Conference Board of Canada says no to housing crash

Lately, I've focused a lot of energy the past few blog entries about real estate market prices. This month the Conference Board of Canada released a report entitled, "Housing Briefing: Bubble Fears Overblown." The Conference Board (CBOC) is an Ottawa based think thank that is comprised by the heads of the largest public and private organizations in Canada. The CBOC provides analytical services to the public and private sectors. In the report, the CBOC states that Canadian real estate market is not over-built and overvalued (apart from Toronto being overbuilt). They argue that the market the past tree years is in line with the 20 year average. 

I do agree that I don't foresee a crash either but I still do think that the average Canadian is financially stretched. Yes, I agree with the CBOC report that defaults still remain relatively low but in Canada the homeowner or real estate investors has a few options at their disposal in refinancing and transferring properties that may skew default stats. If people are stretched now then perhaps we haven't fully seen the pricing adjustment? Just a thought...

The CBOC states that Montreal is "Flirting with buyer's market conditions with sales and average prices having dropped somewhat last year." We shall see how 2014 continues to evolve especially post-Quebec election. Stay tuned folks. 

Reviewing the Real Life Ratio

Lately, I’ve been keeping an eye on the Globe & Mail. I am glad to see more good articles written about house-hold debt. In the past I've written about this topic, buying what’s reasonable versus maximum.

Rob Carrick from the Globe & Mail wrote two excellent pieces on 6 March 2014 and 19 March 2014. In the March 6th piece, entitled “Can you really afford that mortgage? Know your Real Life Ratio”, Rob makes a bold outright statement when he says, "Someone ought to explain the facts of life to the nation’s bankers....Never take a lender’s word for it that you can afford a house." Rob highlights what he calls the real life ratio which accounts for the basic costs of home ownership but also the real world expenses such as education, insurance, and long-term home maintenance. The real life ratio (see attached link, excel sheet) also shifts depending on what stage you are in life including your kids.

In Rob’s second article, entitled “West Coaster making $86,000 can barely afford his modest life,” Rob shares the life of Hamish Telford.Hamish is separated from his wife, has a 7 year old son and a professor of political science who is considered upper middle class living in Abbotsford, BC. Hamish spends over 50% of his net income towards household expenses.  Hamish is hanging and “isn’t looking for sympathy, just some understanding of how hard it is to get by even for a member of the upper middle class.” He is more worried about others, “I can only imagine how stressed the other 95 per cent of the population must feel."

The point of the article was that Hamish had car trouble and needed to spend approximately $1500-$2000 to fix his car and he sadly had trouble doing so. People should think about the Real Life Ratio when considering the home they wish to purchase.

Priory School Heritage Fair

Today, I am going to focus my blog on a local community matter. Yes debt and mortgages are all important but sometimes it good to shift attention to things that build a sense of community and belonging. Often times building a sense of community is lost in today's hustle and bustle.

I can say with great pride that I am a Priory School Alum. Yes it was my primary and I attended there many many years ago but I have such vivid memories from the Priory. I remember the sense of belonging including attention and care given by faculty and staff.

Last week, for the second year in a row I was asked to be a judge in the Annual Heritage Fair. The Heritage Fair is the equivalent of a science fair. Every year Grades 4, 5 and 6 create individual or group projects. The children research their topics, type up a report and bibliography, and create a visual presentation to show off to the judges. The projects go up on display in the new Priory gym. Each judge is given 5-6 students to evaluate. Why I love the Heritage Fair is the amount of effort that the children give in creating their projects. Mom and Dad seem to stay away as much as possible from helping, haha. I am always shocked at the level of comprehension and depth shown by the students.

After all the projects are evaluated the excited kids quietly and anxiously await the results as they sit in front of the podium and panel of judges. Tim Peters, school Principal, announces one by one the names of the winners. What's great is that there are no first, second or third awards rather the children get a medal of recognition. I think in an age of competition this is a great approach.

The Priory students sitting patiently for the recognition awards ceremony
(picture posted on The Priory School website)

I am glad to see that the Priory School still shares and promotes a sense of  community and enrichment. I am so impressed by the teachers and staff. That is why I continue to give back to my primary school.

A tale of property values and Quebec politics

A question I get asked about is whether or not what's transpiring in Quebec politics is affecting the value of your home and investment properties? I think it might be too early to answer that question given the upcoming election. Stay tuned folks...

As most of you are aware, in an attempt to cool market values in Canada the Federal Government has implemented a few mortgage changes. These changes have been happening the past couple years. I agree with some changes such as amortization and limiting lines of credit however it's too soon to comment about the impact of Quebec politics. Having said that, the Federal changes are working.

I believe that what the Quebec Government has been focused on unfortunately distracts the public attention away from the real economic issues facing the Province. Market values in the Greater Montreal area have slowed or adjusted in many cities. I think this was expected as I've seen bank evaluations drop over the past three years. The banks are definitely playing it safe especially with condo values. I agree with this conservative approach. The future is still uncertain. I'm not suggesting we will have a market crash after the Quebec Provincial election however I do think market values will continue to slow. We do need job creation and economic growth in Quebec above anything else.

Divorce and separation: a potential mortgage and credit nightmare for women

Hey everyone. Hope everyone's week is off to a good start. Very cool yet sunny in Montreal. This week I've been inspired to speak about women, more specifically women that go through divorce or get taken advantage of by their spouse or partner. 

In 2013, I worked on a number of divorce and separation cases. In many of those cases either the women wanted to keep the family home or took their share of the profits and bought a new home for themselves (and often the children). I highly suggest any woman in a relationship or marriage to build independent credit of their partner. I am not paranoid and yes I still believe in the institution of marriage, however should anything happen or should you experience divorce it's always important to have credit. You might not be able to keep the house or your lender options may be very limited. When in doubt ask and plan ahead. 

Example 1: Divorced with joint credit 

I have one client that has three kids, works part time and she wanted to refinance to buy her x-husband out in order to keep the house. I found an excellent mortgage program but I had to get an exception from the lender because post-divorce she was removed from all the joint debts. Luckily she had just the minimum independent credit history to qualify for this program. Quite the close call!

Example 2: Common Law & Helping the Wrong Person

A more tragic and heartbreaking situation is when someone is in a common law relationship and helping the wrong person. In this case my client was taken advantage of by her partner. My client was committed to her partner and wanted to help him with his debts and give him a cash infusion for his business. Before she knew it he took the money and left. My client's credit cards were at limit and with a salaried job she was stuck paying. Over time she got more and more behind. By the time she sold the house and paid off all debts the credit damage was already done. Presently, I started to build a case for Equifax to see if the severe lates can be removed off her report. Presently she is trying to re-start her life with her daughter by buying a new home together. With the severity of lates all "A banks and lenders" won't be able to finance an insured purchase (she does not have enough down payment to work with an alternative or B lender). I will keep everyone updated on this story.

Both examples are sad to hear but unfortunately more and more common. In example 1, my client should have created her own independent credit years ago. I recommended that she create more credit today to have the necessary credit history tomorrow. In Example 2, I wish I met her years ago just as she was starting to become late on her debts. Many consumers don’t know what to do in that situation or as they become late they go see their bank and their own bank refuses or cannot help. With the emotional drain of separation or being taken advantage of it’s hard to know what to do.

Reviewing: Mike Holmes' article "8 Tips for planning a reno in 2014"

Hey everyone. I've been blogging a lot lately about renovations. I came across an article that might be of interest to folks. The Montreal Gazette published an article written by Mike Holme's entitled "8 tips for planning a reno in 2014."

In a nutshell, here are Mikes main renovation tips:

1. Right off the bat, Mike states, "Make decisions before you start. I've said it a million times. It takes longer to plan a renovation than to do it. The more time you spend making decisions before construction starts, the less time will be spent on actual labour, which helps control costs and work schedules."
2.  Find qualified pros: Mike suggest that you not rely on friends or family for recommendations and that you get 10-20 references for any contractor. He says, don't only look at recently completed projects and to check out work sites in progress.
3. Do a background check: Here Mike suggests that you do a background check. Bad contractors change incorporations to cover their tracks. Try speaking with the Better Business Bureau.
4.  Get a detailed contract: Mike states the more detail in the contract the better. It should review and specify every task. 
5.  Set up a payment schedule tied to project milestones: He also recommends that milestones be specified and that stages be completed and inspected before moving onto the next part of the reno.
6.  Discuss changes: Every time there is a change, Mike states, this causes delay and can increase costs. Speak openly with your contractor to ensure whether the change is worth this effort and delay.
7. Know the work schedule: This includes the daily work hours of the workers. Mike states if the workers visit the work site here and there at random hours then this will throw the timeline off track.
8. Should you stay or should you go? Mike suggest that during major renovations you should move out temporarily. Living through construction is never easy especially with young children and a busy work-life schedule. If you stay in your home Mike states that the workers will also spend more time cleaning daily at your expense rather than working faster towards project completion. 

Mike's tips are excellent. Like Mike, I am a huge fan of planning ahead before starting any project. The one part that Mike doesn't mention is financing. Here it's important to know what is your budget and how will you finance the renovation. Your dream project may need to be scaled down if it cannot be financed.

You may have the money in hand which helps tremendously or you may need a mortgage. Your two options here would be: 

(A) Auto-construction financing where the bank will give you a special mortgage that disperses funds (up to five dispersals) for the contractor at various milestones in the project. Here the bank will need to approve your contractor and project plan. 

(B) Refinance and use the net proceeds towards the construction. Here you will be in charge of the all the funds at once. Here the the bank may not need to see plans and budget. In both financing scenarios, it's important to stay on budget as the bank won't give you additional funds once the mortgage is notarized. 

The age of e-mortgages in Canada & a 2014 mortgage outlook

I hope everyone is having a good start to 2014. This week's blog entry has to do with market predictions for 2014. How does the real estate market look in 2014? Will 2014 bring us additional Federal mortgages changes? This time of year these are the "usual suspect" type questions. 

Often I listen to and read about speeches and articles that talk about the future of mortgages and the direction of real estate in Canada. I often follow Robert McLister, mortgage columnist for the Globe & Mail. On 30 December 2013, Robert wrote an article entitled "Five Canadian mortgage market predictions for 2014." This article outlines a couple areas such as:

1. The expectation that more mortgage tightening is on its way: I think that more change is definitely en route as the Feds try to further dampen market values. I can understand that controlling market values is paramount however I'd keep an eye on unsecured debt as well. Canadians tend to have equity which is great but I've seen more and more clients with more personal debt than equity in their property(ies).
2. Stronger online presence: More and more websites pop up that advertise mortgage rates. I agree with Rob that this trend will continue as more and more consumers look to the web to research mortgage information and options. People don't have the time to shop from bank to bank anymore. However, as we shift further into an indebted society and where mortgages are more challenging to qualify for, I still would argue that qualified mortgage brokers do serve a purpose. Here is where selling mortgages strictly based on rate can create a problem. For example, due to one's credit, income and equity circumstances you may not qualify for that posted online rate. As mortgage brokers we must do a better job at sharing and disseminating this information to the consumer. 
3. Credit unions will merge: I'd say this is more applicable in Western Canada and Ontario.
4. Hybrid mortgages will become more popular: A hybrid mortgage is a mortgage that is split into two segments. Typically one is fixed and the other portion could be on variable rate. Do these mortgages help save you money over time? I'd argue in most case probably not! Most banks that offer a hybrid mortgage would have each mortgage balance on a different term. In other words, if you need to sell or refinance then you could be faced with a larger penalty for no reason. If you are certain you won't touch your mortgage then this could be an option for you. Again, as mortgage brokers we must do a better job at explaining the in's and out's of such mortgages as they aren't designed for everyone. 
5. Consumer IQ will increase: In the age of open information the consumer has much more resources at their fingertips. I would argue the mortgage and other related information has been controlled. Given the role of the web, radio, and print I'd argue that it's important to share that information openly with the consumer. Yes the consumer is more informed but it's also important that we mortgage brokers continue to guide informed clients and gauge their expectations in a realistic manner. From there we can match the consumer’s needs and goals with the right mortgage.

I always welcome feedback and comments. Have a great week everyone.