As everyone knows, the laws of supply and demand to a large extent determine house prices. There is the actual supply of homes and the supply of Buyers, which in turn produces the demand for homes in the marketplace. Well December through February is not the most pleasant time of year to be house hunting. It’s cold, wet and sometimes grey. There are fewer homes on the market as most people wait until the Spring to list. There are also many fewer Buyers out looking. Would it make sense to be buying when very few other people are buying? When there are way fewer Buyers to compete against? When few Realtors are using the infamous off night strategy to sell their Clients homes? I think yes. So if you want to buy smart, bundle up and get out there and look at some houses over the next few months. You may be surprised what you might find!
On September 29th I participated in the Cycle 4 St. Joe’s Health Centre (on The Queensway) bike ride. It was a beautiful day and a nice ride through the hills of Caledon. The event was a huge success and we raised more than $113,000 to support various needs within the health centre. I would like to thank everyone who made donations. Your support and generosity are very appreciated.
To see more photos of the event please visit https://www.facebook.com/MySt.Joes
The Canada Mortgage Housing Corporation is government owned and provides mortgage insurance to banks and lenders. If a home goes into default, the property is sold and the CMHC will cover any losses. This year they were authorized to guarantee up to $85 billion under the National Housing Act Mortgage-Backed Securities Program (NHA MBS), but as of the end of July about $66 billion had already been secured. The total for all of 2012 was $76 billion.
Finance Minister Jim Flaherty has once again made a move to slow the market and cool off lending by scaling back eligible loans the CMHC will insure. Last week, CMHC advised lenders it is restricting how much money it will to insure on new loans to $350 million per institution. The countries major banks comprise most of this group.
Analysts predict this cap will make it more difficult and expensive for banks to obtain funds to lend to their customers, an expense which will likely be passed on to new lenders by way of increased mortgage rates.
TD economist Diana Petramala, who specializes in the housing market, estimated rates could rise anywhere from 20 to 65 basis points, or the equivalent of 0.2 to 0.65 of a percentage point. “Affordability will still remain in the housing market. Prices in most markets are now rising faster than income so it makes sense that the federal government, CMHC, may want to limit some of the risk-taking in the housing market.”
Rob McLister, editor of Canadian Mortgage Trends, downplayed the latest changes and said they amount to about 20 basis points or 0.2% percentage points on a five-year mortgage. “At that rate it’s $1,900 on a five-year fixed rate, $200,000 mortgage. It’s real dollars and cents to most consumers but I don’t think it’s going to have a real dampening effect on credit,” he said.
Peter Routledge, an analyst with National Bank says the latest changes could add anywhere from 0.15% to 0.45% percentage points to the mortgage rates.
This latest move by Flaherty comes just a year after the last mortgage tightening rules took place, a change that was the main reason for the slowdown last fall that continued into the early part of this year. In recent months many markets have begun to rebound, especially in Toronto where just this past July we saw an increase in sales by 16% over last July. It’s possible the upswing over the past few months instilled doubt that the market is not cooling as much as had been expected.
In an August 1 note to lenders, CMHC said “As a result of this unexpected increase in issuance volumes to date and to better manage volumes going forward, CMHC will be introducing a formal allocation process in late August.”
I personally think Diana Petramala is most accurate in her assumption that rates will rise by 0.2-0.65 percentage points. It’s very reasonable that this change, while not too drastic, will have an effect on some buyers in terms of how much they are willing to spend on a new home. This is all the more reason for sellers to get their properties on the market sooner than later and buyers should also strongly consider locking in at a low mortgage rate now, before the interest rates rise.
Choosing the right price to list your home at is both an art and a science.
First of all, you need to decide on an offer strategy. Are you taking offers at any time from a Buyer or are you holding off on offers and trying for a multiple offer situation on a designated offer night? The strategy you choose will affect the price you and your Agent decide to list at. If you decide to take offers at any time, your list price will typically be closer to what the home is valued at and a price that you would be willing to accept. If you decide to hold an offer night, the list price will be below value, hopefully encouraging more people to place an offer and therefore resulting in the highest sale price possible. The latter option must be executed with tact and finesse as this can be stressful for Buyers and no one wants to feel gouged.
Second, your Agent also needs to look at what other homes comparable to yours have sold for recently on your street and the few streets around you. This will affect the price a Buyer is willing to pay for your home. You can’t expect to earn tens of thousands more dollars on your home if similar ones around the neighbourhood aren’t garnering those prices.
With continued low interest rates and few available listings to buy in most areas, it is still a seller’s market. If your house is priced right for the strategy you have picked, your house should sell reasonably quickly. Discuss the pros and cons of each strategy with your Agent and then make your decision based on your goal and comfort level.
Everyone knows that one of the first steps in the home buying process is getting pre-approved for a mortgage. But you probably don’t realise that some of your decisions during this time could negatively affect your final approval, or chances of having your preapproval renewed.
A preapproval letter is typically valid for 90 days – and comes with the disclaimer that if anything changes with your finances it could impact your preapproval. If you haven’t found a home you wish to buy after these three months, a renewal letter can be issued after a recheck of your credit and income. If you were lucky enough to find your next home the first time around, it’s now time to be approved for the mortgage. Mortgage approval is based on the specific details of the actual house you wish to purchase, such as price and property taxes. Just like in the case of having your preapproval renewed, your credit and income will be checked again at this time. If your mortgage provider gives you their approval, you can waive the financing conditions on your offer and finalize the sale. However, if there have been certain changes to your finances, your settlement could be delayed or even cancelled.
Be careful not to get too caught up in the excitement of house hunting and hurt your chances of landing a new home. Follow these do’s and don’ts to ensure you seal the deal on your mortgage approval.
- Don’t apply for any new credit. This includes opening a new credit card account or taking on a new loan or line of credit. Doing so could change your credit score which in turn could require your interest rate be adjusted.
- Don’t co-sign any loans. This is considered a debt for both parties, especially when it’s a new loan. If you can prove the loan has been paid by the original holder for at least a year, you should be ok. But any less than 12 months and the loan could be calculated as part of your debt-to-income ratio.
- Don’t make any major purchases. If you were to buy a new couch or washer and dryer with credit, these payments will again be factored into your debt-to-income ratio. If you pay cash, you’ll have fewer cash reserves to use for a down payment.
- Don’t pay off all your debt. Again, this shows a reduction in cash reserves and lessens your available credit if you’re closing any credit card accounts. You will also need to prove where the money came from to pay your debt off.
- Don’t change jobs…if possible. Your employment and salary will need to be verified which could result in a delay in settlement.
- Do stay up to date on all current accounts. Continue to make payments at the same time and with the same method as you previously did.
- Do keep a detailed record of all deposits. Complete documentation is required for any deposits other than your usual paycheque. If you receive any gift funds, a gift letter from your donor must be provided.
- Do report seller concessions. If the seller agrees to pay any portion of closing costs, this will be factored into the loan approval.
You want to ensure your finances remain as similar to the time when you received your pre-approval letter as possible. Keep in contact with your lender and discuss any possible changes to your finances before you act on them.