This weeks top stories include how small mortgage lenders are not worth shying away from, how the Canada Revenue Agency is cracking down on condo flippers, how an interest rate increase is still in the cards for Canadians, how existing home sales in the U.S. took an unexpected dip last month, how the new question on analysts minds is whether or not Canada will raise interest rates before our southern counterparts and how bidding wars still exist in the Toronto area.
Mortgages lenders vary in size across Canada. They can be as large as RBC or as small as a credit union. Usually home buyers tend to gravitate towards brands they are familiar with, this is why the banks currently service 75% of all mortgages even though a mortgage broker can obtain better rates for you.
Buyers feel safe with big brand mortgages but they pay for that sense of safety. Buyers tend to shy away from names that they are not familiar with for fear that the lender will go out of business. But this is something that you don’t need to worry about. Lenders have gone out of business in the past and the mortgages that they held were taken by other lenders as part of the closing of the business.
Other cases are when the lender is purchased by another lender. In these cases, the new company assumes the previous mortgages until the renewal date and then offers a renewal from their own mortgage company. Borris Bozic, president and chief executive officer at Merix Financial commented, “We’re not deposit takers. We’re giving money, not taking money. The risk is all ours.” What do you think? Would you take your next mortgage at a smaller lender to save money? Please comment below.
With many people buying and flipping condo’s, the CRA has taken notice and is now planning on cracking down on the profits being made. The way that your taxes should be disclosed is listed in detail in this segment, so make sure that you pay attention.
When it comes to your principal residence, there is no tax as long as you can prove that it was your principal residence. This can be done if you filed taxes at the residence or even if you obtained your drivers license at the residence. In most cases you have to live at the residence at least 12 months plus a day for it to meet the criteria of an owner occupied dwelling. Real estate that generates income (rental condo, duplex) or is a secondary residence (cottage, love nest) is subject to capital gains tax. Here you get to keep half the gain, and the other half is added to your annual income and taxed accordingly.
Flippers have their own special treatment. The CRA consider this to be a business (even if it’s not your occupation), and 100% of the gains are lumped in with your annual income and taxed at the marginal rate. That means that the amount of gains are added to other earnings, likely bumping the flipper into the top tax bracket, and then taxed at a rate approaching 50%. So make sure that you know what you are getting into when purchasing a home. Otherwise, you could be in for a costly surprise.
Current Bank of Canada (BoC) Governor Mark Carney decided to hold interest rates until the next meeting this week on Tuesday. This was expected by many analysts and industry insiders alike. But what came next was completely unexpected.
The BoC governor, who will be leaving to head the U.K. economy this year, made a note that even though growth forecasts for this year were cut, we can still expect to see interest rate increases in the near future. He went further and noted that this interest rate increase might take place at the next interest rate setting meeting scheduled in a few months.
Mr. Carney was quoted as saying, “The considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2% inflation target.” What do you think of his statement? Please comment below.
There are signs that the U.S. housing recovery is not everything that people are saying as sales of previously owned homes saw an unexpected drop in the month of March. This leads many to believe that the recovery is not as strong as most thought and that the recovery will be a bumpy one as the economy continues to struggle to gain solid traction.
Purchases of previously owned homes were down 0.6% to a 4.92 million annual rate for March, according to the latest figures from the National Association of Realtors (NAR). The previous expectations from analysts was that projected sales would reach to a 5 million annual rate, which was not met. At the same time, prices rose, which shows that demand for higher priced homes is on the rise. Low mortgage interest rates and increasing property values mixed with solid employment gains, have helped aid the U.S. housing market on its recovery.
There has also been a decline in inventory for cheap properties for sale when compared to the previous year. It seems that many people have jumped back on the housing ball and are picking up what they can, where they can. David Sloan, senior economist for 4Cast Inc. commented, “Housing will remain a positive for the economy, but there should be some slowing in the next few months. The slowing is temporary. There is a shortage of supply. The housing market will revive.” How do you feel about Mr. Sloan’s statement? Please comment below.
It seems that Canada is not exactly what the world thought. Yes, we are a great country to live in and we have a more stable economy than others but last year this time, we were the golden child of the world. We had no issues with housing, unemployment, currency or any of our investments. Things have changed drastically since last year and the world has been watching.
Canada is going through a rough patch with timid growth expected for this year, housing expected to flatline and possibly contract and unemployment raising on a daily basis. This had lead to a conversation about whether or not the U.S. Federal Reserve will raise interest rates before we do here in Canada. My thoughts, it’s fully possible.
Avery Shenfeld, chief economist for CIBC World Markets feels that Canada will raise interest rates during the first quarter of 2015, which is when the U.S. Federal Reserve is expected to do the same. He commented, “A bump in the road in Canada’s path, and the Fed ends up going first.”, which makes sense. Everything happening here, and south of the border, could be disrupted with something as simple as problems in the Eurozone.
The reality is that the current Bank of Canada (BoC) governor will not be around to make that decision as he is leaving to start work for the Bank of England (BoE) at the end of June. This means that his successor will be responsible for raising interest rates and dealing with the day to day challenges of Canada’s economy. How do you think he will manage? Please comment below.
You may be shocked but it seems that bidding wars still exist in today’s softening housing market. A new survey from BMO found that 72% of buyers stated that they would not get into a bidding war. What was more surprising about the survey was that 37% of first time home buyers were willing to go over budget if they found the home that they wanted.
This shows that roughly 28% of people are still willing to get into bidding wars. If you don’t believe it, look at what’s going on in Toronto right now. There are still bidding wars on properties and I’ve personally been involved in a few of them. What people have to understand is that the so called asking price in nothing more than a number that was established by the realtor. That number could be at market value or below market value depending on how much interest the real estate agent wants to garner in the property.
In other words, the asking price is meaningless, it’s a marketing game to draw people in to look at the home. That would explain why there were over 40 offers on the last property that I personally put an offer in on. The property was listed at $489,000 in an area where the same homes were going for $600,000. If you must know, I was outbid but I went in with a number that was my maximum and knew my limits. I knew that if I overpaid, the appraisal would not come in at value and that the mortgage financing would not take place.
Real estate agents can list a property for whatever they want. Last year, one listed a home for $1 to see what attention it could get. Buyers came in with offers and none were accepted because the seller didn’t get the amount he was looking for. The agent has no obligation to sell at the asking price. Mr. Madani, an economist that predicted home prices would crash by 25% this year, commented, “In a housing boom, when you’ve got multiple people bidding, the buy side becomes crowded. Prices can lose touch with fundamentals. Bidding wars are part of the housing bubble narrative.” What do you think? Are bidding wars skewing the reality of prices? Please comment below.
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