Think carefully before increasing amortization

Wendy Mclellan
Province

Genevieve Gubbels is looking at a new option that could help her buy an affordable condo in Steveston. Photograph by : Nick Procaylo, The Province

Genevieve Gubbels would like to pay her own mortgage rather than someone else’s, but with one salary and the Lower Mainland’s crazy real-estate market, she’s struggling to hold on to her dream.

“I am feeling pressure to get into the market,” said Gubbels, a 29-year-old recreation therapist.

“I’m turning 30 next month and house prices keep rising — I know if I don’t get in now, I might not have a better time.”

Gubbels hopes to find an affordable condominium in Steveston and she has a roommate who will help with the mortgage payments. But it may not be enough to get her into her first home.

She is now considering a new option introduced this month in B.C. that will reduce her monthly payments by increasing the amortization period of her mortgage.

“I am certainly thinking about a 30-year mortgage,” Gubbels said.

“I don’t find myself in a financial situation to take on high mortgage payments. This is a way a lot of people in my situation can get into the market.

“I want to start moving up the housing ladder — I expect to be in my first place for less than five years then move up. I don’t want to be striving for my dream home my whole life. I want a good number of years to enjoy it.”

Canada‘s two mortgage insurers, CMHC and Genworth Financial, now offer lenders insurance for longer amortization mortgages. Genworth insures both 30- and 35-year mortgages, while Canada Mortgage and Housing Corporation offers 30 years.

Although most lenders don’t provide the longer amortization without insurance, Coast Capital Savings Credit Union offers uninsured 30- and 35-year mortgages, as do some other alternative lenders accessible mainly through mortgage brokers.

CMHC charges a premium of 0.25 per cent for the extended amortization on top of their usual mortgage insurance premium, while Genworth adds 0.20 per cent for every five years beyond the traditional 25-year period.

By increasing the amortization period, more first-time buyers such as Gubbels can get into the housing market. The new product may also be helpful for those who want the flexibility of better cash flow, but financial advisors encourage people to think carefully about their goals before signing up.

“It allows people to get into a housing market that is very strong,” said Judith Mewhort, managing partner of Montridge Financial Group Ltd. in Vancouver.

“The severe negative is the longer amortization means there is much more interest to pay over the life of the mortgage. You need to make extra payments if you’re going to reduce that interest cost.”

The longer amortization means a bigger portion of the monthly payments goes to interest in the early years so homeowners build up less equity in their property, she said.

“Unless there’s big upward movement in the market, or you’re making extra payments, you won’t have the equity to move up.”

Paula Siemens, a mortgage broker with Invis in Vancouver, said reducing the mortgage payment by even $100 a month with a longer amortization may be enough to help first-time buyers qualify under lender rules. In some cases, her clients pay more in rents than the mortgage payment, but don’t qualify.

And, if they set up biweekly payments, the amortization period automatically drops to 25 years or less. Mortgages can also be renegotiated to a shorter amortization on renewal, or with the next purchase, she said.

Rick Lunny, president of the Canadian division of GE Money Mortgages, said most people don’t stay in their first home forever and pay off one mortgage for 25 years.

GE Money moved into B.C. last month and offers the longer amortization mortgages through brokers.

“As house prices increase, people see this as a way to make homes more affordable,” Lunny said.

“For some, it may allow them to live closer to the city so they can reduce commuting costs. It may also work for young families where one partner is on maternity leave so their income is temporarily reduced.

“But you do have to manage your finances responsibly — if you stay in the same house and make payments over 30 or 35 years, you will pay considerably more interest.”

Carla and Dave Edge have just signed for a 30-year amortization to buy their new home even though they qualified for the payments over a 25-year period.

The Surrey family is moving from a townhouse to a three-acre property in Abbotsford where they keep their horses rather than boarding them elsewhere.

“The timing isn’t great, but this is our dream,” said Carla Edge, 36, who recently returned to university full time to pursue a degree in criminology.

“This will reduce our payments by $200 a month, and this is a big step up for us. The lower payment gives us a little bit of breathing space and in three years, I’ll be working again and we can reduce our amortization to 15 or 20 years.”

Greg Holden, a mortgage specialist with CIBC’s Home Loans Canada division, said lenders have offered 30-year amortization mortgages in the past — most recently in the 1980s when interest rates were skyrocketing — but they disappeared years ago.

“I haven’t recommended them because of the cost of borrowing,” Holden said. “But I may have to re-think that with the cost of housing. This may get people into the market and getting used to the cost of owning a home.

“I see it as a stop-gap measure to get a foot in the door.”

COMPUTING THE COSTS

Let’s do the mathematics on a $300,000 mortgage at six-per-cent interest.

– 20-year amortization:

Monthly payment: $2,136.57

Cost of borrowing: $212,774.60

– 25-year amortization:

Monthly payment: $1,919.42

Cost of borrowing: $275,825.81

– 30-year amortization:

Monthly payment: $1,784.47

Cost of borrowing: $342,409.49

– 35-year amortization:

Monthly payment: $1,695.76

Cost of borrowing: $412,213.61

© The Vancouver Province 2006

Shanghai real estate speculators face

Smells, dirt, clutter and overpersonalization of a house are sure ways to turn off potential buyers, experts warn

Mary Lamey
Sun

Banishing clutter, personal affects, and cleaning, cleaning, cleaning are sure ways to increase the appeal of your home to would-be buyers Photograph by : Glenn Baglo, Vancouver Sun

Do you have your house on the market or are you thinking of listing?

Royal LePage has a few tips to help you hasten the sale and get top dollar. Here’s a hint, start by filling a bucket with hot, soapy water.

LePage polled 2,002 adults from across the country, trying to get a handle on what people like and don’t like when it comes to house hunting. The biggest turn-on, and forgive me if this sounds like something out of a Penthouse survey, is a house that looks and smells clean.

The biggest turnoff is a house that has been overly personalized.

Fantastic! An investment of $4 for a bottle of Pine-Sol and a little elbow grease could boost your sale price by thousands. So why don’t more people take the time to clean before listing their homes for sale?

I recently visited a home that looked like a homebuyer’s dream from the sidewalk. The minute I stepped through the door, however, I was assaulted by the stench of litter box and stale cigarette smoke. I couldn’t get out fast enough.

Sadly, people who live in houses that smell tend not to notice odours, Dianne Usher, the LePage senior manager who oversaw the survey, said.

“That’s where a good real-estate agent comes in. The agent has the expertise to help you make the most of your home whether that means airing it out or rearranging the furniture so that rooms show to advantage,” she said.

Among the mistakes people make are having not enough or too much furniture. Blocking windows and doors with beds and sofas is a common mistake, she said.

Some of you might think this advice is for chumps. After all, we’ve just come through six or seven years when houses traded hands and prices rose with dizzying speed.

News flash, folks. That boom market is over. Some believe prices are on their way to stabilizing, the number of active listings continues to rise and the average house is taking a little longer to sell. If there are four similarly priced homes for sale in a neighbourhood, you can bet the one that is cleanest and has had the most tasteful upgrades will sell fastest.

If you were to prepare a checklist of the items that would have the greatest impact on selling your house, cleaning, decluttering and taking care of minor repairs should be at the top of the to-do list.

“The way you live in your home is different from the way you sell it,” Usher said. “You’re surrounded by memories and mementos of the times you’ve had. But when it comes time to sell, you want to make it easy for the next family to imagine themselves living there.”

That means taking down diplomas and family photos, removing drawings from the fridge door and hiding away knick-knacks. Go one step further by cleaning out and reordering your clothes closets, so that potential buyers will notice how much storage room you have.

Everyone knows kitchens sell houses. The LePage survey found that 79 per cent of buyers would be willing to pay more for a house with a renovated kitchen. Other top-rated renovations include upgraded bathrooms, new windows and new flooring. Those surveyed by LePage said that they would prefer to spend more time looking for a house that met their requirements instead of investing time and money in post-purchase renovations.

Not all renovations are created equally, however.

“Style and decor are especially important with big renovation jobs,” Usher said. “These are the changes that cost the most to make and could influence whether a buyer makes an offer or not.”

That means thinking twice before you turn a five-bedroom house into a two-bedroom or building a sound studio in the guest bedroom.

These are textbook examples of over personalized renovations that will cost thousands to undo and will limit the number of buyers who’ll be interested in your house.

It might be too late to reverse some of those big fix-ups, but it isn’t too late to refresh the paint job. Ditch those bright, off-beat colours in favour of neutrals. They’ll make your house look brighter and cleaner and could go a long way toward helping you sell your home faster and at a better price.

© The Vancouver Sun 2006

Families increasingly like to congregate in large spaces with creature comforts, and a wide-open kitchen is ideal for this

David Bradley
Sun

It seems bigger is indeed better when it comes to kitchens and baths. And the more the merrier, say homeowners. Their marching orders to architects increasingly stipulate multiple kitchens and more baths in their new homes.

According to an American Institute of Architects member survey, 25 per cent of architects report client requests for an extra kitchen in “an in-law or au pair suite” or for secondary food storage or food preparation for kids and guests.

Newly built homes are best positioned to absorb a 36-square-metre master bath or kitchens akin to small estates. Of course, such wide open spaces allow owners to sample all the latest gizmos and do-dads when it comes to features. Yet, certain house expansions or room conversions may be ripe for this upscale approach.

Why devote so much space and creative thinking to these mega-rooms? It marks the continuation of a long-standing trend. Families increasingly congregate in large, informal areas which still have the creature comforts they covet.

In the case of baths, homeowners want a place to get away from household bustle and luxuriate.

David Hughes, of RP Hughes Architects in Columbus, Ohio, says the trend is to duplicate functions within the same space. His designers incorporate double dishwashers, multiple sinks and ovens and “a lot of under-counter refrigeration so the big units don’t visually take up the kitchen,” says Hughes.

Favoured built-in technologies in today’s mega-kitchens include Internet access, sound and water filtration systems and high-end appliances. Space may not be at a premium but storage is always in vogue. Hence the popularity of pantries.

Baths also reflect broader household sprawl. Hughes says customers ask for “lots of counter and vanity space to separate everyone.” Nearly two-thirds of architects see a continued trend toward spacious, multi-head showers. Another one-fourth of respondents configure multiple showers within the same bath. Still more report a surge in heated floors, warming bins for towels, and dressing rooms adjacent to the bath.

Overly-large spa-type tubs appear to be on the decline. Nearly one in three architectural firms reports a decrease in the popularity of the spas. Homeowners supplant the slow-filling, energy gobbling behemoths with standard size tubs that retain whirlpool capability.

This all sounds great if you have unlimited resources to fulfill your spatial fantasies. But what about the average homeowner? Hughes says the takeaway for other homeowners is that knowledge architects gain from large homes filters down to most other clients. “What it really cuts down to is the larger homes let us see how we can take that experience and apply it” to any homes, says Hughes.

© The Vancouver Sun 2006

A who’s-who of industry leaders will guide attendees through the home-buying process

Peter Simpson
Sun

Oh boy! Oh boy, oh boy! My 28-year-old daughter recently purchased her first home — a solid, two-storey, red-brick number that cost her more dough than I paid for my first four homes combined.

I knew this day was imminent because she started to call me regularly for advice. Still, it was a shock to my daddy system when she broke the news. “By the way,” she said following a conversation about her latest workplace challenges and triumphs, “I bought a house.”

It’s official — my first-born princess, my sweet Emily, is all grown up.

Emily made me proud because she did her homework before taking that first, often scary step into homeownership.

Her research was impeccable, including pre-approval for a mortgage in her price range, and she built a trusting relationship with an experienced real-estate agent who, during the intensive two-week search, steered her away from trouble and into a house that feels like home.

She takes possession next month and is looking forward to an important part of her life’s journey.

We all remember the first time. I was single, 24, and wanted to sell my Corvette convertible and settle down. Buying a home would be a snap. What’s to worry about? Nothing, right? Well, when my offer was accepted, I woke up in a cold sweat every night for a week fretting about the details.

I wish I knew then — so many, many years ago — what I know now.

Twelve years ago, I convinced the Greater Vancouver Home Builders’ Association that it should be offering a free seminar for potential first-time home buyers. The association let me run with it and, thanks to the support of many generous industry sponsors, the seminar has grown to the largest of its kind in North America, perhaps even the world. More than 800 attended last year.

Vancouver-area young people, like my Emily, are eager to purchase their first homes, but many of them need a little help to de-mystify the process. What location is best? What type of home is best matched to needs and financial position? What mortgage type and term to choose? What are the legal considerations? What are the benefits of builder licensing, warranties and homeowner protection?

These and other key questions will be answered at this year’s seminar, to be presented Tuesday, April 4 from 7-9 p.m. in the ballroom at the Guildford Sheraton Hotel, 15269 104 Avenue, Surrey.

A who‘s-who of industry leaders will guide attendees through the home-buying process. Speakers are Cameron Muir, senior market analyst, Canada Mortgage and Housing Corp.; Ken Cameron, chief executive officer, Homeowner Protection Office; Jason Neziol, regional director, Genworth Financial Canada; Bill Niblett, residential mortgages manager, TD Canada Trust; Gregory van Popta, associate, McQuarrie Hunter Barristers and Solicitors; Rick Valouche, president, Real Estate Board of Greater Vancouver; and Tom Reeves, director of home warranty operations, Lombard General Insurance Co. of Canada.

Other sponsors include The Vancouver Sun, The Province, Shaw Cablesystems, CKNW, Rock 101, MOJO Radio and 99.3 the FOX.

Because of the popularity of this free seminar, pre-registration is required. Call 604-588-5036.

Plan to arrive about 6 p.m. to allow ample time to view the displays of new-home projects, financial choices, warranties and other housing products and services.

– – –

It’s often difficult to figure out the residents of North Delta. Mention redevelopment, and they start hammering together the protest signs. Some are against so-called monster homes, while others condemn the development of affordable condos and townhomes for first-time buyers and seniors.

The latest project to attract attention is the development of a 680-unit condominium complex on Scott Road. Granted, some residents have legitimate concerns, but I take exception to the shrill homeowner who was quoted in a regional newspaper as saying, “I think what you are proposing is a highrise ghetto in our backyard.” This insensitive lout deserves a challenge — and a history lesson.

Ghettos were neighbourhoods where ethnic or religious groups were forced to live against their will.

Recently, the world witnessed a troubling situation in France, where marginalized minorities living in suburban housing projects believe they are excluded from the benefits, privileges and protection enjoyed by other citizens.

Yes, perhaps the initial design and mass of the Scott Road condo could be tweaked, taking into account legitimate neighbourhood concerns, but the condo will not be a ghetto, it will be home to both first-time home buyers and seniors — close to shopping, schools, transportation and medical services.

Some of the families who will purchase those condos might well be immigrants who came to Canada in search of a better life in a welcoming, tolerant society.

Delta Mayor Lois Jackson is a champion for sustainable communities. She should make sure narrow-mindedness does not win the day.

Peter Simpson is chief executive officer of the Greater Vancouver Home Builders’ Association.

E-mail: [email protected].

© The Vancouver Sun 2006

The median price is also falling — another sign realty market is cooling

Martin Crutsinger
Sun

WASHINGTON — U.S. new-home sales plunged in February by the largest amount in nearly nine years, while the median price of a new home dropped for the fourth straight month — providing fresh evidence that the once-booming housing market is cooling off.

The Commerce Department reported that sales of new single-family homes dropped by 10.5 per cent last month to a seasonally adjusted annual sales pace of 1.08 million homes.

It was the second-straight monthly decline and was much bigger than the two per-cent dip that Wall Street was expecting.

The drop in new home sales followed news Thursday that sales of previously owned homes actually rose by a stronger-than-expected 5.2 per cent last month following five straight monthly declines.

Analysts said the trend in both reports pointed to a slowing housing market after five record-setting years.

The slowdown in sales was putting pressure on prices. The median price of a new home sold last month dropped to $230,400 US, down by 1.6 per cent from January and off 2.9 per cent from February 2005. The median is the mid-point where half the homes sold for more and half for less.

The slowdown in the U.S. housing market could spill over into Canada and reduce shipments of lumber sold to the U.S. homebuilding industry.

In recent years, the torrid growth in U.S. housing starts has benefited Canadian forestry companies and kept their exports strong, even though they were forced to pay punitive duties because of the softwood lumber dispute with the United States.

In other economic news, orders to U.S. factories for big-ticket manufactured goods rose by 2.6 per cent last month, the biggest gain since November, reflecting a surge in demand for commercial aircraft.

Outside the volatile transportation sector, orders actually fell by 1.3 per cent, but economists said the underlying trend for manufacturing remained strong.

The 10.5 per-cent drop in new home sales in February followed a 5.3 per-cent decline in January and was the biggest drop since a similar 10.5 per-cent fall in April 1997.

Sales of new homes have fallen in four of the past five months with the sales rate of 1.08 million units the slowest pace since May 2003.

While sales of both new and existing homes climbed to new all-time highs in 2005, the fifth consecutive annual records, analysts believe sales will decline this year as the housing boom slows under the impact of rising mortgage rates.

By sector of the country, sales fell by the largest amount last month in the West, a drop of 29.4 per cent. Sales were also down in the South, dropping 6.4 per cent. Sales rose in the Northeast by 12.7 per cent while sales in the Midwest were up by 5.2 per cent.

The slowdown in sales pushed the inventory of unsold homes up to a record of 548,000 at the end of February. At the February sales pace it would take 6.3 months to sell all of the homes on the market, up from 5.3 months in January.

Analysts say he growing backlog of unsold homes will start to put more pressure on home sellers to reduce prices in the months ahead.

© The Vancouver Sun 2006

USA Today

WASHINGTON (AP) — Sales of existing homes unexpectedly rose last month as a warmer than usual winter boosted demand in many parts of the country, but a slack demand in some areas produced what one analyst called a “tale of two cities.”

The National Association of Realtors reported Thursday that sales of existing single-family homes and condominiums rose 5.2% in February to a seasonally adjusted annual rate of 6.91 million units. Analysts said the weather-related boost is likely to be short-lived with sales expected to slow again in coming months as rising mortgage rates further cool the housing market which has posted record sales levels for five straight years.

“Weather conditions across much of the country were unseasonably mild in January and likely were a factor in higher levels of buyer activity, which boosted sales that closed in February,” said David Lereah, chief economist for the Realtors.

The Realtors have been forecasting that sales of previously owned homes would fall about 5% this year compared with last year’s record pace. But Lereah said he may have to revise that forecast given the unexpected strength in February.

The price of homes sold in February was $209,000 for the nationwide median, the point where half the homes sold for more and half for less. It was down $1,000 from January and down from August’s $220,000, its recent peak. But it was 10.6% above the median price in February 2006. Analysts are forecasting those double-digit price gains will also moderate this year as demand slackens.

The increase in total sales — the biggest in two years — was driven by a 4.7% gain in the pace of single-family sales and an 8.8% jump in condo sales in February, the Realtors data showed.

Inventories also climbed 5.2%, leaving 3.03 million existing homes available for sale at the end of the month. That equates to 5.3 months’ supply at the current sales pace.

Economists believe that both new- and existing home sales will dip about 5% this year as rising mortgage rates cuts into demand. The concern is whether the decline could be more sizable than that. Some analysts are worried about that the speculative fervor in housing over recent years could come crashing down similar to the bursting of the stock market bubble in the early part of this decade.

But Lereah said all indications so far were pointing to a gradual slowdown in sales to a more sustainable pace.

By region of the country, sales rose 19.2% in the Northeast and were up 11.1% in the Midwest and 5.1% in the West in February. Only the South showed weakness last month with sales there dropping 2.5% from the January pace.

Lereah said sales activity at present was really a “tale of two cities” with some of the hottest markets showing declines while some medium priced markets still posting strong sales gains.

He said that sales were down by double-digit levels in such hot sales markets as Phoenix, Fort Lauderdale and San Diego. He said, by contrast, sales were up by double-digit amounts in areas such as Indianapolis, Albuquerque and Houston.

Home sales

Vacancy rate in Vancouver drops to 6.9 per cent

Tara Perkins
Sun

Strong demand for office space in Vancouver, Toronto and Calgary suggests that corporations are confident about the economy and their prospects, say commercial real estate specialists at Cushman & Wakefield LePage.

Vancouver edged out Calgary as the most actively traded market for office space in the first quarter, as its vacancy rate fell to 6.9 per cent, compared with 8.4 per cent in the final quarter of 2005.

“Surging demand for office space in the West Coast city generated the largest single-quarter drop in overall vacancy since the peak of the last expansionary cycle in late 2000,” Cushman stated.

“Whenever we see companies hiring new workers and expanding their office space, we know they’re feeling pretty good about what lies ahead,” said Colum Bastable, chief executive of Cushman.

Calgary, meanwhile, is experiencing “a dire shortage of space” — among prime office space in Calgary’s central market, only 0.3 per cent is for lease, the survey found.

The city cannot build office towers fast enough to accommodate demand, and “short-term relief has to come from the suburban markets,” said Chris Anderson, general manager at Cushman’s Calgary office.

“There’s no end in sight to the boom that Calgary is experiencing,” Anderson added.

“There’s a shortage of skilled tradespeople, and the little space that’s left in the Calgary market is attracting multiple offers as companies struggle to secure future space needs.”

Meanwhile, Toronto, Canada’s largest office market, saw its highest level of leasing activity in more than five years.

Its vacancy rate fell to 7.6 per cent, from 8.5 per cent in the previous quarter.

“Demand in the Greater Toronto Area has been red-hot over the past two quarters, and although it is expected to cool slightly over the coming quarters, vacancy will continue its downward slide, if at a slightly more controlled pace,” the Cushman report said.

About 40 per cent of Canada’s leasable office space is in the GTA.

New York-based Cushman & Wakefield is the world’s largest private real estate services firm.

Last fall, Toronto-based Brookfield Asset Management Inc., formerly Brascan Corp., sold its Royal LePage commercial brokerage to Cushman, transferring 520 employees.

Bruce Flatt, CEO of Brookfield Asset Management, said last month that office markets have seen a turnaround in the last half-year.

“Vacancies are coming down, rents have started to increase, little construction is ongoing — or in some places even contemplated.”

© The Vancouver Sun 2006