The Age Old Question, should you contribute to your RRSP or pay off your mortgage: Which one of these options should get your top priority?

The Age Old Question, should you contribute to your RRSP or pay off your mortgage: Which one of these options should get your top priority?
TheStar.com - Mortgages - RRSP or mortgage: Which should get priority?

Pension actuary argues it's better to become debt-free April 30, 2007 This article is courtesy of Paul Brent

So, you can't decide whether to pay down that massive mortgage, or contribute to your meagre retirement hoard? Don't feel bad. Even investment experts are divided as to whether people should attack debt first or learn to live with debt and grow their investments through the magic of compound interest and tax-free growth.

The majority view, as espoused by the banks and the rest of the registered retirement savings plan machine, is that, rather than zero in on the mortgage, it's best to invest early and regularly in RRSP holdings. With three or four decades of tax-sheltered growth, retirement worries will take care of themselves.

"For people with normal income, and normal demands on that income, that is somewhere between bad advice and wild exaggeration," says Malcolm Hamilton, a pension actuary with Mercer Human Resource Consulting in Toronto.

A couple in their thirties who have two or three kids and a monster mortgage should not be worried about RRSP growth, he says.

"That kind of family really has to dig out from the mortgage, and that is particularly true in Toronto and Vancouver, where the property prices are so high. There is nothing more discouraging than marching through life with no time because of your children and no money because of your mortgage and having that go on for decades."

Hamilton's advice for such couples is simple: get out of debt as quickly as possible.

"When you do the arithmetic of what kind of after-tax interest rate you are paying on your mortgage, it is a pretty high rate. The return you realize from paying it down is completely risk-free."

When you make excess mortgage payments, you attack the principal amount of the mortgage, cutting down on the interest you'll pay over the lifetime of the mortgage. Because you have wiped out all those future interest payments that would have been made with after-tax earnings, you save the interest and the tax on that interest as well.

Compare that guaranteed 6 per cent return on your extra mortgage payments to the risky potential of perhaps an 8 per cent return with an RRSP, and paying down the mortgage looks like a safe bet.

"The average Canadian couple doesn't need to maximize their RRSPs and certainly doesn't need to catch up on unused RRSP room.

"They might as well just go with the mortgage," Hamilton says.

"The key is, when the mortgage is finished, you have to do the disciplined thing, which is take the money that used to be going to the mortgage and plough it together with all your tax refunds into the RRSP and make up for lost time."

Hamilton doesn't believe in the theory that a typical couple need to replace 70 per cent of working income in their retirement. They will be mortgage-free, probably free of child-related expenses and not shelling out for work-related expenses such as clothing, lunches and transportation.

Hamilton estimates most of us can live quite comfortably on half of our pre-retirement income.

Hamilton's mortgage-first argument may be heresy to the RRSP industry, but the point generates some sympathy from Frank Wiginton, a Toronto-based financial planner.

"This whole argument about RRSPs versus mortgage fundamentally comes down entirely to the people and what their goals are," Wiginton says. "Some people value being debt-free over being financially secure. Obviously, the best thing is to try to do both."

The financial planner maintains, however, that if people had the same discipline in making RRSP contributions as with mortgage payments, they would be farther ahead financially.

"People think, `Oh, it's my RRSPs, and I'm not obligated the way I am with my mortgage,' and they let it slide."

As a compromise, Wiginton suggests that a family pay the mortgage, make RRSP contributions and apply RRSP tax refunds to the mortgage principal in lump-sum payments every year.

The financial planner also created three scenarios using the mortgage-only, RRSP-first and lump-sum approaches.

They each envisage a 35-year-old in a Toronto-area house with a $330,000 mortgage at 5.5 per cent on a five-year term with a 25-year amortization and a monthly payment of $2,000. (All figures are approximate, and spouse and children are not included in the calculation.)

This mythical household has $10,000 per year in extra cash, which could be put in RRSPs, thrown at the mortgage or both.

Putting that $10,000 against the mortgage will save $25,000 over the lifetime of the mortgage and reduce the life of the mortgage by about 1.5 years at current interest rates, according to Wiginton.

Putting the $10,000 in an RRSP that generates an average return of 8 per cent over 23.5 years (the same span as the reduced mortgage) would generate $50,000 on top of the initial investment.

Based on a typical 35 per cent tax bracket, the contribution would also generate a tax refund of $3,500.

Scenario three involves making the RRSP payment of $10,000 and putting the $3,500 tax refund against the mortgage.

That would save $9,500 in mortgage interest and reduce the amortization period by about six months.

"Everybody's situation is going to be different," Wiginton concluded.

"Go out and find a certified financial planner to help you with this, someone who can run the different scenarios for you, talk about what your personal likes and dislikes are. Is financial security more important, or is debt reduction more important?"

Read more about how you can pay your mortgage off quicker



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Bank of Canada to raise rates in late 2007 and 2008 - from RBC

Bank of Canada to raise rates in late 2007 and 2008

Interest rate outlook

Bank of Canada to raise rates in late 2007 and 2008 Canada’s economy is picking up pace with first-quarter GDP growth on track to meet our 2.8% (annual rate) forecast. The economy expanded at a stronger-than-expected 0.4% monthly pace in February, double market forecasts for a 0.2% rise and faster than January’s 0.1% gain. The threemonth running rate clocked in at a 3.6% annualized pace, a solid pick-up from the 2.4% rate in January and sub-2% pace in the final six months of 2006.

Tight labour market conditions and growing incomes are supporting consumer spending and business spending remains firm. The rise in the Canadian dollar may dampen export demand but the slowing is likely to be limited by a strong appetite for commodities, while import demand may prove to be more robust than we had thought. While the trade sector may be a drag on growth in 2007, solid household and corporate balance sheets will more than make up for it. We expect Canada’s economy to grow by 2.5% in 2007 and an even faster 3% in 2008 – this is not new.

What is new is that Canada’s inflation rates, both the all-items CPI and the Bank of Canada’s core measure (CPIX) increased at a faster pace in the first quarter than policymakers expected and evidence is starting to build that these indices will remain elevated during the next few quarters. The all-items index increased at a 1.8% average pace in the first quarter and the CPIX rate at 2.3%, broadly in line with our forecast. Upward price pressures on a trend basis persist with the threemonth annualized gain in core CPI at 2.4% in March (see chart page 7), the fastest pace of increase in four months. We now view the risks that these inflation rates will hold above 2% in 2007 to be biased upward. While the Bank may tolerate higher inflation in the near-term, a persistent run above the target is likely to lead policymakers to view policy to be inconsistent with reaching their medium- term inflation goals. Also, we expect that any surprises to the Bank’s growth outlook will prove to be to the upside, meaning that the economy will move farther into excess demand rather than back to its productive capacity as the Bank expects.

See current Mortgage Interest Rates



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
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Is Spring the best time of the year to purchase your next home?

Is Spring the best time of year to buy a home?

This article covers many of the pros and cons to buying at different times of the year. Spring is certinaly the hottest time of the year, but you may consider other times of the year if you are not in a rush.

Ah, glorious spring, a time for fresh starts and positive change.

Across Canada and the U.S., for-sale signs crop up like wildflowers on the lawns of subdivisions. Moving sales proliferate. Moms and dads box up their possessions and ponder what awaits them on a new block or in a new town. Kids finish out semesters, wary that a different school culture and a new set of friends await them in fall. It's a rite of spring and early summer in our transient society.

It's also a time when real estate agents get lightheaded from make-hay fever, as buyers and sellers come out in full bloom.

But is it always the best time to buy or sell a house?

That's a definite maybe, say experts. Like most buy-sell situations, it all depends on motivations.

Indeed, according to historic data from the U.S. National Association of Realtors, April through July outpaces the balance of the year in sales. So there'll surely be more home inventory and variety then. But you better move fast, because that's just what other home hunters are doing.

"It starts building up early in the year but peaks around June," says research economist Jack Harris of the Texas A&M University Real Estate Center. "There's school ending, there's vacation time and the weather is also nicer. It's generally just a good time to get out and look at homes."

Many buyers apply their income tax refunds toward down payments, adding to the spring push.
While the buying frenzy stays steady through most of the summer, it drops off in early fall, says Harris. It usually drags for a month or so, and then escalates briefly again around October. Some of that second spike is attributed to sellers who were overly optimistic pricers in the spring, but who have grudgingly decided to make concessions in the fall, he says.

According to the Canadian Real Estate Association, buying patterns follow a similar trend north of the border, peaking in April and May, as buyers prepare for July 1st, Canada's biggest moving day. Sales then slow during the summer and begin rising again in early fall. For obvious reasons winter months are the slowest.

Some seasonal house-hunting hints:

Be a contrarian. True, there's a greater choice of homes in the spring, but sellers then can better hold to their asking prices because of demand. "If you can stand to be a contrarian, it could pay to wait," says Harris. "Most people don't do that, though. They just get carried along with the crowd." Additionally, when home loans are less in demand, some lenders are willing to forego certain fees typically charged to win off-peak mortgage customers.

Off-season dealing: Sellers in late fall and early winter, especially between Thanksgiving and New Year's Day, are often more motivated to deal, real estate agents say. "I've done my best negotiating from October to December," says Jim Crawford, a real estate agent, lecturer and Web consultant in Roswell, Ga. "You don't want lots of people tromping through your home around Christmas time ... so you're more apt to accept an offer."

Window at summer's end: Sometimes, late summer opens a small window of leverage for buyers dealing with sellers of slow-moving family homes, says Crawford. "You usually find that the family ... is more important than the extra dollar."
Some sellers can wait you out: Empty nesters and single sellers will always account for some off-peak housing stock, but they're often less motivated to sell quickly, Crawford says.

Heed non-cycle or short-cycle markets: Parts of Florida, Colorado and California and other regions of the U.S. that have large resort areas or large numbers of retirees and semi-retirees don't follow the traditional sale season. Winter resort areas peak in sales between January and April, according to agents. In northern climates, the wintry elements can compress the annual peak seasons more to their warmest-weather months.

Tax timing: It can play a role if you plan to buy late in the year. Determine through a tax preparer if the deductions will better fit in the current or future year. If need be, try to close Dec. 31 rather than Jan. 2, or vice versa. (Be sure you know which items of your closing will be tax-deductible and which will be added to the value of the property.)

Opportunism: While it may sound ghoulish, layoff announcements or a planned corporate headquarters move in some markets can soon result in more homes on the market for the short term with a variety of price points and some motivated sellers. Proceed with sensitivity.
Home-buying "seasonality" can vary from market to market and may be slowly shifting, say trend trackers. In recent years, January has seen record or near-record sales for the month, says National Association of Realtors researcher Walter Molony. A buyer's market in a city will mean more inventory is available year round, while a seller's market, generally driven by local employment opportunities, can winnow peak seasons significantly

However, most agents agree on the seasonal axiom that homes generally sell for 3 percent more than the annual average during peak months, at or around the average annual price in very early spring and in fall, and then drop 3 percent below the average annual price during winter.

A few other seasonal-selling strategies:

Sell to a larger market: In most areas, May, June, July and August are considered the high-volume closing months, with about 40 percent of all homes selling during that four-month period.

The sooner, the better: While deed transfers do peak between May and August, most of those sales were actually arranged from one to three months earlier. It takes time to close home transactions.

Holding out: Your wait could be a long one. A home priced unreasonably high can be hard to sell in any season, particularly in a buyer's market. Industry statistics show homes with price tags 5 percent above market value have a 10 times greater chance of selling than those priced 15 percent above market.

Reduce selling stress: Placing your home for sale as far in advance of buying the new one as possible will help remove one component from the already complicated sales equation. You don't want to wind up juggling two mortgage payments in addition to the other exasperation associated with home selling. But don't tarry too long in visiting your targeted buying area, lest you miss its peak inventory season. (You may have to send your spouse out as a scout while you hold down the home fort.)

Get inside the buyer's mind: See seasonal house-hunting tips (above) and adjust strategies accordingly.

Buyers and sellers should also note that 60 percent of all moves in America take place in summer, according to JoyceVanLines.com. Book as early as possible, especially if you have a clear closing date. Joyce and other movers advisehome buyers/sellers to call for an estimate at least 60 days in advance of a move.

Even with reliable spring sales peaks, the Internet has added a non-seasonal dimension to the home-buying mindset. Virtual tours, accompanied by a wealth of neighborhood, school and civic data, can speed along the decision-making process well before a prospective home buyer hits town, agent Crawford says. "It is literally open house, 24-7, on the Web."

In markets such as weather-friendly Southern California, seasonal factors play a much smaller role in home-inventory turnover, agents say. Terri Dillon, who owns four Realty Executive offices in the San Diego area, says house hunting is a year-round sport in her market, although spring still carries a slight edge.

However, at year's end, says Dillon, investors who sold off residential properties midyear are often in a hurry to close on the purchase of another investment residential property to satisfy requirements of a capital-gains deferring 1031 exchange. The IRS gives you 180 days from the date of your last property's closing to close on another real estate investment to defer the previous gains tax. This is less of a factor in Canada where the concept of replacement properties has long been phased out of the tax code.

Knowing the motivation of the seller can be very important in the sales process, says Realtor Susan Marthens of Windermere Services Co. in Portland, Ore. "If they're transferring, they'll want to get it out on the market quickly," she says. "That's something people can't always control. Sometimes they'll have to negotiate accordingly."

She adds: "But if a particular time of year isn't important to the seller ... then I always tell them, 'Right around spring.' "

See our seasonal housing trends in the GTA




For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Supersizing home trends - most likely over within next decade

Buyers' focus shifting from size to style

Supersized house trend likely over within next decade

The "Supersize Me" era of home building might be coming to an end after a three-decade run.

The size of the average new home swelled by about 50 per cent from 1973 to 2006, but this trend toward expansion will probably be ending in the next decade, according to an elite panel of 135 builders, architects and designers surveyed by the National Association of Home Builders.

In a report released last month, these residential-construction experts said the downsizing tendencies of aging baby boomers, soaring home prices in much of the country and a fundamental change in consumer tastes will dampen future demand for ever-larger homes.

"People kept getting more and more and more space, but felt dissatisfied because the space was not filling a void," said Sarah Susanka, co-author of Inside the Not So Big House.

"The `moreness' they were looking for had nothing to do with size" but rather with the craving for more intimate spaces they could use in more practical ways, she said.

The average size of a new single-family home in the first three months of 2006 was 2,459 square feet, up from 1,660 in 1973.

The size grew even as the average family size shrank, said Gopal Ahluwalia, staff vice-president for research at the builders' association. "So it's not as if people were buying bigger homes for functional use of space. It was about lifestyle. They were buying for the same reasons people buy expensive cars: because they could afford it.''

But a new single-family home will most likely average 2,300 to 2,500 square feet in 2015, as it has since 2001.

Instead of focusing on space, homeowners will turn their attention to what makes that space special.

"People are not necessarily looking for square footage but for a home with a higher level of finish and detail," said Barry Glantz, an architect in St. Louis. "They want granite countertops, Sub-Zero refrigerators, Viking ranges, ceiling treatments, floor treatments. They want all the bells and whistles.''

Not everyone agrees that there is a trend or, if there is, that it's here to stay.

Among them is Kira McCarron, chief marketing officer for Toll Brothers, one of the nation's largest home builders.

McCarron said that during her 21-year tenure with the company, she's heard similar predictions about shrinking home sizes, particularly when consumers get spooked by rising energy costs. But these forecasts have not panned out in the past, she said.

"I don't believe the fundamental dream of bigger, better, more is going to end any time soon," McCarron said. "I think people do like nesting spaces, but I think they like them in their 4,000-square-foot houses. They like the idea of reading areas, where they can curl up in the morning and read the newspaper. But they want one for him, for her, for the kids.''

L.A. Times-Washington Post News Service

Read more about real estate trends



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Current Canadian Interest Rate Marketplace HIGHLIGHTS

HIGHLIGHTS of the current marketplace

Easing U.S. core inflation and strengthening retail spending to sooth Fed
Inflation in Canada a concern ahead of next week’s Bank of Canada interest rate announcement
Ask anyone tasked with predicting the direction of
monetary policy in the United States and they’ll
certainly say it has been quite windy on the fence.
Gusts of concern about the persistently elevated
level of core inflation give way to worries about
the economic slowdown with alarming regularity. And
just when there appears to be a consensus supporting
a shift towards a neutral bias, the Fed itself
changes the wind direction (recall the relatively
hawkish minutes to the last FOMC meeting). So it was
a welcome change this week that the flow of economic
data came close to balancing itself out, leaving the
likely woozy Fed-watcher with a moment of calm to
survey the landscape.


The most soothing breeze accompanied March’s
consumer inflation report. All eyes looked beyond
the gasoline-induced rise in total inflation to
focus on the moderation in core, which subsided from
2.7% in February to 2.5%. The core price index
itself rose just 0.06% in the month – marking the
smallest gain in almost two years. More importantly,
the longer term trend in core inflation was also
encouraging, as both the three- (2.3%) and six-month
(1.9%) annualized rates eased in the month. Of
course, a single data point in isolation will not
immediately wash away inflation concerns, but it
represents a step in that direction.


On the other side of the fence, new data this week
suggested that conditions in the housing and
consumer sectors – two areas of particular concern –
may be in better shape than previously thought. The
largest piece of evidence was March’s retail sales
report. The 0.7% increase in headline sales was
largely fuelled by higher prices at the pump,
pushing up the value of sales at gasoline stations.
But the so-called core measure (excluding volatile
sales of autos and those at gasoline stations)
delivered a respectable 0.4% increase. What was even
more encouraging was a large upward revision to
February, which helped boost the three-month
annualized trend in core retail sales to 5.3% from
the relatively anaemic 3.5% pace observed in the
previous month. Even the housing market contributed
an iota of good news as both housing starts and
building permits showed a surprising 0.8% increase
in March. Before breaking out the party hats, it is
important to remind ourselves of the inherent
volatility in this series, which is accentuated by
the fact that virtually all of the new starts were
confined to the Mid-West which in turn was buoyed by
very favourable weather conditions.


So with this week’s economic data presenting a
reasonably balanced view of the U.S. economy, the
key question is, how long the reprieve will last and
on what side of the fence will the final teeter turn
into a tumble? Here, we see the risks staking up on
the downside. As long as the inventory of unsold
homes remains elevated, the housing market will have
further to fall. Meanwhile, the consumer has been
able to weather the loss in wealth from falling home
prices, but they will increasingly have to rely on
other sources of income to sustain their spending.
So far, the labour market has been up to the task,
generating modest employment growth accompanied by
wage gains. Provided that the job market is not
undermined by the recent weakness in business
investment, we believe the Fed will leave rates
unchanged, especially if inflation fails to cool
further.


Inflation on the radar in Canada


Canada’s invitation to the elevated-inflation party
must have been delayed in the mail. But now that it
has arrived, inflation has jumped to the forefront
for financial markets, especially with the Bank of
Canada set to announce their next interest rate
decision next week. Indeed, particular attention was
paid to Thursday’s CPI report for the month of
March. And here, the data was tipped to the
encouraging side in that core inflation backed
modestly away from its recent 2.4% peak set in
February, settling at 2.3%. However, March was the
ninth consecutive month that core inflation was at
or above the Bank’s 2% target. Within the details,
shelter costs continue to play an important, albeit
lessening role in keeping core inflation elevated.
With new home price appreciation expected to cool
across Western Canada, there should be further
easing within this component which will help
alleviate some of the upward pressure on inflation
in the quarters to come.


Despite the slight moderation in March and a cooling
housing market in Western Canada, an above-target
rate of core inflation will be a familiar sight in
the months to come – reflecting the fact that the
economy is operating at its productivity capacity.
While the labour market, with its unemployment rate
at a generational low, stands out as an example of
this reflection, the business sector is following
closely behind. Not only did the Bank of Canada’s
Business Outlook Survey note heightened optimism
among firms, but that capacity constraints were also
increasing. Seeing through the weather-induced fall
in February’s inflation-adjusted retail sales, the
domestic economy remains extremely healthy.
Meanwhile, an evaluation of the trade side, which is
still Canada’s pocket of weakness, has been obscured
to varying degrees by the 15 day CN Rail strike in
February. The greatest effect was captured last week
with the release of international trade which showed
a pronounced decline in exports. This week,
manufacturing shipments also were down, but not by
as much as one would expect – suggesting some
underlying strength. Similarly, wholesalers shrugged
off the strike entirely and registered a surprise
0.8% gain in February. It will take another month or
so of data to see through this volatility, which in
turn will help keep the Bank on hold next week,
although a greater acknowledgement of the risk to
inflation may be warranted. Indeed, the Bank will
have the perfect opportunity to do so in detail next
week with the release of the Monetary Policy Report
on Thursday. Article Courtesy of R.Paul Chadwick Manager of Residential Mortgages, TD Canada Trust

Read more about the current state of the real estate market



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Banks applaud legislation to lower minimum payment needed for mortgage insurance

Banks applaud legislation to lower minimum payment needed for mortgage insurance


Saturday, April 21, 2007

TORONTO (CP) - Canada's big banks are applauding new legislation that lowers the required down payment for mortgages.

The federal government said Friday it is lowering the minimum down payment requirement for mortgage default insurance from 25 per cent to 20 per cent. The new legislation is part of Bill C-37, expected to be proclaimed next week.

BMO Bank of Montreal says homebuyers could save an average of $2,500 in insurance premiums, based on an average home price of $300,000.

"We see a number of customers scrambling to meet the 25 per cent down payment, in order to avoid paying the insurance premium," said Cid Palacio, Vice President, BMO Bank of Montreal. "These changes will allow those homebuyers to reduce their down payment and get into their new home faster."

The new limit also affects individuals who intend to refinance their mortgages.

RBC Royal Bank said a recent survey it did found 39 per cent of Canadians have borrowed against the equity of their home, by either refinancing their mortgage to a larger amount, or by taking out a home equity line of credit.

"Now, with refinancing at 80 per cent, we're making an extra five per cent equity available to our clients for their financing needs," said Catherine Adams, RBC Royal Bank's vice-president, Home Equity Financing.

Scotiabank said it will cover the cost of insurance paid by the few hundred customers whose high-ratio mortgages are currently being processed. These are customers of the bank who would have been exempt from default insurance under the new rules.

Under the existing Bank Act regulations, which have been in place for 40 years, a bank cannot provide a mortgage loan for more than 75 per cent of the value of the property, without having the customer purchase mortgage insurance. Bill C-37 raises the loan-to-value ratio requiring mortgage insurance from the current 75 per cent to 80 per cent.

More on mortgage rates



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

What Percentage do you think the single home prices will increase annually in the next 5 years in Mississauga?

This was a good question in an email and I thought you may wish to read my response.

DEAR MARK
THANKS FOR SENDING THE VALUABLE INFORMATION ON REAL ESTATE. AT WHAT RATE PERCENTAGE DO YOU THINK THE SINGLE HOMES' PRICES WILL INCREASE ANNUALLY IN THE NEXT FIVE YEARS IN MISSISSAUGA ?. I AM EXPECTING AN HONEST REPLY ON THIS.THANKS .
Arun B.

Hello Arun B.,

Thank you for your real estate inquiry. In my opinion, nobody can predict what the markets will do over that period of time. I can tell you that the market will remain strong for at least the next 1 to 2 months. There are changes in our market. It is not 'on fire' the way it was for the past few years. If you look at this graph, you will see that the market has only continued to climb at a high rate of about 6% to 8% per year since 1995

No matter what anyone has told you, the west GTA market has slowed compared to recent years, it's still a good market but not booming the way it way. People who bought new homes in any year from about 1998 could resell the home for a large profit by the time they closed. This is no longer the case. People who bought new homes last year and have just closed are having difficulty breaking even. This is in spite of the fact that we are at the 'high time' of the year.

Another observation. For the first time that I can ever remember, and I have been tracking prices since I got into the business in 1987, the March average price was lower than the February average price. This is unheard of. For the past 20 years March prices were higher than February, except this year. The price dropped 1%, not a large amount, but it dropped rather than increase. This too is significant and indicated our market is not booming any more. This could change in the future, but for the near future prices are likely to stay about the same as they are now.

My 'best guess' for the long term is that we will see increases in year over year prices, but they will be about 2 to 3% per year and not the 5 to 8% that we have seen in years over the last decade. There will always be pockets that will outperform the average prices and this too is one of the keys when buying real estate. It is still all about location.

Please let me know if you have any other questions or if there is anything else I can help you with.

Thank you again for contacting me and I will do my best to help you with your real estate needs,

Mark

Read more about prices



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Wow - Didn't anyone notice this announcement on Down-payment changes in Canada?

Did you hear the latest on mortgages in Canada?

There was a major change to federal legislation regarding high-ratio mortgages in Canada last Friday April 20th. Effective immediately, residential mortgages with a loan to value ratio between 75 - 80% will no longer require insurance through CMHC or GE. This change was announced by the Finance Minister on Friday.

What this means is that you now only require 20% downpayment to avoid those 'high ratio' insurance fees. This coupled with the fact that 30 and 40 year mortgages are now readily available in Canada means two things:

1- affordability has improved dramatically in the past few months as both of these changes reduce either the fees charged or monthly payments.
2- this also means that prices will rise due to more people being able to afford the entry level properties.

This is a significant change in real estate ownership in Canada. I don't think many people noticed or even gave it much thought, but these two changes alone could increase affordability by as much as 30% which also means that house prices will rise due to these two changes. This certainly makes the banks happy, as they will now be able to loan out more money.

Take a $250,000 townhome as an example. You may now use the premium you would have paid for putting only 20% downpayment, which is 1% of the mortgage, so in this case, the mortgage amount with 20% downpayment is $200,000 (since 20% of $250,000 is $50,000 downpayment) and you save $2,000 insurance premium. Now you take a 40 year mortgage the payment is $1056 per month versus a 25 year mortgage $1250/month and your payment difference is $194 per month. At today's rate of say 5.75% this 194 payment is worth an extra $36,000 in mortgage payment, plus the $2000 fee you saved, this all means that you can afford an extra $38,000 most of which can be put towards your purchase price. The bottom line in this example is that you can afford about a $280,000 townhome with 20% downpayment and 40 year mortgage, that's a huge difference and will help to put upward pressure on prices.

Any comments? email me

This also means that thousands of websites and online mortgage calculators, mine included, must all be changed to reflect these changes, no small task! This change is so new that CMHC has not even updated their site to reflect the new rules, as of April 23rd.

You can do mortgage calculations for your situation at this link.



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

CIBC World Markets predicts Canadian house prices will double in the next 20 years

The Canadian Imperial bank of Commerce (CIBC) has issued a press release and they predict that the price of real estate in Canada will double in the next two decades

CIBC World Markets predicts Canadian house prices will double in the next 20 years
Wednesday April 18, 9:00 am ET


- Fears of a decline sparked by demographics greatly exaggerated -
TORONTO, April 18 /CNW/ - CIBC (CM: TSX; NYSE) - Canadian house prices are likely to double in the next 20 years, according to a CIBC World Markets report released today, entitled "Much Ado About Nothing: Canadian House Prices Not Based on Demographics Alone."

"Despite downward pressure from demographic forces, on average, we expect house prices in Canada to double in the next 20 years," says Benjamin Tal, Senior Economist, CIBC World Markets. "Fears of a decline resulting from the downsizing and increased liquidations of houses by seniors and the falling number of first time buyers are highly exaggerated."

The CIBC report compares population growth between two cycles of housing prices, from 1987 to 2006 and from 2007 to 2026, using Statistics Canada's medium-growth, medium-immigration projection as a benchmark.

Between 2007 and 2026, the projected 167,000 net decline in the number of first time buyers (Canadians between the ages of 25 and 44) is marginal, at best, Mr. Tal said. Since this age group is by far the largest contributor to overall housing demand, accounting for almost 68 per cent of all home sales, this relatively modest downturn will not significantly impact housing demand.

The largest decline (2.5 million) is projected for the 45 to 54 age group, as many baby boomers move to the next age bracket. The impact of this change is also expected to be limited, given that the 45 to 54 age group accounts for only 12 per cent of total housing demand. In fact, this moderate decline in housing demand will be partly offset by the strong increase in the age group 55 to 74 and its surprisingly high housing market activity - largely reflecting purchases of vacation and investment properties.

"We estimate that in the coming twenty years, the Canadian housing market will face extra supply of roughly 250,000 houses," adds Tal. "While at first glance this appears to be a large number, it means an average extra supply of only 12,500 homes a year during that period."

Considering that total housing starts during the previous cycle averaged 180,000 per year, builders will only have to reduce new supply to just under 170,000 to completely eliminate any negative demographic influence on house prices compared to the previous cycle.

Concerns regarding the impact of demographic forces on the Canadian housing market were first raised in the late 1980s. However, during the twenty year period from 1987 to 2007, Canada experienced a three per cent annual increase in real home prices.

Although housing market activity in the coming 20 years will fluctuate, CIBC projects that the average real house price will mirror the performance of the past two decades.

"Assuming a two per cent annual inflation rate, this means that house prices in Canada are expected to double by 2026," said Mr. Tal. "This increase, of course, will not be symmetrical - with large cities seeing even larger increases in home valuations."

See average price graph for past 20 years



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Toronto’s property taxes still middle-of-the-pack

Toronto’s property taxes still middle-of-the-pack

Property tax increases were a hot-button issue in the City of Toronto’s recommended spring operating budget. A proposed 3.8% increase in property taxes combined with rising assessment values as a result of the strong real estate market have ignited some worry about whether Toronto’s property taxes are out whack with other comparable jurisdictions. Ontario’s budget also addressed the property tax issue with a multi-pronged proposal to improve the transparency and predictability of the system. An evaluation of the recent proposals helps clarify how the city compares on property tax rates and the risks that lie ahead once the current freeze on property assessment values is lifted in 2008.

Do Toronto taxpayers pay disproportionately high property taxes compared to both home values and household income?

Comparisons with other major Canadian cities show that, on average, Toronto’s homeowners are middle-of-the pack in terms of annual property taxes paid as a share of house prices. Average annual property taxes in Toronto account for roughly 0.8% of home value and between 3%-6% of household income depending on housing class. In comparison, both Vancouver and Calgary are in the lower range of taxes as a share of house prices and household income, while both Ottawa and Montreal are in the higher range.

Proposed one-time 3.8% hike not the big threat

The proposed 3.8% hike in residential property taxes this year would be the largest increase in five years and would affect near-term affordability conditions in the city. However, it is a one-time hike and still remains within the realm of rates applied in other jurisdictions. The larger risk from higher property taxes emerges towards the end of the decade after the current freeze on property value assessments is lifted in2008. The combination of higher city tax rates and a jump in property assessment levels through higher market values of homes could pose a more significant challenge housing affordability conditions from 2009 onward.

Property assessments still frozen at 2005 levels

Prior to the introduction of the Current Value Assessment (CVA) approach in 1998,Toronto’s property assessment system was seriously out-of-date with properties having last been assessed in 1940. Ontario adopted the Current Value Assessment(CVA) approach to bring property values up to their market value. The Municipal Property Assessment Corporation (MPAC) is responsible for providing assessed values using the CVA approach on all properties in Ontario.

The CVA represents an estimated market value (the amount the property would sell for in an open market) or the amount that the property would sell for in an arm’s length sale between a willing seller and a willing buyer at a fixed assessment date. From 1998 to 2004, homeowners experienced size able gains in the value of their residential properties. The average resale price of a Toronto home rose by roughly65% during this six-year span.

The rising market value of homes resulted in rising CVAs. Since the implementation of the CVA approach in 1998, home values have been assessed four times — in 1999, 2001, 2003 and 2005. With each reassessment, tax rates are adjusted accordingly depending on the city’s current financial needs. From 1998 up to 2006, the average two-storey homeowner witnessed an increase in annual property taxes from $2970 up to $3716 — an average annual increase of 3.1%.

Concern about the method of property assessment caused the government to freeze assessment values for a two-year period (2006-2007) while MPAC worked to improve the CVA system. Due to the province-wide assessment freeze, municipalities will use the January 2005 estimates to calculate property taxes for the2006, 2007 and 2008 taxation years.

Assessment values to play catch-up in 2009

The two-year freeze on property values has helped shelter homeowners from the more recent rise in the market value of homes in Toronto. Since the last assessment date (January 2005), house prices in Toronto have increased by roughly10%. If prices continue to grow at an annual 4%-5% pace during the remainder of 2007, there should be a cumulative increase of roughly 12% by the next assessment date.

The estimated 12% cumulative increase in average house prices from 2005 to2007 is significantly less than the prior three-year period from 2002 to 2004 when the cumulative price gain was 22%. Toronto’s housing market has had a solid run since the early part of the decade with a disproportionate amount of the appreciation accounted for prior to 2005. So, while there are still risks of upcoming rises in property assessments, the increase is expected to be more muted now that Toronto’s housing market has entered a softer period with price growth and resale activity both continuing to moderate from elevated levels. With most of Ontario also in the midst of a moderating housing market, softer price gains throughout the province should continue.

Ontario budget proposes measures to improve property tax stability and predictability

A proposal in Ontario’s 2007 budget delivered last month introduced some important measures to help mitigate the shock of the rising property assessments scheduled to occur in January 2008. The proposed revisions to the current assessment procedure include:Move to a four-year reassessment cycle;Mandatory phase-in of assessment increases;Enhancements to the assessment appeal sustained the new system, the next reassessment is scheduled to take place for the2009 taxation year based on property values as of January 2008 and the cycle would be ongoing every four years. The increased value of property assessments would be phased-in over four years in four equal increments. For example, an estimated 12% assessment increase would be phased in gradually in increments of 3% over four years. The phase-in feature will be particularly beneficial to help offset the shock for those homeowners who experience significant increases in their property assessments. The program would not apply to assessment decreases.

Affordability conditions remain stable

While rising property values may weigh on affordability conditions more heavily in the later part of the decade, the provincial budget measures will help ease the transition to higher assessment values. Furthermore, Toronto’s affordability conditions have been well-behaved since the housing market crash in the early 1990s.

Affordability underwent a mild deterioration through the first half of 2006 but began to improve toward the end of the year. In fact, Ontario reported an across-the-board improvement in affordability in the final quarter of 2006 driven mostly by a re balancing of markets from a situation of excess demand to more neutral territory.

This year is likely to bring continued improvements in affordability conditions as annual house price gains remain restrained to the 3%-5% range. A softer market ahead will ultimately help limit the risk of size-able property assessment increases when properties are re-valued next year.

Read more about property taxes

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com