Tuesday, December 30, 2008
Now the market for both houses has crashed, and the couple are left arguing about whether the homes are worth what they owe on them, and whether there are any assets left to divide, Ms. Needle said.
“We’re really trying very hard to be amicable, but it puts a strain on us,” said Ms. Needle, the friction audible in her voice. “I want him to buy me out. It’s in everybody’s interest to settle quickly. That would be my only income. It’s been incredibly stressful.”
Chalk up another victim for the crashing real estate market: the easy divorce.
With nearly one in six homes worth less than the mortgage owed on it, according to Moody’s Economy.com, divorce lawyers and financial advisers around the country say the logistics of divorce have been turned around. “We used to fight about who gets to keep the house,” said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. “Now we fight about who gets stuck with the dead cow.”
As a result, divorce has become more complicated and often more expensive, with lower prospects for money on the other side. Some divorce lawyers say that business has slowed or that clients are deciding to stay together because there are no assets left to help them start over.
“There’s an old joke,” said Randall M. Kessler, Ms. Needle’s lawyer. “Why is a divorce so expensive? Because it’s worth it. Now it better really be worth it.”
In a normal economy, couples typically build equity in their homes, then divide that equity in a divorce, either after selling the house or with one partner buying out the other’s share. But after the recent boom-and-bust cycle, more couples own houses that neither spouse can afford to maintain, and that they cannot sell for what they owe. For couples already under stress, the family home has become a toxic asset.
“It’s much harder to move on with their lives,” said Alton L. Abramowitz, a partner in the New York firm Mayerson Stutman Abramowitz Royer.
Mr. Abramowitz said he was in the middle of several cases where the value of the real estate could not be determined. “All of a sudden,” he said, “prices are all over the place, people aren’t closing, and it becomes virtually impossible to judge how far the market has fallen, because nothing is selling.”
For John and Laurel Goerke, in Santa Barbara, Calif., the housing market crashed in the middle of what Mr. Goerke said had been an orderly legal proceeding. At the height of the market, Mr. Goerke said, they had their house appraised at $2.3 million, which would have given them about $1 million to divide after paying off the mortgage. But by the time they sold last year, the value had fallen by $600,000, cutting their equity by more than half.
“That changed everything,” said Mr. Goerke, who is now nearly two years into the divorce process, with legal and other fees of several hundred thousand dollars. “The prospect of us both being able to buy modest homes was eliminated. The money’s not there.”
Now, with both spouses living in rental properties, their lawyers still cannot agree on what their remaining assets are worth. Their wealth is ticking away at $350 an hour, times two.
“It’s got to end,” Mr. Goerke said, “because at some point there’s nothing left to argue about.”
For other couples it does not have to end. Lisa Decker, a certified divorce financial analyst in Atlanta, said she was seeing couples who were determined to stay together even after divorce because they could not sell their home, a phenomenon rarely seen before outside Manhattan.
“We’re finding the husband on one floor, the wife on the other,” Ms. Decker said. “Now one is coming home with a new boyfriend or girlfriend, and it’s creating a layer to relationships that we haven’t seen before. Unfortunately, we’re seeing ‘The War of the Roses’ for real, not just in a Hollywood movie.”
In California, James Hennenhoefer, a divorce lawyer, said couples were taking advantage of the housing crisis to save money by stopping their mortgage payments but continuing to live together for as long as they can.
“Most of the lenders around here are in complete disarray,” Mr. Hennenhoefer said. “They’re not as aggressive about evictions. Everyone’s hanging around in properties hoping the government will buy all that bad paper and then they’ll negotiate a new deal with the government. They just live in different parts of the house and say, ‘We’ll stay here for as long as we can, and save our money, so we have the ability to move when and if the sheriff comes to toss us out.’ ”
Mr. Hennenhoefer said this tactic worked only with first mortgages; on second and third mortgages, the lenders pursue repayment even after the homeowners have lost the home.
Dee Dee Tomasko, a nursing student and mother in suburban Cleveland, expected to leave her marriage with about $200,000 in starter money, primarily from the marital home, which was appraised at about $1 million in 2006. By the time of her divorce last year, however, the house was appraised at $800,000; her share of the equity came to about $105,000.
Though she is relieved to be out of the marriage, if she had known how little money she would get “I might have stuck with it a little more; I don’t know,” Ms. Tomasko said, adding, “Maybe it would’ve made me think a little harder.”
For divorcing spouses with resources, though, there can be opportunities in the falling housing market.
Josh Kaufman and his wife bought a new 6,500-square-foot house outside Cleveland on five and a half acres, with four bedrooms and two three-car garages, that was worth $1.5 million at the height of the market. When they divorced in June, Mr. Kaufman knew his wife could not afford to carry the home. The longer the divorce process continued, the more the house depreciated; by the time he assumed the house, its appraised value was half what the couple had put into it; he did not pay her anything for her share.
“From a negotiating standpoint we knew that she couldn’t afford to stay in it,” Mr. Kaufman said. “It appeared as an opportunity to turn the negative situation around. There was no emotion involved. It was a business decision on what made most financial sense. It wasn’t an attempt to take advantage of someone.”
Still, his lawyer, Andrew A. Zashin, said, “He bought this house at a bargain basement price.”
For Nancy R., who spoke on condition of anonymity because her colleagues do not know her marital status, the impediments to divorce are visible every time she opens her door.
“There’s three other houses for sale on our same road,” she said. “There’s no way our house would sell.”
For now the couple are separated, waiting for real estate prices to recover. But for Ms. R., that means remaining financially dependent on her husband. He moved out; she remains in the house.
“I still feel kept in certain ways, and I don’t want to rock the boat,” she said. “And it’s draining. So suddenly, when there’s an economic crunch, we’re paying for two places. And we’re both eating out more, because it’s no fun to eat alone.”
The same dynamics that marked their marriage now hang over their separation, she said: “He has the ultimate control.”
“We can’t sell the house,” she said, “and whatever settlement I get depends on a good relationship with him, based on his good will. The lines get blurry and confused quickly, which makes emotions fly easily” — especially if she were to start dating.
“Any icing on the cake is going to come from his good will,” she said, “and that means being the peacemaker. I’m the underdog in this situation. We’re basically forced to remain in a relationship after we’ve decided to end it.”
David Pylyp; This story from the NY Times articulates the stress that is caused by financial worries added to the passions that rise to the surface in an acrimonious property settlement and child custody and care issues.
If you are involved or near this level, I suggest you seek independant legal counsel; to assertain your rights, your obligations and how to extract yourself with the least expense. Selling is stressful enough without all the parties struggling over another issue, the sale of the home.
Monday, December 29, 2008
A new poll suggests a significant majority of Canadians remain optimistic as they look ahead to 2009 - notwithstanding all the gloomy talk about a looming recession.
The Canadian Press Harris-Decima survey found that 58 per cent of respondents were upbeat about the coming year, and only 21 per cent were pessimistic. Another 20 per cent said their outlook was neither optimistic nor pessimistic.
Ironically, the poll found less cheer among the wealthiest respondents - those earning a family income of more than $100,000 a year - than among those earning less than $60,000. In the lower income bracket, fully 61 per cent said they're looking forward to 2009. That compares to 54 per cent among high-end earners.
Losses on the stock market, or from retirement savings, may have impacted higher-income earners more.
Fewer than one third of overall respondents said their net worth had declined in 2008, while 42 per cent with household incomes above $100,000 said their investments had dropped in value.
Ontario and British Columbia residents were more likely to respond that their net worths had plummeted.
Stock markets were expected to close out 2008 with a lot of red ink.
At the close of trading last week, the TSX was down nearly 40 per cent since the beginning of the year.
It was a gut-wrenching downward spiral that saw billions of dollars held by Canadians in mutual funds, pension plans or individual investments wiped out.
Despite the losses, and predictions of rising unemployment in 2009, most poll respondents were upbeat about their work, with more than two thirds expressing little or no concern about their job prospects over the next six months.
Employment concerns were the lowest on the Prairies. In Manitoba and Saskatchewan, only 15 per cent of respondents expressed worries about losing jobs.
"We see mixed signals in the economic mood right now," said Harris Decima Senior Vice-President Jeff Walker.
"Many have seen retirement savings erode over the past few months, and some have a heightened concern about job loss, two trends that are most pronounced in Ontario," he said.
"Yet on the whole, the deepening pessimism expressed by some financial analysts and media observers does not appear to be shared by the majority of Canadians."
As well, most Canadians don't appear set to put off plans for major purchases, the poll found. Only 29 per cent of those asked said they would defer major purchases until 2010 while 70 per cent said they were likely to stick to plans to buy big-ticket items.
That may be welcome news for retailers, who saw sales decline over the holiday shopping period this year compared with 2007.
The poll of more than 1,000 respondents was conducted Dec. 21 to 24 and has a margin of error of 3.1 percentage points, 19 times in 20.
David Pylyp; This is encouraging news for many buyers and sellers in Toronto. I sense a strong pent up demand to purchase with people hesitating but they don't really understand why. Toronto has far fewer people defaulting on their mortgages compared to cities like Calgary or Edmonton. Remember 93% of the populatin is employed.
Thursday, December 25, 2008
Finding a tenant who will go buy their rules is one thing.
Are these guys even allowed to advertise like this. It sounds like a jail. I will paste the ad here just in case it gets deleted. There are issues here that are clearly in conflict with the Law; Privacy and Peaceful enjoyment, Privacy and Notice and access. Decide for yourselves.
Available Immediately – Yonge & Eglinton (Duplex Ave) – Showing Saturday and Sunday – Email for directions and additional information.What kind of apartment is it?• One bedroom basement apartment with separate entrance• Tastefully decorated with modern minimalist décor• Approximately 650 square feet• There is even a window! Security bars installed for your safety and to prevent unauthorized activity• Closed circuit camera installed for security and safety. One in your suite, one at the entrance, and one in the exercise yardRent:• $615.00 per month• First month’s rent + ½ month security deposit due at move in• Small pet allowed with approval and payment of additional ½ month pet damage deposit• One year lease permitted, option to renew lease at end of the term with no increase in rent• LANDLORD’S SPECIAL! Move in before January 1st and don’t pay for the remainder of December! That’s significant savings, especially during this time of year.Included in the rent:• Electricity• Heat – Maintained at 21 degrees with lock box to prevent unauthorized tampering. Additional heating available for $20.00 per extra degree of heating per month. You may not use your oven to heat the apartment. If you do, you will be fined $50.00 per occurrence.• Air conditioning – Maintained at 25 degrees during the summer with lock box to prevent extra cooling from being dispensed. Additional cooling for sale for $20.00 per degree of cooling requested per month.• 25" Zenith color television set with basic cable service - INCLUDED IN RENT! Cable television service will be shut off at 11:30 p.m. daily.• Wireless internet (with content filter applied to block forbidden/immoral websites) - INCLUDED IN RENT! Internet service will be shut off at 10:00 p.m. daily.• Provision of coin laundry services - You will have your own personal coin laundry washer and dryer machines. We think your friends will be jealous of your very own coin laundry machines. Washers and dryers are paid using a token system. Tokens can be purchased through the landlord. Washer tokens cost $5.25 each and dryer tokens cost $3.95 each. Soap will be made available at the cost of $3.20 per wash load, or you may prefer to use your own. You are not allowed to use foreign currency or slugs in the washer and dryer. Violators will be fined $100.00 per infraction.• Telephone – Local telephone service is included in the rent. Phones are turned on from 7:00 a.m. until 7:00 p.m. daily. Tenants are limited to 2 hours of telephone calling per week, at which point no additional calls will go through. You must use a calling card for long distance calls at your expense, although these calls count towards your two hour weekly allotment. Please note that telephone calls could be and are monitored on a regular basis.• Bedroll - Upon move in, you will receive a new tenant orientation and bedroll kit, including 1 sheet, 1 blanket, 1 pillow, 1 pillowcase, 1 hygiene kit, 1 towel, 1 facecloth, 1 orange loungesuit, 1 tenant's handbook, and 1 toilet roll. Additional toilet rolls can be purchased through the commissary for $1.95 apiece.About us: (Landlords)We are fundamentalist, conservative, bible believing, God-fearing, born again, evangelical Christians. We interpret the bible literally in every way possible. We live a strict moral code and observe God’s laws in our everyday life. My wife stays at home and teaches our home-schooled children. I work as a pastor at a local congregation and am active in the faith community.
About you: (Tenant)• You are employed• You do not participate in lascivious deviant sexual behavior• You do not choose fringe alternative lifestyles as your lifestyle• You do not have any criminal history• You must have excellent character references• You do not smoke, drink or take drugs. Mandatory drug screening required.• Ability to follow directions and correct behavior “shape up or ship out”Additional Rules/Conditions:
CLEANLINESS: You are responsible for the cleanliness and orderliness of your apartment. Beds are to be made before leaving your suite,countertops must be wiped down, and you must remove all trash. Upon inspection, if the tenant's basement suite is not clean, the cost of cleaning services plus a fine of $100.00 will be levied.
LIGHTS: The lights in your basement suite and in the day room are not tobe tampered with. If a light needs repair, report the condition to theLandlord.WAKE-UP: Wake up will be at 5:30 a.m. each morning. All ceiling lights inthe suite will be turned on automatically. Beds must be made at this time, and no later than 6:00 a.m. daily.
LIGHTS OUT: Ceiling lights in the suite will be turned off at 11:30 p.m. Small desk lamps are permitted for bible reading, etc.
CONTRABAND: The following items are considered contraband – alcohol, illegal drugs, tobacco, weapons, lock picking equipment. If any contraband is discovered to be in your possession, you will be subject to a minimum $1,000.00 fine. In addition, your items will be confiscated permanently. Second offense – you will be evicted without notice. A bailiff will escort you and your belongings off the premises. Your security deposit will not be returned.
SMOKING: The basement suite is non-smoking. Anyone in possession of tobacco products of any kind or any lighter or matches, will have their contraband items confiscated and will be fined $1,000.00.
INSPECTIONS: The Landlord will conduct unannounced inspections to ensure that these rules and regulations are being followed.
VISITATION: Visitation periods will be on Saturdays and Sundays from1:00 p.m. until 3:00 p.m. All visitors and their vehicles are subjectto search while on landlord property. Refusal to allow a search canresult in their being barred from all future visitation privileges. Allvisitors must sign the Visitor's Log. Unauthorized visitors will beescorted from the property, and the tenant will be fined $250.00.I.D.
BRACELETS: Each tenant will be issued an I.D. bracelet with his/herphotograph. It must be worn at all times. If you lose your I.D.bracelet or it is broken, you will be required to purchase a new one atthe nominal cost of $6.25.
EXERCISE YARD: The tenant will have access to the exercise yard in the area to the back of the property for 2 hours per day from 4:00 pm to6:00 pm. The tenant is not allowed to bring any personal property tothe exercise yard. Once the tenant leaves the exercise yard on aparticular day, he or she may not return. No boisterous behavior isallowed in the exercise yard. There is no smoking allowed in theexercise yard. Minimum fine for exercise yard infractions is $50.00.
It would be normal to have the tenant applicant acknowledge the rules of occupancy as might be contained in the Rules and Regulations of a Condominium Corporation; but access and inspections of the nature mentioned above clearly conflict with the current Landlord Tenant Regulations.
Tuesday, December 23, 2008
I resolve to open a TFSA
It’s coming up to the time of year for making resolutions and a good one for almost anybody looking for financial security – and some solid tax breaks, too – is to open a Tax-Free Savings Account (TFSA).
TFSAs will become available to Canadians in the 2009 taxation year. This new tax-free option is a flexible, general-purpose savings vehicle into which you can make an annual non-deductible contribution (up to $5,000 per adult in 2009) that will grow without incurring taxation.
Withdrawals can be made at any time for any purpose and are also exempt from taxation.
Unused contribution room can be carried forward indefinitely and any amounts withdrawn in a year will be added back to your contribution room for the following year.
Here are just a few ways that you can put a TFSA to the best use for you:
- A source of emergency funds The rule of thumb is to set aside an emergency fund equal to three months of your after-tax income. A TFSA gives you an easily accessible source of tax-free emergency money that can be paid back to your TFSA without penalty once the ‘emergency’ is over.
- An addition to your RRSP If you are in a lower tax bracket, you may have a small amount of RRSP contribution room that will not deliver much of a tax benefit. And if you need to withdraw some RRSP dollars for emergency use, you’ll pay a tax penalty. A TFSA will allow you to have tax-free emergency funds on hand and you can later move your tax-free TFSA funds into your RRSP when your income is higher and the RRSP deduction is more valuable.
- Saving for a home Under the Home Buyers Plan (HBP) you can withdraw money from your RRSP for a down payment – but there is a $20,000 limit on withdrawals, a fixed repayment schedule and strict eligibility requirements, including meeting the definition of ‘first-time home buyer’. Alternatively, you can choose to save for a home through your TFSA and still enjoy the tax-free benefits without the restrictions of a HBP.
- Saving to start a business A TFSA can be a tax-effective way to save the initial equity required to start a business. And unlike RRSPs, a TFSA can be used for security when obtaining bank financing.
This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
John Scholl B. Mathematics, CGA,
Wealth Management & Financial Planning Investors Group
200 - 24 Queen Street East,
Brampton, Ontario L6V 1A3
( Tel. : (905) 450-2891 X529
Monday, December 22, 2008
Haggling has largely disappeared in parts of the world where the cost to haggle exceeds the gain to retailers for most common retail items. However, for expensive goods sold to uninformed buyers such as automobiles, bargaining can remain commonplace.
Haggling AHHhhh The Purpose of my existence or the Bain of my Career?
In a Seller's Market, there is no haggling, it is simply a matter of who will pay the most for what is available.
In a Buyer's Market, what will be included. Previously unseen, for more than a decade has been the silent offer with a nod; "Do you think they will take this? You never know they might, depending on how motivated they are. " Now they are asking for paid Land Transfer Tax or even legal fees. Sometimes the snowblower in the garage.
The Outrageous Lowball Offer! Well that just stands alone as incredible. No One responds. They just look at each other and shake their heads. The deal rarely comes together as everyone was too far from reality or their expectations did not meet the market.
That's not surprising, because haggling simply makes many people uncomfortable, said Steve Murray, editor of Real Trends, a real estate industry trends and research company.
Still, in today's challenging real estate markets, the average commission rate is rising, he said. According to Real Trends' analysis, the average commission rate today is 5.2%, up from 5.02% in 2005. The rate was 6.1% in 1991, and had declined every year until 2006.
The rise in rates lately is logical, since homes are taking longer to sell and real estate agents need to spend more money and time selling a home, he said. "When the cost and the time that it takes to market a home goes up, why would anyone expect that those providing that service would charge less?" Murray added.
The Consumer Reports survey also found:
- 71% of sellers were "very" or "completely" satisfied with their broker, while 12% said they were dissatisfied.
- 66% of those who used an agent to buy a home paid an average $5,000 less than the listing price.
- 34% of buyers who didn't use an agent paid close to the asking price.
- 86% of those who put their homes on the market made a sale, while 8% eventually gave up and took their homes off the market.
Price the home correctly. Homes sell most quickly when they're listed at a price just below other similar homes in the area. Not getting an offer in four to six weeks? Drop the price by 4% to 6%.
Use round numbers. About 80% of people buying and selling homes today use the Internet to search for homes. To conduct a search on Realtor.com, for example, buyers give a price range that begins and ends with round numbers. So make sure you price the home in a way that the maximum amount of buyers will see it. For example, price a home at $350,000 (instead of $349,900) and you'll get interested buyers in both the $325,000 to $350,000 and the $350,000 to $375,000 price ranges.
Pick smart improvements. Don't expect to recoup the whole cost of a kitchen or bathroom update in today's market. Sprucing up the outside of the home with a deck, adding energy efficient windows or replacing the siding might pay off the most.
The most important advice I can offer is "there are four people involved in your real estate transaction; the Seller, The Buyer, and usually two agents. It is inevitable that the person with the strongest arguments, best presented details, negotiation and persuasion skills will take the business to his side.
Your comments are always invited.
This article describes how you can maximize the opportunities associated with tax loss selling to help reduce your tax liability or obtain refunds of taxes paid in previous years.
When you sell a security at a loss, you can use 50 per cent of this capital loss (called an "allowable capital loss") to offset taxable capital gains that you realize in the same year. This may reduce your tax liability for that year. Unfortunately, losses realized in your investment portfolio may be used against capital gains only - they cannot be used to reduce your other income for the year such as employment income.
Net capital losses
Capital losses realized in a given year must first be used to offset capital gains realized in the same year to reduce the current year's tax liability. When you have no capital gains in the current year or your capital losses in the year exceed your capital gains, the remaining capital loss is known as a "net capital loss."
You can carry a net capital loss back and apply it against taxable capital gains realized in any of the previous three years, which could result in a refund of capital gains tax paid in those years. For example, losses realized in 2008 could be applied against net capital gains realized in 2005, 2006 or 2007. You can also carry net capital losses forward indefinitely to use against taxable capital gains in future years.
Why use capital losses? There are a number of reasons why you may wish to trigger capital losses. For example:
- A particular security no longer meets your investment criteria
- You wish to reduce your tax liability for the current year by offsetting your capital gains realized in the year
- You wish to recoup taxes paid on capital gains realized in 2005, 2006 and 2007 by carrying back net capital losses realized this year
- You have triggered gains by making gifts of securities to your beneficiaries during your lifetime as part of your estate plan and wish to offset these gains to minimize the tax impact of such transfers
- You have sold your business and have realized a sizable gain on the disposition of your shares
- You have realized a capital gain on the sale of real estate that is not your principal residence
According to our tax rules, there are certain situations where you could realize a capital loss if a security declined in value even if you did not sell it on the market. These include deemed dispositions such as:
- Transferring a security to an individual other than your spouse
- Transferring assets to any person other than your spouse or a spousal trust upon your death
- During the period that begins 30 days before and ends 30 days after the settlement date of the disposition, you or a person affiliated with you acquires the identical property that was sold at a loss
- At the end of that period (i.e. 30 days after the settlement date of the disposition), you or a person affiliated with you owns or has a right to acquire the identical property.
Note: The material in this column is intended as a general source of information only, and should not be construed as offering specific tax, legal, financial or investment advice. Every effort has been made to ensure that the material is correct at time of publication, but we cannot guarantee its accuracy or completeness. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change. Individuals should consult with their personal tax advisor, accountant or legal professional before taking any action based upon the information contained in this column.
* David Konning is an investment and retirement planner at Royal Bank. He can be reached at David.Konning@rbc.com or by phone at 856-0406.
David Pylyp; These tax laws are available for multi unit property owners who can offset capital gains from Real Estate investments against other capital losses. PLEASE CONSULT YOUR ACCOUNTANT FOR PROPER TAX PLANNING.
Saturday, December 20, 2008
Buy to Rent Market is a bubble about to burst. There’s no question about it - mortgage costs are rising, lenders are slashing their loan books and all those greedy landlords are about to get it in the neck.
This is the typical view of many outside the property world and quite a few with a good deal of insight into bricks and mortar – but I’m not so sure.
The theory is that with house price falls starting to register, Listings and Assignment of Purchase Agreements will start selling/posting up en masse, and one of Canada's most loved and hated get-rich quick bubbles will go pop.
Too many landlords chased capital growth, speculating on easy profits, is the bears’ theory. And when these misguided hopefuls can no longer justify subsidising tenants in a property falling in value, with mortgage costs going through the roof, they will jump ship.
Of course, Investor cheerleaders dispute this in the strongest possible terms. Buy to Rent is in good health, they claim, and landlords will see falling prices as a buying opportunity.
There is however, another side to the story. And that says both the bears and the bulls have their points, but the great Buy to Rent sell off may not arrive. Buy to Rent is facing its first serious bout of tough times, but amateur landlords might be more resilient than people think.
And there’s a big reason why – pensions.
A number of favourable factors are credited with helping Buy to Rent take off since its conception more than myriad decades ago - low interest rates, lenders exploiting a new market and a decades-long house price boom. Constant and continuing immigration to Canada and especially the Golden Horseshoe, namely Toronto. But one factor that is often overlooked is the public’s complete lack of faith in the financial services industry and the Government.
Often, the only substancial asset at retirement is the Principal Residence, allowed to accrue value Tax Free. Imagine if you had bought a second property, You can with draw equity at any point in time to add a second or third investment, or pay a college tuition. There are no taxes payable till it is sold.
‘My property is my pension’ is an overused phrase and a philosophy that has distorted the Canada's housing market. However, people didn’t arrive at this conclusion without having already lost all retirement hope elsewhere.
Endowments, pension scheme collapses and poor investment management; excessive bonuses and out right fraud have created a culture where the public doesn’t trust the experts with its cash. This mistrust is so deep, that people don’t even have much faith in the banks anymore.
Rightly or wrongly, many only trust themselves when it comes to investing, and the Buy to Rent boom created the perfect vehicle for the paranoid investor. A property is a tangible asset – you can walk around it, improve it, decide who manages it and even decide who lives in it.
If you have made a substantial return on your investment over recent years - as many Buy to Rent landlords have - common sense says prepare to sell now. The property market has peaked, favourable capital gains tax changes are in place and refinancing properties has become a lot more expensive, as the average loan tops 6% and arrangement fees run into thousands.
However, while those who bought recently, or opted for new built condo apartments, may find continuing with their investment unsustainable, many others will not.
If you bought a condo that cost $200,000 five years ago and it is now worth $280,000 you won’t have problems with loan-to-value, your rent will comfortably cover the mortgage and a 10% drop in prices doesn’t sound too worrying.
What else will deliver $150 per month on top of the mortgage cost into your bank account. And where do you put your $80,000 capital gain, if you don’t trust the professionals?
Even those barely breaking even or losing money may take some time to jump ship. As a paranoid investor, where do you put your money instead? That $100 per month subsidising tenants would only go into a pension you mistrust instead. The Canadian home-owning psyche says there will be a lot of people out who will continue to put money in, even as prices dip, on the basis that in 25 years time that property will be worth more.
At the moment, smart money is piling into commodities and emerging markets, Warren Buffet recently made some huge investments, but the man on the street will take some convincing to swap bricks and mortar for wheat, gas or stocks.
The easy credit that fuelled the Buy to Rent boom is gone, house and condo prices have peaked and property sentiment has shifted. Without a flood of new entrants, the Buy to Rent market will run out of steam fast as new blood is essential to any market. But don’t hold your breath waiting for the big sell-off – it may not arrive as fast as predicted.
Lets look at a specific example; I am talking about prudent risk analysis. You can buy a brand new condo in Downtown Toronto asking between $400 - $600 per square foot. These range in size at an average 0f 650 to 900 square feet. But is everyone a tenant for a one bed plus den or a two bedroom plus den? Where are the three bedroom units?
There are stable existing (albeit older established) condos that are priced in the almost $300K that are 3 bedroom units up to 1,600 square feet. Will they find a tenant? Would someone rent at $1600 per month? Absolutely. These are units that are priced at $180 to $200 psf. Is that a better deal?
Examine the financial proforma's and forecast statements for yourself.
What if they don't pay? What if they damage the unit? What IF??
What if you do nothing? Then you will have nothing.
But that is just my opinion.
Friday, December 19, 2008
Why is the mood so pessimistic?
Blame it on a succession of downbeat surveys highlighting the extent of the market’s slowdown. Buyers’ confidence is subsiding under pressure from more expensive borrowing, although prices are still on a par with last year and in some neighbourhoods actually higher than a year ago. Toronto Real Estate Board data showed Toronto prices falling by 3.0 per cent in October, further in November, although there was an overall decline in Canada of almost 10.0 per cent.
This is all very sudden isn’t it?
No one should be surprised that the market’s previous giddy growth is stalling. This was widely forecast last Christmas as the inevitable consequence of the strain imposed on household budgets by higher interest rates, particularly for those whose discounted fixed rate mortgage deals were due to come to an end. It’s all about affordability: prices have risen faster than earnings for 11 of the past 12 years, according to CMHC. Mortgage repayments now account for more than 50 per cent of the average first-time buyer’s take home pay. The market’s temperature cooled in parts of Toronto in the spring, but increased in Mississauga. The Miller Tax?
Are we in for a crash?
Correction would probably be a more appropriate description. Stagnation-not slump - appears to lie ahead. No respected commentator currently believes there will be a repeat of the crash of the late 1980s which was the result of a shock upward move in interest rates and higher unemployment. The slowdown of 2008 could feel more like the doldrums of 2005 when the number of homes bought and sold fell. A drop in the market’s temperature makes people feel hesitant to move. Suddenly homes are for nesting not investing. Get ready for the trend to cocoon.
Are some locations more vulnerable?
Slightly less desirable neighbourhoods populated by those who have been priced out of a nearby more respected areas tend to fall out of favour when the market is more depressed. There are also concerns about lower value properties (that is under $500,000) as the prospective purchasers of these homes could find it harder to get mortgages even if they are prepared to overextend themselves.
But are house prices in West Toronto and Etobicoke going to carry on as normal?
Revised Incomes mean there could be fewer bidders for properties between $1 million and $2 million, but it looks as though international buyers will continue their love affair with more expensive metropolitan homes and downtown condos, with many opting for large condos in Downtown Toronto and Yorkville. Canada continues to be a safe haven for foreign investment.
Won’t the American sub-prime scandal make things worse?
Opinions remain divided as to whether the repercussions of the sub-prime scandal - which has exacerbated America’s serious housing market slowdown – will stifle consumer spending and thus continuing in a recession. If this does come to pass, the pain will be spread everywhere, But, there is conviction that the US economy will contrive to brush off its cares and woes and muddle through, especially in the post election honeymoon. (Auto Makers will not be allowed to fail. They may be restructured.) The credit crunch produced by the sub-prime fallout – which made banks reluctant to lend to each other and brought to the light the 50 Billion stock Market Ponzi Scheme - may also make them reluctant to lend to you. Recently lenders (mortgage officers) have commented it is difficult to obtain financing even for those with no mortgage on an existing property because of the FINTRAC compliance rules.
And why is that?
Most banks have suffered losses on their holdings of sub-prime mortgage debt. As Mervyn King, Governor of the Bank of England, warned this week, they will repair this by being less generous. Anyone needing a loan of 95 per cent or more of a property value, or aspiring to borrow five times their income should prepare for disappointment because mortgages sold to US homebuyers with poor credit records were parcelled up and sold on to institutions worldwide as supposedly secure investments. Those investors who are buying with 20 % as a downpayment and are buying below market values; with careful risk analysis, will reap huge rewards. Canada's practice is much safer in that the mortgages advanced are held here and fully insured by the Government of Canada via CMHC.
If you are a CNN watcher, they televise and sensationalize entire neighbourhoods that are vacant and abandoned with streets upon streets with For Sale signs. We do not (have not) see that in Canada.
Should I rethink taking out a loan to invest in rental income property?
Investor loans may be harder to get. Meanwhile, smaller developments in city centres, such as Humber Bay Shore condos, or condos along the subway line (major transit corridors) that may be oversupplied with condos could be seen as vulnerable parts of the market. This does not mean prospects are poor for all real estate condo investments. Many amateur landlords are long-term investors and not overindebted; they are also enjoying rising rents with demand for rented accommodation at its highest for five years. Tenants are either prospective purchasers waiting for weaker prices, or first-time buyers priced out of the market. The current vacancy factors are at 2.2% and appear to be declining further.
I need to sell as I have a new job elsewhere. Any hints?
David Pylyp, Re/Max Realty Specialists Inc., an agent, recommends that you attempt to take an objective view of your property’s desirability. “Even in a difficult market, a fantastic property can get a good price, but there is less enthusiasm for a lower quality house. If your house presses all the right buttons, you can be confidant about the price; but if it doesn’t then you have to set the price by relation to comparable properties that are also available.”
Does all this mean bargains for first-time buyers?
Despite the lending squeeze, it’s still possible to get a mortgage if you have a deposit saved. But unless you are expecting a pay rise soon, you may still struggle to afford the monthly repayments.
Thursday, December 18, 2008
What is the Direction of the GTA New Home Market?
What are the Key trends in Condominium Apartment Market?
- Employment Growth
- Mortgage Rates
- Home Buying Intentions
- Increased Choices in Home Buying
- What is the Ratio of Tenants to Home Owners
- Will Prices Fall
- Should you Hold or Sell?
December 1st 2008, I attended this presentation by Canada Mortgage and Housing. It is a good read filled with charts and past historical data.
CAUTION This is not the material you read in the media.
The site will email you the CMHC Housing Market Outlook instantly with your Name, Address and Phone and a valid email address.
Get factual and informative data instantly.
Canada Mortgage and Housing Corporation has confirmed this morning what Canada’s 3.9 million renter households already know: Private rental housing has slipped into a much deeper crisis. The national rental vacancy rate has dropped by a staggering 15% over the past year down to a critically low 2.2% - the lowest level in six years. Across Canada, rents are rising faster than the rate of inflation. As the economic tsunami crashes over the country, the federal government needs to follow the lead of a growing number of countries around the world and include affordable housing investments as part of its economic stimulus package.
Canada’s private rental market matters because it provides a home for almost one-third of Canadian households – and includes most of the low and moderate, and many middle-income households. About 31% of the homes in Canada are rented (3.9 million out of a total of 12.4 million dwellings); renter households have annual incomes that are, on average, about half or less of owner incomes, so the biggest portion of households that are precariously housed are in the rental sector; shelter costs represent the single biggest expense for low, moderate and even middle-income households, so the higher the rent, the less the money that is available for other necessities such as medicine, food, transportation, child care, clothing and so on; there is a direct link between lower incomes and poor housing and higher illness and premature mortality; rental housing costs have been rising faster than the rate of inflation in recent years, even though renter household incomes have been stagnant (or declining in some parts of the country), which means that renters are facing an AFFORDABILITY SQUEEZE; after dropping very low in 1996, the number of new rented homes has been growing and is now, across Canada, at 18,605 construction starts in 2007 – but that’s still just a little bit more than half the number of starts back in 1990, so there is also a SUPPLY SQUEEZE; and, of course, the growth in housing insecurity starting in the 1990s across Canada has led directly to an increase in mass homelessness throughout the country.
Here are some highlights from the National, Ontario and Toronto numbers:
NATIONAL NUMBERS: The private rental vacancy rate in Canada’s Census Metropolitan Areas (the larger urban areas where most renter households live) fell sharply from 2.6 to 2.2 – the lowest level since 2002. A vacancy rate below 3% puts the private rental market into the danger zone. Canada’s has been in the danger zone every year since 1999 – and the drop has been consistently down since 2003. The average market rent for a typical two-bedroom apartment in Canada’s CMAs jumped from $795 to $828 – an increase of 4.1%, well above the inflation rate. The private rental “universe” (the number of private rental units in metropolitan areas) in Canada has decreased by almost 3% from 1,573,876 in 2007 to 1,528,585 in 2008, even though the country’s population (and therefore the number of households) grew substantially during that time. There’s almost no relief in the secondary rental market (rented condos and secondary suites) with rents that are higher than the primary rental market and vacancy rates – for the most part – below those in the primary private rental market.
NATIONAL ANALYSIS: The millions of Canadians in rented homes are trapped in a double-squeeze. On the affordability side, rents continue to rise faster than the rate of inflation, even though renter household incomes has remained stagnant (below $30,000 annually) since the early 1990s. On the supply side, the overall number of rental homes (the “universe”) is dropping, and the number of vacant units is also falling, which leaves fewer and fewer options. Some renters at the higher end of the rental income scale were able to move into home ownership in recent years, but the qualifying income for ownership housing continues to rise in almost every part of Canada – which is closing this option. Canada remains the only major country in the world without a national housing strategy. Federal investments in affordable housing had a one-year spike in fiscal 2006 as the funds from Bill C-48 (2005 Parliament) were allocated. As of the end of fiscal 2007 (March 31, 2008), Statistics Canada reports that federal investments in affordable housing are at their lowest level on a per capita basis in two decades. And, CMHC in its financial forecasts projects that federal housing investments will drop sharply in the next three or four years. The federal government announced in September that it would extend three national housing and homelessness programs for five years, but froze the funding at the same level as the past decade. Even with those extensions, federal housing and homelessness spending remains painfully low.
ONTARIO NUMBERS: Ontario, which has posted rental vacancy rates above the 3% danger zone in recent years, has dropped from 3.3% to 2.7% - a major fall of 18% in one year. Average market rents are up 2.8% from $870 to $894 (slightly above the annual rate of inflation). The rental universe is up slightly in Ontario – from 622,284 to 622,460, but the number of vacant units in the province has fallen by a whopping 20% to 16,546 for all of Ontario.
ONTARIO ANALYSIS: Renter household incomes in Ontario have fallen sharply over the past 15 years – dropping by 9% over that time even as rents have risen by 37% - creating a very painful squeeze. It’s no wonder that the number of Ontario households facing eviction because they cannot afford to pay the rent has risen to more than 60,000 annually. Ontario has an “official” affordable housing waiting list of 124,032 (according to the Ontario Non-Profit Housing Association), and there are likely many more discouraged households that don’t bother to go on the list. With less than 17,000 vacant rental homes in the entire province, even if the province ramps up a major housing benefit program, a greater supply of affordable homes is urgently needed in most parts of the province. The Ontario government has promised that it will start a consultation on a new provincial housing strategy in the late spring – but that’s after the next provincial budget, which means that any new provincial housing investments could be a year or more away. And it will take a year or more after that to move from development to move-in day for the new homes. The provincial government is offering no relief for the increasingly hard-pressed Ontario renter households. Since 2002, the Ontario government has funded an average of only 1,237 new affordable homes annually, according to numbers from the Ontario Ministry of Municipal Affairs and Housing. At this rate, it will take 100 years just to provide homes for households who are currently on the provincial waiting lists.
TORONTO NUMBERS: There has been a catastrophic drop in rental vacancy rates in the City of Toronto – crashing by 41% to a painfully low 2% - well below the danger zone. Average market rents in Toronto rose over the past year by 3% to break the thousand-dollar mark at $1,014. The rent for a typical two-bedroom apartment rose by the same amount to $1,104. The private rental universe dropped by more than 400 homes to 254,877 while the number of vacant rental units fell by more than 40% to a mere 5,094 for the entire city with its tenant population of 447,000 households. While slightly more condominium units are available for rent in the secondary rental market, the average rents are well above the rents in the primary rental market – so no relief for lower-income households.
TORONTO ANALYSIS: Renter incomes in Toronto have dropped by almost 10% over the past fifteen years, even as rents have risen by 42%. The City of Toronto promises that it will deliver a 10-year housing strategy in the spring of 2009, but provided no new capital dollars for housing in its 2009 capital budget. In 1999, the City of Toronto adopted a target of 2,000 new affordable homes annually, then revised that down to 1,000 new homes annually in 2006. Based on numbers from the City of Toronto’s Affordable Housing office, it will actually fund 780 new affordable homes in 2008 and 570 new homes in 2009 (plus replacing 336 public housing units in Regent Park).
SUMMARY: Renters are facing the worst conditions in the private rental markets in years – rising rents, stagnant incomes, shrinking supply and fewer vacant units. The future looks bleak as the government investments in affordable housing at all levels remains soft. While a number of governments are using their economic stimulus packages of recent weeks to directly invest in affordable housing and related social infrastructure, Canada has failed to take this action. All eyes will be on the federal budget at the end of January for a significant investment in desperately-needed new affordable homes.
David Pylyp; While the Media is screaming the sky is falling the Key economic indicators plainly state that the condo units used as rental housing will meet the market with a steady influx of new people to rent them. The restated vanacy rates are below 2%, for Toronto Real Estate.
The critical criteria is to examine where your risk threshold is for real estate investments. Maybe your cashflow can withstand a negative cash flow on a rental property of one or two hundred per month when you reconsider the upside gains of long term equity.
The headlines screamed "Housing sales hit 20-year low as real estate slump widens" followed by huge sub-head noting an 11 per cent decline in prices and a 44 per cent drop in Ontario housing sales in large RED print, based on the December 15th press release issued by the Canadian Real Estate Association.
The only problem with the article is that it is incorrect. In the third paragraph, the author writes "Between May and November, the average price of an existing home in Canada fell by 11 per cent, matching the drop in 1990 that coincided with the onset of a painful recession.
Housing prices would go on to fall about 20 per cent and it would be another decade before they managed to make new highs."
Unfortunately for the Globe, there was no 20 per cent drop. According to the Canadian Real Estate Association, the Canadian average price actually rose approximately 15 per cent from 1990 to 2000. There were three moderate dips in housing values in the decade – 1990 (3.4 per cent), 1995 (4.6 per cent), and 1998 (1.5 per cent). Average price in Canada has climbed consistently since 1998. It's also important to note that the decline in national housing values have typically been modest and have bounced back almost immediately. Finally there are no two consecutive years of falling prices.
While the national housing picture has been a picture of stability, average housing values in Ontario have seen slightly more volatility over the past 27 years. There have been six decreases in average price noted – with five of the six occurring between 1990 and 1996. Prices fell 17 per cent during that time frame, after climbing a phenomenal 70 per cent between 1986 to 1989 ($107,158 to $182,186). Residential average price has been on an upward trajectory since 1996 – the longest uninterrupted period of growth since 1980.
Based on our comments, the Globe and Mail has printed a correction in this morning‘s newspaper, page A2
So now that the folks at the Globe have been straightened out, we shift our focus to the challenges today’s economic realities are bringing to the housing market. Truth be told, there is not a sector - not even gold - that has not been hard hit by economic turmoil in recent months. Real estate has held up remarkably well, in light of current market realities. We need to see some economic stability - and a recovery in consumer confidence levels - before we can expect housing markets to rebound. Job security will be key.
Inventory will also play an important role. If inventory levels subside, we could see stability return to housing values. To illustrate, new listings fell seven per cent in the Greater Toronto Area in November. If this trend continues, and existing inventory is absorbed, housing values may remain relatively stable in the year ahead.
I'd like to conclude today's communication with the story of a hot dog vendor in Chicago who sold the very best hot dogs by the side of the road. His business was booming, people loved his hot dogs, and his business steadily increases month after month. The man loved his business and believed in the need to provide great food at a great price.
This man was so busy advertising and selling his hot dogs and making lots of money, that he didn't even have time to read the newspaper or listen to the radio. Consequently, he never heard a word about a predicted recession or the need to cut back to save for the potential economic slowdown. As long as he continued to offer his delicious hot dogs, his customers bought them. He kept selling, and they kept buying.
Then one day his college educated son told him that an economic recession was surely coming. His son told him that people wouldn't have enough money to buy his hot dogs. The successful hot dog vendor believed this, so on his son’s advice, he cut back on his advertising. Additionally, he started ordering less supplies and product, because after all, people would be cutting back soon.
He even went so far as to take down many of the billboards that lead to his roadside stand. And sure enough, people stopped coming to him. People stopped buying his hot dogs, and he eventually went broke.
Then he thought to himself. "How smart my son is in predicting this."
Don't be influenced by what you read in the newspapers or hear on your television. It's true that market conditions have changed, but human nature has not. Real estate is one of the largest investments people will make in their lifetime. It's also one of the safest. Get out and spread the word. If you bought a home in 1980 worth $67,000, that property is valued at over $300,000 today – an increase of 350 per cent and the profit is capital gains exempt. It's no wonder that Canada has one of the highest homeownership rates in the world, at close to 70 per cent.
No matter what the investment community will tell you, you can't live in your mutual fund.
Michael Polzler Executive Vice President and Regional Director RE/MAX Ontario-Atlantic Canada Inc.
David Pylyp What is really sad about Miss Information like this; People read the banner but don't buy the papers, No One, will see the retraction or should I say correction. The Sun Media reported today that they are laying off 10%, Can the Globe and Mail be far behind?
Canada Mortgage and Housing in their economic forecast report are quoting a year over year increase next year of 1.2% Yes That looks modest but its not a loss.
Wednesday, December 17, 2008
Saturday, December 13, 2008
Will the Market go up? Will the market collapse?
Housing is based on confidence.
Confidence in your job, your home life and your financial security.
- Make your home more energy efficient to have your home chosen over another.
- Take advantage of the RBC Home Energy Rebate of $300
- Invest to repaint and freshen the appearance of the property.
- Retile or redo the flooring in the foyer or vestibule, recarpet the living and dining rooms, for IMPACT First Impressions.
- Get a Professional Home Stager in to help you display your house to its MAMIMUM potential.
- Discover what Online Marketing Is and How it will Help you sell your Home.
The step between what you are looking for and what you have now is much closer than you think. If you are BUYING and SELLING at the same time, netting a little less for your home and buying for less makes no difference. This is what your dollars can buy today.
Lets Take Advantage of the Current Market conditions to better your position. There's deal around every corner.
Friday, December 12, 2008
On each occasion, at the end of the Open House (for me this is almost dark and last person has been gone at least 20 minutes) he would meet me at the end of the driveway while I was collecting my signs, to discuss the traffic of the day. Which one would pick him and how much he was saving by doing this himself. Which prospect might be flush with cash to buy his house.
Thursday, December 11, 2008
According to the study, Mr. Miller's tax – a levy of up to 2 per cent on top of the province's existing levy – is responsible for a 16 per cent drop in sales and a 1.5 per cent drop in house prices in the city compared to its suburbs.
"The ebb and flow of the market that's caused by the land-transfer tax was not unanticipated," Ms. Carroll said.
Tuesday, December 9, 2008
The economy will pick up, buyers and sellers will come to the table and all this uncertainty will become very clear.
To help you inspire your clients RBC has announced two price offerings
A one year closed rate at 4.35% A four year closed rate at 4.89% There is no expiry on these rates as with RBC when we launch a product we tend to keep pricing in place for a reasonable time.
We also offer a preferred pricing on our variable closed at 4.6% and 4.85% open variable mortgages. We have also announced effective December 10th (Wednesday) our prime lending rate will drop from 4% to 3.5%, marking the lowest rate in the prime since before most of most of us were even born!
Remember as I keep saying to you in times of uncertainty it is of the upmost importance to align your business and your clients with a company who clearly thrives in all markets.
RBC is showing not only Canada but the world that providing expert financial advise will always earn us the right to be our client's number one choice.
Here is what our Minister of Finance Mark Carney had to say in late September, right after the fallout of the US sub prime market.
The Canadian financial system does not need to reduce leverage, we are not immune from the fallout from this process elsewhere. Canadian institutions are in considerably better shape than their international peers. Their losses on structured products have been relatively modest. More importantly, their absolute leverage is markedly lower. As a simple illustration, major Canadian banks have an average asset-to-capital multiple of 18. The comparable figure for U.S. investment banks is over 25, for European banks is in the 30s, and for some major global banks is over 40. While foreign banks are in the process of moving towards Canadian levels, our banks obviously face no such pressures. Indeed, Canadian banks could modestly increase leverage by growing their lending relative to their current capital base.
This flexibility gives our economy a rare advantage. Reflecting better domestic credit conditions, there are few signs that Canadian financial institutions are restricting the availability of credit to households. In fact, such growth has remained surprisingly robust to date. While growth in Canadian business credit has slowed in recent quarters to rates around historical norms, there is no evidence at this point that our corporations are facing unusual credit restrictions. That said, especially in light of the intensified global financial strains, we will continue to watch closely the evolution of credit availability in Canada, through analysis of monetary and credit aggregates, industry visits, and surveys.
Folks it up to us to spread this message to our clients. If we ourselves allow the CNN newscasts and negative images to project into our own businesses we doing our clients and ourselves a dis-service.
Just remember if we look back to all the recorded world crises over the past 100 years how within 6 months of recovery the financial markets averaged a growth rate of 20%!
Yes, 2009 may prove to be a challenge but by working smarter and together each of us will meet and exceed our goals
Guest Contribution; Lindsay Doke Royal Bank Trusted Mortgage Advisor
email: firstname.lastname@example.org http://mortgages.rbcroyalbank.com/lindsay.doke
David Pylyp; There are some great opportunies out there, I still cannot believe the Multi offer property in Bloor West Village.
really, it’s just plain common sense – limit the type of investments you make and they’re easily squished by a single bad market cycle; but diversify your investments among all asset classes –
cash, stocks, bonds, mutual funds and fixed-income investments -- and your chances for loss
are radically reduced while your opportunities for long term growth are vastly enhanced.
But is it possible to add too many investments to your portfolio so that you actually begin
subtracting from portfolio performance instead of adding to it? The essential answer is
‘absolutely’ – which is why the key is to understand the objective of diversification and how it
applies to your portfolio.
The basic purpose of diversification is to control risk. The market goes up and down; it
always has and always will. But making emotional buy and sell decisions in response to
dramatic market moves is one of the biggest threats to the well-being of any investor’s portfolio.
The solution is two-fold: diversify to cushion your portfolio from regular market ‘spikes’ and
‘corrections’ and stay the course to flatten out inevitable market fluctuations.
By combining investments with different return patterns, you reduce the variability of the
portfolio as a whole. Look for investments that perform well at different times – that way, some
parts will produce above average returns while other parts may be producing below average
returns … but the combination of all parts will create a portfolio with relatively less risk overall.
But be sure you are really diversifying. As long as you add elements to your portfolio that
are truly different, you are diversifying and there is a benefit to your portfolio. The real risk is
adding things that are not diverse – such as adding another petro stock to your existing array of
petro stocks, which has no risk-minimizing benefit.
Diversification is more important than the number of investments you hold. The return on
your portfolio is simply the weighted average return of each part of your portfolio taken together.
Ten mutual funds returning 8 per cent will deliver a portfolio return of 8 per cent – exactly the
same as if you held five of those funds … or one. The key is how consistent will that 8% return
be over time. A diversified approach smoothes out the bumps caused by market volatility
ensuring a more consistent return over time.
The bottom line is this: portfolio performance is dictated by investment choice … not investment
quantity. Talk to your professional advisor about designing and constructing a well-balanced,
effectively diversified investment portfolio that will meet your financial objectives and match your risk comfort level and time horizons.
John Scholl B. Mathematics, CGA,
Wealth Management & Financial Planning
Monday, December 8, 2008
I hate to be the bearer of good news, but there's actually some out there, although you'd never know it most days. For example, the "Real Estate Trends" report recently released by the Scotiabank Group was remarkably positive once you got past the first line.
The opening line of the Global Economic Research report by Adrienne Warren of Scotia Economics bluntly declared that "Canada's longest housing boom of the postwar period has come to an end."
We all know that, but the balance of the report put that opening statement into some healthy perspective, something that has been sorely lacking in most recent media reports on the state of the housing market.
"We argue against taking an overly alarmist view to domestic housing prospects," says Warren. "This is not a U.S.-style bust caused by overbuilding, speculative buying and imprudent lending, but rather a cyclical slowdown accompanied by a valuation adjustment in several large centres (out West) where booming demand conditions and temporary supply constraints led to an overshooting in prices."
Driving home the U.S. comparison, Warren writes that "Canada's mortgage market is significantly different than its U.S. counterpart, with a much smaller subprime exposure, less interest rate reset risk, lower use of home equity withdrawal and investor mortgages and more conservative lending criteria.
"Canadian households are far less leveraged than those in the United States, and less exposed to any erosion in underlying asset values," Warren continues.
"Record unsold housing inventories, mounting foreclosures, overbuilding and credit constraints are bigger factors behind the continuing and steep slide in U.S. home prices than overvaluation, none of which are major concerns in Canada."
She goes on to note that apart from mortgage and balance sheet considerations, there are other key differences between the U.S. and Canada including the fact that the inventory of for-sale homes on both the new and resale market, while moving up, is still well-contained relative to prior cycles.
"With builders in most jurisdictions beginning to slow the pace of new construction, and with a low risk of widespread foreclosures, the Canadian market does not face the massive inventory glut underlying record-setting U.S. price declines."
Warren tracked real estate price increases over 10 years in 10 different countries to find that home price appreciation in the U.S. and Canada has actually been "relatively modest" by international standards, rising 50 per cent and 61 per cent respectively.
Based on the International Monetary Fund's housing valuation model, which estimates the extent to which house price increases are unexplained by fundamentals, Canada's housing market is the "least overvalued."
Warren does see a down side risk to home prices in Canada, but sees it out West more than here in the GTA.
"We expect that the correction in national average prices from their late 2007 peak will probably be in the range of 10-15 per cent, well below the ongoing U.S. retrenchment.
"Much of this realignment will occur in Canada's three Western provinces, and will leave intact most of the significant price appreciation of recent years."
I would like to repeat the line above – "leave intact most of the significant price appreciation of recent years" – because it speaks to the reason that it's always a good time to buy if you are buying for the right reasons, namely shelter and long-term financial security.
To read the full Scotiabank report, visit newhomes.org and click on news and issues.
Michael Moldenhauer is President of the Building Industry and Land Development Association. His column appears Saturdays in New in Homes. The views expressed are those of the president. Email: email@example.com.
David Pylyp I have been reporting these same if not similar facts for almost a year now, but my circulation is not at 3-500 Thousand per day. Please read and inform yourselves of the factual data available to you and your family as you make investment choices.
Sunday, December 7, 2008
Hazem Alzawawy was interested in buying a small house in Winnipeg. He found a tiny 612-square-foot, one-bedroom bungalow that was described in the listing with the Winnipeg Real Estate Board as having forced air, natural gas heating.
When he inspected the house there was a furnace in the basement. He assumed it was in working condition because of the information on the listing.
There were also five or six space heaters in the house, but Alzawawy didn't think anything of it since it was not uncommon in Winnipeg to use space heaters as an additional heat source.
In February last year, Alzawawy made an offer to buy the house for $35,000. The offer was accepted and closing took place on April 1, 2007.
On the afternoon of the closing day, the buyer entered the house to find pieces of ice hanging from the faucets and the water in the toilet bowl frozen. All of the space heaters had been removed and the house was extremely cold inside.
Two days later, the new owner discovered a tiny sticker on the furnace indicating that it had been turned off two years earlier. An inspector came from Manitoba Hydro and reported that the furnace was "currently unsafe."
Alzawawy later had the furnace replaced at a cost of $2,750. The work to correct the damage caused by the frozen pipes cost $7,500.
Claiming that the seller – Amelia Mesa – left the house without a working furnace or other heat source, Alzawawy sued for the cost to replace the furnace and repair damage caused by frozen pipes.
At trial, the seller argued that the presence of the space heaters should have alerted Alzawawy to the fact that the furnace was not working, and that the doctrine of caveat emptor (buyer beware) applied to the case.
Justice Shawn Greenberg disagreed.
"In my view," she wrote, "it was reasonable for Mr. Alzawawy to assume, considering the representation in the listing agreement, that the furnace he saw in the house was working. ... I think it is reasonable for a person buying a home in Winnipeg (especially when the purchase and possession are in winter) to assume that the home has a heat source. Mr. Alzawawy was left with a home with none."
Greenberg noted the owner did not testify, and there was no explanation why the listing showed the house had forced air, natural gas when in fact the furnace had been turned off two years earlier.
In holding the seller responsible for $10,000 in damages (the dollar limit in Manitoba Small Claims Court), the judge ruled that the risk of damage passed to the purchaser at 9 a.m. on the day of closing. But since Environment Canada records showed that the temperature was above freezing on that date, she concluded that the freezing must have occurred sometime before the time of closing, "as a result of the defendant's failure to heat the house."
Several lessons may be learned from the case:
- Purchase agreements should always provide for an inspection just before closing.
- Always have an expert or a home inspector check the furnace and air conditioning, especially if you're buying off-season.
- Make sure the purchase agreement contains warranties that the mechanical systems are in good working order.
- If you're leaving the house for a holiday in the winter, remember that if the furnace fails or a circuit breaker trips or fuse blows, the heat will turn off – resulting in frozen pipes. Shut the water off at the source and turn a tap on to bleed the pressure out of the system.
- Make sure your insurance policy covers damage from frozen pipes.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.
Alzawawy v. Mesa, 2008 MBQB 248 (CanLII)
December is the slowest month for sales in the Toronto Real Estate market...and that is a good thing. Find out why....!
10 Reasons for Selling During the Christmas Holidays by Roland Lewis
- Most December and early January buyers are particularly serious and very likely facing some sort of deadline.
- January is the biggest transfer month of the year and job transferee’s use the holidays to house hunt.
- Many people want to buy before the end of the year for financial and tax reasons. Investors usually want to close by year-end for tax purposes.
- Most sellers wait until spring or summer to list their home. This means that during the winter months your property will have far less competition versus any other time of the year.
- Homes show well when decorated for the holidays creating a sense of family and people are much more emotionally drawn to the house, emotion sells.
- Many people take vacation around the holidays allowing more time to look for a home.
- Remodeling, decorating, appliance installation and other services are more available and at less of a premium.
- Lenders aren’t as busy and can process mortgage loans faster.
- Showings will be fewer and less intrusive, but more likely to be fruitful with motivated, qualified buyers.
- Many homes that have been on the market for more than 60 days, will be taken off the market and relisted in January ie) less property on the market = more focus on your home.
For a Market Evaluation to get you started Click here.
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Saturday, December 6, 2008
Have you talked to them many times to no avail?
What do you do?
Too often when I am consulted the tenant is already 60 to 90 days in arrears, and the situation has become hostile. If you were a management company, with an apartment building, you would indeed leave a fews days grace, but you would immediately serve the Tenant with a Form N4 – Notice to End a Tenancy Early for Non-payment of Rent.
Complete the details correctly, Make sure that you have included all items. Serve this (give or deliver) in person, to an adult at the residence, leave in the mailbox, slip under the door, send by Post Courier or Fax.
Once done, Complete a Certificate of Service.
Since you have established the Termination Date of the rental and left suitable Notice period based on the situation of your rental e.g. if Month to Month, 14 days is required, you can proceed to the next step.
This is followed by the Form L1 - Application to end a tenancy for non-payment of rent and to collect rent the tenant owesFiling fee: $150.00
Prepare your paperwork then attend at the local Landlord Tenant Board office. They will take your documents and file them with a pending court date. They will (LTB) make copies for you with the court stamp of registration and identify each copy belonging to whom.
Serve this document on the tenant. Complete your Certificate of Service and Fax it to the court office on the number provided.
The Tenant now has access to free legal advise. At the court date the Tenant will have access to Duty Counsel.
Do you homework. Check it once, Check it Twice. Nothing is more frustrating than attending at the Tribunal to realise you have transposed a date or missed a name.
Working with unhappy landlords was at one point in time a stalward contribution to my business model. I would meet landlords who eventually became " DONT WANNERS" (They didn't want to be landlords anymore). They often had outside jobs and didn't have the time or experience to deal with the difficulties of property management.
Landlord Tenant Tribunal representation now requires a licence and a paralegal background ( E & OE Insurance and Law Society Registration) I think this is wonderful as it brings the industry standards higher when a representative must be licenced.
If you are a landlord and are close to becoming a Don't Wanner I would like to meet with you to discuss your situation and refer you to the specialised help you may need. Maybe you just need to know where to get the forms.
Experience is not expense. Its Priceless.