29 Oct

Mixed Reactions To Landmark Deal Between CREA and The Competition Bureau

General

Posted by: Drummond Team

Details of a landmark deal between the Canadian Real Estate Association and federal Competition Bureau were met with mixed reactions this morning when they were finally released to the public.

The agreement was posted on the Competition Bureau website (see link at the bottom of this article) Monday shortly before noon Eastern Standard Time.

That came less than a day after representatives of almost 100 boards and associations voted 97 per cent in favour of the CREA deal, avoiding a costly court battle that the Competition Bureau threatened to start next spring.

Competition Bureau Commissioner Melanie Aitken announced earlier this year she was investigating complaints of anticompetitive behaviour, especially involving CREA’s popular Multiple Listing Service. An estimated 90 per cent of home sellers go through realtors to list their homes on MLS.

“I am pleased that CREA members have voted in favour of this agreement,” Aitken said. “For Canadian homeowners, it ensures that they will have the freedom to choose which services they want from a real estate agent and to pay for only those services. For real estate agents it ensures they will be able to offer the variety of services and prices that meet the needs of consumers.”

Under the deal ratified Sunday, REALTORS® can offer individual services like listing on MLS rather than bundling them all together. Boards and associations also cannot “deny or discriminate” against brokers or agents who want to offer those services a la carte.

CREA president Georges Pahud said he welcomed the decision to ratify the agreement and end the Competition Bureau battle. “We are pleased that after careful consideration and reflection, real estate boards and (local real estate) associations from across Canada have endorsed the agreement.” 

Pahud went on to say in a statement “The commissioner and CREA have agreed that its rules as well as those of members should not deny or discriminate against realtors wishing to offer mere posting services. CREA does not believe that such rules exist today, but if they do, they must be repealed or boards will lose their license to operate under the MLS trademarks.”

As real estate professionals, it will become your responsibility to explain to consumers that nothing has changed in MLS management, but rather it has been confirmed that discount brokers have the right to offer discount services.  And those consumers continue to have the opportunity to choose service or no service from their official representative.

View the agreement that was posted on the Competition Bureau website here :http://www.ct-tc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=325

27 Oct

Bridging the gap

General

Posted by: Drummond Team

Buying and selling a home is stressful enough, so some experts recommend bridge financing as a means to reduce the burden.

“Bridge financing is huge,” says Peter Majthenyi of Mortgage Architects in Toronto, Ont. “Many do it to keep moving-stress down, and four out of five borrowers do it when their selling and buying days do not match up. It’s a cheap way of not having to move out of a home and into one the same day — worth every penny.”

Bridge loans are temporary loans that bridge the gap between a home buyer’s old mortgage and new mortgage when the sale of the existing home has not yet closed. The short-term loan is secured to the buyer’s existing home, and the funds are used as a down payment for the new home. Once the deal closes, the proceeds are used to pay off the bridge loan, plus interest and other costs. These loans enable the not-so-rich-and-famous to carry two homes at once.

Why turn to bridge financing?

When you find your dream house right away, the challenge is to quickly sell your existing home and use the equity as a down payment for the new place.”Sometimes it’s hard to get the dates to match up, so this is a way of easing that stress,” says Hilary Shantz, a sales representative with Brekland Realty Group in Oakville, Ont.

But even when dates do coincide, there’s still reason to consider bridge financing, says David Crothers of Toronto-based Himelfarb Proszanski LLP. “The problem you sometimes run into is your sales transaction may not close on the day it’s supposed to.”

As a real estate lawyer, he’s seen it plenty of times: The clock is ticking toward 5 p.m. on closing day, your buyers suddenly run into problems and you’re left unable to close the sale on your new home until the next day or even the next week. It has a domino effect: The delay puts the people you’re buying from in a difficult position, and it usually results in penalties (and bad feelings) all around. With bridge financing, you can close your purchase early in the day, claim the keys and get moving without panicking when your buyers are down to the wire.

“If there is a problem with the pending sale, you’re in the driver’s seat; you’re not desperate,” says Crothers. However, he adds, you’ll have to make other financing arrangements if the sale falls through completely. In most cases, if your buyer hits a snag, you both agree on an extension and they pay a penalty to offset your own costs (such as loan interest) and inconvenience.

“People bridge for different reasons, but increasingly it’s also about convenience,” says Shantz. If, for instance, you’re buying a fixer-upper that needs a complete overhaul or you’d like the time to paint and redo the hardwood floors before moving in, bridge financing is an ideal buffer. You can overlap ownership for days, weeks or even months, while prepping the new house.

How much does it cost?

Experts recommend making the request upfront when you’re applying for the mortgage, by presenting the lender with two firm offers.Typically, the interest rate is 2 percentage points to 5 percentage points above prime. Sometimes there is a $250 to $300 fee for arranging a bridge loan; however, most lending institutions waive it. “The lenders really make no money on bridge financing; they only do it to accommodate getting the mortgage business,” says Majthenyi.

Here’s how it works:

Sale price of existing home: $325,000 (mortgage payment of $1,000/month)
Less real estate commission of 5 per cent: $308,750
Mortgage balance: $200,000
Proceeds for down payment: $108,750 – closing costs = $100,000
Cost of new home: $400,000 (mortgage payment of $1,300/month)
Interest on bridge loan: 7 per cent of $100,000 or $19 a day

Can you cover the true cost of bridge financing?
While the cost of the bridge — the interest per day — is nominal for a couple of days, consider the true cost of the loan when it comes to longer terms. The burden of carrying a bridge loan for weeks or even months adds up because you have to think about the following:

  • Two mortgage payments (the above example totals $2,300/month)
  • Utilities, insurance and taxes on both properties (easily $1,500/month)
  • Accruing interest (28 days is $532)

Suddenly you’re looking at $4,340 a month, or $155 per day, to cover all expenses associated with the loan and two properties for a one-month period.

In most cases, bridge financing is a small price to pay for peace of mind. However, for longer terms, it’s important to look at the big picture so that today’s peace of mind doesn’t become tomorrow’s financial headache.

Michelle Warren is a freelance writer in Toronto.

25 Oct

Debt squeeze coming: TD

General

Posted by: Drummond Team

  • 21 Oct 2010
  • The Windsor Star
  • ERIC LAM, PAUL VIEIRA AND CARMEN CHAI
  • Postmedia News

Canadians are carrying far too much debt relative to what they earn, and the problem is only going to get worse if low interest rates are maintained over the next few years, a report warned Wednesday.

Craig Alexander, chief economist with TD Bank, estimates that about 6.5 per cent of Canadian households are financially vulnerable, with families paying as much as 40 per cent of their income to service debt.

“Canadian personal indebtedness has become excessive,” Alexander said in the TD Economics report.

“The relentless rise in household debt in Canada, both in absolute terms and relative to personal disposable income, is a growing cause for concern.”

Bank of Canada governor Mark Carney echoed similar thoughts Wednesday in a discussion about the strength of Canada’s economic recovery, which has been weaker than expected.

Carney predicted the pace of consumer-spending growth to slow as Canadians confront overstretched balance sheets.

“We are concerned about levels of household debt,” he said, adding legislators and regulators need to be “vigilant” about keeping consumer borrowing in check.

“This is a question for authorities, but the responsibility starts with (the) individual in ensuring they are comfortable in servicing those debts in more normal times. We are still living in abnormal times.”

Alexander said household debt as a share of personal disposable income has tripled since the 1980s, to 146 per cent from 50 per cent, with debt accumulation accelerating at an alarming rate, especially since 2007.

Several factors contribute to the increase, including low and stable inflation, a stable economy and job market, and an increase of two-income households to foster income security, resulting in more confidence in managing a higher debt load.

Adrian Lebar, a 37-year-old web-development director, says debt is a “fact of life” if Canadian families want to own homes and cars.

The father of three makes mortgage payments of $980 every two weeks for a $320,000 Toronto home he purchased last year and another $300 car payment each month. He plans to pay off his debt in the next 25 years if he keeps “trying to be responsible.”

“We’re working hard for our house and our car. We don’t have the latest and greatest computers or cellphones. We tend to cook at home over eating out and vacations is probably where we suffer most,” Lebar said.

“But debt is by far our greatest expense. Debt and a mortgage is just a fact of life if you want to own a house at my age. It’s unfortunate that we have this in Canada,” he said.

Lebar said his financial situation is better than most Canadians’ because they bought a home that was 60 per cent of what they were approved for, and often cut back whenever they can.

The most vulnerable Canadian households are those at the lower-end, with low-income families holding the highest debt-to-income ratio (180 per cent).

“Low-income families are more susceptible to adverse economic shocks, more likely to lose their jobs, and they do not have a strong asset base that they can liquidate in times of financial stress,” Alexander said.

Government regulators need to identify the reasons for the rise in debt ratios and should wait until the economy and housing cycle firm up before introducing tougher regulations, Alexander said.

“The government needs to proceed with caution on the regulatory front. Implementing tough new measures at a time when the economy is fragile could generate a hard landing in real estate and prove counterproductive,” the report said.

Printed and distributed by NewpaperDirect | www.newspaperdirect.com, US/Can: 1.877.980.4040, Intern: 800.6364.6364 | Copyright and protected by applicable law.

25 Oct

Bank of Canada rate hikes not ruled out

General

Posted by: Drummond Team

Economic recovery now expected to be slower than earlier forecast

Wednesday, October 20, 2010 | 7:53 PM ET 

Read more: http://www.cbc.ca/money/story/2010/10/20/boc-september-monetary-policy-report.html#ixzz13N5o7X7f

 

The Bank of Canada says it doesn’t rule out interest rate increases in the future, but adds they would need to be “carefully considered.”

Mark Carney, governor of the Bank of Canada, leaves after holding a press conference on the bank's October monetary policy report at the National Press Theatre in Ottawa Wednesday. 
Mark Carney, governor of the Bank of Canada, leaves after holding a press conference on the bank’s October monetary policy report at the National Press Theatre in Ottawa Wednesday. (Sean Kilpatrick/Canadian Press)

“At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies, and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered,” the central bank said in its latest monetary policy report, on Wednesday.

The bank said the economic outlook for Canada has changed since its last outlook.

The bank now expects the economic recovery to be more gradual than it had projected in its July report, with growth of 3.0 per cent in 2010. Its previous report called for 3.5 per cent growth.

The bank reduced its forecast for growth in 2011 to 2.3 per cent in 2011, down from 2.9.

“This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending,” the report said.

The bank also pushed out until later into the future its estimate for when the economy would return to full capacity. It now expects that by the end of 2012, rather than the beginning of that year as it had predicted in July.

It also extended by a year its prediction for when inflation would reach two per cent, to the end of 2012.

The central bank on Tuesday kept its overnight interest rate unchanged after raising it to one per cent over the course of its last three meetings.

In its October monetary report, the bank said, “This leaves considerable monetary stimulus in place.”

‘Slowest recovery on record’

Diana Petramala, an economist with TD Economics, said the bank’s outlook “represents the slowest recovery on record for the Canadian economy,” justifying low rates through 2011.

Petramala predicted in a commentary that the bank would keep rates on hold until March of 2011, then raise them gradually through 2011 and 2012, “bringing the overnight rate to two per cent and three per cent at the end of each respective year.”

The bank also renewed its concern about the issue of Canadians’ growing household debt as both a risk to the recovery and a drag on increased consumer spending.

At a news conference, bank governor Mark Carney raised the prospect of further regulatory changes by governments to discourage Canadians from taking on too much debt. In February, the federal government had introduced rules to tighten mortgage lending.

Carney said that while responsibility for not taking on more debt than they can handle begins with Canadians themselves, “authorities, broadly speaking, have to be vigilant.”

Banks and other lenders must ensure “that the debts their clients are taking on can be serviced in the fullness of time,” Carney added.

The bank also warned of the potential hazards if countries try to weaken their currencies in order to protect their export markets.

“Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery.”

Corrections and Clarifications

  • An earlier version of this story said the bank had not ruled out rate cuts. In fact, the bank said “any further reduction in monetary policy stimulus” — meaning rate increases — “would need to be carefully considered.” Oct. 20, 2010 | 12:47 p.m. ET

Read more: http://www.cbc.ca/money/story/2010/10/20/boc-september-monetary-policy-report.html#ixzz13N5g2H00

22 Oct

High buy/rent ratio may lead to housing price correction

General

Posted by: Drummond Team

MortgageBrokerNews.ca

Tuesday 19 October, 2010

The current high buy/rent ratio may indicate a vulnerable housing market said Desjardins Securities, but others aren’t placing too much weight on the measurement.
 
Canadian house prices rebounded from the recession, hitting a new record in May and bringing the buy/rent ratio to about 1.85x. This means mortgages are increasingly difficult to afford compared to rent, as house prices increase and rents remain stable.
 
So, excluding major factors such as taxes and maintenance, homeowners pay about twice what renters pay.
 
“This is precipitously close to the 2.3x level reached in December 2007 and the 2.5x level reached in 1988, which preceded house price corrections of 13 per cent and 10 per cent, respectively,” Ed Sollbach and Deep Jaitly of Desjardins wrote in a research note.
 
They added that when the buy/rent ratio hit an “unsustainable” 3.6x in Toronto in 1989, it was followed by a 29-per-cent decline in house prices.
 
However, at that time unemployment was also rising and a spike in interest rates to 14 per cent forced many homeowners to sell.
 
The problem with the rent/own ratio is that half of the provinces employ rent control, so prices can’t rise with the broader housing market. For example, house prices in some Toronto neighbourhoods have gained 30 per cent in the last year but Ontario limits rent increases to 2.1 per cent.
 
“Maybe that’s just telling us that rents are just too low,” said Gregory Klump, the chief economist at the Canadian Real Estate Association in a recent interview with The Globe and Mail. “I’m not a fan of the price-to-rent ratio because it’s so skewed by the fact that rents are subject to rent control.”
22 Oct

The Devil in the Fine Print

General

Posted by: Drummond Team

CanadianMortgageTrends.com

September 29, 2010

Mortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print or ask a mortgage professional.

Some examples:

    * Restrictions on breaking your mortgage before the term is up
    * Restrictions on breaking your mortgage for the first 3 years
    * A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
    * “Reinvestment fees” (on top of mortgage penalties)
    * Interest rate differential (IRD) penalties based on an onerous bond yield calculation
    * IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
    * IRD penalties based on a costly posted vs. discounted rate formula
    * Inability to port unless the purchase and sale take place on the exact same day (which can be  

       hard to arrange)
    * A poor conversion rate guarantee
    * No refinances during the first year
    * No free switches (for transfer-eligible mortgages)
    * Amortization limits of 25 years
    * Minimum amortizations of 15-18 years
    * Restrictions on converting from a variable rate to a fixed rate for the first six months
    * No ability to break your “open” HELOC without a penalty
    * Inability to port across provincial lines
    * High administrative fees when porting
    * 100% clawback of cash-back if the mortgage is broken before maturity
    * Requirement for a full banking relationship with the lender
    * No lump-sum pre-payment privileges
    * No annual payment increase allowance
    * Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…

Keep a lookout for restrictions like this when comparing different mortgages.

It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.