November 2008

Bank of Canada Keeps Interest Rates Steady

This just released today November-17-08, 8:56:49 PM

The Bank of Canada held its benchmark overnight lending rate steady at three per
cent at it’s setting on September 3rd. The trend-setting Bank rate, which is set
0.25 percentage points above the overnight lending rate, remains at 3.25 per
cent.

The Bank’s decision to hold interest rates steady aims to support Canadian
economic growth. Financial markets widely expected the Bank rate to be put on
hold due a dimming outlook for Canadian economic growth and recent remarks by
the Bank that inflation will peak below what it anticipated in its July Monetary
Policy Report.

“Slowing global economic growth is dampening demand and prices for energy and
other commodities, ” said CREA Chief Economist Gregory Klump. “A lower peak in
inflation gives the Bank more time to let previous interest rate cuts support
economic growth.” To stabilize credit markets in the aftermath of the U.S.
sub-prime mortgage market meltdown, the Bank cut the overnight lending rate by
1.5 percentage points from December 2007 to April 2008.

The Bank acknowledged, “[Canadian] domestic demand has slowed modestly but
remains strong.” It highlighted that the Canadian economy “continues to be
supported by financial conditions that remain significantly better than those in
most other major economies and by income gains stemming from past improvements
in the terms of trade.”

“National resale housing sales activity continues to decline from its peak last
year, and new listings are rising,” as the market generally slows down.

Should Paying Off The Mortgage Wait?

There is never a downside to paying off your mortgage because it means interest saved which means thousands more dollars in your pocket, however if you recently received a gov’t. tax refund there may be other factors to consider. 

 

If you take a $1400.00 tax refund and apply it to a typical mortgage at 6% amortized over 25 years you have just saved $38,000. In interest. Nothing wrong with that.

 

|However, with interest rates at 4.25% to 5.5% whether your variable rate or fixed term you might want to consider some other options.  Do you have any other forms of debt out there at higher rates of interest, credit card debt, car loans etc?  With credit card rates at 18-30% it makes sense to pay off all credit card debt first. \

 

Have you made any purchases on the don’t pay until plan… such as a plasma TV. with no payments until 2010.  Did you know that if you don’t pay off the loan before the due date that you will be hit with a 30% interest rate?

 

Depending on your tax rate it may be smarter to put the money into your RRSP.  If your earn over $75,000 per year up to and including $123,000. Per year your tax rate would be 43%. If you put the extra cash into your RRSP you will get back almost .50cents on the dollar.

 

Funding a child’s RESP might be a good idea. The gov’t. matches 20% up to your first $2500.00 contribution per year … a nice big  rate of return.

 

Another little trick you can use if you have a line of credit mortgage.  As you pay down the mortgage a line of credit becomes available.  If you apply your tax refund to your mortgage and re-borrow from your credit line and invest in mutual funds or stocks outside of an RRSP then your can deduct the interest cost of that loan because you are using it to create investment income.

 

This helps you to build wealth for the future plus you have converted that debt from non-tax deductible to tax deductible.

 

 

 

 

 

August 2009 Toronto Market Update:

Condos Now Being almost 40% of the market and being 67-68% first
time home buyers means market updates do follow that market closely.
The first time home buyer must move up for all other markets to subsequently
keep moving with the exception of markets over $1.5 million market which
do not particularily rely on the markets under them.

June’s results on the Toronto Real Estate Board continued
the downward trend in sales and the upward trend in active listings.
Sales were down by 18% from the same month last year while new
listings increased by 10%. A sure recipe for prices to level off at a minimum!

So don’t get fooled by average prices being higher than a year ago.
The condo market fared slightly better.
Downtown condo sales were lower by 12 % but new listings were up by 17%,
partly because the condo market is generally more active over the summer.

The HALF YEAR report card is in! Overall sales are down by 15%.
Our forecast is that annual sales for 2008 will be 80,000 units
(in 2007 it was 93,000).

Sales will also be lower than in 2006, 2005, and 2004!!

Prices for detached housing peaked in January.
Downtown condo sales in total have slowed as well by 11% but
active listings are only up 4%.

What has happened is that we now have a two-tier market.
The condo market under $350,000 is still very strong.
Affordability and the fact that young people are not as ‘up tight’ about the economy,
explains the strong buyer interest in this segment, which still can produce
multiple offer scenarios.

Also there is strong buyer interest from non-residents who still feel that
Toronto condo prices are cheap compared with other major world cities.

Unfortunately, those Torontonians over forty seem to fear a possible recession
which is creating caution at the high end of the market.

Market fundamentals suggest that condo prices are not going down!
They are just going sideways for the balance of the year!!!

While some may preach doom and gloom, the long term outlook for condos
remains strong for those who take a longer perspective.

This month, we focused our attention on one of the original and largest
loft conversions – the Merchandise Lofts at 155 Dalhousie. To trace the
market over the last three years, we tracked the sale of the very same unit,
sold in 2006, 2007, and again this year.

The unit, one-bedroom with balcony, parking, and locker, occupies 743 sq ft.
It was listed for sale in 2006 at $278,000 and sold for $295,000.

In 2007, it was listed at $310,000 and sold for $317,250.

This year it was listed for $324,000 and sold for $320,000.

In three years the unit appreciated by 8% – hardly inflationary!

But compared to the stock market, it may not be so bad!
While the unit sold over list price twice in the last two years
that is more a reflection of sellers trying to create activity by under pricing
as opposed to speculation.

The price per sq ft at $430 with parking, or $400 without is hardly something
to worry about. Buying a new, pre-built project at $550 per sq ft
without parking is something that would cause concern.

Rental Commentary:
We are now in the peak of the rental season Downtown.
Activity is up – over 200 one-bedroom units were leased in June.
Rental rates across the board are up about $50 per month on average.

A one-bedroom with parking is going for $1550 on average.
A one plus one with parking is $1650. A parking spot is still averaging about $100 per month.
Bachelor units are starting to hit the market – $1200 without parking and $1300 with parking.

Over 110 two-bedroom units were leased, the most popular being with parking,
no den, at $2200 per month. There were only 30 furnished units leased last month.

A furnished unit will cost from $300 extra per month for a one bedroom up to $700+
for big units. Most rental units lease out in 10 -20 days on market.
The average rent-to-list price is still 100%.