There’s real estate life outside of Toronto and Vancouver

If you read the headlines about the housing industry, you’re bound to think that affordability is out of reach, and if you’re a first-time home buyer, you may think you will never be able to own a home. You’d be forgiven to think that. It’s likely you’re reading about the two major centres – Vancouver and Toronto. What’s happening in these two cities seems to dominate the news, but it’s not the whole story.  

There is affordability and life outside these two biggies and your dreams of home ownership are very much alive. 

In a recent news article, Phil Soper, CEO of Royal LePage said the move to towns near secondary municipalities has been gaining in popularity. He went on to say that eight of the 10 fastest appreciating Canadian areas are in Ontario, led by areas surrounding Windsor, London, Kitchener-Waterloo-Cambridge, Kingston, Niagara/St. Catharines, Hamilton, Belleville/Trenton and Guelph, he said.

In Ontario, Brad Knight, a mortgage broker with OMAC powered by TMG, is seeing the (Spring) market coming to life, finally. 

“For the longest time, we had no inventory but now we’re seeing more listings and slightly higher prices.”

Knight works in the St. Thomas/London area and is seeing lots of families coming from Toronto. “Because there is more flex-time in the workplace and many who can now work from home, the market here is attractive with the average price of a single-detached home selling for approximately $365,000.”

The average days on market is 15-22; but with the additional listings, some are selling much faster, if the property is priced right, Knight said.

He also credits the better weather for some of the boom, but still finds the mortgage stress test coming into play for first time homebuyers. He’s not sure how the new government incentive, slated to roll out in September, will affect buyers.

“Right now, the weather has improved, mortgage business is up and it’s turned out to be a good June.”

 In Corner Brook, Newfoundland, the mortgage business is not bad. According to TMG broker Brian Patey, the year started slowly but now the market has caught up to where it was last year. 

“We don’t get the big swings here like they did in St John’s, where the market was hot, due to the oil industry in Alberta, but now that’s dried up and the market there has calmed down. But here, we’re pretty steady”, he said.

The market in Corner Brook is small and homes can be bought for under $200,000, which according to Patey are selling pretty fast now – the $300,000 and higher sit a bit on the market.

It’s still tough for first time home buyers because of a lack of jobs. “There’s not a lot of industry coming into this area,” Patey said. 

Despite the challenges, he is optimistic and so are the Realtors in the area. The biggest change for Patey has been the time of year when the market gets busy. “It’s not a typical Spring market anymore. Now I can be very busy in January and February.”

The real estate market in Saskatoon is starting to rebound according to Corinne Lokinger, a real estate agent with Coldwell Banker. “We have seen a 16% increase in sales this year over least and a 21% increase in condo sales.”

Although still considered a down market, condo sales are doing well and consumer confidence has risen, which is stabilizing the market she said. “First time home buyers are buying the lower-priced houses and condos.”

For a while in Saskatoon, listings were down and days on market were longer – upwards to 77 days. But as the prices stabilize and the listings pick up, Lokinger is seeing that the houses that are priced right, are selling.

Lokinger also said the market there certainly felt the slowdown after the stress test was introduced, but it’s turning around now.

“I’m feeling pretty good about what’s happening now. I’ve been talking to mortgage brokers and to other Realtors -- call it intuition, but it seems like something big is coming to Saskatoon,” she added.

Back in Northern Ontario, another smaller market TMG mortgage broker Taya Weiszhaar saw a slow start to the year but business has now picked up. She services areas around Kirkland Lake, North Bay, and Sudbury.

“We had a lack of inventory and high prices,” she said. “Now, we have good, quality listings that are priced right. Some are on market for only three days.”

Interestingly, the largest part of her business comes from first time home buyers who are keen to own a home and are interested in knowing their options. 

“I’m not seeing a problem with these buyers getting their down payment but our prices are low compared to major centres – you can buy a house for under $280,000 and I saw a couple listed at $89,000 and $108,000. I also advise them to buy the house first, the vehicle second.”

Weiszhaar also finds that first time home buyers are in some ways easier to finance because they haven’t accumulated the debt that her repeat buyers have. 

As for the new government incentive Taya is not impressed and says it really won’t change qualifying in her market. “The first-time buyers in my market are motivated and will work hard to save the down payment,” she said. “If the government really wanted to help, they would lower the benchmark rate so that more people can qualify.”

She feels good about the future and says, “People buy houses when they’re ready, no matter the rate. They are looking for the right house at the right price and that’s it.”

 

Good reasons to use a mortgage broker

Owning a home is usually on a list of lifetime goals. And new home buyers usually have a lot of questions. Some worry about coming up with the down payment, some aren’t sure about their credit scores, others are self-employed, and already know that it can be challenging to get credit at all.

These concerns and any other questions home buyers have can be answered by mortgage brokers. In fact, mortgage professionals are valuable resources who are often overlooked simply because they are not connected to a bank. In some regions, there is still a perception that brokers are last resort lenders. In fact, mortgage brokers have access to most lenders, including the banks, and are uniquely qualified to assist clients get into the best mortgage products.

Angela West, a first-time home buyer in the North Bay area in Ontario decided to use a mortgage broker with her purchase, initially to get a better rate, but it turned out to be more than she expected.      

“The process was very easy, much easier than dealing with the bank. My self-employment wasn't an issue, where it would have been with the bank. My partner has also made very different amounts of money in the past three years, even though last year was a really good year for him salary-wise, so that may have been an issue with the bank as well.”

West also said it was clear to her that the broker took the time to get the best deal – the best product and the best rate. “I liked the fact that someone was on my side.”

The whole experience was a positive one despite the perception some consumers may have.  “I can see where some people may be concerned that a mortgage broker is less "legit" since they aren't working with established financial institutions, but it wasn’t the case. I would definitely recommend using a mortgage broker.”

Bud Jorgenson, Vice-President, Prairies Region for TMG The Mortgage Group said mortgage brokers have an edge with first time home buyers because of their knowledge about the home buying process.

“We fully understand every aspect of the deal, from Purchase and Sale Agreements, working with lawyers, home inspectors, and lenders, to closing processes and the costs associated with that, “he said. We understand title insurance, default insurance, mortgage protection insurance and we are knowledgeable about legal requirements for a variety of different properties.  And because we fully understand it, we are there to help guide our clients throughout the whole process.”

For Ian Syphus, who refinanced his home in Niagara Falls, Ontario to consolidate debt, the process was surprisingly easy and stress-free.

“The Broker did everything, --she prepared the paper work, found the best rates, clarified any concerns -- I just needed to sign,” he said. Syphus also liked that the broker went to his home.

This is a big plus according to Gord Appel, Vice-President, Alberta Region for TMG. “Using mortgage brokers save valuable time for clients by eliminating the need to visit a variety of lenders and fill out multiple applications. Our hours are generally the client’s hours and we can be mobile, which can certainly benefit busy families.”

Follow up after financing was also an important factor for both West and Syphus. “I like the fact that I am always updated on rates via e-mail newsletters,” Syphus added. “And there is constant contact even after the papers are signed – that’s much more personable than banks.”

This is a key reason clients will benefit from working with mortgage brokers, according to Gerald Krahn, Vice-President, and Ontario Region for TMG. “Brokers take time to listen to a client and do what’s in their best interest, not only for the short term but will look at the whole picture 5, 10 years down the road. For example, when some banks introduce a low fixed rate, it may come with certain restrictive conditions. When brokers quickly counter that with the actual facts, the result is a stronger relationship with clients.”

Mortgage brokers are continually focused on the industry and keep up-to-date on changes. “We are truly experts on all things mortgage-related,” added Dan Pultr, Vice-President, B.C. “However, our expertise is not limited to mortgages. We understand our local real estate markets. We also understand credit issues and ways to improve credit scores, with the end result of helping clients achieve their dream of home ownership.

With the changes in mortgage rules and qualifications over the last two years and the rising interest rates, TMG The Mortgage Group continues to offer its brokers the tools and support that helps them better serve their clients.

Find your local TMG mortgage broker at www.mortgagegroup.com

The Brexit Vote

Written by Mark Kerzner, President, TMG The Mortgage Group

For the last few weeks we have been seeing flashes of news stories on the upcoming BREXIT vote, and this morning we have seen the results. Britain has voted by a narrow margin to withdraw its participation in the European Union (EU).

I have to admit I am a little bit of a political junkie. I often have CNN.com in my background at work and spend my time in the car listening to satellite news radio. And while we (O.K, I) were led to believe that the STAY vote would ultimately prevail, it was the LEAVE momentum that succeeded in the end.

Democracy in action is really a beautiful sight to see. Regardless of what position you had started on, everyone is now bound by the realities and the wishes of the majority. We see this storyline play out time and again. We see it happening in the US presidential election and we bear witness to it at home on a regular basis. Even if you were a staunch Harper supporter in the Fall election, Trudeau is our Prime Minister.

While there are certain elements of nationalism in recent social movements in western democracies there are also elements of xenophobia and demagoguery and those are the things that concern me.

Regardless of how close the polls had this vote, the markets were not anticipating this outcome. I actually was listening to a radio show yesterday afternoon that was quoting the U.K ‘bookies’ estimating this outcome at 20%. Since the markets were expecting a different result, the volatility that we have seen so far today was not to be unexpected.

The British Pound has fallen to a level not seen in 31 years, markets around the world are selling off and commodity prices (with the exception of gold) are falling.

I guess it is a little ironic in some ways that this movement to opt-out of an economic union has reminded us just how much we are all intertwined globally.

The UK amounts to a very small trading partner for Canada. That said, perhaps (just perhaps) this new global economic volatility will lead to a ‘natural’ slowing down of some of our heated housing markets. Perhaps the US Fed will remain on the sidelines a little longer before it starts increasing rates. Perhaps this will in some way help our housing concerns here at home.

At the end of the day though when all is said and done, we will continue to drive forward, our markets will eventually rebound and we will see the market swings subside … that is until the next geo-political item plays out.

Millennials need help with home ownership

Recent reports from two of Canada’s major banks -- CIBC and ScotiaBank -- offer a glimpse into the world of millennials and home ownership as well as the impact of the Internet on mortgage hunting. Bottom-line: Nearly two-thirds of millennials plan to own a home in the next five years, but don’t have the money for a down payment yet. Ninety-six per cent of Canadians rely on the Internet for information but 70% of those still rely on advisors for mortgage advice.

Among Canadians aged 18-24, two thirds (64%) of them plan to make the move to home ownership, with 63% looking to buy in the next five years, but nearly half (44% ) say they have not started to save. The down payment is the biggest obstacle; however, rising prices is seen as having an impact on their ability to buy.

A majority (56%) of Canadians are sympathetic and say something should be done to help the younger generation enter the housing market. Seventy-seven per cent believe that buying a home is more difficult for young Canadians today than it was for previous generations.

Here are the key findings from the CIBC poll about millennials and home ownership:

1.  64 % of Canadians aged 18–34 say that their future plans include buying a home. Among them: 63% plan to do so within the next five years, and 44% have not started to save yet for their down payment.
2.  54 % of millennials planning to buy a home say that saving enough for the required down payment is the biggest obstacle to home ownership. Other roadblocks include: Job security and earning enough to afford mortgage payments (53%) and rising real estate prices (46%). 
3. 56 % of Canadians say something should be done to help young Canadians get into the housing market.
4. 77 % of Canadians say buying a home today is more difficult for young Canadians than it was for previous generations

Although it may not be easy to get a mortgage, it is doable. Working with a mortgage broker, who can help map out a strategy, is a key step to make the dream of home ownership a reality. In fact, the result of a ScotiaBank poll found that 98% of Canadian now rely on the Internet for information, yet 70% still look to advisors for their mortgage advice. This is likely due to sheer volume of information available online.  The bank also predicts that by 2020, less than 1 in 10 financial transactions will occur in branches, which means that online transactions will increase.

So what does this mean for mortgage brokers and consumers? It’s actually good news for consumers. As competition increases, mortgage products may become more tailored with more options available. Competition is a good thing because it gives you choice. Brokers can help facilitate that choice.

 In the mortgage industry, with historically low interest rates, it’s easy to shop the market to find a low advertised rate, whether from your local bank or from your mortgage broker. However, mortgages are not as simple as some make them out to be, especially when rate is all that is considered.

It’s important that home buyers educate themselves about mortgages including the following areas:  pre-payment terms, penalties, fixed vs. variable, open vs. closed, etc.  Each situation is as unique as each borrower and each needs a unique strategy.

Again, the sheer volume of information online can be overwhelming.  While getting informed through Internet research is a good thing, once armed with that information, it’s still important to work with a licensed mortgage professional who will ask the right questions to tailor a custom-fit mortgage that works for short and long term goals.

The Habits of a First Time Homebuyer

The housing market generates a lot of economic activity in Canada. Not just home selling and buying and construction  but also for those industries connected to housing such as legal services, moving companies, landscaping companies, home improvement companies, etc.  Each year, approximately 620,000 households move into newly-purchased homes in Canada.  Of those about 45% or 280,000 are first-time buyers, most between the ages of 25 and 34, and many in the 45 to 64-age group.

Single-detached homes are the most popular house type purchased and accounts for 57% of all sales. The average price is about $347,000. The average down payment for first timers equals 21% of the price of the home.

Earlier this year, the Canadian Mortgage and Housing Corporation (CMHC) conducted an online survey looking at the home buying experiences of first timers. Here are the highlights:

•  Loans and gifts from parents and other family members account for 7% of down payments
• 3% of all down payment come from RRSP withdrawals
• 81% financed their purchase through a mortgage
•  Fixed rates are the most common rates
•  Most mortgages have five-year terms

Online Use

There’s more! First time buyers are heavy online users and do their research. A whopping 83% of them went online to get more information about mortgage options and features – about half went to lender sites and a third went to mortgage broker sites. While online, 83% used mortgage calculators, 73% did their own financial assessment and about 4-in-ten got their pre-approval online.

Social media is another big draw – 56% used Facebook; one-third used a Forum; and 30% used a blog. Twenty-six per cent used a mobile device to get their info and one-in-five used a mortgage-related app.
And they shop! Seventy-one per cent contacted either a lender or a broker and 53% negotiated a better interest rate than the one they were originally offered.

Using a Mortgage Pro

Using a mortgage professional has become more popular among first timers, up from 42% in 2014 to 55%. A key driver is getting the best rate and the idea of a “great deal” was a strong influence as to who would get their business. About 4-in ten were referred to a specific broker and 79% of those ended up using that broker.

Satisfaction Factor

Seventy-eight per cent of first timers were satisfied with their experience working with a mortgage professional. And 43% said they would likely use a broker for their next mortgage. The one area that brokers seem to lag is in post transaction follow-up.  Fewer than half of first-time buyers received any follow-up. What would they like? Many of them said useful information including long term mortgage/financial strategies and advice on how to manage financial difficulties.

Concerns and Uncertainties

It’s no surprise that first time buyers are less confident than repeat buyers.  Even with all the research they’ve done, many still feel a little overwhelmed about the process and have a lesser understanding of their options than repeat buyers. Even more felt uncertain of what to do or where to get help if they were facing some financial difficulties.

Fifty-five per cent had concerns about the buying process and much of it had to do with the unexpected rise in the costs of owning a home. Thirty-eight per cent of then did incur unexpected expenses.

The mortgage industry is a competitive business. Mortgage professionals work with a wide variety of clients. They counsel and educate clients and help them understand the buying process.  A broker also makes sure to understand what a first time home buyer needs   and pays attention to both their financial goals and their personal goals – and not just in the short term.

It’s not surprising that more home buyers are turning to mortgage brokers  to help them navigate the daunting process of buying a home. That number will continue to grow as the mortgage industry, with its variety of options and products, becomes more complex; and as the needs and  the profiles of  first time home buyers continue to evolve.

Here’s what we know about First-Time Homebuyers

In May 2014, the Canada Housing and Mortgage Corporation (CMHC) completed an on-line survey of 860 first-time buyers from across Canada. All who responded had taken a mortgage transaction in the previous 12 months and all were one of the prime decision-makers within their household for matters relating to housing finance and mortgages.

First-Time Buyers and Technology

• The majority of First-time buyers (84%) went online when gathering information about mortgage options and features. Among these, more than half (55%) went to lender sites and one-third went to broker sites. First-time buyers showed a high likelihood of visiting a broker site (33%).

• Overall, First-time buyers were much more active online compared to other mortgage consumers – they engaged in a variety of activities -- 80% used a mortgage calculator, 63% completing a financial self assessment, 42% either got pre-approved or filled an online form and 20% engaged in an online conversation.

• Twenty-three per cent used mobile devices to access mortgage related information, however; desktops are still preferred by almost nine-in-ten.

•  The use of social media as a tool when looking for a mortgage is increasing and was much more prevalent. In 2014, 40% of First-time buyers going online looked to social media when researching their mortgage options. This up from 28% one year ago. Social media used -- 58% used Facebook, and 38% used either online forums or blogs. Overall, online forums and blogs were found to be the most useful social media platforms for mortgage related information. Half of First-Time Buyers using online forums and 44% using blogs rated the information obtained through these platforms as “very useful.”

•  Social media is starting to play a role in how first-time buyers interact online. About one-in-five using social media (21%) posted a review or rating of either a broker or lender and 30% used social media to find a referral to use a specific professional (i.e. broker, lender, real estate agent or other professional).

Homebuying Process

• During the home buying process first-time buyers interacted with a variety of individuals. Seventy-nine per cent were in contact with a family member, 73% with a mortgage lender or a 72% with a real estate agent. Slightly more than half (55%) reported interacting with a mortgage broker.

•  Overall, 60% of first-time buyers mentioned that they had concerns during the home buying process. The nature of the concerns or uncertainty stems mostly from unforeseen costs. Forty per cent reported they actually incurred unexpected expenses during the home buying process. Among those unforeseen costs, the most common were adjustments (40%), lawyer fees (36%) and land transfer taxes (30%).

Experience with Lenders and Brokers

• Approximately four-in-ten (37%) of first-time buyers received a recommendation to use a specific mortgage professional. These recommendations came primarily from family members and real estate agents. Among those receiving a recommendation to use a specific lender, 37% came from a family member and 22% from a real estate agent.

• Almost half (48%) arranged their mortgage through a mortgage broker.

• Among those using a broker, 50% reported obtaining a mortgage with a lender other than the financial institution they were dealing with the most at the time.

•  Seventy per cent were satisfied with their mortgage professional and showed a greater likelihood of using their broker again in the future.

The survey findings are positive indicators that consumers are increasing their knowledge about financial matters. Consumers who educate themselves about their financial options are able to make consistent, informed financial decisions and that will help them to achieve their goals.

The survey also makes clear that mortgage professionals are in a unique position to help educate consumers about their mortgage options and ways to pay off that mortgage sooner. 

Avoid common mistakes when purchasing a home

Young Canadians feel that housing is still a good investment, according to the 21st Annual RBC Home Ownership Poll. Nearly nine-in-ten (86%) of those aged 25-34 believe that owning a house or condo is a very good investment, up from less than eight-in-ten (78%) in 2013. Interest in purchasing has increased in nearly every region in the country from last year. This change in buying intention bodes well for the housing market and shows a renewed confidence in young buyers.

Those potential home owners named job stability and manageable debt levels as the reasons why they would consider buying. Among those likely to buy a home within the next two years, four-in-ten will be first time homebuyers.

The old adage “Buyer Beware” however, still holds true. Most homeowners admit to making at least one mistake when they purchased their home according to the last year’s RBC Home Ownership Poll. While owning a home is a dream come true for many, it can also be stress-laden if you find you’ve made an error.

Here are 10 mistakes to watch out for when you take the leap:

1. Property needed work – a lot of it. Even with a home inspection, new homebuyers may get into a home and find it costs more than they expected to make improvements.  Don’t rush in, sit down and plan.
2. Not having a bigger down payment.  Having a larger down payment can lower mortgage payments, which could help with the household budget.
3. No Home Inspection. If you skip the step you might find the repairs needed may be astronomical, especially if you purchase an older home. An inspector will look at the overall foundation and structural features of the house, the plumbing system, will look for the presence of mould or pest infestations, check the heating and air conditioning, as well as the electrical system.
4. Not budgeting for the increased costs. Consider all the costs involved and create a realistic budget.  There are monthly mortgage payments, property taxes, and utility bills. On top of that you’ll probably want to redecorate, buy new furniture etc. Plan your budget accordingly. 
5. Not knowing the closing costs. Closing day is coming and you get the call from the lawyer to come in and sign the papers and, oh, bring a certified cheque or bank draft for X amount of dollars. WHAT? Yes, fees and disbursements. There’s the land transfer fee, the title fee, the lawyer’s fee, etc. Don’t get caught short.
6. Forgetting about future needs. If you’re planning on having kids, shop accordingly.  
7. Not getting a pre-approved for a mortgage. You won’t know what price range you can afford and what a lender will give you without a pre-approval. It’s easy, it’s free and absolutely necessary. If something turns up that may prevent you from purchasing, a mortgage professional can offer you solutions.  
8. Falling love with a house. Fall in love with each other but not with a house. You will not listen to the advice everyone is giving you. You will ignore the obvious cracks in the foundation because it has 18ft. ceilings and that great stone fireplace you’ve always wanted. Beware of buyer’s remorse.
9.  Not checking market value of neighbourhood. This can cause some purchasers to pay too much. Especially a home that has been upgraded to the max in an area that won’t keep its value – unless you plan to live there the rest of your life.
10.  Focusing too much on interest rates. Don’t rush in to a market because the rates are low. And don’t focus on getting the lowest rate. Focus on the mortgage loan and term that works for you and your financial situation.

Top Six Mortgage Features

Real estate is a still a hot commodity in most parts of the country, and it’s also a competitive market. Prices are rising and listings are in short supply. And everyone wants your business -- from realtors to mortgage lenders. Interest rates are low and competition among lenders to offer favourable rates is high.  However, it’s always a good idea to read the fine print of these” low rates” to see if they are the best rate for your situation.

Steve Nipius, TMG’s Deal Centre Manager has complied his Top Six Strategies to assist home buyers assess their mortgage offers to make sure they’re getting what they need. It’s important for consumers to understand what features are important to them before deciding on a lender based on interest rate alone.

Take a look at some of the features you might consider:

1.  Blend and Extend. The introduction of the Benchmark qualification rate a few years ago has encouraged more lenders to offer this feature, whether on a refinance or a port and increase. For example, if your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term.  While that’s not the end of the world, in a rising rate environment this can be extremely inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you probably don’t want just a 1 to 2 year term and with the new benchmark rule, you may not even qualify.  If rates have dropped since the original mortgage you could run into the dreaded “Interest Rate Differential” (IRD) which might be too large and you can’t move.  Lenders that allow a blend and extend simply blend your current rate with the now current rate. 
2.  Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties. The wording in some other no-frills products refers to the payout penalty as the greater of 3% of the balance or IRD -- this would mean a $15,000 minimum penalty on a $500,000 mortgage. Some lenders also carry large re-investment fees. If you don’t know you’ll keep the mortgage for the entire term then make sure to read the fine print in your mortgage documents, especially as it pertains to the payout penalty.
3.  Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes almost harder to switch this mortgage out to take advantage of lower rates. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there is little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.   
4. Pre-Payment Privileges. Is the lender offering 15/15, or 20/20?  That means allowing prepayments of 15 % or 20% annually on the outstanding balance of the mortgage.  Also, can these lump sum payments be made anytime per year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it.  These are important factors to consider.
5. Porting Features. This feature can vary from lender to lender. Read the fine print, especially if you know you might before the mortgage maturity date. 
6. Online Access. All of the chartered Banks offer online access as do a number of mortgage banks, including First National and Street Capital. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers.

Yes, there is more to getting a mortgage than just rate. Talk to a mortgage broker first who can help you navigate the mortgage terms and who can help you find the best product for you needs.

Rent vs. buy revisited

As house prices increase and affordability for first time home buyers looks as if it’s diminishing, the question of whether to rent or buy inevitably comes up. It’s a good question, especially in the current economy, but with no clear answer. 

Just ten years ago, the answer was simple – buy!  It had been the answer for much of the past twenty-five years.  Mortgage payments were relatively low; in many cases less expensive than renting, and a house was a solid long-term investment. But those were different times – for the most part, jobs were relatively stable, incomes rose steadily, unemployment rates were manageable,  home prices were not crazy and the real estate market was balanced, with the exception of a few corrections here and there.

Today, in many parts of Canada, house prices continue to rise. For one, housing starts are decreasing across the country, yet demand is still there – the result is higher resale pricing. A few months ago, affordability may have been an issue; however, we are now sitting at sub-3% fixed mortgages and variable rate mortgages as low as 2.4%.

If you’re considering buying, take a look at your current situation.  If you’re single – living in a high-priced market like Toronto or Vancouver and have a job with an average salary, it might make more sense to rent.  The basic rule is when a house costs more than 200 times the monthly rent it generates, it makes more financial sense to rent rather than own. In Toronto or Vancouver, for example, the prices of houses are 300 times the rent they would generate. If you rent a condo in Toronto for $1000, you’d be paying $1700 a month to buy it – that doesn’t include condo fees and taxes.  Not all markets are pricey but not all markets offer employment opportunities, so there’s the big trade.

 Families with children usually prefer owning a home even though it might cost them more. The stability of ownership and providing a good home for the kids becomes the deciding factor. Having two income-earners can make mortgage payments and housing costs more manageable. If commuting is not an issue, house prices just outside a major centre offer value – bigger houses for lower prices.

Aside from financial concerns owning a home is certainly an emotional issue. Most millennials grew up in families where home ownership was the cornerstone of every investment portfolio. But the economic realities today are far different.

But life is change and we are seeing those changes in the housing market and in the economy. Inflation hit 2% last week.  This is the benchmark the Bank of Canada uses to make its interest rate decision. Clearly, rate cuts are not likely. But a fixed-rate mortgage under 3% is something to consider.

Talk to your mortgage broker to help you decide if homeownership is right for you right now. If not, then, put a plan in place to get that home when you’re ready. 

Is real estate a good investment? The long answer is yes

It seems it’s a tough world for Gen Y’ers – high student debt, shortage of jobs, living with parents longer, and now the dream of home ownership might have to wait. Yet, an RBC poll released early in April found that young Canadians see home ownership as a good investment and 41% of the respondents plan to buy. The poll also found that 86% of those aged 25-34 believe owning a house or condo is a solid investment, up from 78 % last year.

So is real estate still a good investment?  The RBC poll confirms that it might be, at least as far a millennials go.  “The increase in the number of those who feel the housing market is a good investment, as well as the number of those who intend to buy, really highlights that Canadians have no doubt in the strength of the housing market”  said Erica Nielson, RBC’s vice president of home equity finance, about the poll results.

Here’s how the results breaks down per province:

• Ontario, Quebec and the Prairies saw the biggest surge in home-buying interest over last year
• Ontario, 24% said they have intentions to buy this year, up from just 14% in 2013.
• In Alberta, 28 % said they hope to buy this year, up from 22 % in 2013.
• Atlantic Canada also saw some increase in buyer intentions.
• In B.C. the percentage of those who are likely to buy a home has increased slightly, from one-in-five (20%) in 2013 to more than one-in-five (22 %) in 2014.

Interestingly, a discussion initiated by the Globe and Mail asking the question about real estate as an investment received a lot of attention. Those who answered do believe that a home is an investment that builds wealth in addition to it being a place to live.

Let’s take a closer look at that. Those who are pro a home as a good investment will point to the increase in resale prices over the past 10 years, which have increased more than 6% annually since 2000, according to the Canadian Real Estate Association (CREA), which is triple the inflation rate. This increase helped improve a household’s net worth, unless you were under the age of 35.

In February, Statistics Canada reported that the median net worth for families increased 78% from 1999 to 2012 on an inflation-adjusted basis, or about 4.5% a year. However, in households where the age of the highest earner was under 35, net worth grew just 8.6% in total, or about 0.6 per cent a year. Since inflation averaged 2.2 % over that period, as reported by Rob Carrick in the Globe and Mail, “those young-adult households actually lost net worth on what economists call a real basis.”

That’s not really a surprise since gains in net worth have been driven by real estate appreciation and those under 35 years of age have less equity in their homes. Can they catch up? Well, prices can’t rise indefinitely – so say many economists – so that may not be helpful when trying to make a sound financial decision.  However, there are a few hot markets in the country that might buck the trend.

For example, in Alberta, and especially in Calgary, real estate is a growth industry. Heather Manna, Managing Partner and Mortgage Broker at TMG Millennium Mortgage Group in Calgary says that real estate definitely is a good investment. “Over the last few months we have seen lenders loosen the reins on financing restrictions, which is making it easier to qualify a consumer who is in the market to purchase a new home,” she said. “This, combined with the low mortgage rates, continues to make real estate a great investment, whether you are buying to occupy the home, or purchasing for an investment.”

And why not invest in real estate, Manna asks? “Just like the stock market there will always be lows and there is always a correction. It’s about keeping well diversified and that includes having your home in your portfolio,” she said. “If you need a roof over your head, you might as well be paying your own mortgage down instead of someone else’s.”

There is also a shortage of listings in the Calgary market, which is upping the prices there. The rental market is also very tight with a 1% vacancy rate. “If not purchasing a property long term for your family, the rental market proves to be aggressive year-after-year for income earning potential or a retirement plan,” Manna added.

Granted, Calgary may be an exception, however there are similar hot markets in both B.C. and on the Prairies. Ontario and the Atlantic provinces have hot areas. Some economists say that prices will struggle to show any real gains in the next five to 10 years unless you happen to be in a hot market. But in some of those markets affordability is the real issue and young people are looking for help with larger down payments from their parents.

The hidden story for Gen-Y’ers is debt load. Statistics Canada says under-35 households owed $36.44 per $100 in assets in 2012, by far the highest of any age group. Purchasing a home adds to that debt load, not only with mortgage payments, but interest, property taxes, insurance and maintenance costs. If there is a modest 5% drop in house prices, then a 5% down payment equity position is wiped out.

However, in a Globe and Mail article published on Wednesday, April 23, Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals (CAAMP) says he thinks that home prices have turned.

Using data from the CREA, he said that sales of existing homes rose last summer and peaked in the August-September period. Although here has been a slight rise during the past two months, he doesn’t see this as meaningful.

Dunning referred to the Teranet-National Bank home price index, which shows a very gradual increase in prices over the last while. “If you take the price index and seasonally adjust it, it shows a sharp pick-up in price growth around the time I would have expected it to have occurred, and “the last data point hints that on a seasonally-adjusted basis, the period of rapid growth has ended – when it should have.”

With prices stabilizing, low rates, larger down payments, real estate starts to look better, especially as a long-term investment, which it actually should be. There was a time when a couple would buy a house, live there, raise their family there, and then retire there, mortgage free. We may be coming into those times once again.

 The most important question to ask is, “am I ready?” Consider a home a long term investment -- its value will fluctuate up and down over time, but eventually you’ll be mortgage-free. It’s a big commitment, but it’s also a great achievement. Home ownership offers a great deal of personal satisfaction, as well as financial stability.

There is no right or wrong time to buy a house. Mortgage rates and house prices will fluctuate but over the long term, home ownership is still a sound investment. 

Ask yourself:

•  Are you at the point in your life where the idea of home ownership is attractive and makes sense, both now and for the long term? 
• Do you qualify for a mortgage, and how much? If you don’t know, talk to a mortgage professional.
• Can you manage the mortgage payments as well as other expenses that may come along with home ownership, such as maintenance costs and higher insurance fees? 
• Do you have a down payment?
• Do you have a strategy to take advantage of this low interest rate environment to more aggressively pay down your mortgage and accumulate equity?

If you answered yes, then it’s the right time to invest in real estate.

Gen-Yers and home ownership

There are nine million Gen-Yers or “millennials” in Canada, many of whom are financially savvy, have control of their money, take a long-term approach when investing and are keen to own their own homes.  Despite high student loans to repay and fewer job opportunities, millennials are thinking about money in very different ways than their parents.  According to TD’s 2013 Investor Insights Report, this group is saving to invest; they use the Internet to track the stock market through their mobile phones and are skeptical of financial advice, meaning they do their research.

The Index also found that millennials start investing when they are 20, compared to Boomers who started investing, on average, at age 27.  They would like to invest even more of their money, making them a group with serious financial clout. For many, home ownership is a priority.

Here are some facts about millennials; new learning we can all benefit from:

1. Millennials take a conservative approach when investing.  Forty per cent take a long-term, buy-and-hold approach. 
2. They currently invest 18% of their income but would like to invest up to one third of their income. The TD Investor Insights Index found that saving for retirement was a top investment goal followed by saving to buy a house, then travel, then achieving financial independence.
3. Millennials love TFSAA accounts because of the flexibility.
4. They are independent, ask a lot of questions about investments and do their research.

In 2013, the Canada Mortgage and Housing Corp, (CMHC) held seminars identifying this age group as a growing opportunity for the Ontario housing market. While millennials accounted for 15 per cent of home ownership demand in Ontario in 2012, by 2016 they will own about 35 per cent of the province’s homes.

About one-third or 30% of those interviewed online said they expected assistance from parents or family. Nearly two-thirds (61%) said they have made cuts to their lifestyle to save for their first home.

The interest in home ownership is nationwide. A Bank of Montreal report released on March 18, found that first-time home buyers have increased their home purchase budget by six per cent to approximately $316,000. In Vancouver, Calgary and Toronto, those budgets are even higher. Fifty-three per cent of home buyers in the Calgary market will even break their budgets for the right home, compared to the national average of 33%.

In British Columbia, the Gen Yers are redefining the housing market there according to Melanie Reuter, director of research for the Real Estate Investment Network who has written a report about it.
“They are a more urban group, no longer dependent on a car, partly because of cost, and partly because they genuinely care about sustainability.” she said in a Globe and Mail interview. “They didn’t get their driver’s license the day they turned 16, it’s almost a badge of pride they wear, not needing a vehicle.”

They use transit, so will want to be located close to work, and close to transit hubs. Many were likely raised in townhouses or condos, and are familiar with living in smaller spaces. “They also like new spaces, as opposed to old houses they’ll have to spend weekends fixing up,” Reuter added.

For 35% of millennials, finding trustworthy advice is their biggest challenge. Twenty-seven per cent learned about savings and investing from their parents and family, 18% are self-taught and nearly half (48%) manage their own portfolios online.

The latest Market Insights from the Canadian Association of Accredited Mortgage Professionals (CAAMP) found that millennials  are a little nervous and apprehensive about investing in a home; however,  the majority of those who are homeowners are comfortable with their decisions and would make the same decision again. 

Interestingly, the report also found that mortgage brokers are a key channel for millennials looking for mortgage information, advice and arranging their mortgages, and turn to brokers 40% of the time. The broker’s value as an advisor, coupled with a strong customer service approach hits home with this age group. Younger clients see brokers as valuable consultants helping them to understand their options.

It’s a group that can’t be ignored.

Can you afford to buy a house?

With rising interest rates, overvalued real estate and a lackluster economy, are first time home buyers and average income households being priced out of the housing market. Perhaps. Now that five-year fixed rates have increased two-thirds of a percentage point or more – up from 2.89% to 3.79% -- in the past month, first time buyers may find their dream of owning their first home out of reach, for now.

It was getting tougher to qualify for a mortgage when the government made changes to the rules, but now it seems to have solidified with the recent rate increases. There are other challenges as well. When qualifying applicants lender look at ratios to determine the percentage of household income that is allowed to go towards housing costs – that ratio is approximately 32%. The average non-mortgage debt load is approximately $28,000.

So, let’s say you have an average income of $70,000, your credit score is in the 700s, which is good, and your debt load is $28,000. You are looking for a modestly-price home because you don’t want to be house poor and have managed to save $15,000, which is 5% of a $300,000 home.  At the current 5-year fixed rate of 3.59%, amortized over 25 years – you don’t qualify. If we could amortize over a longer period, which we could a couple of years ago, then your housing costs ratio would fit, but your total debt, which includes your housing costs and all your other debt would disqualify you.

What could you afford? A mortgage of $213,000.  Depending on where you live in Canada -- that may not be an option. An affordability review of the real estate market across Canada by RBC shows that, nationally, the condo market is affordable with housing costs approximately 28.1%. However, costs for two-storey houses eats up to 48% of household incomes, with Vancouver coming in at 87.2%, Toronto and Edmonton at 62.7%. The most affordable cities have housing costs at 34.4%. The most interesting finding is that these affordability numbers have been pretty much the same since1985. Although Vancouver and Toronto are above their long-term affordability averages, those averages have always been above 32%.

So what can you do? There are options – paying off debt is the big one. A mortgage professional will be able to guide you, offer you options and devise a plan to help you achieve your dream of home ownership.
What will happen next in the housing market? No one can predict that, but some analysts believe that prices will start coming down. They also believe the economy will start to grow again next year as the world economies finally emerge from a prolonged recession. That would be welcome news for Canada, where growth has stagnated. It would mean better job prospects and higher earnings and a thriving economy.

Mortgage rates may not go down, but higher earnings, and less debt means you will be able to afford the house of your dreams.