will continue to tighten their budgets.

So which headlines to believe? I would suggest taking a news break. If that’s not possible, read past the headlines – it’s not all bad.

Friday, January 06, 2012

Will 2012 be a great time to buy?

Despite the crisis in global financial markets, talks of a Canadian housing bubble and reports that debt loads are too high in relation to income, the Canadian housing market was remarkably resilient through 2011. The country’s economy actually grew in the past year, thanks to the addition of more than 200,000 jobs and slows but steady GDP growth.

And according to ReMax’s Annual Housing Market Outlook published in December, the housing sales market in 2012 should be slightly better than last year with an estimated 460,000 properties expected to be sold compared to 447,000 properties sold in 2011. The reason for this, according the report, is low interest rates along with tight inventory levels and increased urban demand.

This is good news for buyers and sellers. Most of the markets across Canada are predicting an increase in the average property price as well as a slight increase in the number of properties that will be sold. Major centres like Saskatoon, Calgary, Winnipeg, Sudbury, and Hamilton-Burlington all boasted big numbers, with year-over-year gains of between 8% and 13%. The markets in Calgary and Saskatoon are expected to continue to lead the country in sales and the GTA, Moncton, and Regina are also projected to perform well with anticipated gains of 3% each.

The biggest winners will be first-time buyers and move-up buyers. Move-up buyers will benefit from a combination of increased house prices and low interest rates, which will continue to attract a higher number of potential buyers.  And as cities continue to improve their downtowns and pump money into redevelopment programs, living in these urban hubs will attract first time buyers who will put pressure on developers to build affordable accommodation to suit this lifestyle.

So, will 2012 be a great year to buy? The relatively low interest rates, which will likely be here for some time – at least into the latter part of 2012, will continue to attract first time buyers as well as investors. For more information about the housing market, contact your mortgage professional.