Many industry professionals will agree that we are currently in a buyer’s market. As we start to enter the spring market, traditionally one of the most active times of year in Real Estate, sellers may wind up disappointed. Many of the first time home buyers of a few years ago, who have built up some equity in their property value and are now looking to sell, need a strong first time buyers’ market in order to move up the property ladder. Once they sell, they become the ‘move-up’ market. This has, historically, been the natural progression of an orderly real estate market. In simple terms, it is very much like a food chain. The move-up market is dependent upon the existence of first time home buyers.

A majority of Canadian economists agree that the Bank of Canada is expected to begin to slowly raise interest rates later this year. My best guess is that this gradual rate increase will start this coming August. However, based on what I think will be strong competition within the mortgage lenders as a result of a slower spring market and, thus, a lower demand for financing, I feel that many lenders will be forced to decrease their five year mortgage rates to be competitive in this market. Looking at the current five year mortgage interest rates and five year Canadian Bond Rate interest rates, it is clear that lenders have the ability to maintain satisfactory profit margins while decreasing their rates.

While many potential first time home buyers may want to sit back and wait a year to perhaps study the market and the changes in lending rules that have been forced upon us, the bottom line is they may very well miss an opportunity to take advantage of lower interest rates and realty prices. With a delay of one year, potentially higher interest rates and a more competitive market may mean the home you are seeking to buy might come with a larger-than-expected price tag. Sometimes it pays to be a contrarian, and this may just be one of those times.

Paul E. Croy

In one generation, we have gone from 33% of young adults (Baby Boomers) living with parents to the now record 50%. Past generations tended to get married earlier, start careers sooner, and buy houses pretty much as a scheduled series of events. The Echo Boomers, however, tend to delay both getting married and homeownership.

Over the coming years, this group of 9.2 million potential consumers will certainly become targets to be marketed to by the realty and mortgage industries. The industries will stress the lifestyle and financial advantages of home ownership to this unique, well-educated group:
-> 97% own a Computer (the same percentage that also use social media every day.)
-> 94% own a cell phone (and perhaps will never own a traditional land line telephone.)
-> 56% own a MP3 Player (I will have to ask my kids what that is, I might even own one!)
-> 40% of Echo Boomers chose television as their main source of news. (I’m sure that you can guess where some of the advertising dollars will be spent.)
-> Most use Email, text, Facebook, MySpace, UTube and Twitter to communicate.

The dream of home ownership is still very much alive in Canada. This Echo Boomer generation has only delayed homeownership rather than eliminating it. When they do buy, they will buy as a demographic group and are sure to become a major force in the Canadian realty and mortgage market. In the interim, perhaps we Baby Boomers can still have help solving computer problems while the Echo Boomers still live at home.

On a side note, one other interesting statistic is that, on average, this group of Echo Boomers speaks with their parents 1.5 times per day.

Paul E. Croy

#1- Residence

Purchasing a home tends to be the largest capital investment most people make. It also tends to be the best investment most people make.

Rents go up but mortgage payments remain constant. So with time, the cost of mortgaging remains constant while rents rise with inflation. (There are interest rate fluctuations both up and down but I am assuming a constant interest rate for this example.)

It may seem a long way off at the beginning, but mortgages do get paid off and any capital appreciation from your own house is non-taxable. Equity in property also provides the ability to access funds for other investment opportunities.

#2- Investment Properties

There are several types of investment properties:

A – Revenue Investment (Residential, Commercial, Industrial revenue properties)
I do not have a pension other than CPP so I need to plan for my retirement by creating an income stream that is indexed so that inflation doesn’t erode my standard of living. Buying a rental property can be an effective method to satisfy this goal.

When looking for revenue property to meet this goal, you need to consider how soon the property’s income will cover all of its expenses including debt servicing, management, maintenance, repairs and of course, the various taxes. This may mean that you will need to cover a shortfall at the beginning, but when you have reached the breakeven level time becomes your ally and the property will start paying you an indexed cash flow.

B – Speculative Investment
This investment is to attract a capital gain by selling a property for a higher price than you paid. This investment is quite popular when the market is increasing or expanding. An example of speculative investment would be buying a piece of land that is not yet developed but is in an area where development is approaching. When development does reach your property then there will be an increase in its value. This type of investment is higher risk than rental property (time is not your ally) but it does not require as much ongoing work and can be very lucrative. This investment is more interested in the market and not in revenue.

There are several investments that are part revenue and part speculative. One example is an underdeveloped property that does not have cash flow to pay all costs but can offset some of the costs.

Housing is something that we all need. It has proven to be a stable and manageable investment that one can control or at least influence. Talk to your realtor, lawyer, accountant, mortgage broker, neighbour etc. Everyone has something to say about real estate and some of them can give you good advice, but remember that it is your choice. Be bold and you should be rewarded.

Rory Campbell

See the March 11, 2010, Business Week article, Canada January New Home Prices Rise 0.4%, Seventh Straight Gain

We are presently enjoying the lowest interest rates seen since the Korean War, and the only thing we can absolutely count on is that rates will inevitably rise. The ‘experts’ cannot seem to agree on when or by how much, but the varied opinions range upwards to an increase of 2.0% – 2.5% by the end of 2011.

I believe that now is the time to become pro-active and ensure that you take advantage of the present interest rate environment. Do you wish to explore the possibility of ‘renegotiating’ an existing mortgage? Would you like to ‘lock-in’ an interest rate for an upcoming purchase? Does your mortgage ‘mature’ in the next few months? Fixed rate vs. variable rate?

Our mortgage professionals are your best source for mortgage advice and can explain all your available options.

Walt Neufeld

The HST will certainly impact sales of homes priced at the mid – high end of our marketplace, but should not slow ‘entry level’ sales.  Entry level sales inevitably drive the rest of the market so….. I am cautiously optimistic regarding our real estate market!

My thoughts on when / how higher interest rates will affect us is another matter… for another day.

TGIF… Go Canada!

Walt