For several weeks there has been speculation surrounding the tightening of mortgage lending criteria and today those changes were finally announced. Flaherty was careful to reiterate that we are not currently experiencing a housing bubble, however these changes are being put in place to prevent Canada from experiencing the same real estate bust the US experienced.

So What Changes Did Flaherty Announce For Canadian Home Buyers?

1. All borrowers must qualify at the current five year rate. This means even if you are looking to get a 1 or 2 year mortgage with a rate that is lower than the current five year rate, you still need to make enough money to qualify for the mortgage amount at the going 5 year mortgage rate. We have already seen a rule similar to this imposed by the lenders with variable rate mortgages, but this new rule will make it mandatory across all lenders and mortgage types.
2. Maximum loan to value for a refinance is now 90% of the home value which is down from the 95% it has been. This has been put in place to make sure people do not use their homes as a personal ATM, constantly withdrawing available equity. This was a major problem in the US and was one of the reasons so many people now owe more on their property than it is worth.
3. Speculative rental properties are now going to require a 20% down payment. There was not much speculation around what exactly is meant by “speculative”, but you could assume it is a rental property where none of the units will be occupied by the owner. This will be quite a blow to some real estate investors who count on using as much leverage as possible to achieve their necessary returns.

Flaherty did not rule out lowering the maximum amortization from the current 35 years or increasing the minimum down payment required from 5% on residential properties, however has held off making these changes in today’s announcement.

What Do Flaherty’s Changes Mean To The Average Canadian Home Buyer?

In short, not much. In fact the average home buyer is really not affected by today’s announcement. The only people who are going to feel the pinch are real estate investors and people who are stretching themselves a little too thin. Those are exactly the people Flaherty was targeting. The average home buyer will not be affected until such a time as Flaherty reduces amortizations and increases down payment requirements. Really it appears the changes announced today were meant more for show and less for keeping the real estate market in check.

Related articles by Zemanta

• Flaherty moves to toughen mortgage rules (cbc.ca)
• Flaherty tightens mortgage rules (calgaryherald.com)
• Ottawa to toughen mortgage rules (canada.com)
• Buying a home about to get tougher (thestar.com)
• Flaherty to bring in tougher mortgage rules (ctv.ca)

Related posts:

1. Social Media In Real Estate I had a great meeting with local Toronto Realtor, George...
2. Canadians Have More Equity In Homes Canadians are responsible when it comes to managing their home...
3. Ottawa Considers Tighter Mortgage Regulations Well, the Conservative Government is now worried that Canadians are...

Related posts brought to you by Yet Another Related Posts Plugin.

Government Watchdog Raises Red Flag On $1.4 Trillion in Commercial Loans

For quite some time we have been hearing about the next shoe dropping with regards to the current recession. Over inflated residential property prices and sloppy mortgage regulations lead the US and most of the western world in to an economic tailspin. There have been rumblings from analysts and industry experts for the last year that we are not out of the woods yet when it comes to mortgage defaults and it appears the next wave of problems could start hitting within the next 12 months.

This time however it will be commercial real estate loans that cause the trouble. A recent report produced by a US government watchdog that was created to oversee the TARP bailout program, raises a red flag on the state of commercial mortgages in the US. There are approximately $1.4 trillion worth of commercial mortgages that will be coming to the end of their terms in the next 4 years and over half of them are underwater meaning the borrower owes more than the property is worth. We saw individuals did not hesitate to walk away from their homes when the same situation arose with residential mortgages.

Can we expect the same pattern to emerge with commercial real estate loans?

I would say probably not. With commercial mortgages you are dealing with much larger sums of money and the property owner tends to have more of their own equity in the property making it harder for them to walk away. Plus, an individual can walk away from their home and easily rent or stay with family, but a business can not just pick up their operation and move as easily. That being said, we are going to see a significant number of business walk away from their mortgage leaving many small regional banks holding the bag

Commercial mortgage crisis to affect small regional banks disproportionately

The report also highlighted that smaller regional banks and lenders have  disproportionate exposure to these commercial loans. Many of these smaller banks have already been weakened by the current financial crisis and would not be capable of weathering a storm of this magnitude. The US Government is being encouraged to act early to help keep this problem from turning into another financial crisis. One way to do this would be to inject capital into these smaller banks or help small business who are currently struggling to make their mortgage payments.

Related articles by Zemanta

• A Double Dip Scenario? (seekingalpha.com)
• Small U.S. Banks Could Be Forced To Curtail Their Lending (benzinga.com)
• Foreclosures down in January, but surge on way? (sfgate.com)

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Stats in the US show that over 80% of people start their real estate search online before they even contact a Realtor. Is your real estate agent using the internet effectively to market your property? You might want to ask him or her what they plan to do besides open houses to ensure your property sells quickly. Twitter, Facebook and Blogging are all great ways for real estate professionals to harness the power of the internet and cast a wide net when selling your home.

I personally send out a weekly email newsletter to hundreds of Realtors and home buyers with rate updates, mortgage tips and a featured property section where Realtors can advertise their listings. I find this is a great way to provide home buyers with relevant content and add value to my Realtor partners. If you are interested in receiving my weekly email CLICK HERE

Also, if you are interested in learning more about Social Media and real estate to be sure to check out the next Toronto Real Estate Technology Meetup

If you are looking to purchase a home in Toronto or if you would just like to learn more about using Social Media in real estate I suggest you check out George’s blog

Check out George’s video below with yours truly.

Related posts:

1. Flaherty Tightens Mortgage Lending Criteria in Canada Today Finance Minister Jim Flaherty announced new mortgage lending regulations...
2. Canadians Have More Equity In Homes Canadians are responsible when it comes to managing their home...
3. Ottawa Considers Tighter Mortgage Regulations Well, the Conservative Government is now worried that Canadians are...

Related posts brought to you by Yet Another Related Posts Plugin.

To see what I mean, pick a point on the green line (fixed rates) and then draw a line straight across the page (to the right). See how many times the orange line crosses above the line you drew. This will tell you how many times the variable rate would have been equal to or greater than the fixed rate mortgage you chose. Most of the time the variable rate is well below. It will be interesting to see how this holds up in the next 5 years. With fixed rates so low and variable rates poised to start climbing  (no one knows how high), we might actually see variable rates cross above today’s fixed rates and remain substantially higher. only time will tell.

I would be interested to hear your comments and thoughts on the subject.

Related posts:

1. Thinking about a variable mortgage? According to research performed by professor Moshe Milevsky, choosing a...
2. Interested in a variable Rate? With most variable rate mortgages in Canada charging a premium...
3. Variable Mortgage Rates Staying Low??? Most Analysts agree the Bank of Canada will not raise...

Related posts brought to you by Yet Another Related Posts Plugin.

Image via Wikipedia

You can’t avoid the taxman: Goods ordered early for post-July installation will still get 13% levy

With all the billboards springing up around the city, it’s hard to miss the 13% harmonized sales tax (HST) slated to become law July 1.

For many, the tax is just a convenient combination of 8% provincial sales tax (PST) and 5% goods and services tax (GST).

But for the home renovation industry, which contributes $20-billion and 195,000 jobs to Ontario’s economy, the HST may have some hidden challenges.

Figuring homeowners will rush to get projects in under the deadline and avoid the tax, the government has also added a May 1 deadline clause. Essentially, any project ordered by May 1, but not completed by July 1, is subject to the whole 13% tax.

But if the work is completed before July 1 it will be taxed at the current 5% GST.

The clause was added because the “government doesn’t want a rush of renovations ordered on June 30, allowing homeowners to escape paying the HST,” explains Brian Wurts, an analyst at Price Waterhouse Coopers. “The government doesn’t want to lose all that money.”

It’s a clause mainly for contractors who pre-bill, he adds, and putting the window far enough before the HST’s real launch date will prevent them evading the tax.

The tax will also add almost 8% to a renovation bill. Currently, homeowners pay only 5% GST for services, which includes labour. PST on the bill–covering the materials — is hidden within the GST total. But with the HST, labour and overhead will be subject to tax, bumping the overall invoice tax to 13%.

Imagine you order a deck built, and the job comes out at $10,000. Your contractor pays $1,000 for materials. Pre-HST, your total is $10,500 (cost plus GST), while your contractor pays $1,130 (adding $50 GST and $80 PST to his $1,000 materials bill). The building materials cost is rolled into your project costs. After the HST, though, your total is $11,300 (13% HST), your contractor pays $1,130 for materials, but gets reimbursed for the $130 from the government. The contractor may then reduce your bill by that $130. In the end, you still end up paying more, though not the full 8% face value of the HST.

Some fear the new HST will drive contractors underground as more and more customers try to avoid paying more tax. That’s what happened after the GST was introduced in 1991. And even though homeowners are accustomed to that tax by now, projects done under the table still account for about 37% of the province’s home renovation business, according to the Ontario Renovators Council.

Others think the tax will ultimately reduce the number of nefarious contractors, who won’t be able to claim the tax they pay when they buy building materials for a client’s project. The costs will have to be passed on to the customers, ultimately negating much of the apparent discount in the under-the-table bill, potentially making those contractors less desirable.

One employment-generating effect of the tax, Mr. Wurts thinks, is the amount of renovation likely to start before summer hits: “That new roof will cost 8% more as of July 1, so if people have projects they want done, they’ll be planning to have it done before.”

For more information on the upcoming HST you can visit www.rev.gov.on.ca/en/taxchange/index.htmlor call 1-800-337-7222.

You can also check out this article on the CBC news website

Related posts:

1. Don’t forget about the Canadian Renovation Tax Credit A new poll suggests more than one in three Canadians...

Related posts brought to you by Yet Another Related Posts Plugin.

Well, the Conservative Government is now worried that Canadians are piling on too much debt while interest rates are low and will ultimately get into trouble when interest rates increase. Is their fear valid? Maybe, but I personally find most of my clients ar not stretching themselves thin and are keeping a healthy cushion to allow for an increase in rates. The Finance Minister said in an interview with CTV that they are considering increasing the minimum downpayment from 5% to something greater….maybe 10%. As well they would get rid of 35 year mortgages.

CIBC’s Chief Economist Benjamin Tal warns that any drastic changes could threaten our already fragile economy and any adjustments should be gradual. After all, the housing market is the only thing that is growing in the economy at the moment.

CLICK HERE to read the article in full

Related posts:

1. 8 Economic Insights from Benjamin Tal A summary of 8 key take-aways from CIBC's head economist...
2. Why Bank of Canada is leaving rates alone A brief explanation of why the Bank of Canada is...
3. Canada’s Housing Bubble Diane Francis of the Financial Post wrote a very interesting...

Related posts brought to you by Yet Another Related Posts Plugin.

The Bank of Canada will be holding its last rate announcement of the year tomorrow and it is expected they will leave the prime lending rate were it is. The Bank of Canada has pledged to keep rates where they are until mid 2010, but if we see continued positive job creation in the coming months they might be forced to start increasing rates.

Related posts:

1. Bank of Canada Keeps Rates Steady The Bank of Canada announced this morning that it will...
2. Mortgage Rates Increasing It was bound to happen....fixed mortgage rates will be on...
3. Bank of Canada Keeps Prime Rate Unchanged The Bank of Canada announced today that it will leave...

Related posts brought to you by Yet Another Related Posts Plugin.

1. The recession is over, but we will pay for what the US Fed is doing. Interest rates will rise and deficits will drag on Canada’s economy
2. The next wave of US mortgage resets will peak in 2011, but fortunately these mortgages mostly sit on lender’s balance sheets and have not been securitized. This will help limit the global impact.
3. We will see consumers spend and borrow less over the next five years. Part of this is due to fear and part is due to lending criteria becoming more strict
4. The bank of Canada will have no choice, but to wait for the US to start raising their interest rates. If Canada were to increase rates earlier it would cause our dollar to appreciate and put our already fragile recovery in jeopardy
5. We do not have the evidence to support we are in a housing bubble. The fact that people are taking advantage of low interest rates shows the government’s stimulus is working as it should. I found this one particularly interesting considering you can not open a news paper these days without the words real estate bubble appearing somewhere.
6. Expect interest rates to start climbing by 2-3% in the 3rd quarter of 2010. Remember, in the past  interest rates have gone up far quicker than they went down.
7. We are in much better shape than our US neighbours. We have 3 times more cash savings per capita and this money is waiting to be redeployed.
8. Canada will outperform all other G7 countries in growth in 2010.

All in all it was a rather positive outlook by Mr. Tal. Of course only time will tell if his predictions are correct.

Related posts:

1. Benjamin Tal Economic Outlook I was lucky enough to be able to attend a...
2. Ottawa Considers Tighter Mortgage Regulations Well, the Conservative Government is now worried that Canadians are...
3. Why Bank of Canada is leaving rates alone A brief explanation of why the Bank of Canada is...

Related posts brought to you by Yet Another Related Posts Plugin.

The Canadian Real Estate Association also released some stats on home prices across Canada. They found house prices are up over 20% compared to October of last year resulting in the largest year over year increase in 20 years. Part of what is driving this increase is a shortage of supply in the housing market and record low interest rates. The increased demand created by the interest rates is not being met due to a decrease in housing supplies which results in bidding wars and increased prices. This is great if you are a seller, but extremely discouraging if you are a buyer.

Phil Soper from Royal LePage feels we will see the inventory problem ease in the spring of 2010 as more families list their homes to coincide with the end of the school year.

If you have been looking for a property, but have been unsuccessful in purchasing don’t despair. It is common in any real estate market to not get the first house you bid on (or sometimes the 2nd or 3rd). Be sure to stick with your original budget and do not fall into the bidding war frenzy. Also avoid making an offer without a financing clause in an effort to make your offer more attractive….you have been pre-approved, but your house hasn’t. I have seen too many cases where the lender has refused to lend on a specific property for various reasons and the home owner was stuck with a house that no lenders were willing to lend on. In the end a mortgage broker can usually find a lender willing to take on the risk, but it comes at a much higher interest rate.

Related posts:

1. When Will Mortgage Rates Fall? As bond yields have been decreasing many Canadians have been...
2. Possible Rate Increase….. Canadian 5 year bond yields have been creeping up over...
3. Canada’s Housing Bubble Diane Francis of the Financial Post wrote a very interesting...

Related posts brought to you by Yet Another Related Posts Plugin.

During the last housing bubble speculators and flippers were making their fortunes by buying low and selling high. This type of activity can reward the players with healthy returns, but it is not for the weak of heart and is definitely not predictable or dependable. What many forget is 1/3 of Canadians still do not own a home and require places to rent. According to CMHC, apartment vacancy rates were 2.7% in April, 2009 which was up only slightly over the previous year.

The problem is it is hard to find an apartment building for sale. Very few new apartment buildings are being built due to rent controls and current owners are not eager to sell their properties. The good news is even though there are some large companies and REITS controlling large blocks of buildings, about 90% of the buildings are still in the hands of small companies and individuals.As well, like in the housing market CMHC has made it easier for individuals to purchase a multi unit apartment building. For as little as 15% you can purchase a building. The CMHC insurance premium might seem like an unnecessary expense, but keep in mind you can write it off against your income from the building and your lender will probably give you a significantly discounted rate because you have the mortgage insured. The average rate at the moment is about 3.5% for a 5 year CMHC insured mortgage. Without the CMHC insurance you would be paying closer to 5.5%. With a difference that large the insurance will almost pay for itself.

If you are thinking of jumping into the world of apartment investing do your research an assemble knowledgeable team. Deal with a Realtor who has experience in purchasing apartments and of course a Mortgage Broker who is experienced in providing the financing. You will also need a lawyer and a certified inspector to ensure the deal goes smoothly

Related posts:

1. Canada’s Housing Bubble Diane Francis of the Financial Post wrote a very interesting...
2. The ABC’s of Mortgage Insurance One of the biggest roadblocks for first time homebuyers is...

Related posts brought to you by Yet Another Related Posts Plugin.