Despite what all the real estate market pessimists might say in my opinion there is no condominium bubble in Canada.  All signs point to Canada’s real estate market remaining strong for this year and well into the rest of the decade. But that doesn’t mean home prices are falling. In most major urban centers the average resale price is at historic highs.  This indicates an even greater need for condominiums, which are often seen as a more cost effective alternative to single family homes. The dense makeup of multi family dwellings also allows more people to live in the core of Canada’s biggest cities.

Here are the major reasons that debunk any theory that Canadian condominium prices are bubbling.

Higher costs

The average cost of a resale home in Canada was $363,900 in 2011. Economists at the Canada Housing and Mortgage Corporation, estimate that cost will rise to $368,200 this year.

These costs are much higher in bigger centers like Toronto and Calgary. Where home prices on average are more than $400,000.   In Vancouver the average cost of a resale home is expected to climb above $800,000 this year.

This is drawing more attention to smaller family dwellings like condominiums. Especially for the homeowner who’s main factors are location and affordability.  For example, the average price of a condominium in Toronto is $234,680. Condominiums create a good alternative for anyone looking for a more cost affective alternative to a single-family home.

In its latest Housing Outlook the Canadian Housing and Mortgage Corporation says, “demand for denser house types, particularly condominiums, will reflect demographic trends such as an aging population. There are also affordability concerns and transportation considerations, as condominiums tend to be priced lower than single-detached homes, are located near major transportation routes, and can require less home maintenance.”

Immigration

According to Canada Citizenship and Immigration Canada more than 280,000 people immigrated to Canada in 2010 alone. Many of these people went to major centers such as Toronto, Vancouver and Calgary because of better job prospects and family connections.

There is an influx of a quarter of million people every year that need to find a place to live. For many new immigrants starting a new life in Canada a condominium is the first place they could land because of the affordability factor.

Low rental vacancy and ownership affordability

Rental vacancies in Canada are extremely low.  The average rental apartment vacancy rate in Canada’s 35 major centers decreased slightly to 2.2 per cent in October 2011, from 2.6 per cent in October 2010, according to a recent Rental Market Survey by CMHC. In Toronto vacancy rates are at a mind blowing 1.4 per cent.

In the meantime, mortgage rates remain near historic lows, making home ownership possible for more people.

CMHC says in its forecast for 2012 that more affordable condominium projects are now competing with the resale market and enticing some renters to move into new condominium units. It adds in 2012 demand is expected to improve with rising incomes and new household formation.

Final thoughts and observations

Anyone driving down the main highways in Canada’s major cities can see lines of cranes indicating more buildings are coming up. The forecast is that despite the high level of construction, inventory levels will remain in check, as units are absorbed quickly in both the rental and condominium markets.

As long as immigration rates and interest rates remain where they are, and every indication says they will, the notion that Canada’s condominium market is in a bubble is simply fear mongering.

Although real estate has been on a bull run for the better part of the last decade, prices are not inflated as they were in the U.S before the housing crash. As well, Canadians are still carrying significant equity in homes giving options if interest rates were to rise to sell their home and downsize.

Don’t expect to make a quick profit by buying a condominium today to sell next year, but as a homeowner planning to live in the dwelling those homes in the sky are still a valuable alternative to higher home prices on the ground.

It’s the time of year when we shake off the old year and look ahead to guess what the new one will bring. 2011 was a mixed bag of economic drama: real estate, stock market, jobs and other indicators seemed down as often as they were up. It was an uncertain year money wise.

What about 2012? The verdict is mixed, the debt crisis in Europe being the pivotal factor. If these nations can get a grip on their monetary problems, the rest of the world should see gradual growth. If things slip into meltdown, we could be looking at a global double-dip recession.

In Canada, the numbers over the last month or so look promising and predictors seem to be leaning towards the former, more positive, scenario — with the debt crisis worsening in early 2012 but improving by mid-year. Here’s what’s up for the year:

Economic Growth

Our economy is going to grow this year, but not by leaps and bounds. Expect about 1.9% growth in GDP, according to the Bank of Canada. RBC is forecasting as much as 2.5% growth.

At the end of 2011, the BOC had expected GDP growth in Canada for Q3 to hit 2.0%.  Actual growth turned out to be 3.5%. And in Q4 they expect 0.8% growth, while most analysts think Q4 growth in Canada was about 2%.

Only time will tell if we will once again surpass the forecasts.  And if so, for how long can  it go on?

Interest Rates

Low, low, low! With all this uncertainty, and inflation numbers looking very low, there are few plans here or south of the border to raise rates. Some are saying we won’t see a rise in the overnight rate of 1% until 2013.

Until the worldwide economy has truly stabilized, you’ll be able to get those dirt-cheap mortgage rates and loans, so enjoy them a little longer.  Experts predict that once rates start to raise at the end of 2012 or in 2013, the increase will be slow and steady, going up 1-3% by the end of 2013.

To keep on top of interest rate changes, check out the Mortgage Rate Outlook Panel for a monthly prediction on whether or not rates will go up, down or stay the same in the short term.

Real estate

The predictions, of course, depend on where you live. Experts are saying the high-flying Vancouver and Toronto markets are overvalued and we should see a correction. But with high gas prices and job growth focusing on cities, there’s still a lot of interest in living in our biggest centres.

One thing the experts seem to agree on is the oversupply of condos in these cities. They’re expecting a dip in prices and buyers getting pickier about location, square footage and outdoor space.

Check out Melanie’s post from yesterday to find out more about what’s in store for Canadian’s when it come to home prices, home sales and housing starts in 2012.

Currency

With ongoing problems in the US and overseas, economists are predicting weakness in the US dollar and the Euro throughout the year. As a result, the Canadian dollar is expected to stay high in 2012.

Employment

The jobs story has been much worse in the US than it has been here. Already in late 2011 the US jobless rate moved down and is around 8.6% right now. Experts are predicting a modest descent through 2013 to around 8%.

Here, our situation is better, and we’re hovering around 7.4% unemployment right now. It’s predicted Canada will see a jobless rate of about 6.9% by mid 2013. Better news still: those experts think wages will start to rise and skills shortages will make looking for a well-paying job easier for some.

Regions

The prairies are so hot right now. Alberta and Saskatchewan have low employment rates and high growth, and those are expected to continue into 2012.

All in all, I’d say it’s not quite time to break out the champagne over the economy. 2012 promises to be another roller coaster ride of ups and downs, but those who can manage their money wisely and keep their debt to income levels in check, will come out on top.

It’s the beginning of a new year and everyone’s dying to know; how will the real estate market fare in 2012? Will home prices continue to escalate? Will housing starts continue to rise, or will they slow this year? And what will home sales be like this year?

To answer these questions, I’ve done extensive research, gathered the thoughts of some of Canada’s top economists and compiled them here. Please feel free to share your thoughts on our real estate market for the upcoming year in the comment space provided at the bottom.

Home Prices

As of November 2011, the average selling price of a Canadian home sat at $360,396, a 4.6% increase from November 2010. Canadian home prices might be currently overvalued by as much as 15 per cent, says CIBC economist Avery Shenfield. He doesn’t expect to see a major correction this year, though, especially since Canada’s economy and the job market both remain fairly strong.

“The catalyst for correction just isn’t there,” he says. “We’ve largely lent to those who have the income and ability to pay.”

It is said that home prices are rising much faster than income. Shenfield hopes to see zero growth in 2012. Zero growth could effectively give the market an opportunity to let off a little steam, allowing incomes to catch up to overinflated prices.

Low mortgage rates, employment opportunities and immigration will continue to support Canada’s housing market. But It is expected that home prices will stabilize in 2012.

Housing Starts

Last year, housing starts (the number of new homes being built) showed an annualized reading of approximately 190,000 units, says the Globe and Mail. CIBC World Markets economists Emanuella Enenajor says, “Analysts in recent months had been expecting housing construction to slow, led by weaker multiples construction – with the heated condo market losing its affordability edge over detached properties.”

CMHC also expects housing starts to decrease this year. They estimate that new housing starts will fall to 186,750 units from an estimated 191,000 in 2011 – a 2.2 per cent decline.

Some cities, such as Montreal, Regina and Saskatoon, already have a high inventory of new homes, which will definitely limit new starts there. In Manitoba, however, housing demand continues to be fuelled by strong levels of migration, according to one report.

Home Sales

The Globe and Mail reports that economists think that the Canadian housing market will lose steam overall in 2012. Although they don’t predict a bust, they do predict that valuations will be a main concern. In particular, TD predicts that both B.C. and Ontario could see real estate troubles over the coming years.

According to senior analyst Jacques Marcil, B.C. could have it worse. He says that the Vancouver housing market likely reached its peak, and predicts that they will probably see “a significant correction” this year.

The TD report suggests that home resales in B.C. will fall by 3.7 per cent, and prices will decline by 3.5 per cent. In B.C. last year, sales rose by 5.9 per cent from 2010. This December, sales were down by 12.7 per cent. Prices, on the other hand, were up by 7.6 per cent – but still down from June’s highs.

Thanks to an overabundant supply of condos, buyer confidence and an unstable economy, Ontario’s housing market is expected to be sluggish as well, especially where Toronto’s condo market is concerned.

In a separate report, Sal Guatieri of BMO Nesbitt Burns says, “Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years).”

“Markets are balanced in over half the country,” he continues, “But sellers still rule in Toronto, Saskatchewan and Manitoba.”

Guatieri projections: “’Modest gains’ in Canadian home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.”

Meanwhile, the Canadian Mortgage and Housing Corporation predicts slight gains in 2012. “Sales of existing homes will edge up to 458,500 in 2012 from an estimated 450,100 this year, a 1.9% gain, while the average price is forecast to rise by a moderate 1.2% to $368,200 in 2012 from $363,900 in 2011.”

It is their belief that buyers will likely continue to be encouraged by record low interest rates.

In conclusion

Overall, many economists see Canada’s real estate market stabilizing in 2012, especially due to slow job growth, waning consumer confidence and tighter mortgage rules. As Canadian households rack up record high debt, the allure of low interest rates is thought to be waning. For these reasons, we can expect a cooler pace in real estate this year.

Canada’s housing authority says less Canadians are treating their homes like an ATM.

That sounds positive.

The report by the Canadian Housing and Mortgage Corporation (CMHC) says, since new stricter rules were brought in last year by Finance Minister Jim Flaherty, refinancing activity of insured mortgages has dropped by 40%.

In April 2010 Flaherty announced, along with other rules, that Canadians could only refinance a maximum of 85% of their home. Previously that number had been 90%.

These new rules were brought in to encourage Canadians to build up equity in their home and discourage them from using it to buy consumer goods.

Here’s the major issue with these new numbers.

Canadians are still refinancing their homes at 60% of the rate compared to before the new rules were established. Clearly many are still not getting the message and they are setting themselves up for financial heartache.

Here’s why.

Home values in Canada have increased at a record pace in the last three years. Since 2007, on average, home values in places like Toronto have increased almost 20%. Those numbers are much higher in hot spots like Vancouver and Calgary. So if the bank is giving you money based on the current value of your home, it may be a lot more then you first invested.

This could create a U.S style scenario. Where when home prices start to come down and the loan to value ratios increase, many people will find they owe more money than what their house is worth.

Flaherty’s other rules announced in April 2010, were the real game changers. He targeted how Canadians calculate their affordability. For those wanting to take a variable rate mortgage they still have to qualify on the current posted fixed rate being offered. Although most lenders were already employing this strategy, it was about time that it became law.

He also drove real estate speculators out of the market. If you want to buy an investment property you have to put at least 20% down. Gone are the days where you can put 5% down and cross you fingers that values start to increase so you can flip it for a profit. Meanwhile servicing your massive debt.

These two rules are much more effective in making Canadians think about their purchases then dropping the  home equity line of credit, a paltry 5%. And it’s these rules that should be celebrated by anyone worried about a housing market correction in Canada.

If you still want to take advantage of a HELOC, here’s what you shouldn’t do with it.

· Pay your month-to-month bills.
· Buy a car
· Go on a holiday
· Go on a shopping spree
· Make luxury home renovations

NEVER EVER do any of the above. This is how most get into debt they can’t handle.

In my opinion, you should use your HELOC to pay off high interest debt (only if you don’t plan on going and racking up the credit card charges again!) or to finance the purchase of another property and even then only after carefully considering how much debt you will be taking on. If the other property is an investment and you will have tenants, realistically calculate the amount of rent you will be collecting and the costs of owning a second property.

A HELOC can be very helpful. Since the loan is backed by your home, you will be offered a much lower rate of interest to borrow then if you take out a regular line of credit. The money is also a lot easier to withdraw and pay back compared to your mortgage. But remember you are using the value in your home, its money you have already invested.

Rubina
Writer for RateSupermarket.ca

If you want to buy a standard two-story home in Canada, you will need to have a household income of almost $88,000 to afford it.

That’s according to the recent RBC Housing Trends and Affordability report. That shows the average cost, of this type of 1500 square foot home is $393,100 in Canada.

These continued high prices are pushing one particular group of people out of the housing market, Canada’s youth.

A young 28 colleague told me recently, although she has a fantastic career and a great salary, she can’t afford to buy a home in Toronto. The average cost of a two-story there is $586,600. The situation is worse in Vancouver where the average cost of that same house is a whopping $843,300.

The long-term implications of what’s happening right now are mammoth and here’s why.

Unemployment among Canadian youth is almost double the national average at 14 percent. Young people entering the job market are faced with more competition, lower salaries and less permanent job prospects.  New grads are taking part time work, temporary and contract positions just to get by. Homeownership according to many under 30 is “the last thing on their mind.”

An extended period of ultra-low mortgage rates, are also to blame. Canadians are in more debt then ever before, because it’s so cheap to borrow money. And that is discouraging people to save.

To make it worse its encouraging those who can’t afford it, to get into more expensive homes and drive the price of housing up artificially. Because, when rates return to normal many people will be unable to afford their new purchases.

But arguably, that could take years and leaves a core group of people between the ages of 25 to 30 waiting to buy a home.  Once rates start to rise, prices will inevitably come down, but by then a new group of first time homebuyers will be in the market and competing with the group that got left behind.

This could lead to another surge in prices driven by high demand.

In my opinion this is when we will see the “pop” in the proverbial housing bubble.  When pent up demand starts to trump reasonable thought.

Right now, the housing market is being driving mostly by people moving into larger homes or looking to make a quick profit by flipping a property.

But this current group of buyers isn’t being lead by desperation. They just want to have more space or make money.

In contrast years from now we could see people, who have been waiting for a decade to buy their first home, make rash decisions. Embroiled in a fierce bidding war, some might borrow more just to finally get into their dream house.

It’s that kind of emotion that drives prices out of control, regardless of interest rates.

When this happens, I would encourage everyone to recall the U.S. housing crisis, to understand what emotional buying can do to a nation.  American lenders are just as much to blame for allowing money to get into the hands of people who couldn’t afford it. But, the ultimate decision to take more debt and drive prices up was the buyers of real estate.

Most experts, including me, were expecting a rate hike by September 2011. But that has all changed.

RBC says with, “the renewed turmoil in global financial markets and heightened uncertainty about the pace of global growth”, their call for a future rate hike is not until mid 2012.  I wouldn’t be surprised if it happened later, towards the end of that year. Giving more time for Canadians to enjoy the cheap money party.

Your home is your biggest investment and it’s a shame that not everyone has a right to that security.

To end on a sombre note. This week Canadians lost Jack Layton, the leader of the Federal NDP party and a champion of affordable housing for everyone.

I hope when Canada’s top bankers meet to discuss housing affordability in Canada, they consider the young people that are getting left behind. Those who want to be responsible home owners but because of the higher prices can’t.  Maybe this might help shape a decision or policy that in the end could be better for one of Canada’s most vulnerable groups. Canada’s youth.

Rubina
Writer for RateSupermarket.ca

There’s a lot of talk out there these days about changing up the way we buy homes. There’s a renewed sense that the real estate agent is out and buying a home on your own, or with limited help, is the way to go.

Is it really? Isn’t a real estate agent an expert in the field? Is it really enough to rely on an internet-based do-it-yourself company or just a lawyer to buy a home?

The answer is not simple. I think there’s actually a lot of great people out there working in real estate who are trying to help. Yes, they’re trying to make money for themselves too. I think the best way to approach buying a home is to get a good team together and make your choices based on their suggestions along with your own experience and research.

And if you have no experience? Do even more research. Talk to your friends and family who have bought homes over the years. Balance out what your dad says about buying a house 20 years ago in a small town with what your work colleagues tell you about buying in a similar neighbourhood to you five years ago.

Here are some of the players involved in the average real estate transaction and what they can offer you, and what to watch for:

Real estate agent. This person spends their entire professional life devoted to buying and selling homes. He or she will know how to stage and market your house and set up an open house. Most agents work for a larger agency that will advertise your home on a web site and through social media. Agents take a commission of about 5 per cent, and you pay only when you sell. That commission is split evenly between the buying and selling agent. It’s a big chunk of change! But the agent also has to give some of that money to the agency itself to cover overhead costs like the secretary and the web site.

A good agent will have been around the block a few times, literally, and know your neighbourhood, your income bracket and what your family needs. He or she should know who might buy your home in a sale, and when to spot a rip off or a bad reno job when you buy. Look for an agent with relevant experience and not someone who does it “on the side” or doesn’t know your neighbourhood.

Do-it-yourself company. Companies like ForSaleByOwner and PropertyGuys will offer you the information and tools to sell your home on your own. They’ll offer you signs, packages on how to set up an open house and the like so you can save on real estate agent fees.

Look for a company that has had some real success in your area. Talk to another buyer or seller who has relied on such a company and get their story personally. Make sure you have the time and the risk tolerance to deal with doing it on your own (especially when you’re selling).

Real estate lawyer. This trained professional deals with the paperwork and the money when your deal goes down. Most charge a flat fee and do all sorts of confusing things like title searches. You don’t see your lawyer a whole lot during a buy and sell, but you’ll have meetings to sign tons of papers, pick up and drop off cheques and transfer keys. Your lawyer is the one who might discover things like mortgage fraud, problems with land surveys and money glitches.

Look for a lawyer who’s close by, as you’ll have to make a few visits if you’re both buying and selling. Many have relationships with banks and it’s nice when your lawyer knows the people at the branch by name. Make sure your lawyer is easy to get a hold of, has been used by others you know, and will do more than just move papers around, but look for quirks and problems in your deal.

Mortgage broker. If you want to shop around hard core for the best mortgage rates to save the most money, get a broker.   This person will walk you through all the different options (floating, fixed, three-year, five-year) and have you sign the paperwork. This person will also help you determine your monthly (or weekly or biweekly) payments.  He or she hunts around on your behalf for rates, signs you up with the lender offering the best deal and will help you with all of the paperwork.  The broker deals with the bank on our behalf and gets a commission, but the lender pays it, not you.

Make sure you shop around for a good mortgage broker.  A broker will offer you about five different suggestions every time you talk, so be prepared for info overload. Make sure this person understands you don’t just want a deal, but a fair monthly payment and a lender that has good customer service for later on.

Banker. The person you deal with at your bank may be able to give you a mortgage, but in all likelihood, he or she will refer you to a mortgage specialist to do the deal.  Look for someone who understands your financial situation and neither has you paying too much every month, or gets you on such a minimal mortgage payment plan you’ll never pay the thing off. Be sure you are in touch with several lenders and your rep knows this so you’re sure to get the best deal. If there’s a gap between the time you work out your mortgage details and the deal closes, make sure you get a rate hold, in case the rates rise in the interim, you still want that great deal.

And who should you trust in all this lot? No one entirely, but everyone a little bit. Most people are just like you: trying to make their way in the world and doing the best job they can. Bankers are trying to get your mortgage, which will make a lot of money for the bank itself. But these are also people with homes of their own who don’t want to see you get in over your head. Real estate agents know a juicy commission is coming their way, but they also want to see you in a good home and get a referral to get more clients.

The only way you can stay safe in the real estate market is by educating yourself. Don’t just rely on intuition, but your knowledge of what’s fair in terms of a house price, mortgage rate, payment terms and legal document. Ask a lot of questions of everyone helping you make your sale or purchase. Never sign anything or make a decision without seeking out all sides and all possible scenarios. And trust that the experts and your own good judgment will serve you well.

Diane
Writer for RateSupermarket.ca

In January of this year, Jim Flaherty, Canada’s minister of finance, announced that new mortgage and HELOC restrictions were to come into effect in March, 2011. The purpose of the new restrictions was to help curb consumer debt, which was said to be rising at an alarming rate. Over three months later, the real estate market has been hot, but affordability levels have dropped – probably as a result of inflation and continuously rising levels of consumer debt. So have Flaherty’s restrictions brought the stability he sought, or are consumers only sinking deeper into debt?

The New Rules

In an effort to reduce interest payments and to help speed up the process of building equity, Flaherty reduced the maximum amortization from 35 to 30 years for high ratio mortgages. To encourage homeowners to save more and stop borrowing against their homes, he reduced the refinancing of mortgages from 90% to 85%. Finally, the government withdrew their backing of HELOCs. This, in effect, made the lending institution responsible for consumer debt, rather than the taxpayer. Flaherty was quoted as saying, “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and futures.”

The overall impact

The Globe and Mail reported that CREA (the Canadian Real Estate Association) blamed the new rules for April’s reported slip in home sales (14%), when compared to last April’s sales. The association’s chief economist, Gregory Klump, said, “Changes to mortgage regulations that took effect in April, 2011, likely sidelined a number of first-time home buyers.” It should be noted, though, that the largest declines were found in the more expensive markets of Vancouver and Toronto.  Klump says that it’s difficult to gauge the impact of the new rules when comparing the two months. “[April 2010] included the impending tightening of mortgage rules, speculation about higher interest rates and the looming introduction of the HST in some provinces. This year, additional measures to tighten mortgage rules were implemented in March and the other transitory factors were absent,” he says.

Some brokers suggest that there has been little to no change for the average homebuyer. Overall, they seem relatively unaffected by the decrease in amortization – in fact, it’s mostly seen as a positive change that can save homeowners money. What the new regulations have done is to eliminate first time buyers whose ability to afford a new home was tenuous at best, and real estate investors who can no longer afford to put down 20%.

Should we blame mortgages for rising debt?

Canada has always had a history of stringent lending policies, which is perhaps one of the reasons why we have coasted through this economic crisis relatively unscathed. Our neighbours to the South, on the other hand, are experiencing the repercussions of more lax lending laws. In fact, the US housing market has just suffered another double dip in prices – they have now experienced the most significant price declines seen since the Great Depression.

Statistics Canada’s most recent financial report states, “Mortgage debt advanced, partly reflecting relatively stable borrowing costs as well as higher housing resale and renovation activities.” But it also reported that the “ratio of household credit market debt to net worth increased to 24.0%, reversing the decrease in the previous year.” Household credit market debt is attributed mostly to credit card and retail debt, not mortgage debt.

While interest rates on mortgages are relatively low, interest rates on credit cards average close to 20%, and reach as high as 29.9%. This type of credit is easier to get. Credit card debt is easier to accumulate, but much harder to pay off. According to a recent TransUnion report, an “analysis of Canadian credit trends found that total debt per consumer (excluding mortgage) for the nation increased 4.5 percent in the last year” – on average, Canadian’s report $25,597 in credit card and retail debt. This begs the question, should we be so worried about mortgage debt, when credit card and retail debt is really the problem in Canada? Perhaps we need to focus on educating Canadians on how to manage personal debt more than we need to worry about adjusting mortgage rules.

Melanie
Writer for RateSupermarket.ca

Canadians are paying more to live in this country. A lot more! As of May 2011 inflation is up 3.7 percent compared to the same time last year. Economists call this “hot inflation.” In fact Canada’s annual inflation rate has jumped to the highest level in eight years. The most staggering number is the cost of gas at the pump, its up 29.5 percent. All of this will absolutely put more heat on Bank of Canada Governor Mark Carney. He can now add, rising cost of living, to the list of issues he has to consider when setting the interest rate. Others include, strong Canadian dollar, continued high unemployment, sky rocketing home prices, record level of debt and deteriorating world economy. All Carney can do is keep rates low and, perhaps, cross his fingers hoping Canadians get through this.

These latest inflation numbers further illustrate why home sales in Canada are slowing. If Canadians find it costs more to live, they are less likely to buy a more expensive home. And if home prices are higher, they are likely to hold the one they have. A recent survey by the Canadian Mortgage and Housing Corporation found Canadians take, on average, 11 months to plan their home purchase and 88 percent indicate they have a good sense of how much they can afford. But is this enough? Rising inflation gives new homeowners a lot more to consider.

First, when writing out a future budget of the home you want to buy, consider the cost of living to go up at least 3 percent each year for the next three years. This will protect you from breaking your budget in the future. Second, with higher gas prices assess realistically how much driving you will be doing from your new home. A longer commute can add hundreds of dollars to your monthly bill. Third, make sure you have all the amenities you need and use close by. This includes a grocery store, a gas station, schools and a mall. If you’re near a store you like, and can afford to shop there, it will save on expensive emergency trips.

The same survey also finds Canadians feel its very important to pay off their mortgage as soon as possible. More than 75 percent of respondent said so. That good will should always be coupled with affordability this will ensure the journey in home ownership is starting in the right direction. But with rising costs, how realistic is this plan without cutting back. Will Canadians scale down on their luxuries, learn to live on less or abandon their plans to own their homes sooner. Almost 40 percent of recent buyers have their mortgage payment set higher than the minimum required while 20% have made a lump-sum payment since taking out their mortgage.

New homeowners in Canada are well prepared. They do their research and consult a professional for advice. Most Canadians see owning a home as the biggest investment they will ever make. Canadians are financially literate, but if inflation continues to rise at this rate, will this preparation be enough?

Rubina
Writer for RateSupermarket.ca

The weather is slowly getting warmer. That means many things, but for those interested in real estate, spring is all about a sizzling, busy market.

This year, reports are warning us this could be the last hot spring market for awhile. Yeah, right. I bought my first house a decade ago, when the market was hot. It hasn’t cooled since.

Still, warnings about the economy, housing market and interest rates are putting a spotlight on this year’s real estate activity. If you are buying or selling soon, this puts more pressure on you.  As if there weren’t enough already.

Working a real estate deal when the market is hot adds in a whole extra list of factors. Are you ready? Here are some suggestions for staying cool when the housing market is on fire all around you:

If you’re selling

Forget certainly. Your agent will suggest how much to list your house for and how much interest it should generate. But your agent doesn’t know, really, how much you will get for your home and how many offers will come in. That’s because anything can happen. Something in the news, like a big layoff in your area, could impact buyers. Or a fabulous house down the street could go on the market at the same time and outshine your abode. A water main could burst outside your house and city crews could hamper buyers.

Don’t get greedy. Even if prices are soaring in your neighbourhood, be cautious about asking the moon for your place. A too-high price can turn off buyers, even when there are lots of them.

Think like a buyer. It’s difficult to see your home with fresh eyes. But even if the market is on fire, buyers may still shy away from your place if you have no backyard, your kitchen is seriously outdated or your condo faces a highway. Listen to your agent and make the kind of upgrades and repairs that will satisfy today’s buyers, even if you’re not crazy about them.

If you’re buying

Know your budget. It’s a risk for any buyer to get in over their head with a too-high investment. But you’re at higher risk of bidding $20,000 or even $50,000 over your budget price when there’s a bidding war afoot. It’s difficult when you fall in love with a place, but you may need to walk away if the price gets too steep. Just remember to factor in all costs associated with buying a home and owning a home. You’ll need to make the mortgage payments, pay the utilities, do household repairs (which will run you an average of one to three per cent of your home’s purchase price every year), plus shell out for all your other regular expenses.

Know your budget for the future. Interest rates are at historical lows. Inevitably, they will rise. Before you sign a deal, calculate how much you’d be paying a month for your mortgage if rates rose to 5 per cent. (When I bought my first house a decade ago, my mortgage was 7.5 per cent. And honestly, no one made a big deal about it at the time). You’ll probably sign a 25 or 30 year mortgage, and most of those years you’ll be paying a higher interest rate.

Crunch the numbers again. Not to harp on the money issue, but buying outside of your price range is a sure way to put you on the slippery slope of racking up consumer debt. Don’t just turn to your bank for advice on how much you can borrow. Talk to a financial advisor, accountant or run the numbers carefully yourself to be sure you truly can afford the mortgage on the table.

Get out of the pack. Some houses attract a big group of buyers and provoke a bidding war. Where I live in Toronto, nicely renovated homes and those just steps from the subway make people crazy. Get out of the group mentality and look for a house that’s a 15 minute walk to transit, needs some renovation work, has a shared driveway or another feature that other buyers might shy from. A colleague of mine who was buying in a tough time a few years ago purposefully targetted homes that were sitting on the market. He eventually got a house simply by bidding on one at the right time, when the seller was fed up with waiting and accepted a low-ball offer.

Know your needs. Make a list of what you truly need in your new home (ample backyard perhaps; maybe an office space). And make a separate list for wants (fancy kitchen, hot tub!). Don’t sacrifice your needs or buy a house you truly don’t like, simply because you can get it. Remember: you can only make a house bigger if there’s enough land (and money) and while you can renovate, you can’t fundamentally change a home’s layout or its location.

Stay cool. Choose an agent who can help you navigate bidding wars and keep your head when things get intense. Make a pact with your partner (or find a close friend if you’re buying alone) to keep your price and needs list in mind at all times.

For anyone, buying or selling in a busy spring market, probably the best advice is to be patient. Sometimes you don’t have a choice and need to get in or out of a home quickly. But if there’s flexibility time-wise, lay low and wait for the right house or the right offer to come your way and snap it up when it truly makes sense for your heart and your budget.

Diane
Writer for RateSupermarket.ca

With the recent mortgage rule changes announced by the Federal Government last month many economists expected that this would be the last arrow fired to finally slow down the Canadian housing market. Along with a slower than expected economic recovery and increasing mortgage rates, some experts believed that the mortgage rule changes coming into effect on March 18 would result in up to 20K fewer house sales in 2011.

Source: CREA

The Canadian Real Estate Association (CREA) released an updated 2011 home sales forecast yesterday that pointed out maybe things won’t be so bad. They said that consumers understand mortgage rates are at once in a lifetime levels, but they are planning ahead for higher rates and not buying more than they can afford. So the dynamics in the market are different but buyers are still moving ahead. The report outlined that home sales in the second half of 2010 bounced back faster than expected. Now for 2011 they expect hosing sales to reach 439K units (-1.6% year/year) and 453K units in 2012 (+3%), which is about the 10 year average. The revised forecast for this year was due to an improved economic outlook and expected higher consumer confidence.

Due to the mortgage rule changes next month, CREA expects some home buying activity to be moved up into Q1 2011, especially in the higher price markets such as Toronto and Vancouver. Q2 2011 will see a dip and then rebound in the second half of the year.

CREA’s forecast for the national average home price is $343,300 (+1.3%) in 2011 and $347,900 (+1.3%) 2012.

Here is CREA’s forecast city by city:

Source: CREA