Spring 2012 Newsletter

Vancouver Market & the Global Economy – Where are we now?

This last quarter has been an adventure!  Media headlines were dominated by economic news.  Most of it bad.  Stock markets continued to be volatile as investors remained cautious not knowing where the economy was heading.  With Greece averting collapse and central banks across the globe collaborating to keep the Eurozone together, we are starting to see a gradual improvement in the global economic outlook.

You may wonder how this year’s headlines affected Vancouver’s Real Estate… They haven’t!  Vancouver continues to be a popular choice! According to CMHC, Greater Vancouver is in a Balanced Market with certain areas (such as the East Side and Burnaby) considered to be in a Sellers Market with multiple offers occurring on single family homes.  Average prices in most segments are holding steady.  The 2012 forecast predicts price increases of 3% to 7% depending on who you speak with.  Most economists believe Vancouver housing will continue to appreciate as long as migration to the area continues.  Population based demand and increased density explains our steadily increasing prices.  Our prices are supported by the 2011 Stats Canada Census data showing the GVRD population density increased from 736 people to 803 people per sq. km. over the last 5 years.  The 9% density increase correlates nicely to the median property price increase in the GVRD over the same timeframe.  Not all markets have increased equally.  Large intra-market variances remain such as record high values on Vancouver’s West Side, West Vancouver and White Rock. Overall, migration and limited land supply are expected to keep real estate prices moving upwards. An estimated 33,000 people will move to BC this year and more next year. New development is not keeping pace with the demand for new households.

Interest Rate Outlook

With global prospects brightening, we expect long term interest rates to start increasing this year. Since January, we have seen a half percent increase in the cost of 5 year funds.  Despite the increased cost of funds, strong competition for market share has kept mortgage rates artificially low. BMO, who posted lowest mortgage growth of the Big Six last year, shocked the market in January by offering a historically low

5 year fixed rate of 2.99%. BMO’s plan to capture market share was derailed as other lenders introduced their own specials and the terms of the BMO mortgage were found to be more restrictive than the norm.  For example; to exit the 5 year term early a borrower would need to sell their home. Other lenders called BMO’s offer the Hotel California Mortgage based on the Eagle’s classic song and lyrics “You can check-out anytime you like, but you can never leave!”  These specials and public awareness jump started our 2012.  We still have phenomenal rates & terms which we can hold until late July!

Mortgage Evolution

As Accredited Mortgage Professionals we are entering our 4th stage of evolution since becoming outsourcing agents for lenders in the late 1980’s.

Stage 1 – Ability to offer consumers choice and discounted rates.

Stage 2 – Professional shopping and processing to make mortgage arrangements easy.

Stage 3 – Planning advice and suitability. Debt management and borrowing efficiency.

Stage 4 – Advisory services. In addition to Stages 1, 2, & 3 our team now provides borrowers with:

• Advice on qualification criteria (Income, Credit, Net Worth, Down Payment, Security).
• Factoring in career trajectory, family planning, and real estate goals.
• Developing mortgage plans for rental portfolios.
• Conducting annual reviews to fine tune mortgage plans. Guiding clients to being debt free prior to retirement.
• Credit repair.  Working with clients to consolidate debt and rebuild credit.

 

Our diverse skills and long term client relationships differentiate us from others in what is traditionally a transaction oriented environment!

 

BC Gov’t Home Buyer Bonuses!

The BC Government announced a new $10,000 First Time Buyer Bonus along with its new HST Transitional Rules. Highlights of the new bonus are:

Applies to BC only for New Construction or a Substantially renovated property.

• Must be a First Time Homebuyer and never have owned anywhere else in the world.
• Application is completed and funds sent to buyer directly by the government.
• Bonus is 5% of the purchase price to a maximum of $10,000.
• Bonus is phased out for higher income earners.
• Details are available at http://www.sbr.gov.bc.ca/documents_library/notices/FTHB_Bonus.pdf

In addition, the HST Transitional Rules for all buyers state the maximum HST rebate is increased to $42,500 effective April 1^st.  The HST rebate ceiling is now $850,000 on new construction!

Mortgage & Market Update from Invis-Team Rob Regan-Pollock

Hope this finds you well. Despite windstorms and poor weather, economic activity is improving as we approach our long awaited Spring. Bond yields are continuing to rise with lender competition keeping rates artificially low after RRSP season. Last week, BMO re-released their 5 year 2.99% mortgage special. This special will be available until the end of March and was triggered after market results showed BMO with  the lowest % gain in mortgage origination of the Big 5 banks last year.  BMO’s  5 year “no frills” mortgage of 2.99% has been dubbed the “Hotel California” of mortgages after the Eagles famous song and Lyrics:  “You can check in anytime you want, but you can never leave”. The BMO offering is a “Closed” term with limited prepayment options. The only exit is via sale of the property.

Many of our lenders responded to BMO’s lower rate and  lowered their rates accordingly to maintain market share. We are, at least for now, back to February record low rates. Mortgage rates from Prime to 5 year fixed are flat at 3%.  As mentioned, longer term fixed rates are artificially low due to competitive forces. Bond yields which are a better indicator of cost are  ½% higher now than in February, yet rates remain low. Once these specials expire we expect to see a 0.25% – 0.50% increase in longer term fixed rates.

Important clarification regarding First Time Homebuyer’s Bonus, and First Time Homebuyer’s Tax Credit.

We originally reported that the $10,000 BC first time buyer bonus was a $10,000 tax credit. We have since been advised .the $10,000 bonus is a refund credit that is not claimed via a borrower’s personal income tax. The bonus is applied for separately when first time buyer’s buy new construction and pay HST.

 

First Time Homebuyer’s Bonus:

- Only applies in British Columbia

- 5% of the purchase price to a maximum of $10,000 bonus payable.

- Applies only to purchase of new construction or substantially renovated property.

- All buyers must be first time homeowners, anywhere, ever.

- Separate form to be completed and applied for once Government form is made available. Buyers must keep all documents related to transaction.

- Funds sent directly to buyer upon approval.

- Applies to fewer potential homebuyer’s but big bonus if qualified.

- Bonus is phased out for higher income earners.

Helpful Links:

http://www.sbr.gov.bc.ca/individuals/Income_Taxes/Personal_Income_Tax/tax_credits/fthb_bonus_faqs.htm

http://www.sbr.gov.bc.ca/documents_library/notices/FTHB_Bonus.pdf

First Time Homebuyer’s Tax Credit

- Federal Program Canada wide.

- Non-refundable tax credit applied against taxable income using the lowest marginal tax rate (15% in 2009 = $750 maximum tax refund) to calculate.

- Apply using line 369 of Schedule 1 on the Federal tax form

- Only reduces taxes payable by that amount, not a bonus or grant

- Applies to purchase of new and existing homes

- Applicant or spouse (or common law) must be first time home buyers, i.e. not have lived in a home owned by self or spouse in any of the 4 preceding years

- Apply when filing income taxes in the year of purchase

- Applies to more people (all first time buyers) but much less money

http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html

Our team is always keen to review programs and assist clients in lowering their costs!

Mortgage & Market Information from Invis-Team Rob Regan-Pollock

Good news was released on Friday as long awaited transitional rules for HST were released. The new threshold has been increased to $850,000 and the maximum rebate has been increased to $42,500. On April 1^st 2013, HST will no longer apply. Of note in Friday’s release was the inclusion of second homes, vacation and recreational properties outside the GVRD and Capital District. These properties are now eligible to claim the transitional rebate as of April 1^st, 2012.  Thank you to Laura Holland of Drysdale Bacon McStravick LLP for providing the attached outline explaining the application of the new transitional rules.

Our team has been enjoying an early Spring Market with purchases and refinance activity spurred on by January’s record low rate specials. In the last two weeks there has been a 0.25% increase in bond yields. Many of January’s “Quick close” and “No Frill” specials were cancelled last week due to rising cost of funds. At this stage we have one lender who is still offering 2.99% 5 year, hi-ratio insured with a 60 day close for well qualified purchasers. We have been advised this special could be cancelled at anytime. Regarding mortgage rate trends, we like others, are following Europe and Greece very carefully. The successful management of the sovereign debt crisis in Europe has a direct bearing on our capital markets and cost of mortgage funds. So far, there has been positive progress and we have seen a small but steady increase in long term bond yields as cautious optimism continues.

As we enter the Spring Market, there is a tightneing bias in Canada’s mortgage market.

The Finance Minister and Department of Finance are wanting to cool our housing market and are wanting lenders to tighten mortgage rules and increase their capital reserves.

• To date, lenders have reacted to regulatory and government pressure by:

1. Amending or in some cases cancelling their Stated Income/Equity lending programs.
2. Amending or in some cases cancelling their rental programs.

This tightening bias will affect self-employed individuals, new immigrants, and real estate investors. Lenders who are still participating in Equity and Rental programs are bonusing their rates, and are doing more diligence on income and liquid assets. The added diligence is to ensure borrowers are stating reasonable income, and have some liquid reserves to make their mortgage payments.  This is the fourth round of tightening since 2008, and we expect the government will continue to watch the market. Minister Flaherty has advised mortgage lenders that he may make other changes if he doesn’t see our debt levels stabilize. Our team look forward to working with you and your clients to fine tune mortgage plans as guidelines and lending programs continue to evolve.

Mortgage & Market Update from Invis-Team Rob Regan-Pollock

A very interesting week as we approach the end of January! Last Wednesday, the US Federal Reserve extended its low rate forecast until 2014 citing economic conditions warrant exceptionally low interest rates and further economic stimulus may be required.

On Tuesday, I attended Helmut Pastrick’s 2012 BC Economic Forecast which can best be summed up as “a Goldilock’s year for Vancouver.”   Not too hot and not too cold.  Mr. Pastrick expects we will see marginal improvement in our economy, while the rest of the globe, especially Europe and US, continue to deal with more serious issues relating to sovereign debt, weak housing markets, and unemployment.   If you’d like a summary of Mr. Pastrick’s outlook, please let me know, I will relay a copy!

As we move into February, mortgage  rates remain flat.  Prime is unchanged at 3%  and our best 5 year rate is being offered by two outliers who matched BMO’s 5 year no frills special of 2.99% OAC.  BMO’s no frills special ended last Wednesday.  We are monitoring these providers to see if they will continue this incredible offer!

As we enter RRSP season, we wanted to point out how First Time Buyers can increase their down payment by up to 43%!  First Time Buyers can invest their savings in an RRSP by February 29^th, 2012 (max $25,000 per person).   By Investing into an RRSP they will earn a tax deduction, and a refund, thus adding to their down payment.  The amount of tax refund will depend on their marginal tax rate.  BC Marginal Tax rates range from 20.06% – 43.70% based on taxable income.  After 90 days your client’s can redeem their RRSP tax free under the RRSP Home Buyer’s Plan.   Example – A $10,000 RRSP will yield a $3,000 tax refund for someone with a 30% marginal tax rate.

Please note there are certain conditions:

1. You must be considered a First Time Buyer in the eyes of the Federal Government (have not owned a Principal Residence the last 5 years).
2. You must repay your RRSP withdrawal over a 15 year period at 1/15^th per year.  If you fail to reimburse your plan, you claim the 1/15^th portion due as income and pay income tax.
3. The RRSP funds should be set aside in a guaranteed investment vehicle, and we recommend professional advice!  It’s imperative that funds can be redeemed conveniently without penalty.
4. While the RRSP’s remain in the account for 90 days, we can concurrently hold an interest rate for 120 days ensuring mortgage financing works hand in hand with RRSP Home Buyer’s Plan.

Contact us for more details if you know any First Time Buyers interested in boosting their down payment for a planned purchase this year.

Mortgage & Market Update from Invis-Team Rob Regan-Pollock

With the New Year underway and everyone back from holidays, there is no shortage of economic news! Last weeks Euro debt sale to stabilize Spain & Italy, and today’s downgrade of Europe’s bailout fund by Standard & Poor’s signifies European issues will continue to create market volatility in 2012. Closer to home the Bank of Canada left its overnight rate unchanged at 1%. Today’s press release mentions that the Bank’s 2% inflation target should be met over the medium term as recession and sovereign debt issues continue in Europe, and US recovery continues to evolve at a modest pace (BOC press release here  http://bit.ly/As8lb5 ).

Canadian debt levels didn’t escape comment by the Bank of Canada. The Bank is becoming increasingly concerned with consumers taking on more debt due to rates being so low. We continue to hear rumblings from our lender partners that OSFI (Office of the Superintendent of Financial Institutions Canada), are continuing to review Mortgage underwriting standards and are recommending prudence in ensuring consumers do not burden themselves with high debt levels in our record low rate environment. We expect lending guidelines will remain conservative.

With last weeks European debt sale pushing sovereign debt interest rates to new highs in Europe, bond yields continue to hover at record lows. Investors fear the increased debt servicing costs of the bailout auction will hamper growth and keep Europe in recession longer than originally planned. The drop in bond yields has prompted several drops in interest rates this week. The Canadian yield curve is now flat! Prime remains at 3%, with some “no frill” mortgages now offered for as low as 2.99% for a 5 year term OAC. The drop in interest rates and flat yield curve are attracting a lot of consumer attention! We are receiving many requests to review cost/benefit of breaking existing terms and refinancing at new lows.  Rather than refinancing, certain clients may better benefit from a blend/extend option. The best plan of action to benefit from these rates will depend on the terms and penalties of each mortgage contract.

Our team remains keen to assist, and look forward to assisting anyone you know with their mortgage planning! Have a great week!

Happy New Year from Invis-Team Rob Regan-Pollock

As we wrap up 2011, we thank you for another wonderful year! We really appreciate working with you and look forward to an outstanding 2012!  Real Estate activity slowed in December, but there were still a good number of purchases and refinances taking place. Interest rates remain at record lows and home prices in Vancouver are stable as the market moved into balance for the final quarter of 2012. Despite global headlines, Vancouver’s economy continues on a steady pace as we enter the new year.

At a macro level, European issues are far from over and with the growing instability of oil prices due to Iran’s threats of blocking oil shipments through the Strait of Hormuz, we expect interest rates to remain at current lows as we move into 2012 (more info on Iran’s threats here http://nyti.ms/uQ4isM). High oil prices place a drag on the economy from  higher manufacturing costs and reduced consumer spending. I recall reading an article that mentioned every $10 per barrel increase in oil prices was an equivalent of a 0.25% increase in the Bank of Canada lending rate. With oil prices at $100 per barrel, it won’t take much of an increase for economic drag to occur. This will affect weaker economies of Europe and US much more than Canada.

Thought I would share an interesting article about credit cards from this week’s Globe and Mail. While lawmakers have tightened mortgage rules over debt concerns, there has been very little action taken to limit consumer credit such as credit cards and lines of credit. As noted in the article, credit card delinquencies are now at record highs with little pressure to change consumer credit rules http://bit.ly/tuUDqq. As Accredited Mortgage Professionals we review consumer debt and borrowing efficiency as part of our overall debt planning to ensure clients avoid the slippery slope of consumer credit.

Have a great New Year’s celebration with our best wishes for continued health and success in the year ahead! Chat soon!

Mortgage and Market Update from Invis-Team Rob Regan-Pollock

What a volatile time in the markets!

In reviewing my recent summaries I’m struggling to find anything new & interesting to say about Europe. The recent EU Summit has left markets flat as credit rating agencies and investors seek more substance than an agreement to pursue stricter budget rules. Moody’s Credit Agency have commented that the summit communique offers “few new measures and does not change Moody’s view that risks to the cohesion of the Euro area continue to rise”. Moody’s goes on to state that “Unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited. The communique does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.”

The issues in Europe continue to drive up the short term cost of money as interbank rates rise.  Variable mortgage rates have climbed with our best available terms now between Prime minus 0.10% and Prime.  The 5 year fixed rates remain at record lows in the 3.24% – 3.49% range OAC depending on terms and length of rate hold required.

Meanwhile back at the ranch… our local Real Estate market remains healthy and in a balanced state. There is sufficient activity to keep prices firm and with Stats Can recently advising housing starts dropping by 3.6% in BC, we expect a balanced market to continue.  We continue to see value in the resale condo market given the rising cost of land and increased government and development costs for new construction. With single family homes out of reach for many, we are seeing more condo and town house activity.

As we enter the final weeks of the year, we are monitoring recent rumblings by the Bank of Canada, Minister Flaherty and Office of the Superintendent of Financial Institutions.  Messaging about consumer debt levels and a healthy banking system is the main focus of Minister Flaherty. Under a new Bill, Mr. Flaherty is requesting ultimate power in reviewing banking activity http://bit.ly/vJCSMx  We have been advised by some of our bank lenders that recent OSFI audits have been onerous, especially in areas of equity lending. We foresee more evidence of income and cash flow being required by institutions in the coming year. Asset based and stated income lending may become more difficult as government agencies look to limit debt levels in our record low interest rate environment.