Archive for July, 2010

Homes will sell if priced right; foreclosures have impact

Thursday, July 29th, 2010

Stephanie Armour
USA Today

An owner’s sign stands next to a real estate agent’s for sale sign noting a reduced home price in Houston recently. By David J. Phillip, AP

Emily Rennie’s three-bedroom house in Oakland was a beauty in a sweet location. Walking distance to the lakeshore. Close to shops. A refurbished patio in the back. Inside, a modern kitchen with granite countertops.

Listed at $539,000 when she put it on the market, the Excelsior Avenue house was missing one crucial thing: The right price. After a few weeks with no offers, she cut the price to $499,000 in May. Then she cut it to $475,000 in June. She is still hoping for an offer.

Rennie is discovering the cold reality of post-housing-bust prices: No matter what she thinks her house is worth, what matters is what buyers are willing to pay. That can be a lot less in areas where the supply of houses for sale is swollen by foreclosures and short sales, often priced 20% to 30% below the ones being sold by financially healthy owners. Nationally, such properties account for a third of all sales three years after a historic chill blew over an overheated housing market.

Foreclosures “do make it harder to sell,” acknowledges Rennie, who works in marketing communications. “People can get a really good deal.”

Real estate professionals say Rennie is in good company. Nationally, 30% of the houses for sale were reduced in price in June, according to Zillow.com, an online real estate site. Plenty of sellers have trouble pricing their home against the foreclosed houses that lenders are trying to unload.

“It’s one of the hardest things for sellers to do. They have an emotional attachment to their house,” says Amy Bohutinsky, a spokeswoman for Zillow.com. “For sellers to understand how they should price, they should deeply understand their market and competition — what’s on the market now, not just what’s sold.”

Those who do that successfully don’t have a problem.

“People who price their homes to the market are selling them in a reasonable amount of time, but people who cling to 2004 or 2005 prices aren’t,” says Richard Smith, president and CEO of Realogy, the parent company of Century 21, ERA, Coldwell Banker and Sotheby‘s International Realty. “If you take into account (bank-owned property) pressures, you’ll sell pretty quickly.”

Competition for bargains

Oakland and nearby San Francisco are two markets where foreclosures have a strong influence

Nearly three of every 1,000 homeowners in Oakland lost their homes to foreclosure in May, according to Zillow. Foreclosure resales made up 36% of all sales in May, although that’s down from a peak of 66% in March 2009.

Sellers have had to adjust. In June, 20% of the properties for sale in Oakland made price cuts, according to Zillow.com, compared with 15% in May. Drawn by falling prices, young professionals from San Francisco are coming across the bay to snap up homes in Oakland, and most of the stiffest competition for properties is in the top tier, around $808,000.

At that price, sellers in May paid 0.1% less than the asking price, according to Zillow. In all price ranges, they paid 0.3% less than asking price. Based on the median list price, that’s $1,080 less than the last listing price.

But some agents are seeing bidding wars.

“We’re seeing multiple offers; we’re seeing above asking price,” says David Kerr, a ZipRealty agent who represents buyers and sellers in Oakland. “People are buying foreclosures, fixing them up and selling them and getting offers.”

Those who do take foreclosures into account and price their homes right cannot only find a buyer, but sometimes one who will pay well above what they’re asking.

One such buyer was Rosa Verdin, 40, who bought a restored Victorian in north Oakland from a developer in May. The asking price was $450,000, which was well-priced, she says. She and her partner, Kelly Helms, 32, a nurse, offered $50,000 more, outbidding at least two other parties.

“We had been looking for six to eight months,” says Verdin, 40, who works in graphic arts. “The location was centrally located to our work, the house was move-in ready and within our price points. Timing just seemed right, and the decision was relatively easy.”

Not all offers go so smoothly. Even when owners find willing buyers, getting their price isn’t a sure thing. Lenders generally require appraisals before giving a mortgage, and appraisers often take into account what foreclosed properties in the area sell for when determining how much a home is worth. If a home is being sold at too high a price, the sale can fall apart.

“Every day, sales fall apart,” says Leslie Sellers, with the Appraisal Institute. “Smart sellers get appraisals done before they sell the home.”

Even in markets where most sellers are getting just below asking price, some are taking a long time to find a buyer. Glen Cox put his sprawling, five-bedroom Oaklandhome with sweeping views of the bay and Golden Gate bridge up for sale at the end of 2008 for $1.8 million. He’s selling it without a real estate agent. He took it off the market for a while after he got no offers. Today, he’s offering it for $1.695 million.

The house features vaulted ceilings, nine rooms with French doors, travertine balconies and an oak-arbored entry corridor. “There’re not many homes in the $1.5 (million) to $1.6 million range, and mine is nicer than most of them,” Cox says. “If you don’t have the one buyer right away, it can take awhile. It’s a very tough market.”

Neighborhoods buck trend

Other neighborhoods also show just how well good prices pull in successful offers.

In the heart of San Francisco, Noe Valley is home to dot-com millionaires and working professionals. The streets are lined with Edwardian and grand Victorian row houses built in the late 19th century, and the neighborhood, flanked by hills, features an eclectic array of coffee shops, sushi restaurants and lively bookshops.

The real estate market in San Francisco is struggling to regain its footing, with home prices down 0.7% from the third quarter of 2009 to the first quarter of this year. But in Noe Valley, most homes are going just above listing price. In May, homes sold for an average of 0.02% more than the last listing price, according to Zillow.com. Based on median list price, that translates into $218 more.

“It’s crazy,” says Brendon DeSimone, a Realtor with Paragon Real Estate in San Francisco, who represents buyers and sellers in Noe Valley. “I had one house with five offers, and it went from $1.4 million to $1.7 million. The valley has just popped. It’s not uncommon for one open house to have 200 people come through.”

Nationally, the average property takes eight to nine weeks to sell, down from 10 to 11 weeks a year ago, according to the National Association of Realtors. In Noe Valley in May, there were 25 listings that sold after averaging five weeks on the market.

But Paul McCickard, who put his home on the market in mid-March, is still waiting for a buyer. So far, he’s had only one offer. His home, priced at $2.149 million, is a 3,400-square-foot Edwardian with four bedrooms, a two-car garage, marble fireplaces, stream showers and a view of the skyline. He says he had to price it at that amount in part because it was an investment property. He bought in 2005, demolished the home and rebuilt it; he needs to pay back the money he owes on the construction — and hopes to make a little profit.

“We’ve invested a lot of money into the house, so it’s a matter of trying to recoup the money. Hopefully, it will sell,” says McCickard, who sells heavy equipment. “There’s been a lot of walk-throughs and a few interested parties, but we’re still waiting.”

Other homes have found buyers, and fast. Charlie Frisbie lost out on his first offer in Noe Valley, so he bid again last year on a two-bedroom Edwardian with an asking price of $998,000. There were a total of 11 offers; he got it at $1.1 million.

“You’re getting the best the city has to offer — transportation, good weather, access to parks,” says Frisbie, 48, an accountant. “Twice this year, homes came for sale on my block, but they didn’t even go on the market — they just sold. Those that do go on the market go substantially over” asking price.

Noe Valley has taken a hit as the overall housing market has tumbled, with home values down 17% from their peak in June 2008, according to Zillow.com. In the neighborhood, about 5% of home sales in March were foreclosure resales.

But Noe Valley remains a hot neighborhood for several reasons. Other neighborhoods such as Pacific Heights and the Marina District have already been in such demand that prices are often out of reach for younger families, DeSimone says. Noe Valley remains more affordable but still has the kind of row houses desired by families.

It’s also closer to Silicon Valley than other neighborhoods in northern San Francisco, which shaves off about 20 to 30 minutes of commuting time (Google and Apple both have bus stops in Noe Valley). And many buyers want historic Victorians, so demand for homes in the neighborhood is strong.

That’s why, when homes are priced well, they can set off a bidding frenzy — even in an anemic real estate market.

Copyright 2010 USA TODAY

Succulent surprises by the plate-full

Thursday, July 29th, 2010

Executive chef Tim Cuff perfects sous vide cooking, while offering fresh local produce

Mia Stainsby
Sun

Lakeside Lounge patio at Aura, at the Nita Lake Lodge in Whistler, provides a casual setting for an evening meal.

Lime and chili-infused watermelon with scallop and cuttlefish ceviche.

At a glance

Aura at Nita Lake Lodge
2131 Lake Placid Road, Whistler.

604-966-5795
www.nitalakelodge.com
Open daily for breakfast, lunch, dinner.

Whistler restaurants seem impervious to the usual high-kill rates in the industry and stick around forever. So it’s something to note when a new and interesting one opens.

Strangely, the debut of Aura at Nita Lake Lodge has gone unnoticed; a shame, considering what a good job they’re doing. The lodge changed hands in March (bought by Ram Tumurluri, who owns 50 spas in India) just after the Olympics and the restaurant, formerly Jordan’s Crossing, is now called Aura (except on the website, which still refers to it as Jordan’s Crossing).

The new order includes Tim Cuff as executive chef. He has worked as sous chef at West under Warren Geraghty and has worked under Michael Allemeier at Teatro in Calgary and Mission Hill Winery’s restaurant in Kelowna. He’s also worked at the Wickaninnish Inn. In other words, he’s cooked at some of the best places in the country.

He learned the art of sous vide at West restaurant and I can tell you, it’s gold in his hands. A lamb loin wrapped in merguez done sous vide was wonderful. It was served with pine nuts, rosemary radishes, green beans and a sunchoke gratin. The meat was sheer succulence.

Pan-roasted Fraser Valley duck also got a long sous vide dunk to arrive at succulence, but only after Cuff dried the breast a couple of days in the fridge to concentrate flavour; he finishes it in the oven. Even the carrots were cooked sous vide with brown butter sauce and herbs from the herb garden.

Whistler is no longer in the hinterlands of fresh, local products. The Pemberton Valley produces beautiful product and Cuff is in summer ecstasy as farmers bring in their fresh produce. “You wait all winter for this,” he says. “It’s the most exciting time to cook. It’s definitely the purest.”

The starters were just as, well, thrilling. Beautiful scallop, spot prawn and cuttlefish, snuggled up to lime-injected watermelon. A dried wafer of pink lady apple and dry honey bitters finished it. Quail, duck and liver parfait with pearl onion and mushroom saute and nettles (it turned out to be spinach) was sublime. An appie that I eyed but didn’t order was Quebec foie gras bombe with Vidal ice wine, fresh brioche, olive oil, cocoa butter and amarena cherries. A savoury verging on dessert!

Which reminds me, the only dish that showed signs of weakness was a frozen yuzu parfait with blueberry syrup, shortbread and yuzu curd (yuzu is a Japanese citrus fruit). While visually appealing, it was bland. More citrus, please, my mouth demanded.

However, my partner’s dark chocolate ganache with Morello cherry sorbetto and chocolate “paper” was a dish of surprises. In fact, the sorbetto was so insanely good, I could have sat with a tub of it in my lap and had nothing but that for dinner.

There are three menu options: $45 for three courses, letting you choose what you want for each course; a $65 five-course tasting menu where the chef surprises you (add $45 if you want wine pairings); or you can order a la carte.

During summer, on Sundays, the restaurant does a $25 all-you-can eat barbecue off the patio for lunch and dinner (kids under 12, free). The proteins change but when we visited, there was a big ham, ribs, steak, sausages and salmon along with several salads and starches. (Great value if it’s mom, dad, and a couple of kids under 12.)

The wine list is mostly B.C. and new world; the program is headed by Ryan Dyck, from the Wickaninnish Inn.

The lodge is located at Creekside. Coming from Vancouver, turn left off Highway 99 at Lake Placid Road.

© Copyright (c) The Vancouver Sun

UniverCity wins approval to double in size, begin building within weeks

Thursday, July 29th, 2010

Phase 3 to have 20-storey tower with commanding views, buildings that are 30-per-cent more energy eficient

Derrick Penner
Sun

The Simon Fraser University Community Trust has cleared its last hurdle to doubling the size of its Burnaby Mountain-top community with zoning approval for Phase 3 of its UniverCity project.

Burnaby city council on Monday, approved a zoning bylaw for a massive expansion of the high-density urban community that will see up to 1,250 new units of housing built including one 20-storey tower perched near the mountain’s peak with commanding views of Metro Vancouver.

“We expect absorption of these lots to take eight to 10 years,” Gordon Harris, CEO of the trust, said in an interview. “The first development parcels will start within weeks.”

The first project will be a 74-unit low-rise wood-frame condo building by Porte Development, the second a 79-unit condo structure by Mosaic Homes.

“We anticipate those projects will do extremely well in the market,” Harris said. “They’ll be a good fit with the community with commanding views, breathtaking buildings with good design.”

From the City of Burnaby’s perspective, proceeding with such a large, single rezoning lets it cross off a lot of the needs on its checklist of elements needed for the whole community.

“First of all, we get all the infrastructure provided for to support all those parcels in one go,” Robert Renger, Burnaby’s senior current planner, said in an interview. “And this basically sets the stage for individual developers to come in and move very quickly to build as market conditions allow.”

The Phase 3 expansion envisions UniverCity’s population climbing to 10,000 from 3,000 now, but Renger said that fits within the scope of what Burnaby has been expecting and can be accommodated by existing road access.

“The other part is that there is effort going into making this community not just dependent on single cars,” Renger added, pointing out that the community has high transit use and “does have very good public transit access” now.

In tribute to UniverCity’s aim of sustainability, the new buildings will also need to be at least 30-per-cent more energy efficient than standard construction under specific requirements written into the zoning bylaw.

Harris added that the first two buildings will be wood-frame construction with units aimed at first-time and family buyers.

UniverCity has also broken ground for another element of the third phase, a 50-seat child care centre designed to be a so-called “living building” that will generate more energy than it consumes over the course of a year.

Phase 3 will include 12 building lots in total, ranging from four storeys up to that one 20-storey tower, with all development required to adhere to more environmentally friendly energy standards.

To date, the UniverCity development encompasses 1.4 million square feet of mixed-use space, including housing for some 3,000 people, retail development and institutional space.

The community, which is being sold on a 99-year-lease basis to buyers, hit some milestones this year.

Harris said a Nester’s Market grocery store opened in January to help anchor the community’s retail space, and University Heights Elementary School, with an initial intake of 158 students, will start classes in September.

Phase 3 has been 3 1/2 years in the making because the trust wanted the whole extension to fit under one comprehensive development zone.

© Copyright (c) The Vancouver Sun

Variable may no longer be the best mortgage

Thursday, July 29th, 2010

Fixed rates are falling fast so do your homework

Garry Marr
Sun

House sales in June dropped almost 20% from a year ago. Photograph by: Douglas Brown Photography, Financial Post

Not that there are a lot of people buying houses these days, but the answer to the age-old question of whether to go long or short on your mortgage is unclear yet again.

The Bank of Canada’s second quarter-of-a-point rate increase in the past two months is likely not going to do much to boost a real estate market that saw sales drop almost 20% across the country in June from a year ago.

The popular variable-rate product tied to prime that helped people buy a lot more house with more debt is going up too. The prime rate at the major banks, which tracks the Bank of Canada’s rate, is now at 2.75%.

But a funny thing happened as the Bank of Canada was raising rates. With much of the credit crisis seemingly behind us, the discounts on short-term borrowing are increasing as the cost of funds for banks also fall. Instead of borrowing at 100 basis points above prime, it’s now 70 basis points off prime.

At 2.05%, a variable-rate product today may look as attractive as ever, but the five-year fixed-rate closed mortgage is falling fast. It can be had for a shade under 4%, says Rob McLister, editor of Canadian Mortgage Trends.

“Bond yields have fallen out of bed and nobody expected that,” said Mr. McLister, adding the spread between the five-year Government of Canada bonds and five-year mortgages is still large enough that the banks may reduce long-term rates even more.

However, at about 4%, the five-year closed fixed-rate mortgage isn’t far off its record low.

Bank of Montreal senior economist Sal Guatieri does agree that variable-rate products have worked out better than fixed-rate mortgages throughout history, but says the tide may be turning.

“Given that the central bank has already raised rates a couple of times now and will likely continue to raise rates, it probably is a correct assumption to make,” says Mr. Guatieri, noting the variable product usually works in a declining interest-rate environment. “The next five years might not quite follow the past. You could probably argue it’s wiser to lock in now. It’s a close call.”

Bank of Montreal is forecasting another 25 basis point move in September and says rates will climb another 1.5 percentage points by the end of 2011. If Mr. Guatieri and others are right, by 2012, the variable-rate products out today would clock in at just above 3.75%, if the discounting remains the same.

“If you are still in that variable-rate product then, you’d have to sweat out the next three years because there would still be possibly more increases,” says Mr. Guatieri, who adds his bank sees the overnight rate eventually going to 4% in the following three years. Based on the present gap between the Bank of Canada and prime, that would place the variable-rate product you get today at 6% by about 2015.

Fears of such a scenario are driving people into fixed-rate products again. That, plus new mortgage rules that make it easier to qualify for a mortgage if you go for a fixed-rate product with a term of five years or longer.

“The Bank of Canada is doing what it said: it’s going ahead with rate increases. If I was counselling someone, the prediction is rates are going up, so now is a good time to consider locking in for a term,” says Don Lawby, president of Century 21 Canada.

It makes sense, but with variable rate still at about 2%, it’s easy to see why people wouldn’t want to lock in. Even Mr. Guatieri says if you are secure in your financial situation and don’t need to fix your mortgage payments, “you might just want to let it ride.”

There just never seems to be a clear answer on whether to lock in or stay variable.

© Copyright (c) The Vancouver Sun

Prices highest in Vancouver

Thursday, July 29th, 2010

Rest of Canada trails on year-over-year basis

Province

Vancouver house prices led Canada in May with a 17.1-per-cent year-over-year increase, according to the Teranet-National Bank composite house-price index, released Wednesday.

Year-over-year national prices rose 13.6 per cent and are now 4.2-per-cent higher than their pre-recession peak, the house-price index found.

Year-over-year advances in Toronto were 16 per cent in May, the survey found.

In other markets surveyed, year-over-year prices gained 7.8 per cent in Calgary, 8.5 per cent in Montreal, 11.4 per cent in Ottawa, and 5.6 per cent in Halifax.

On a month-over-month basis, Canadian home prices rose 1.3 per cent in May, their largest monthly gain since last September, but are unlikely to keep up the pace in months ahead, the house-price index found.

Prices have now advanced for 13 straight months, the survey showed.

National Bank senior economist Marc Pinsonneaul said “we do not believe that acceleration . . . will be sustained. The number of existing homes sold has declined in each of the three months ending last June, and it did so to a much larger extent than the number of new listings.

“This heralds a deceleration in home-price inflation, especially since a harmonized sales tax was introduced on July 1 in Ontario and B.C.”

The Teranet survey differs from other national surveys, which have already shown price declines, by focusing solely on price variations in Canada’s six major urban markets and filtering out such factors as a shift in preference to larger homes that can skew average prices.

Between April and May, Ottawa led the nation with a 2.3-per-cent price increase, followed by Montreal with 1.8 per cent, Vancouver and Calgary with 1.2 per cent each, Toronto with 1.1 per cent and Halifax with 0.7 per cent.

© Copyright (c) The Province

“Real Estate in Mexico represents a great buy”

Wednesday, July 28th, 2010

Jim Cramer, CNBC Mad Money Host, recommends

Jim Cramer
Other

Jim Cramer, the Bombastic, high-energy investment Guru and host of CNBC’s massively successful show “Mad Money”, gave Mexico real estate investment a big boost this week. Cramer told his audience:

“It’s not such a bad idea to diversify away from stocks, I think that out of favor real estate in Mexico, that’s easily accessible to Americans, represents a great buy”.

With as many as 2.5 million investors viewing the show each week, the controversial host wields quite a bit of influence among his viewership and in the marketplace as a whole. His following is so intense that it has created a unique phenomenon in the stock market known as the “Cramer Bounce”, which can be best described “as the sudden overnight appreciation of a stock’s price after it has been recommended by Jim Cramer on his CNBC show”, “Mad Money”.

Why does Cramer have such clout? Well, after graduating magna cum laude from Harvard College, his first year as a rookie broker with Goldman Sachs, he made over $700,000. After he paid his dues at Goldman, Cramer started his own $450 million hedge fund where he earned 24% after fees, regularly taking home over $10 million a year. Cramer’s fund finished in 2001, up 36%, compared to -11% for the S&P 500 average and walked away with $100 million and change.

Since then, he founded TheStreet.com and has written five New York Times best selling books and his articles are featured in Time and New York Magazines. He also a frequent guest on Meet the Press, Today Show, 60 Minutes, NBC’s Nightly News, The Tonight Show and most major financial networks.

Following his own advice, Cramer recently announced to his audience that he had already purchased three properties in Mexico within the last few weeks. When asked about hyped headlines about drug violence and turmoil in Mexico, Cramer downplayed those fears, he said, “Mexico is a big country and not every province, every state is involved in the drug trade”, and he added, “it has to be one of the nicest places I’ve ever been.”

When asked why he invested money in Mexico real estate, he replied, There is “no property tax,” the properties are “incredibly easy to maintain,” and there are “property managers everywhere.”   

Snell Real Estate Note:  Property taxes do exist in Mexico, however they’re significantly lower as compared to property taxes in the United States. For example, a $1 million home in Los Cabos would expect to pay on avg. approximately $2000 per year in property taxes.

 www.snellrealestate.com • Toll-free: 1-866-650-5845 • In Los Cabos: (624) 105-8100
The Most Trusted Name in Real Estate” • Los Cabos, B.C.S. Mexico 

Home prices increase 1.3% in May from April

Tuesday, July 27th, 2010

USA Today

NEW YORK (AP) — Home prices rose in May for the second straight month as federal tax incentives pulled more buyers into the market.

The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted a 1.3% increase in May from April.

Nineteen of 20 cities showed price gains month over month. Minneapolis and Atlanta led the way with 2.8% and 2% increases, respectively. And San Diego posted its 13th straight monthly gain.

Only Las Vegas recorded a price decline. The metro hit a new record low in May. Home prices there have lost 56.4% of their value since peaking in August 2006.

And while Detroit recorded a 0.7% increase from April, the average home price there is about same as it was in 1994.

Overall, the gains underscore the effect of the government’s home buying tax credits. Buyers rushed to purchase before the credits expired at the end of April. The index is an average of home sales in March, April and May.

May is typically a strong month for selling homes. Most economists don’t expect the price gains to last through the year and many predict home prices will fall through the rest of the year.

“I bet in six months 15 to 20 cities will have falling prices,” said IHS Global Insight economist Patrick Newport. He predicts prices will fall another 6% to 8% before turning around next year.

Nationally, prices have risen 5.1% from their April 2009 bottom. But they remain 29% below their July 2006 peak.

More recent housing figures show a gloomier outlook, even though mortgage rates are at the lowest level in decades.

Sales of previously occupied homes fell 5.1% in June. New-home sales jumped last month, but it was the second-weakest month on record and it came after sales tumbled in May.

A high number of foreclosures has forced home prices down in many areas, while 9.5% unemployment and tight credit have kept many from buying.

American sentiment eroded further in July, the Conference Board said Tuesday. Its Consumer Confidence Index slipped to 50.4 in July, down from the revised 54.3 in June. It was the second straight monthly decline.

A reading above 90 indicates an economy on solid footing.

“Until we see significant gains in employment, I just don’t think you’re going to see strong demand,” said Glenn Kelman, chief executive of Redfin, an online real estate brokerage based in Seattle.

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RISE, FALL AND REBOUND? : Charts show the housing industry’s boom and bust this decade and forecast the possible course of its recovery the next three years.

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Copyright 2010 The Associated Press. All rights reserved

With rates low, is it time to reconsider your mortgage?

Tuesday, July 27th, 2010

And with bank rates likely heading up, is a variable contract still a good idea?

Fiona Anderson
Sun

With mortgage rates low and more likely to go up than down, some borrowers may want to think long and hard about whether they want a long and hard — fixed, that is — mortgage rate.

The first question is whether to go fixed or variable when borrowing to buy a home. Statistics show that 88 per cent of the time, a variable mortgage is cheaper than a fixed-rate mortgage, said Feisal Panjwani, senior mortgage consultant with Invis-Feisal & Associates Mortgage Consulting in Cloverdale. But the problem with a variable rate is that it is just that: It changes over the life of the mortgage.

The variable rate is based on the lender’s prime lending rate, which today is 2.75 per cent for the major banks and credit unions. The best variable rate available according to Invis — a national brokerage company who negotiates mortgages on behalf of clients with various lenders including banks, credit unions and wholesale lenders — is prime less 0.6 percentage points, or 2.15 per cent. But banks change their prime rate from time to time, usually whenever the Bank of Canada changes its overnight target rate, which it has done twice since the beginning of June and is expected to do again in the fall.

Lenders also change the formula by which they calculate the variable rate. So while the best variable rate is now prime less 0.6, earlier this month, before the Bank of Canada’s most recent hike, the rate was prime less 0.5 per cent. That means people who took out a mortgage two weeks ago would be paying 2.25 per cent (2.75 minus 0.5) now. In October 2008, when the Bank of Canada’s rate was at an all-time low and credit was tight, lenders were charging as much as prime plus 1.0 for their variable mortgages and borrowers who signed up then would be paying 3.75 per cent now.

If that kind of uncertainty “is going to keep you up at night,” Panjwani recommends taking a fixed rate.

“Lock it in and forget about it,” Panjwani said.

If you are willing to take the risk, check your payments, he said. Some mortgages will adjust the monthly payment every time the rate changes, making it difficult to budget. Others will keep the payments the same but just attribute more to interest and less to principal if rates go up (and vice versa if they go down).

The next question is how long to go. Except for six-month mortgages, rates are generally higher the longer the term. But if you think the rates are going to go up, you may want to lock in longer and preserve the rate you can get now.

The most common term for fixed-rate mortgages is five years, but with rates at historic lows, Barry Rathburn, manager of mobile mortgage specialists with TD Canada Trust on Vancouver Island, believes some people might want to look at a 10-year mortgage.

The 25-year average for the five-year rate is more than eight per cent, but the 10-year rate now is as low as 5.35 per cent, Rathburn said.

So for those on a fixed income, or employed in a job that isn’t likely to see much of a pay increase over time, knowing what your payments will be for 10 years may be a source of comfort, he said.

It also makes long-term budgeting easier, he added.

Panjwani agrees that a 10-year mortgage might be suitable for someone who is very risk-averse and wants to lock in a low rate for as long as possible. But statistics show that only 10 per cent of the time has a 10-year term worked out better than two consecutive five-year terms, he said.

And while the 25-year average for a five-year posted rate is more than eight per cent, most lenders offer a discount of at least one percentage point from their posted rates, so the average is closer to seven per cent. And that average includes the extremely high rates of the late 1980s.

But if you did want a long-term mortgage, “historically speaking now is a good time to do it,” Panjwani said.

However, he said, you will be paying a premium — the difference between the 10-year and five-year rates, which now are as low as 4.29 per cent.

“So there’s a quite a big premium you’re paying to take the extra five years of security,” he said.

But if rates do increase significantly, then “those taking a fixed 10-year are going to be ahead of the game.”

And no one knows for sure what will happen to rates, he added.

“In my opinion, unless someone is extremely concerned about rate fluctuations, they are better off on a five-year,” Panjwani said. “But for those people who really want to play it safe, it’s okay.”

One thing a 10-year borrower doesn’t have to worry about is a larger prepayment penalty. As discussed in last week’s Money Watch, lenders usually charge the greater of three months’ interest or interest differential — the difference between the interest on the mortgage being paid out and the rate the banks could earn re-lending that money — when a borrower wants to pay out his mortgage before the term is up.

If this applied to 10-year mortgages, that interest rate differential could be quite high. But a Canadian law, which has been around for more than 100 years, limits the prepayment penalty for any mortgage that is greater than five years to three months’ interest, said David Mydske, the national practice group leader for the commercial real estate group at Borden Ladner Gervais LLP.

So the interest differential may apply for the first five years, like a five-year term, but after that the lender can charge only the three months’ interest, Mydske said.

With rates likely rising over the next few years “that’s probably all [the lender] is going to get anyway,” he said. “So I’m not sure it’s as big an issue now when rates are so low.”

© Copyright (c) The Vancouver Sun

Variable rate may no longer win

Tuesday, July 27th, 2010

Garry Marr
Other

Not that there are a lot of people buying houses these days, but the answer to the age-old question of whether to go long or short on your mortgage is unclear yet again.

The Bank of Canada’s second quarter-of-a-point rate increase in the past two months is likely not going to do much to boost a real estate market that saw sales drop almost 20% across the country in June from a year ago.

The popular variable-rate product tied to prime that helped people buy a lot more house with more debt is going up too. The prime rate at the major banks, which tracks the Bank of Canada’s rate, is now at 2.75%.

But a funny thing happened as the Bank of Canada was raising rates. With much of the credit crisis seemingly behind us, the discounts on short-term borrowing are increasing as the cost of funds for banks also fall. Instead of borrowing at 100 basis points above prime, it’s now 70 basis points off prime.

At 2.05%, a variable-rate product today may look as attractive as ever, but the five-year fixed-rate closed mortgage is falling fast. It can now be had for a shade under 4%, says Rob McLister, editor of Canadian Mortgage Trends.

“Bond yields have fallen out of bed and nobody expected that,” said Mr. McLister, adding the spread between the five-year Government of Canada bonds and five-year mortgages is still large enough that the banks may reduce long-term rates even more. However, at about 4%, the five-year closed fixed-rate mortgage isn’t far off its record low.

Bank of Montreal senior economist Sal Guatieri does agree that variable-rate products have worked out better than fixed-rate mortgages throughout history, but says the tide may be turning.

“Given that the central bank has already raised rates a couple of times now and will likely continue to raise rates, it probably is a correct assumption to make,” says Mr. Guatieri, noting variable usually works in a declining interest-rate environment. “The next five years might not quite follow the past. You could probably argue it’s wiser to lock in now. It’s a close call.”

Bank of Montreal is forecasting another 25 basis point move in September and says rates will climb another 1.5 percentage points by the end of 2011. If Mr. Guatieri and others are right, by 2012, the variable-rate products out today would clock in at just above 3.75%, if the discounting remains the same.

“If you are still in that variable-rate product then, you’d have to sweat out the next three years because there would still be possibly more increases,” says Mr. Guatieri, who adds his bank sees the overnight rate eventually going to 4% in the following three years. Based on the present gap between the Bank of Canada and prime, that would place the variable-rate product you get today at 6% by around 2015.

Fears of such a scenario are driving people into fixed-rate products again. That, plus new mortgage rules that make it easier to qualify for a mortgage if you go for a fixed-rate product with a term of five years or longer.

“The Bank of Canada is doing what it said — it’s going ahead with rate increases. If I was counselling someone, the prediction is rates are going up, so now is a good time to consider locking in for a term,” says Don Lawby, president of Century 21 Canada.

It makes sense, but with variable rate still at around 2%, it’s easy to see why people wouldn’t want to lock in. Even Mr. Guatieri says if you are secure in your financial situation and don’t need to fix your mortgage payments, “you might just want to let it ride.”

There just never seems to be a clear answer on whether to lock in or stay variable.

© Copyright (c) Financial Post

Strata council, manager at odds

Sunday, July 25th, 2010

Fee increase before council approval like putting cart before horse;

Tony Gioventu
Province

Dear Condo Smarts: We have an awkward situation in our strata with our manager. We really like our manager and have been very satisfied with our contract, but for this year’s AGM, the manager drafted the new budget, and then sent it out without the council’s review. It included an 11-per-cent fee increase.

Council was embarrassed to admit it had not reviewed the proposed budget, and in the end the amount was amended to a five-per-cent increase in management fees. Our fiscal year-end was Jan. 31, we had our meeting in June, and the next day after the budget was approved, our manager charged and paid the increase back to Feb. 1, without a council meeting or the consent of the council.

We don’t want to lose our manager, but we also want to be responsible in our decision-making. What should have been the proper procedures to follow?

– Hilary W., Abbotsford

Dear Hilary: It is important to understand the relationship between the strata council and the strata manager. The strata council members are the legally elected representatives of the strata corporation and are ultimately responsible for the decisions of the corporation, administration of the operations, financial operations, maintenance and repair of the common property, insurance, and the enforcement of bylaws and rules.

Basically, the strata corporation may contract out as many or as few of the operational services that it wishes to negotiate in the contract. The fees that a strata manager charges for their monthly services, and any disbursements or additional costs, or funds or benefits received on behalf of performing work for the strata corporation, must also be included in the contract or an additional signed addendum by the strata corporation.

Even if the fees are approved in the budget, the additional increase or service costs cannot be received by the management company unless they have either been specifically agreed in the contract schedule or until the strata council agrees to sign the new service agreement.

The approved budget simply authorizes the strata council to expend the funds. It is not a general practice for the manager to send out the budget and notice package without the approval of council; however, some strata corporations only meet once a year and rely on the manager to coordinate their notices and agendas for the meetings. Council members need to clearly understand the roles and duties of both the manager and the strata council.

Hilary’s strata corporation also needs to be mindful that it far exceeded the requirements for holding its AGM. The AGM must be held no later than 60 days after the fiscal year-end. Once an increase is approved at an AGM, the council needs to place that item on the agenda of the next council meeting, to discuss and ratify the fees and amendments to the contract.

Tony Gioventu is executive director of the Condominium Home Owners’ Association. E-mail [email protected]

© Copyright (c) The Province