By Garry Marr, Financial Post and Roy Singh

The national numbers from the Ottawa-based Canadian Real Estate Association are not due out until mid-December but the Toronto Real Estate Board said yesterday it had its best November on record. Toronto’s news came on the heels of a Wednesday release from the Real Estate Board of Greater Vancouver that said sales activity in the city rocketed up 252.7% in November from a year ago.

What the latest numbers will likely mean is an improvement in the national average sale price, which was up 20% in October from a year ago — the largest such increase in two decades. The two cities tend to skew the national average price up or down, based on levels of sales activity.

“You are going to see a very strong national number. It will be another double-digit increase for sure,” said Benjamin Tal, senior economist at CIBC World Markets. “You have to remember you are comparing all this against a very low base. Last year at this time we were talking about 1929. This was a dead market.”

In November 2008, the greater Vancouver area had a meagre 874 sales. This November that figure was up to 3,083. But there are some indications the temperature in the red-hot housing market is dropping; Vancouver November sales were down 16.8% from October, although the numbers are not seasonally adjusted.

Despite the lack of listings in the housing market, prices eased last month. The average sale price in Toronto last month was $418,460, a 14% jump from a year ago, but a drop from therecord high of $423,559 reached in October.

“In Waterloo the number of homes changing hands we 80% higher than the previous year” says Roy Singh Broker of CENTURY 21 Home Realty Inc. in Waterloo.  

Record low interest rate levels have partially fuelled the market and prices, but so have low inventory levels. In Toronto, inventory levels remain 49% down from a year ago with November 2009 new listings the same as a year ago. In Vancouver, the total number of listings is still down 39% from a year ago.

Are you tired of paying rent and exhausted from dealing with inflexible banks? Well you are not alone.

Banks and traditional lenders are tightening their belts when approving mortgage applications. This means many good incomes are faced with circumstances that make it next to impossible to receive conventional bank financing if…

·         They lack an established credit history

·         They have poor credit

·         They are self-employed with less than 2 years of company history

·         They have credit challenges due to job loss, health issues, divorce or bankruptcy

·         They are in consumer proposal

·         Lenders and CMHC require higher down payment

These types of people are finding it very difficult to buy a home despite having the necessary 5% down payment. These people should consider a rent to own program!

There are different variations of rent to own, however, one recent program is quite interesting in that it allows you to choose the home you love, in an area you desire, at a price you can afford.

A desired lease period is then determined to give you the time you need to correct the issues that are keeping you from getting financing from traditional lenders. Whether you need to repair your credit, or amass a more sufficient down payment, all of this is done without wasting another dime on rent.

For this example we are using a home to be purchased for $200,000 with a 2 yr lease.

Rental term                                          2 years                                               typically between 1 to 3

Initial Down Payment                           5% of $200,000                                 $10,000

End of Lease Purchase Price                5% increase/year                              $220,500

                                                              (Subject to change)

Monthly Lease                                                                                                $1,360

Monthly Option Credit                         Goes to Final Down Payment             $340

Total Monthly payment                        $1360 + $340                                     $1,700 + utilities

Down payment saved (2yrs)                 $340 x 24 months                              $8,160

Total Down payment available             $10,000 + $8,160                               $18,160

Amount to Purchase                              $220,500-$18,160                             $202,340 (at end of the lease term)

So if you want to Move now perhaps this program will work for you talk to your Mortgage Broker or Realtor about this program.

The Canadian economy is largely tied to the US economy and it has been said that when the US gets a sniffle, Canada catches a cold. As the largest trading partner of Canada a healthy US economy is vital to our success. One of the major stumbling blocks in preventing the US economy from recovering is the staggering debt load of the American consumer which depletes public confidence.  

Real Estate values have dropped considerably in the past few years and many Americans are seeing their mortgage higher than the value of their home. Many of these people feel deflated as they are into quite a bit of debt compared to the value of their homes and are defaulting in record numbers– the American dream has disappeared!

One item that can quickly turn this around is a bit of inflation where prices rise and cost of housing and values rise to keep pace. The theory is if prices rise, salaries rise, and home prices rise, this will cause inflation to go up. This is not a bad thing in the short term as debt is not inflationary and remains the same. So if house values and incomes were to rise by 20% in the next 3 to 4 years and debts stay the same, consumers will feel they are ahead of the game as the equity/assets to debt ratio would be reduced.  Home owners are less likely to default on their mortgage as they have equity and this will raise consumer confidence.

This will go a long way in building public confidence. Of course if salaries do not rise to keep pace with inflation then this confidence will be somewhat dampened.  Long term inflation is bad so after a slight increase of say 20% over a 3 to 4 year period the American government needs to then slow inflation to a moderate 2% range.  This can be done by raising interest rates and moderately slowing the economy which will lessen demand and thus allow the principle of supply and demand to take effect.

A little inflation in the US will also help the Canadian economy as our goods will appear cheaper as long as the Canadian Government stay the course of managing inflation and keeping it at a 2% target rate. One item that can really throw this strategy off is if the Canadian Dollar continues to rise against the US dollar, as this will cause our goods to be more expensive.  Never the less, it would be better for Canada if the US has a higher level of inflation than here in Canada vs. not having any inflation.  

The Bank of Canada post the bond rates on a daily basis and by looking at this one can predict if interest rates will be heading higher or lower http://www.bankofcanada.ca/en/rates/bonds.html

When selling or refinancing you must take into account the penalty being charged by the banks. Many lenders will charge either a three months penalty or interest differential (IRD) depending which is higher.  

The three months penalty is easy to calculate in that you take the outstanding balance of your mortgage, for example $200,000 times your current interest rate 5.25%, divided by twelve, times three, which will equal $2,625.00. However to calculate IRD you need to figure out how long a term you have left, say 3 yrs and compare it to the rate offered by your institution for a 3yr mortgage say 3.75%. The difference is 1.5% times three, the remaining years left which translate to 4.5%- your penalty is 4.5% of the outstanding balance or $9,000.00.  

As you can see there is quite a difference and when you call the banks they often quote the three months penalty. However, when it comes time to order the discharge statement at the lawyer’s office that is when you find out what the real penalty is.  There are ways of reducing this penalty but the best way is to make a prepayment if you can and most lenders will allow a 15 – 20% prepayment before breaking the mortgage. This is, of course, assuming that you have access to the money to make the prepayment.  

There are times that it may be worthwhile to pay the IRD even though it is higher than three months penalty. Today interest rates are at the lowest level in modern history with some of our lenders offering rates as low as 3.54% for good credit clients on a 5yr term.  If you feel that in three years interest rates will be higher than today’s, then you may be better off breaking the mortgage paying the penalty to guarantee that you will have a further  two years at the lower interest rate (the three years until your mortgage comes due plus an additional two years totaling five years).  This is like hedging your bet verses doing nothing and waiting till your mortgage comes due hoping that interest rates don’t rise.  In the worst case scenario rates remain the same as today and you are no further ahead.  However, if I am a betting man, I would bet that in three years time interest rates will be much higher.  

This is unchartered waters in that most of the lenders in Canada has reduced their 5yr interest rates below 3.95% for their best clients. Best clients means people with good credit history, enough income to service the mortgage and good job stability. For those really excellent credit clients, the best 5yr rate for a quick close deal ( a deal closing withing 45 days) is currently at 3.69%.

The rates are pretty much at the bottom and now is the time to refinance and lock in as the rates have nowhere to go but up!