Mortgage Broker News, July 24, 2011

A private lender relying on a lease-to-own model is reporting a 400-per-cent increase in “refi buy-backs” this year over last as more and more brokers send business its way and more and more Canadian families hit an economic rough patch.

“That 400-per-cent growth in the value of funded deals is significant and yet it hasn’t been because of the mortgage rule changes,” said Guy Lew, president of Home Owner Soon Inc., a private lender headquartered in the GTA, but doing business  across the country. “The two biggest drivers have and continue to be that we are gaining name recognition and a following with brokers, but also that the economy continues to present a challenge to many Canadian families. The truth is so many of us are only a paycheque away from losing our homes.”

Lew and his team of six BDMs, scattered from coast to coast, are actively promoting their rent-to-own model as an alternative to eviction, relying on brokers to hawk their wares – a requirement set down in legislative changes both in Ontario and other regulated provinces.

The strategy is paying off, said Lew, pointing to growing broker buy-in for his refi buy-back – accounting for 80 per cent of his business. Under the terms of that agreement, brokers access 100 basis points in finder’s fees for referring clients, who, in turn, agree to sell their homes for “fair market value” to one of Lew’s private investors.

They then lease back that residence for an amount largely in line with the appraisal’s rental value assessment, he said, with 20 per cent of that rent directed into a down-payment account, which is then applied to the buy-back, often after a three-year term. The homeowner – now renter – also agrees to pay commitment, activation and credit rebuilding fees along with a security deposit, equal or greater than 10 per cent of the home’s appraised value.

Those costs add up and have raised concerns with some brokers who’ve advised clients to sell their home and move rather than enter into rent-to-own deals. Still, the strategy allow clients to avoid uprooting themselves and their families, said Lew, at the same time Home Owner Soon focuses on helping rebuild credit – all with an eye to positioning the client to access A lending at the end of the term.

“Our default rate of about 10 per cent speaks to the success of our program,” he told MortgageBrokerNews.ca, suggesting higher security deposit requirements translate into higher down payments, which, ultimately, make his rehabilitated clients more attractive to A-lenders.

Vancouver Sun, July 27, 2011

A new study about the world’s most 24-hour cities ranks New York 32nd on the list, well behind most European capitals.Of the top ten most nocturnal cities in the world, six of the top 10 were in Spain — Malaga, Zaragoza, Madrid, Barcelona, Valencia and Madrid. Click here for photos of top 10 nocturnal cities.

July 1, 2011, BC Business Online

It all started with a ?Post-it note from a Chinese investor: one Vancouver ?couple’s roller-coaster ?ride through a real estate ?market gone mad.

The note, one of those yellow stickies from 3M, was stuck on the door of our west side Vancouver home late one Tuesday night in March. My wife, Cynthia, found it early Wednesday morning while letting our dog out and called to me upstairs: “Baby, you’ve got to come down here.”

In clear, studied script it read, “I would like to buy your house. I am not a realtor. Please call me.” It listed a local phone number and was signed “David” in block lettering. We looked at each other, both resisting the urge to cackle with glee and dance around the room with our winning lottery ticket. Barely resisting.

Like just about every other homeowner, non-homeowner or potential homeowner in the Lower Mainland, I was aware that property values had soared in recent years. I also knew that this was largely due to overseas buyers – and that “overseas buyers” was a euphemism for several strata of mainland Chinese buyers, some of whom are visiting the region on property-buying trips, some of whom live here already (or have family who do) and some who, so sure are they of the wisdom of investing in Vancouver, buy sight unseen from China.

However, there are property value increases – and then there is the uncontrolled feeding frenzy around select parts of Vancouver that began in January 2011. According to the Real Estate Board of Greater Vancouver, in March 2011 the benchmark price of a detached house on Vancouver’s west side – a disparate area that encompasses everything from one-acre parcels in stately Shaughnessy to the smaller but desirable view lots in West Point Grey to the less-than-grand neighbourhoods that nestle in the big-box shadows of Southwest Marine Drive – was $1,914,693, a 15.5 per cent increase over 2010 and up 32.2 per cent since 2008. During the same three-year period, the S&P/TSX Composite Index – normally a bastion of stability and, more importantly, where the money came from to buy our house – had increased by less than one per cent.

Until David’s Post-it note showed up, the figures and stories were just that: cocktail-party fare that seemed largely divorced from our day-to-day lives. In theory, people who had purchased their homes long ago were now presented with the opportunity to make exponential gains over their initial purchase price. We were in a less rarefied group since we had bought our house only three years ago: a large lot in what we euphemistically called South Kerrisdale, an area realtors call South West Marine that’s frequently called Marpole by our friends. We had paid what had seemed an ungodly sum: $1,875,000, which was, everybody told us, “definitely” the peak of the market. But now, three years later, the stories circulating around town telling of impossible windfalls made our “peak of the market” purchase look as if we’d merely hit the base camp of Mount Everest. And the sudden presence of a suitor opened our eyes to the reality that the mere act of overpaying for a house three years ago might have been the smartest financial decision we had ever made.

But the figures, while crazy, don’t tell the whole story of the madness that has gripped the market. The real estate board doesn’t keep figures for specific neighbourhoods, but that doesn’t mean there aren’t benchmarks from which to gather intelligence. There are the stories, passed on through friends, retold at Caffè Artigianos. A realtor friend told me about one particular house in Quilchena, and within two weeks I must have heard the same story a half-dozen times.

The Greek Church House, as it came to be known, sits on a moderately quiet street, Maple, behind Saint George’s Greek Orthodox Cathedral. After hearing the tale, I decided to drive by and check it out. It was a nice enough house: a one-level rancher, the type of place you’d be proud to show your parents if you didn’t have to tell them how much you’d paid for it. It had last changed hands in 2006 for $1.5 million; in 2010 it had been assessed at $2.3 million; and then, amid a flurry of missives on the late-March “offer day,” it was sold to an overseas buyer for $4.3 million. Its listing sheet cooed about its Sub-Zero appliances and walk-in closets (you can see the listing at julialau.ca), but its 12,482-foot lot was the real kicker: it meant that the next house to be built there could conceivably be almost 8,000 square feet.

Hoping for big bucks and a big buyer

As for our suitor, it took almost a day for Cynthia to call David back, a period in which we simultaneously imagined spending our impossible gains and then chastised ourselves for such greedy thoughts. One terrible idea then came into our minds: “David doesn’t actually sound like a Chinese name,” Cynthia mused. The implications of such a thought were dire, especially given that, due to his neat handwriting, he clearly wasn’t a doctor either. Even the most reckless North American buyer would be loath to pony up the sort of money we were angling for. We needed someone with a briefcase full of cash if we were to become the next Greek Church House.

But as soon as David picked up the phone, such concerns were assuaged. He spoke in competent but halting English and explained that he was looking for a house for his parents. While driving around town, he discovered our block and thought he’d skip the realtor fees by coming to us directly. He asked if he could return sometime over the next week to see the house, with parents in tow. We cleared our calendar.

Some might say smugness is a trait that comes easily to those on Vancouver’s west side, but for this recent real estate tear, we’ve had to share the limelight with a few of the Lower Mainland’s other burgs. Richmond, in particular, had growth figures that trumped even the excesses of south Kerrisdale. According to the real estate board, the Garden City has seen a 47.5 per cent increase in the benchmark price for a detached house over the last three years and a whopping 24.5 per cent jump in the last year alone. According to Richmond/South Surrey realtor Mike Terry, the spike is almost completely driven by mainland Chinese buyers, and there’s a trickle-down effect as well.

Terry has watched as condo developments as far south as White Rock have been bought in huge numbers not just by Chinese buyers, who see Canada as a very stable place to put their money, but also non-Chinese who are buying with cash from the sales of their Richmond and Delta homes to mainland Chinese purchasers. In Vancouver the pretty residential areas around Main and Fraser Streets have likewise swelled in price, as west-siders cash out to Chinese buyers and land on cheaper, if not higher, ground.

Attracting overseas buyers

Within Vancouver city borders, our neighbourhood in particular shines for certain traits that are seen as attractive to the overseas market. First and foremost are the large lots. Ours, at 75 feet by 135 feet, is not Greek Church House size but still desirable as it allows a prospective buyer to raze our restored 4,800-square-foot house and build a new 6,000-square-foot mansion. Secondly, we’re in the coveted Magee Secondary School catchment and with relatively close access to the private Crofton House School, both solid check marks. It’s also a neighbourhood with an already-sizable Chinese population, and as both houses on either side of us are already so-called Hong Kong specials – the box-like two-storey stuccos, frequently clad in garish peach and pinks, erected by the first wave of Hong Kong immigrants in the mid-’90s – a prospective buyer might find comfort in the immediate environment. Finally, our house doesn’t have any uniquely Chinese problems: we’re not located on a T-intersection – which we were warned by one realtor was the kiss of death to attracting Chinese buyers – and our address doesn’t have any fours in it. “We even have a red door,” said Cynthia hopefully.

If we were going to get serious about selling the house, however, we needed to get some more intelligence and develop a strategy. Cynthia mentioned our idea of selling to Mabel, our tough-as-nails next-door neighbour, who was part of the mid-’90s Hong Kong exodus (she has the peach-coloured box to prove it). Mabel often brings potato salad to our house as a gift and once a year at Christmas takes my wife and daughters out for an extravagant Chinese lunch and tells us the state of things, such as, “The former owner of your house was stupid to plant bamboo in your backyard. I told him so. If it disrupts my pipes, I’ll have to sue you.”

Mabel’s response to our thought of selling was equally measured: “You’re crazy.” In 15 years she had yet to develop a touch for the Canadian art of diplomacy. “The Chinese who are coming now are paying with cash – no mortgages. There will never be a downturn because they will never sell at a loss because they don’t have to. They’d rather just give their house to their kids than sell for a loss.” Her message was clear: anyone expecting a major market correction didn’t understand the psychology of the average Chinese purchaser, for whom concepts such as a change in interest rates were of no concern.

Mabel had us second-guessing ourselves. Were we like a mid-’80s Seattle couple selling our Microsoft shares because they had made such nice gains already? Mabel’s logic seemed ostensibly sound (about the house, not the bamboo), but before I made this big step I wanted to talk to an expert more detached from the situation.

Chinese investment in Vancouver

Realtor Cam Good, a marketing wizard whose company, Key Marketing Inc., has become a lightning rod for Chinese investment in Vancouver, was introduced to me by a friend just after David’s note appeared. If Mabel could speak about what it’s like to arrive here from China to buy property, he could speak about going in the opposite direction. His real estate sales company recently opened an office in Beijing (a Shenzhen one is soon to follow) to market Vancouver and Toronto properties to the Chinese on their home turf. In addition to the offices in China, Key will often go the extra step and chauffeur groups around the Lower Mainland in an effort to close the deal, even renting helicopters to show prospective buyers the lay of this new land.

I asked Good about his thoughts on the boom. “We’re just at the beginning,” he told me as we chatted. “With the restriction the government just put on the number of homes a person can own in China coupled with the uncertainty that flows from the Chinese government’s ability to change laws and rules overnight, I feel we’re at a tipping point.” I asked about the Lower Mainland condo bonanza I had heard about, and he confirmed that they were experiencing phenomenal sales success: in January and February alone they sold more than 500 homes to mainland Chinese investors.

Selling to mainland Chinese buyers

A few days after our conversation, I received an email from Good announcing his next venture. Seizing on what I assume was the same demand I was trying to surf, this summer he’s expanding to market of detached residential homes in Greater Vancouver to mainland Chinese buyers. Like a corporate version of our suitor David, Key will approach homeowners on the west side, in Richmond and West Vancouver – people whose homes are considered particularly salable – and convince them to sell, now, for 20 per cent more than whatever is the present market value. Buyers in China will be able to view the available properties through a website, potentially buying several million dollars’ worth of properties sight unseen.

All this had me pondering ?the advisability of selling at all when David and his parents arrived separately, a week after the note had appeared, to tour the house. His parents showed up first in a black Mercedes S600, a $190,000 bank vault on wheels that throughout the world announces, “I’m rich and powerful, and now that that’s out of the way, let’s get down to business.” The father had dark glasses and a stripe of distinguished grey at the temples, and didn’t give his name upon shaking hands; the mother, Maggie, was more gregarious and, as she was taking English lessons, anxious to practice speaking like a local. David, who turned out to be all of 18, arrived a few minutes later in an electric orange $355,000 Lamborghini Murcielago.

The cars alone were a good sign. They marked David and his parents as belonging to the truly wealthy class of Chinese buyers. In my chat with Cam Good, he had spoken of the burgeoning middle class in China who he predicted would be the next consumers of Vancouver real estate, but I had some reservations. If middle-class Vancouverites could barely afford to buy a first house here, how could middle-class Chinese nationals afford second homes?

In McKinsey & Co.’s landmark 2009 study of the Chinese consumer, only two million households out of a population of 1.3 billion were classified as “wealthy.” And wealthy in this context was defined as household earnings of more than $30,000. Other reports are more generous: the 2010 Hurun Wealth Report says there are 875,000 millionaires in China, but even then they noted that the six per cent growth rate of millionaires in China was less than America’s 8.7 per cent and that the U.S. economy isn’t exactly firing on all cylinders. A recent report from Deloitte projects the number of Chinese millionaires in 2020 to be 2.5 million – plenty, to be sure, but only seventh best in the world and significantly less than moribund Japan’s 8.6 million millionaires. Whatever the true figures, all I needed was one determined millionaire to make my dream a reality.

Cynthia led David and his family on the tour as I tagged along. The parents spoke little or no English, so David helped translate such phrases as “steam room with rain-shower fixture” and “programmable Nuheat floor.” (We decided we didn’t want to tax him too much, so we avoided making him translate knob-and-tube wiring.) The parents politely nodded at Cynthia’s detailed chronicling of every upgrade, no matter how small. Halfway through the tour of our cavernous basement, the father muttered something. “My father is very afraid of this space,” deadpanned David. “He would very much like to return upstairs.” In truth, I think we knew that the house tour was a flight of fancy. All the things we had spent $1.85 million on would soon be rubble, replaced most likely by a nondescript house of no discernible era or architectural style.

We moved upstairs to our living room to discuss business. Contrary to the stereotype of tough, straightforward Chinese negotiators, we actually ambled around the question of the house and a selling price for a good half-hour, a long time with most strangers and an eternity when major language barriers exist. Even a month later, I’m at a loss to recall what we talked about. I do recall the line that broke the ice: “The house down the street sells for $1.8 million,” the father instructed David to tell us. It had been an opening salvo but one I was unprepared for.

He was presumably referring to a house a few blocks away in deplorable condition on a small lot. Worse, that price was not only less than we paid but $750,000 below our woefully out-of-date assessed value from the city. The discrepancies were so great that had I been sitting with anyone else my stock response would have been, “What does that have to do with the price of tea in China?” It quickly became apparent we were at cross purposes, but I couldn’t muster any animus. We were the ones who had equated Chinese with irrational spending. They continued to express serious interest in the property, but although we continued to chat for a few minutes I knew our untethered dreams would not be granted by these particular visitors.

A few days after the visit, I called up Dave Peerless, the excellently named president of Dexter Associates Realty, whose firm had represented us when we bought the house. He helped put it in context for me: “Listen, mainland Chinese come here for the same reasons as anybody else does: clean air, good education and a welcoming environment. The only difference is that Vancouver has the added benefit of being relatively affordable for them.”

Ideally, this would have been a self-contained parable, a caution to greed, prejudgment and a score of other vices. A three-by-three-inch sticky note had turned us into speculators – and now a four-by-four-foot sign rises out of our newly reseeded lawn. The asking price? $3.5 million – twice what we paid just 36 months prior.

The open house is next Saturday.

July 03, 2011, Canadian Mortgage Trends

Housing-Correction“The housing market will eventually correct.”

That’s a quote from economist Ben Tal in this CIBC report from last week.

There’s nothing earth shattering about that because corrections are to be expected. The more interesting question is: how big will the next selloff be?

Tal’s conclusion was that the next downturn “is likely to be gradual.”

Values are “overshooting” fundamentals but that doesn’t presage a crash, says Tal. He says a crash requires one of two things:

A “significant and quick rise in interest rates…akin to the one that led to the 1991 recession and housing market correction,” and/or
A “high-risk mortgage market that is highly sensitive to any changes in economic realities, including hikes in interest rates.”

#1 is unlikely because, among other things, the Bank of Canada keeps a tight leash on inflation (which is the biggest catalyst for rising rates). Moreover, economic growth is widely projected to remain near or below the long-term average.

#2 has never been a serious threat in Canada and vigilant regulators are dead-set on ensuring it never will be.

From a numbers standpoint, Tal identifies “risky” borrowers as those individuals with total debt service ratios over 40% and equity under 20%. Those people comprise 3.2% of total mortgages, a number he says would grow to 4.5% if rates soared 300 basis points.

Yet, even in this high-debt/low-equity group, defaults have been “well below 1%,” Tal adds (which is a positive reflection of Canadian lending standards). By comparison, 8.1% of U.S. mortgages are 90 days delinquent or in foreclosure.

“Thus, short of a huge macro shock,” says Tal, “there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.”

CIBC’s report aside, most analysts seem to be projecting a minimum 5-15% price drop in the next housing downturn. Consider that if you’re putting only 5-10% down on a home purchase. Here’s why:

After five years, a household putting down only 5% on a $300,000 house (with a thirty-year mortgage at 3.75%) would be left with a $264,166 mortgage balance.
If prices dropped 10% and they paid 5% in Realtor commissions to sell (commissions vary by province), they’d owe over $9,000 more than their proceeds from selling—assuming $1,500 for legal and discharge costs.

But who cares if you don’t sell, right?

Well, even if you’re planning to buy with a long-term time horizon, life does throw us curve balls (job relocation, unemployment, a growing family, disability, divorce, etc.). When you have to sell, you need equity as a buffer and falling prices can quickly eat that up.

Notwithstanding a “gradual” home price correction, it therefore makes little sense to rush into buying if your financial outlook isn’t rock solid. For tens of thousands of Canadians who haven’t been able to sock away a 3-6 month emergency fund and a decent-sized down payment, renting is economically superior to buying…..crash or no crash.

July 4, 2011, Vancouver Sun

If Aubrey de Grey’s predictions are right, the first person who will live to see their 150th birthday has already been born. And the first person to live for 1,000 years could be less than 20 years younger.

A biomedical gerontologist and chief scientist of a foundation dedicated to longevity research, de Grey reckons that within his own lifetime doctors could have all the tools they need to “cure” aging — banishing diseases that come with it and extending life indefinitely.

“I’d say we have a 50/50 chance of bringing aging under what I’d call a decisive level of medical control within the next 25 years or so,” de Grey said in an interview before delivering a lecture at Britain’s Royal Institution academy of science.

“And what I mean by decisive is the same sort of medical control that we have over most infectious diseases today.”

De Grey sees a time when people will go to their doctors for regular “maintenance,” which by then will include gene therapies, stem cell therapies, immune stimulation and a range of other advanced medical techniques to keep them in good shape.

De Grey lives near Cambridge University where he won his doctorate in 2000 and is chief scientific officer of the non-profit California-based SENS (Strategies for Engineered Negligible Senescence) Foundation, which he co-founded in 2009.

He describes aging as the lifelong accumulation of various types of molecular and cellular damage throughout the body.

“The idea is to engage in what you might call preventative geriatrics, where you go in to periodically repair that molecular and cellular damage before it gets to the level of abundance that is pathogenic,” he explained.

CHALLENGE

Exactly how far and how fast life expectancy will increase in the future is a subject of some debate, but the trend is clear. An average of three months is being added to life expectancy every year at the moment and experts estimate there could be a million centenarians across the world by 2030.

To date, the world’s longest-living person on record lived to 122 and in Japan alone there were more than 44,000 centenarians in 2010.

Some researchers say, however, that the trend toward longer lifespan may falter due to an epidemic of obesity now spilling over from rich nations into the developing world.

De Grey’s ideas may seem far-fetched, but $20,000 offered in 2005 by the Massachusetts Institute of Technology (MIT) Technology Review journal for any molecular biologist who showed that de Grey’s SENS theory was “so wrong that it was unworthy of learned debate” was never won.

The judges on that panel were prompted into action by an angry put-down of de Grey from a group of nine leading scientists who dismissed his work as “pseudo science.”

They concluded that this label was not fair, arguing instead that SENS “exists in a middle ground of yet-to-be-tested ideas that some people may find intriguing but which others are free to doubt.”

CELL THERAPY

For some, the prospect of living for hundreds of years is not particularly attractive, either, as it conjures up an image of generations of sick, weak old people and societies increasingly less able to cope.

But de Grey says that’s not what he’s working for. Keeping the killer diseases of old age at bay is the primary focus.

“This is absolutely not a matter of keeping people alive in a bad state of health,” he told Reuters. “This is about preventing people from getting sick as a result of old age. The particular therapies that we are working on will only deliver long life as a side effect of delivering better health.”

De Grey divides the damage caused by aging into seven main categories for which repair techniques need to be developed if his prediction for continual maintenance is to come true.

He notes that while for some categories, the science is still in its earliest stages, there are others where it’s already almost there.

“Stem cell therapy is a big part of this. It’s designed to reverse one type of damage, namely the loss of cells when cells die and are not automatically replaced, and it’s already in clinical trials (in humans),” he said.

Stem cell therapies are currently being trialed in people with spinal cord injuries, and de Grey and others say they may one day be used to find ways to repair disease-damaged brains and hearts.

NO AGE LIMIT

Cardiovascular diseases are the world’s biggest age-related killers and de Grey says there is a long way to go on these though researchers have figured out the path to follow.

Heart diseases that cause heart failure, heart attacks and strokes are brought about by the accumulation of certain types of what de Grey calls “molecular garbage” — byproducts of the body’s metabolic processes — which our bodies are not able to break down or excrete.

“The garbage accumulates inside the cell, and eventually it gets in the way of the cell’s workings,” he said.

De Grey is working with colleagues in the United States to identify enzymes in other species that can break down the garbage and clean out the cells — and the aim then is to devise genetic therapies to give this capability to humans.

“If we could do that in the case of certain modified forms of cholesterol which accumulate in cells of the artery wall, then we simply would not get cardiovascular disease,” he said.

De Grey is reluctant to make firm predictions about how long people will be able to live in future, but he does say that with each major advance in longevity, scientists will buy more time to make yet more scientific progress.

In his view, this means that the first person who will live to 1,000 is likely to be born less than 20 years after the first person to reach 150.

“I call it longevity escape velocity — where we have a sufficiently comprehensive panel of therapies to enable us to push back the ill health of old age faster than time is passing. And that way, we buy ourselves enough time to develop more therapies further as time goes on,” he said.

“What we can actually predict in terms of how long people will live is absolutely nothing, because it will be determined by the risk of death from other causes like accidents,” he said.

“But there really shouldn’t be any limit imposed by how long ago you were born. The whole point of maintenance is that it works indefinite

The Vancouver Sun,  June 7, 2011

Ten very practical tips on improving your website, from Small Business BC:

1. Make sure every web page has a unique page title with keywords customers will use when searching for you. Try Google’s Keyword tool if you need ideas.

2. Make sure your About Us page title has your company name.

3. Include your company’s full business name and address on every page in the footer of the website. This will increase your chances on search engines and Google Maps.

4. Install Google Analytics and use it. How many people from your local area visited this month?

5. If you want to be found locally for a specific service, put your location in the page title of the very front page of your website. For example rather than “Acme Plumbers Inc” try “Vancouver Plumber: Acme Plumbers Inc.”

6. Start a company blog. Write about company news, industry trends, case studies and even local non-competing companies — they might return the favour.

7. Include your company phone number at the top right of every page. This instills confidence and makes you easy to find.

8. Ask your five best customers to write a testimonial for your site.

9. If you sell products online, write your own product reviews instead of cutting and pasting a manufacturer description.

10. Use videos to review products and explain your services.

Small Business BC is renovating and moving their education centre into their main floor office in Vancouver. As a result, seminars are on hold for the summer. In the meantime, check their site for more small business management tips.

Canadian Mortgage Trends, June 10, 2011

Variable-or-fixed-mortgage 61% of Canadians expect higher interest rates one year from now. 24% believe rates will stay the same.

These stats are from a recent 1,000-person CIBC-Harris/Decima survey.

Respondents were also asked: If you had to choose between a fixed or variable-rate mortgage today, which would you select? Their answers:

39% would choose fixed
32% would choose variable
25% were undecided

Mixed opinion/confusion about rate selection is pretty typical. Moreover, peoples’ opinions will change as rates change. If we were in the midst of rate hikes and you polled these same respondents, they’d lean more towards fixed rates (if history is a guide).

But rate expectations are just one criterion in mortgage planning—and a dubious criterion at that (because the forecasts upon which they’re based can change so quickly and drastically).

CIBC SVP, Colette Delaney, says mortgage decisions “should be based on how your mortgage fits with your long term financial goals, not on short term rate fluctuations.” And she’s right.

Falling-rates: Rates have dropped like an anvil. Yet, that has no bearing on rates 12 months from now. Similarly, rates 12 months from now have no bearing on rates 12 months after that.

A mortgage plan is better made by weighing the common mortgage suitability criteria. That means evaluating your 5-, 10- and 20-year financial plan, equity, job stability, projected income growth, savings, liquidity, and risk sensitivity. Generally, the more you can afford to be wrong on rates, the more you can lean towards a variable mortgage or shorter term.

Historical research and rate simulations can also help when choosing a term. For example, as most mortgage professionals know:

– The most prominent mortgage research has shown that 77% of the time (historically speaking) a deeply discounted variable costs less than a 5-year fixed.
– Economists believe a “normal” (policy neutral) Bank of Canada overnight target rate is in the 3.00% to 3.50% range (we’re at 1.00% today)
– Prime rate has risen just over 3% on average in past rate cycles (See “Variable-rate payments Over Time.” This includes the economic cycles since the modern era of monetary policy [i.e. inflation targeting] began in 1991. Prime rate has already risen 0.75 percentage points from the lows of our current cycle.)
– Going forward (apart from occasional and relatively brief rate spikes), analysts largely expect low growth, low inflation, and overleveraged consumers to keep interest rates below their long-term average.

Mortgage planners can use this kind of information to create amortization simulations. That analysis is then used to illustrate the hypothetical borrowing costs of different rates and terms.

Mortgage-Amortization-SimulationWe do simulations like this regularly and clients love them. What these models do best is quantify the potential cost differences between terms. That helps people better understand the price of certainty. (Fixed rates and longer terms provide “certainty” but come with pricier rates up-front.)

It’s vital to remember that simulations rely on assumptions. For example, not only do you have to assume rates will go up, but you have to assume when and how high. Those inputs will invariably be wrong to some degree, and the margin of error is often significant enough to make simulation recommendations invalid. As a result, rate models are always secondary criteria to the client’s financial suitability considerations and should never be relied on exclusively.

At the moment, our rate models (based on the Big 6 banks’ rate projections, historical mortgage spreads and the best rates for each term) suggest the most value lies in a 2.99% three-year fixed — available through select brokers. After that, prime – 0.90% variables and 3.59% five-year fixed terms are neck and neck in terms of lowest hypothetical borrowing cost over five years.

As an aside, people on the fence needn’t give themselves an ulcer when deciding between fixed and variable rates. Hybrid mortgages are a great solution for providing rate diversification. That’s because you can allocate any amount of your mortgage to the fixed or variable portions. For example, you could choose 67% variable and 33% fixed if you wanted to.

If you do get a hybrid, just be sure to choose equal terms (e.g. don’t get a 5-year variable with a 2-year fixed). Otherwise, the lender might stick you with a subpar rate on renewal of the shorter term.

More survey findings: Among younger home buyers (25-34 year olds), just 27% would choose a variable-rate mortgage today. That jumps to 42% in the 45-54 age category.

Vancouver Sun, June 10, 2011

Canadian apartment rents rise as demand outstrips supply.

Just how expensive are the rental housing units in Metro Vancouver? Up to close to $10,000 a month in some cases, it appears.

Find out what the average monthly rents are in Canada’s major cities according to Canada Mortgage and Housing Corp.’s April 2011 Rental Market Survey.

Demand is outstripping supply in the country’s apartment rental market, pushing the national vacancy rate lower and making it more difficult for renters to find accommodations, Canada Mortgage and Housing Corporation reported Thursday.

The vacancy rate fell to 2.5% in April from 2.9% a year earlier, the national housing agency said.

“Immigration continues to be a factor in supporting rental housing demand. Recent immigrants tend to rent first before becoming homeowners,” said Bob Dugan, CMHC’s chief economist.

“In addition, condominium completions moved lower in the past months, while rental apartment unit completions remained relatively stable. As a result, the overall demand for rental apartment units increased faster than supply for this type of housing. Accordingly, this pushed Canada’s vacancy rate downward.”

The average monthly rent in new and existing structures for a two-bedroom apartment edged up to $864 in April from $848 in April 2010.

The highest average rents were found in Vancouver, at $1,181; Toronto, at $1,124; Ottawa-Gatineau, at $1,056 for the Ontario portion; Calgary, at $1,040; Edmonton, at $1,029; and Victoria, at $1,024.

The lowest monthly rents were found in the Quebec centres of Saguenay, at $542; Trois-Rivieres, at $546; and Sherbrooke, at $577.

The major urban centres with the lowest vacancy rates were Winnipeg and Regina, at 0.7%; Quebec City, at one per cent; Toronto, at 1.6%; and Kingston, Ont., at 1.7%.

Those with the highest vacancy rates were Windsor, Ont., at 9.4%; Kelowna and Abbotsford in B.C., at 6.6 per cent; and Charlottetown at 4.9%.

Factoring out newly built structures, which carry higher rents and can skew the national average, rents across Canada’s 35 major centres rose 2.2% year over year.

Vancouver Sun, May 18th, 2011

Demand for luxury homes across Canada – especially in Metro Vancouver – is rising, with the improved financial standing of wealthy Canadians the main factor, according to a report released Wednesday by Re/Max.

“The strength of the upper-end segment continues to defy expectations,” Elton Ash, regional executive vice-president, Re/Max of Western Canada, said in a statement.

“That demand remains largely domestic speaks to the solid underpinnings of the market, while underscoring the appeal of Canadian real estate on an international stage. Western Canada, in particular, will continue to see the upside benefit of investment from abroad.”

According to the report, the improved financial standing among high net worth people is the major factor

driving strong sales activity at the top end of Canada’s housing markets,.

Re/Max examined 12 major centres and found that luxury sales have surged in close to two-thirds of housing markets between January 1 and April 30 of this year, compared to the same period in 2010.

In terms of percentage increases over the four-month period, Metro Vancouver – where foreign investment has also played a major role – lead the way with a 118-per-cent increase, from 343 $2 million-plus homes sold in 2010 to 747 $2 million-plus homes sold in 2011.

That was followed by Ottawa (59 per cent), Calgary (51 per cent), Halifax-Dartmouth (27 per cent), Winnipeg (24 per cent), Hamilton-Burlington (13 per cent) and Greater Toronto (nine per cent).

Six of the seven major cities – except Calgary – are poised to set new records in top-end activity by year-end.

Price points were lower in the other markets, with a luxury home in Winnipeg, for example, considered anything over $500,000.

“Greater Vancouver’s luxury market continues to show unprecedented strength, with the number of sales over $2 million more than doubling in the first four months of 2011,” the report said.

“Despite the robust activity, housing values in the top end of the market have climbed a nominal two per cent, rising from $2,955,168 to $3,025,947 year-over-year. “Days on market have fallen to 48 from 54 one year ago, although some properties are moving within days in coveted neighbourhoods. Purchasers from the Greater

Vancouver Area and Mainland China are driving sales in the top-end, with demand strongest for properties in Vancouver’s Westside (447 sales), followed by West Vancouver (160), and Richmond (41).

“Detached properties remain the most popular type of housing [in Metro Vancouver], comprising the vast majority of luxury sales at 673 units. Condominiums are a very small percentage of the market, with 58 sales occurring over $2 million.”

The report said that while foreign investment has augmented sales activity in several Canadian markets, its influence was only significant in MetroVancouver. Most regions reported that locals were the primary drivers of demand for luxury homes.

The report suggested that there are several factors that position Canada as an attractive option for buying luxury homes, including that its real estate remains a bargain by international standards, given its ranking for quality of life, political and economic stability and the strength of its property laws.

“Three key factors – serious equity gains, stock market recovery, and improved economic performance – have

been behind the push for luxury housing product across the country,” Michael Polzler, executive vice-president, Re/Max Ontario-Atlantic Canada, said in a statement. “The combination also continues to bolster the bottom line of high net worth individuals both nationally and globally. The impact of that wealth is being seen in the demand for all things luxury—from homes to cars, collectibles and fine wines.”

Re/Max noted that the number of millionaires is rising in Canada, and will continue to do so, and that residential holdings have increased among the wealthy.

Vancouver Sun, May 20th, 2011

Dozens of bungalows like this one, from the late 1920s, stand on the surrounding blocks, showing the amazing range of aesthetic finishes and revival styles these homes offered; in this case, with Craftsman influences. This home features a 34 colour paint scheme with five tones on the exterior alone! The vibrant interior boasts primitive art from all over the world, family heirloom furniture and artifacts, unique antiques and beautiful art glass.

Of the many architectural styles that reflect Metro Vancouver’s young history, there is perhaps none as ubiquitous on the city’s housing landscape as the bungalow.

Roomy and square, with useful basements and, often small second-storey bedrooms, the bungalow is a utilitarian house renowned for both compact efficiency and thoughtful floor plans, twin attractions for growing families looking to settle down.

In Vancouver alone, there have been several incarnations of the bungalow – and you could argue the infamous Vancouver Special of the 1960s is one – but the first version owes its provenance to the economic uptick following the First World War.

By the early 1920s, as the city’s population began to grow and streetcars were travelling farther east into what were then the far-flung suburbs around Commercial Drive, a building boom saw the development of entire neighbourhoods boasting distinctive arts and crafts bungalows.

Somewhat less ostentatious than their westside counterparts, and crafted to conform to smaller building lots and more manageable mortgages, they were no less a testimony to a time when houses were built to last.

That’s just one of the attributes that attracted Chris Tonge and Roxanne Cave to their tidy 1927 Craftsman-style bungalow, among the dozens lining the lovely elm-shaded streets in the bungalow-heavy enclave just east of Victoria Drive and north of Broadway.

They bought the place eight years ago, and they have been transforming the house ever since, inside and out, from replacing the knob and tube wiring to installing stained glass windows to planting a now-thriving cottage garden.

For the retired 62-year-old Tonge and the still-working 55-year-old Cave, decorating their historic home is about funky vibrancy, heirloom antiques and reminders of their world travels.

It’s also about a palette so colourful that the house now boasts 36 different colours, and counting.

The exterior alone is five colours, its bright blue hue with raspberry trim something of a shock, at least at first, and sure to be a talking point when the couple opens their home to ticket-holders on the 9th Annual Vancouver Heritage Home Tour on June 5.

Every room in the 1,200-square-foot home has its own personality, whether it’s the vintage bathroom with the turquoise claw foot tub or the Taj Mahal-style master bedroom with the orange Venetian plaster.

“We’re pretty eclectic,” says Cave, something of an understatement as she points out Indonesia art, Indian pilasters, the sandstone-over-brick fireplace and the ethnic décor that is the home’s abiding theme.

They’re on the tour, they say, because they were asked, but also because they know that if the city’s housing heritage is to survive, if people are to understand that the greenest house is a house that is already built, then heritage home tours are one way to open people’s eyes.

Jana Zylich and John Sinal, who live in a 1932 bungalow just a block away and who also agreed to invite hundreds of strangers into their house on this year’s tour, hold a similar perspective.

They bought their house a decade ago, and while “it has never had as full charmectomy,” says Zylich, they have undertaken an ambitious renovation, including ripping away stucco to reveal original cedar siding, removing panelling, linoleum and mouldy carpet, re-righting the porch and converting a basement area into a spacious studio for Sinal, a professional photographer.

“Nothing had even been done to the house,” says Zylich, “and at some point it must have been loved, but when we bought it, it was really awful. It looked so cute from the outside, but it was really run down.”

The couple – she’s 43, he’s 45 and they have two young children – kept the original floor plan, but worked room by room to open things up and restore as many of the original features as they could. They stripped and stained – all the doors had been painted brown – and salvaged windows and doors from elsewhere. They also redid the kitchen, which overlooks an expansive back deck.

Today, the house is a bright, livable space for a modern family, but still retains the character and feel of its 1930s roots.

If these two east-side bungalows represent the modest aspirations of early Vancouver development, and the dedication of their 21st-century owners, the tour’s other seven homes are also a nod to the rich diversity of the city’s vintage housing stock.

From Strathcona to Shaughnessy, ticket-holders this year can check out several Craftsman-style homes, a Tudor revival and a restored Edwardian with a laneway house.

The 9th Annual Vancouver Heritage House tour is Sunday, June 5, from 10 a.m. to 5 p.m. Tickets for the self-guided tour are $40. More information about the tour, and ticket purchasing, can be found on the Vancouver Heritage Foundation website: www.vancouverheritagefoundation.org.

Canadian Business, May 24th, 2011

One’s a legendary soccer player, the other a legendary cyclist. But the images of seven-time Tour de France champ Lance Armstrong and Manchester United star Ryan Giggs have both been splashed over sports media in the last few days.

Giggs is a player whose amazing talent has been coupled with a squeaky clean image, garnering the 38-year-old Welshman endorsements reportedly worth more than $37 million. But the player is now embroiled in an adultery scandal that, thanks to British libel law, made it all the way to the House of Commons. His recent tale has plenty of soap opera-ish plot points – alleged affair with reality TV star who blabs to tabloids, pay-offs to media and court injunctions to have his name removed from the story, having his alleged indiscretions repeated over Twitter by more than 75,000 people and then have his dirty laundry aired in parliament. And all this before the coveted Champions League Final game on Saturday against Barcelona.

It’s a lot to withstand but despite the tabloid media maelstrom, not many are suggesting Giggs’ sponsors will jump ship. A little philandering in pro sports these days is more akin to a pulled hamstring than to career suicide, and Giggs’ alleged transgressions are hardly Tiger Woods-ian in scope. Chances are it will end up a chuckle-inducing footnote to the career of someone many consider the greatest player Manchester United has ever seen.

Mr. Armstrong, on the other hand, is a different story altogether. Long followed by accusations of doping, the cycling champ and cancer survivor has continued to thrive as a spokesperson both for his Livestrong Foundation and sponsors like Nike. But on this week’s episode of 60 Minutes, former teammate Tyler Hamilton said he saw Armstrong take performance-enhancing drugs. While it may seem like just another accusation to be beat, some are wondering if his images as The Cyclist and The Cancer Activist can be separated. An AdAge poll got everything from “Livestrong just died hard” to “the brand is way bigger than he is now.”

Dave Zirin writes in The Nation that because Armstrong’s popularity and brand strength come from a place deeper than traditional sports fans, his reputation will survive anything that former teammates or federal prosecutors can throw at him. Are Livestrong’s annual revenues of more than $50 million enough for people to forgive or ignore any questionable behaviour in sports? For many, it is. As Livestrong CEO Doug Ullman told Fast Company last year, “In the sports world, he’s a very polarizing figure. In cancer, he’s not.”

Two very different stories, similar only in that these are two athletes that get paid millions of dollars to not only ply their trade in sport but also represent a multitude of marketers. It’ll be worth watching brands and fans continued reaction to both.

Canadian Mortgage Trends – April 19, 2011

RBC-Mortgage Banks have extensive policies governing what their representatives can tell the public. The alleged actions of RBC mortgage rep Corinne Schindler demonstrate why.

Schindler has reportedly been circulating this flyer, which grossly mischaracterizes mortgage brokers in relation to bank specialists. It’s a document that demonstrates a stunning lack of knowledge, professionalism and discretion.

The piece, which displays RBC’s logo and web address, has gone viral and caused a PR embarrassment at the nation’s biggest bank. Incensed brokers from across the country have demanded that RBC retract the misstatements on the specialist’s behalf.

Here is a sample of the distortions attributed to Ms. Schindler (our perspectives follow each line):

1. Brokers charge “set-up fees” and “other hidden costs”

· Truth: Broker fees are exceedingly rare on prime residential mortgages. When fees or borrowing costs are warranted, provincial regulations require full disclosure.

2. “Ask a broker what their compensation will be for completing your mortgage.”

· Truth: Broker compensation is geared primarily to the term and secondarily to the rate. As with any incentive-based model, conflicts can exist, but no more so than with various bank rep models that pay more commission for selling a higher rate.

3. Misrepresentation. Brokers pick lenders “based on only the lowest rate, no other factors”

· Truth: Rates are commodities so successful brokers always prefer to leverage trusted advice and relationships. To build each, brokers become experts in their craft, which includes term selection, product comparison (from multiple lenders…key point) and strategic mortgage planning.

4. Brokers…”cannot fit your mortgage solution together with your overall financial plan.”

· Truth: Needs assessments are a fundamental tool that brokers utilize. Brokers are trained to uncover future needs that financing might have to address.

5. “Brokers will not be there in a few months when you need to ask questions about your mortgage or change the terms of conditions”

· Truth: Referrals are a broker’s lifeblood and maintaining relationships is impossible without exceptional post-closing support.

6. “You have to be careful to deal with an institution that will give you a great rate term after term.”

· Truth: Banks’ renewal models are designed to maximize profit. That’s done through selective pricing (i.e. not offering the best rate to everyone up front). It’s a fallacy that banks reward loyalty with great rates. (Here’s some relevant research).

After poking around at RBC, this piece appears to be Schindler’s own doing. This advertorial is definitely not in RBC’s marketing library we’re told. Moreover, RBC’s corporate materials are far more polished (i.e., generally no grammar or formatting issues, missing slogans, mistruths, etc.).

From what we hear, Schindler violated RBC compliance guidelines and sent it out without RBC’s or her manager’s consent.

In response to all this, RBC provided us with a comment:

“The opinions expressed in the document by the mortgage specialist do not reflect the positions, strategies or opinions of RBC. We are following up directly with this mortgage specialist to ensure future collateral accurately reflects the RBC brand.”

We have a better idea. How about no “future collateral” from this individual period?

Fiduciaries that mislead the public for personal gain are hazards and liabilities to their employers. Anyone who would author this sort of content should be sent packing because Lord only knows what she’s telling clients in private.

Canadian Mortgage Trends – April 21, 2011

Canada recently enacted a new anti-spam law called Bill C-28. It’s expected to come into force later this year.

Proponents say C-28 will lighten the spam load on all of us.

At the same time, it could turn many businesspeople into spammers themselves!

As a mortgage broker, for example, it’s not uncommon to send out e-mails or newsletters to current or former clients. In some cases, you may not have had contact with a client for years.

If that kind of scenario applies to you, C-28 will change your email habits. For brokers, mortgage specialists and lenders, it pays to know the implications in advance.

Here are a few key points about Bill C-28:

* It was formerly known as the “Fighting Internet and Wireless Spam Act” (FISA)
* Royal Ascent was granted in December and it’s anticipated to come into force in late summer/early fall.
* Enforcement is overseen by the CRTC, Competition Bureau and Office of the Privacy Commissioner
* Violators could see fines as high as $1 million for an individual or $10 million per violation for an organization
* The bill is broadly-defined to include all commercial electronic messages, which include email, SMS text, sound, voice or image messages.

“It’s going to have a significant impact on the mortgage broker side of things, but also for anybody who sends messages that have a commercial purpose, in whole or in part,” said Nicole Kutlesa, a senior associate with Osler, Hoskin & Harcourt LLP in Toronto.

Red email connection symbol key on a laptop“It introduces an entirely new standard in terms of consent that we didn’t have in Canada previous to this legislation.”

The key to this legislation is that is introduces a standard of express, or “opt-in” consent, Kutlesa says. “That’s pretty significant and different from what companies are doing today.”

Here’s how it works:

If you have an existing business relationship with a client (eg. you’ve sold them something or have brokered their mortgage), you are permitted under this legislation to send commercial electronic communications to that person for the duration of the working relationship, even if the messages are unrelated to the deal.

For brokers, Kutlesa said the business relationship would last for the duration of the mortgage term, as long as it’s not renegotiated early elsewhere.

At the end of the business relationship, you still have up to two years to send them commercial communications without the need for further consent.

By the end of the second year, however, you’ll need the express consent from that client that they want to continue receiving your communications. The exception is when you’ve engaged in another commercial activity with that client, in which case consent can be implied under the legislation. Kutlesa said this can be done in the form of a check-box embedded in the communication, though it’s important the box is left blank until it is checked by the client (hence the “opt-in” criteria).

What’s important in all cases is that the communication you send, be it an e-mail, e-newsletter or other electronic marketing material, needs to identify yourself, include contact information (which must be valid for at least 60 days after the message was sent) and an unsubscribe mechanism in accordance with the legislation.

Spam1“It’s very serious because the penalties under the statute are significant,” Kutlesa said, referring to the maximum fines of $1 million for individuals and $10 million for companies found in violation of the law. On top of that, the bill allows for both a private right of action (if there have been losses or damages as a result of an unsolicited message), as well as directors and officers liability.

While Kutlesa says the intent of the legislation is to crack down on real spammers, she said that doesn’t mean the enforcement authorities wouldn’t be willing to make an example of a legitimate company in violation of the legislation.

Express consent is not always required, however. There are some exceptions including:

* On-going client support – you can continue to send communications that provide notification or factual information related to an existing client’s account.
* Inquiries – if you receive an inquiry from someone seeking information or an estimate, you are permitted to respond.
* Business cards – if someone has handed you their business card, which discloses their e-mail, you can send them communications relevant to their business role provided they have not otherwise indicated they do not wish to receive unsolicited messages.
* Family – communications may be sent to people with whom you have a personal or family relationship, which is expected to be defined in the regulations to include family and friends.

The bottom line is companies are going to have to go through their databases of contacts and in many circumstances may need to get any previous clients to expressively opt in if they want to continue marketing to these contacts, Kutlesa said. She added that it’s likely companies will lose some contacts as not everyone will take the time to give their consent or may simply decline.

Rebecca Chan, a partner with Borden Ladner Gervais LLP, is also fielding a lot of questions about the new bill and recommends companies start preparing sooner rather than later.

“We are telling our clients in the financial services industry to not wait until the legislation is in force to start thinking about how to comply with it,” she said. “Mortgage brokers, like others, will need to sort out a process for addressing prospects, existing clients and past clients.”

Chan noted that the process will likely need to be sorted out with internal or external IT providers, which is why she recommends companies get an early start.

“That can’t usually be done overnight, which is why we suggest that the review process start before the in force date.”

Globe and Mail – April 24, 2011

On a recent trip to Vancouver, Jin Wang, a Chinese businesswoman, toured a large home – six bedrooms and seven baths – listed at $3.6-million in the British Properties, a wealthy enclave on the north shore overlooking the ocean and the city.

Ms. Wang and her husband, Hui Huang, made their money in the import and export of electronics, leveraging government connections in Beijing to do business in Shanghai. The Chinese nationals also expanded their business to domestic real estate in China.

Now, they’re looking to invest more heavily in Vancouver real estate. Three years ago, the couple first bought a $2.1-million home on Vancouver’s west side and rented it to a local family. Its value has since hurtled past $3-million. Back this month to scout more buys, Ms. Wang closed a deal for a $3-million home on Chartwell Drive in the British Properties and mulled the additional $3.6-million home on the same street.

Investments by Chinese buyers such as Ms. Wang and Mr. Huang are playing a role in helping to buoy the hottest real estate market in Canada, according to local realtors. Canadian realtors do not tally data on foreign investment in residential real estate, unlike the national realty association in the U.S., but widespread anecdotal reports from local players suggest investment cash from China is a small but significant factor, especially in the market for expensive homes. The additional demand may be helping to underpin a market whose prices seem to impossibly levitate above the typical local incomes in the region.

And it may increase, as more affluent Chinese aim to move, as well as invest their money abroad. There are nearly 600,000 high-net people worth at least $1.5-million in China this year, according to the consultancy Bain & Co. About 10 per cent of them have already left, another 10 per cent are planning to apply for immigration, and about 30 per cent are considering it, according to results based on Bain’s survey of 2,500 rich Chinese released last week.

The method of exit is to qualify abroad as an “immigrant investor.” In Canada, that means an immigrant must have a net worth of $1.6-million and make an $800,000 investment – figures that are twice what they were last year. The Vancouver region has already welcomed about half of 10,000 or so immigrants who come to Canada annually under such programs.

Yolanda Chen and Simon Yang arrived earlier this year as immigrant investors. The couple, and their six-year-old daughter, came for the same reason cited by a majority of people from China: a better education system. Ms. Chen, who was a television executive in Shanghai, has purchased a $2-million home in White Rock, south of Vancouver.

“It’s a better, and healthier, life here,” she said.

While realtors cite the influence of rich immigrants and investors on markets such as Vancouver, data suggest that the absolute number of buyers in such categories is small.

In the U.S. the most recent figures show that foreigners are a factor in real estate markets but not a massive one. Foreigners spent $41-billion on U.S. real estate from April, 2009, to March, 2010, about 4 per cent of the American market. Canadians accounted for about quarter, roughly $10-billion, of that total. Buyers from China counted for $3.3-billion, behind Mexico and the United Kingdom.

Of the properties purchased, half of them were bought as a primary residence, with only about a quarter for investment purposes.

The U.S. figures are the result of a survey by researchers at the National Association of Realtors. In Canada, there are no comparable numbers, “because there wasn’t demand for us to collect these statistics,” said Pierre Leduc, a Canadian Real Estate Association spokesman.

But the U.S. market results echo what realtors in Vancouver are seeing. Ian Gillespie, head of Vancouver developer Westbank Projects Corp., just opened a Shanghai office. In the company’s last major project, the $450-million Fairmont Pacific Rim luxury condo-hotel tower on the harbour, completed last year, Mr. Gillespie said about one-third of the apartments went to people with roots in China, largely for residences rather than investments.

“They’re not coming in to speculate, throwing money at things. They’re not trying to flip. They probably flip less than anybody,” said Mr. Gillespie.

Ms. Wang – who was scouting another home in the British Properties – buys for investment purposes, and although she and her husband don’t plan to move to Canada, the desire for a stronger education is a factor. Ms. Wang’s 17-year-old daughter lives in Vancouver, where she attends private school, a motivation for the family’s investment in the city.

“The weather is good, the scenery is good, and the education is good,” said Ms. Wang, speaking in Mandarin in an interview. “For the next generation, Canada is a more fair country.”

Last year’s Winter Olympics has sparked additional interest from overseas, said John Lichtenwald, whose Metro Vancouver Properties sold $3.7-billion of residential real estate in 2010 under the Re/Max banner. He estimated that about of a sixth of his firm’s buyers are foreign, led by those with China roots.

“The Olympics was a great advertisement program for all of Vancouver, it really helped,” he said.

Quickly rising home prices have led conservative commentators to point to the role of foreign buyers, though there is no evidence investment money is a primary fuel for the hot market. Peter Ladner, a business leader, recent mayoral candidate for the city’s conservative-leaning party and former city councillor, this month suggested foreign ownership of local real estate should be restricted to discourage “overseas property speculators.” The high cost of living hurts businesses looking to attract workers, he said.

The price of a “standard” two-storey house in the city and on the north shore jumped 10 per cent to $1.1-million in the first three months of 2011, according to research last week by real estate agency Royal LePage. The figure puts Vancouver at triple the national rate for a typical two-storey residence – an average of $379,000, up 4 per cent in the past year.

The city’s most recognizable real estate face, the condo marketer Bob Rennie, insists Vancouver has become a multipart market. There are some neighbourhoods, such as the west side, that can’t be judged on traditional metrics such as income to house price.

And while Mr. Rennie says prices in some areas such as the west side are “pretty frothy,” he leans on another exhortation common among realtors: In a city bounded by the mountains to the north, the water to the west and the U.S. to the south, hot neighbourhoods with spacious homes are rare.

“Even if it slows down, where is the supply?” Mr. Rennie said. “It’s not like we’re producing mansions.”

It is a message embraced by Guo Tai Sun, a 48-year-old who works in real estate and building materials in Guangzhou near Hong Kong. In April, he came to visit friends who had moved to Vancouver and to look at real estate investments. He’s not moving here but made an offer on a $2.5-million home on the city’s west side, popular among China buyers for the quality schools in the area.

“They told me it was a beautiful city,” Mr. Sun said. “I look at the potential of a city. I think Vancouver has great potential.”

Business News Network – April 13, 2011

The strength of the Canadian dollar is turning Canada’s economic performance into a boomerang, with the recent growth spurt giving way to a gradually slower pace that could persist for years as a currency well north of parity restrains exports.

In its quarterly monetary policy report Wednesday, the Bank of Canada suggested that the risk of “greater headwinds” from the loonie gives policy makers more time before inflation is an issue, even as it said the slack from the recession will be absorbed by mid-2012, six months sooner than anticipated.

While that new timeline would normally imply a faster-than-planned path to higher borrowing costs, the central bank’s focus on the loonie suggests the next interest rate hike may be farther away than many were predicting.

“The stronger economic expansion observed in recent quarters is projected to give way to a more modest pace, as the particularly strong rebound in exports observed recently is unlikely to be sustained, given ongoing competitive challenges including headwinds from the Candian dollar,” the central bank said. “The recovery in exports will be subdued relative to earlier global recoveries.”

Though the central bank sees faster Canadian growth this year than it did in January – upping its 2011 projection to 2.9 percent from 2.4 percent – much of that increase is explained by a 4.2-percent expansion from January through March, on an annual basis, capping the momentum carried into the year by a 3.3-percent growth rate in the last quarter of 2010. Those impressive results were due in large part to a surge in exports which, it is now increasingly clear, has not continued.

The current quarter will see a significant slowdown to a 2-percent pace of growth, the central bank said, a rate that would be closer to 2.5 percent without the Japanese earthquake’s estimated impact on North American supply chains. Growth will then pick up, while remaining below 3 percent and gradually slipping to just above 2 percent by the end of 2012.

All told, growth in 2012 will come in a bit lower than what the bank predicted in January, at 2.6 percent instead of 2.8 percent.

The currency is helping to keep a lid on inflation by making imports cheaper for Canadians, including for firms actively working to boost productivity by purchasing state-of-the-art machinery from foreign suppliers. But it is also making Canadian goods and services more expensive abroad, cutting into companies’ ability to crack new markets in a fiercely competitive post-downturn global economy.

The central bank, which in January listed for the first time in memory a currency at parity with the U.S. dollar as one of the “assumptions’’ behind its forecast, said the latest projections factor in a loonie trading at an average level of $1.03 (US). While that is not a prediction per se, it is factored into the bank’s forecasts for growth and inflation through to the end of 2013.

Wednesday’s report also assumes that oil will trade above $100 (US) a barrel throughout the projection period, and at $109 (US) per barrel for three quarters starting with the second half of this year, as well as “persistently strong’’ prices for non-energy commodities, all of which fuels the loonie since Canada is a key producing nation.

At the same time, while commodity prices are causing global inflation pressures to increase, and even as Canadians chafe at higher gasoline and food costs, the central bank’s preferred measure – which strips out volatile items such as fresh fruit and energy – has been dropping. The so-called core rate will rise “gradually” to the bank’s 2-percent goal by mid-2012, policy makers said, suggesting little meaningful inflationary pressure until then.

The central bank acknowledged that its latest survey of Canadian businesses showed a growing number of companies bracing for hotter inflation in coming months – expectations which, in some cases, are already translating into higher prices for consumers. But policy makers rightly pointed out that the survey also found the share of firms having trouble filling open positions “remains well below historical averages,’’ in keeping with a 7.7-percent unemployment rate and a slow recovery in hours worked.

All of which suggests wages, often the biggest driver of inflation, won’t take off anytime soon.

The global recovery is “becoming more firmly entrenched,’’ the bank said, as growth in the United States solidifies, the European expansion strengthens, and global financial conditions “remain very stimulative and investors have become noticeably less risk averse.’’ The world economy will grow 4.1 percent this year, one tick higher than the central bank’s January forecast of 4 percent, and 3.9 percent in 2012.

The central bank cut its outlook slightly for the United States, while expressing optimism that the rebound in Canada’s main export market is solidifying as businesses invest and the labour market recovers, despite an “acutely challenged’’ housing market and efforts by households and governments to trim debt. The U.S. economy will expand 3 percent this year instead of 3.3 percent, the bank said, maintaining its 3.2 percent call for 2012.

Policy makers remain concerned about the sovereign-debt troubles in Europe, but nonetheless boosted their projections for the euro area for this year and next, to 1.8 percent and 1.7 percent compared with their January prediction of 1.5 percent in both years.

For Canada, inflation could be quicker if commodity prices are higher than expected due to rapidly growing emerging markets failing to keep their economies from overheating, or if Canadian households spend more than anticipated after bringing their borrowing back in line with income growth. On the other hand, inflation could be slower due to the effects of the strong loonie, if household spending slows more than the central bank anticipates, or if the housing sector weakens suddenly.

On Tuesday,  Carney said left his benchmark rate at 1 percent and said further hikes “would need to be carefully considered,’’ repeating language he has used since last October when he paused his tightening campaign after three increases.

Financial Post – April 7, 2011

Canadians younger than 35 are most intent on buying a home over the next two years, according to a survey released Thursday.

However, most of those in this age group, which included people 18 to 34, indicated in the Royal Bank of Canada’s annual home-ownership survey that it would be better to wait until next year to make a purchase.

Fifty-five per cent of respondents in this age category said it makes sense to wait until next year before buying a home, compared to 45 per cent of respondents overall who felt this way.

“In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home,” said Bernice Dunsby, RBC’s director of home equity.

“It’s also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don’t become house poor, as home maintenance and lifestyle costs can add up.”

Overall, 29 per cent of respondents said they planned to buy a home within two years. The rate was 43 per cent for those 18 to 34. Those 35 to 54 were in line with the overall average, at 29 per cent, while just 17 per cent of respondents 55 and older planned to buy a home over the next two years.

The results were based on online polling conducted by Ipsos Reid between Jan. 12 and 17 of 2,103 Canadians.

While the sample was weighted to match Canadian demographics, RBC said an unweighted sample of this size would yield results that accurately reflect the population within two percentage points, 19 times out of 20.

Vancouver Sun

Upping the ante in the lower level

Big screens and even bigger sound, designer chairs and smart lights that slowly dim as the movie starts rolling make basement home theatres more sought-after then ever.
Photograph by: Jenelle Schneider, Vancouver Sun

What’s hot in the home’s coolest area? Here’s what the pros consider the top 10 must-haves.

1. HOME THEATRES Big screens and even bigger sound, designer chairs and smart lights that slowly dim as the movie starts rolling make home theatres more sought-after then ever. Perfect for cocooning after a rough day in the big world.

2. BELLY UP De rigueur in 1960s rec rooms, sweet watering holes are back. Now they’re bigger and better, says Norm Lecuyer, president of Just Basements. Full-on pub-style bars with pull taps, granite counters and subtle lighting mean you may never want to leave home

3. WINE CELLARS Temperature-controlled with glass doors and an ultra-sleek look — a fine vintage never had such a good friend.

4. FULL KITCHENS Some families do nearly all their cooking below stairs, reserving the main floor kitchen for show or entertaining, says Donna Correy, owner of Ottawa’s KISS Design Group. In fact, she created an entire basement kitchen f or the million-dollar-plus dream home that’s the main prize in this year’s Children’s Hospital of Eastern Ontario lottery.

5. PLAYROOMS Play structures, toy storage areas and other kid-friendly features give new meaning to an old term.

6. FUN AND GAMES Fuzzball, air hockey, pool and Ping-Pong tables: basement games rooms are on the rise. One of Correy’s clients even set up an entire floor hockey rink using old NHL boards and glass.

7. FITNESS ROOMS With the advent of compact, affordable exercise equipment, fitness buffs are increasingly trucking downstairs instead of down to the gym. However, Correy notes that many men still prefer the gym, while women often like the privacy of home workouts.

8. HOSE-DOWNS Spa-like bathrooms with steam and body-jet showers, whirlpool tubs, and high-end fixtures: just the thing after a sweaty session in the fitness room.

9. CONCRETE FLOORS Old-school, yes, but up-to-the-minute when you add cosy, radiant floor heat and tart up the concrete with stained, stamped or stencilled pizzazz. Also in vogue: engineered hardwood and ceramic tile.

10. BRIGHT WORLD Reds, blues, yellows, oranges, greens: be bold when painting, especially accent walls which can splash your basement with colour and character. Wall sconces at a little over six feet and casting light downward can create the illusion of greater ceiling height, says the experts. If you need to sometimes close off your stairwell, use a light-transmitting French door.

To help raise money for those in Japan who’ve been affected by the devastating earthquake and tsunami, a compilation CD with 38 tracks entitled Songs for Japan has been put together by four different record label companies, currently available on iTunes for only $9.99.

All of the proceeds will go towards the Japanese Red Cross Society’s disaster relief efforts. The physical version will be released as 2-CD’s on April 4th.

artists included on the album include Beyonce, Sade, Michael Buble, Enya, Elton John, Sting, Norah Jones and others.

To purchase the album through iTunes, click here.

Here’s the complete track list:
John Lennon, “Imagine (Remastered)”
U2, “Walk On”
Bob Dylan, “Shelter From the Storm”
Red Hot Chili Peppers, “Around the World (Live)”
Lady Gaga, “Born This Way (Starsmith Remix)
Beyonce, “Irreplaceable”
Bruno Mars, “Talking to the Moon (Acoustic Piano Version)”
Katy Perry, “Firework”
Rihanna, “Only Girl (In the World)”
Justin Timberlake, “Like I Love You”
Madonna, “Miles Away (Live)”
David Guetta, “When Love Takes Over (feat. Kelly Rowland)”
Eminem, “Love The Way You Lie (feat. Rihanna)”
Bruce Springsteen, “Human Touch”
Josh Groban, “Awake (Live)”
Keith Urban, “Better Life”
The Black Eyed Peas, “One Tribe”
P!nk, “Sober”
Cee Lo Green, “It’s OK”
Lady Antebellum, “I Run to You”
Bon Jovi, “What Do You Got?”
Foo Fighters, “My Hero”
R.E.M., “Man On the Moon (Live)”
Nicki Minaj, “Save Me (Clean Version)”
Sade, “By Your Side”
Michael Buble, “Hold On (Radio Mix)”
Justin Bieber, “Pray (Acoustic)”
Adele, “Make You Feel My Love”
Enya, “If I Could Be Where You Are”
Elton John, “Don’t Let the Sun Go Down On Me”
John Mayer, “Waiting On the World to Change”
Queen, “Teo Torriatte (Let Us Cling Together)”
Kings of Leon, “Use Somebody”
Sting, Steven Mercurio & The Royal Philharmonic Orchestra, “Fragile (Live in Berlin)”
Leona Lewis, “Better In Time”
Ne-Yo, “One In a Million”
Shakira, “Whenever, Wherever”
Norah Jones, “Sunrise”

Canada Mortgage Trends March 24, 2011

The much-unloved Interest rate differential (IRD) penalty is a mystery to most of the natural born population.

People loathe it, largely because they don’t understand it. We continually come across folks who read their entire mortgage contract and are still confused by the IRD calculation.

Fortunately, federal disclosure guidelines are on their way later this year. These guidelines are supposed to standardize the explanations of IRD penalties to make them more comprehensible.

There is one element of the IRD calculation, in particular, that gets people all tied in knots. It’s called the “comparison rate.”

Here’s a real-life example of how the comparison rate can spoil your day:  Customer fee to pay out mortgage doubles (CBC News).

The story features a regular guy (Mohsen Movahed) who learned how to calculate an IRD penalty…the hard way.

It seems Movahed relied on a penalty quote, only to find some months later that his penalty had doubled.

The culprit, says his bank, was the comparison rate used in the IRD calculation.

Comparison-Rate-IRD-Penalty
A comparison rate is the rate a lender compares to your current contract rate in order to calculate the IRD penalty on a fixed-rate mortgage.

The comparison rate is usually the lender’s rate for the term that most closely matches your remaining term.

For example, if you have 22 months remaining on your fixed mortgage, a lender will typically (there are exceptions) use a 2-year term as your comparison rate.

The kicker is that banks often subtract the discount you received at origination from their posted (comparison) rate—which makes the interest rate differential and penalty even worse!

Some lenders use bond yields for their comparison rates (example). This method can sometimes be far more costly depending on yields and mortgage spreads.

Conversely, some non-bank lenders use regular discounted rates for their IRD calculations, which can be more favourable for the customer.

In any case, Mr. Movahed discovered that the comparison rate can drop considerably as time goes by. That drop can boost the interest rate differential and cost you thousands more.

As a sample test, we ran a quick penalty calculation for breaking a hypothetical $250,000 mortgage. Our example was based on actual historical and current bank rates. It assumed the customer had about 2.5 years remaining on their term and had received a 1.50% discount off posted rates.

Depending on the effective date of the penalty calculation, a bank could quote the penalty based on either a 2-year or 3-year comparison rate. That’s relevant because the penalty difference between these two comparison rates (as of today March 24, 2011) is more than $3,700!

In other words, if our hypothetical customer waited until she had slightly less than 2.5 years remaining in her term, the bank could apply the lower 2-year comparison rate (instead of a 3-year) and her penalty would increase 28%.  (A lower comparison rate makes the IRD bigger.)

The moral is that timing matters when calculating an IRD penalty. A good mortgage advisor can help you plan properly to minimize the IRD, if and when you have to pay it.