Category Archives: single buyers

Women are more responsible than men when it comes to mortgages

Women, especially those in their 30s, are the most reliable mortgage candidates in Canada, according to Toronto-based author and money coach Lesley-Anne Scorgie.

Scorgie—who wrote three books on fiscal responsibility for young women and couples—stated that a closer look at individual credit scores will reveal that Canadian females are better at fulfilling their mortgage obligations than males.

“Single women have a lower tendency to default than males. It has to do with their psychological make-up. It has to do with risk aversion which women have more of than men,” Scorgie told The Globe and Mail.

Canadian Real Estate Association spokesman Pierre Leduc agreed, adding that while no hard numbers on gender-based spending in Canada exist as of present, CREA transactions point at a significant rise in the number of females participating in the country’s housing markets.

Toronto agent Suzanne Manvell concurred with these points.

“I have worked with many single women, as have many of my colleagues, who are ready, willing and able to purchase on their own,” Manvell said. “Some like the convenience of a condo, others a simple residential home. Some, including myself, have elected to become landlords and are happy in that role and have parlayed their first purchase into a secondary income property.”

Female buyers have been playing an increasingly important role in ensuring the vitality of the housing machinery in North America, observers said.

In the United States alone, single women now account for 15 per cent of all home purchases, according to the 2016 U.S. National Association of Realtors Home Buyer and Seller Generational Trends report.

 

Source: Real Estate Professional – by Ephraim Vecina21 Oct 2016

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Are young homeowners doomed if housing prices drop?

A new study from the Centre for Policy Alternatives suggests Canadian homeowners under 40 will take a major financial hit if real estate prices come crashing down, but experts say most will be able to weather the storm without foreclosing just by staying put and being patient.

Young Canadian homeowners are in for some tough times if the housing market comes crashing down around them, a new study suggests, but realtors and economists say there’s no reason to panic.

​​A report released last week by the Canadian Centre for Policy Alternatives suggests that one in 10 homeowners under 40 will be underwater on their mortgages — meaning their debts will be greater than their assets  — if real estate prices crash as expected at some point in the near future.

Right now, real estate prices are overvalued by anywhere from 10 to 30 per cent, according to Bank of Canada estimates. Eventually, most analysts say, the market will correct itself and prices will go down, either due to declining incomes, rising interest rates, or a combination of both.

When that happens, homeowners under 40 will be disproportionately affected — not because they stand to lose more actual dollars, but because they are debt-strapped and will see a bigger drop in their net worth, the study argues.

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Canadians in their 30s carry debt worth an average of four times their incomes, according to the Centre for Policy Alternatives. That means they stand to lose a much bigger percentage of their net worth if their homes lose value. (Joe Raedle/Getty Images)

“Their entire net worth is wrapped up in their home when they’re in their twenties and thirties. They’re early on in a mortgage, so … almost everything they’ve paid has gone into interest,” John Andrew, a real estate professor from Queen’s University in Kingston, Ont., said.

“And the other thing is that they’ve leveraged this to the hilt. So it’s a triple whammy, those three factors.”

‘Not a big deal’

Families in their thirties could lose an average of $60,000 if there is a correction of 20 per cent, and that would represent an average of 39 per cent of their net worth. People in their twenties would see their net worth reduced by 45 per cent in the same situation.

It all sounds scary, but young homeowners do have one thing their older counterparts do not — time. 

“Even if you’re underwater, it’s not a big deal, because as long as you live in this house and you pay your mortgage, that’s fine,” Benjamin Tal, deputy chief of CIBC’s World Markets, told CBC News.

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CIBC’s Benjamin Tal says young homeowners shouldn’t panic about a potential drop in housing prices because they have the luxury of being able to wait it out. (CIBC)

“Of course, it’s difficult to be underwater. It’s not a very good thing to experience. But from a practical perspective, as long as you have a job and you have income, I really don’t see a situation in which you should panic.”

Andrew agrees. Asked what advice he has for young homeowners, he said: “Don’t panic. Yes, your net worth may have declined significantly, but until you go and sell your house, if you’re in the market, you’re in the market.”

Interest rates hikes an ‘urgent issue’

Both Tal and Andrew say the bigger issue at play here is the possibility that interest rates on mortgages will rise, triggering the anticipated drop in housing prices.

“I’m pretty sure we’re not going see a collapse in home prices until we see a rise in interest rates,” Andrew said.

And while most young homeowners can withstand a housing market crash by staying put and waiting it out, not everyone can afford to pay a bigger monthly mortgage. 

“If you can’t keep the house because you can’t afford the extra $350-$400 a month in mortgage payments, now you’ve got a really serious and urgent issue,” he said.

‘The economy will slow down’

Soaring interest rates and declining housing prices can also impact the economy at large.

“You have a situation in which more young people, young families, spend more money on their housing as opposed to anything else. So you don’t go to restaurants, you don’t take vacations — you just finance your mortgage,” said Tal.

“And if you don’t [spend money], the economy will slow down, and that will make things even worse because it means that unemployment starts to rise, and therefore some people actually won’t be able to pay at all.”

That’s particularly bad news in Canada, said economist David Macdonald, who authored the Centre for Policy Alternatives study.

“We’re already seeing weak growth in Canada,” he said, “and this would add to that slow growth.”

What’s the solution?

In his study, Macdonald recommends the government look at adopting U.S.-style policies to help young Canadians weather the storm.

That could mean giving unemployed homeowners some leeway on their mortgages, or allowing those in extreme circumstances to walk away from their mortgages without taking a huge hit to their credit scores.

But these are solutions for later down the road, when prices start dropping, he says.

In the meantime, Tal said young and prospective homeowners should make sure they have enough wiggle room in their budgets to comfortably make monthly mortgage payments even if rates rise by a couple of percentage points. 

“If they cannot do it, they should buy a smaller house,” he said.

Or, not buy a house at all.

‘There’s nothing wrong with renting’

Studies like this one might put you off buying at all, and that’s a perfectly reasonable option, said Andrew, especially in high-cost cities like Toronto, Vancouver and Calgary, where a housing market crash would hit hardest.

“If you look at a lot of world-class cities around the globe, there’s nothing wrong with renting. If you lived in New York City, you could easily rent your entire life and you wouldn’t feel inadequate about it.

“We’ve got this kind of Canadian hang-up,” he said. “There’s this sense that if you don’t own your own home … you’re not a success. And I think that’s changing.”

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Homeowners in big, expensive cities like Vancouver stand to lose the most if housing prices drop. That’s why some analysts say it might be better for city-dwellers to rent. (Robert Giroux/Getty Images)

Renting means avoiding the hidden costs of home ownership, like maintenance and property taxes. What’s more, you can up and leave whenever you want.

“Certainly for young people, as long as you’re saving some money, as long as you’re putting a significant amount away monthly and working toward that long-term goal, there’s absolutely nothing wrong with that.”

Source: CBC Sheena Goodyear, CBC News Posted: Nov 16, 2015 5:00 AM ET

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20% housing correction would push young homeowners under water

Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.

The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.

Policymakers have been warning for years about the dangers of high house prices and the debt loads they tend to generate. But the CCPA report is among the first to quantify how those debt loads are skewing disproportionately towards younger people, who often have no other assets than the house they borrowed so much to buy.

1 in 10 wiped out by 20% correction

Their debt loads make them even more vulnerable than the population at large to a housing correction.

The Organization for Economic Co-operation and Development (OECD) issued a warning Monday about the risk of correction, particularly in Toronto, which has a rapid pace of new condo development.

It pointed to high debt-to-income levels in Canada and urged tightening on mortgage lending in markets such as Toronto and Vancouver, where homes are expensive compared to incomes.

“In Ontario, and especially Toronto, economic activity has been relatively buoyant and demand by foreigners has been boosted by the falling Canadian dollar. That said, newly completed but unoccupied housing units have soared in Toronto, increasing the risk of a sharp market correction.”

Central bank says houses overvalued

The Bank of Canada estimates Canadian house prices are currently 10 to 30 per cent overvalued, and some private-sector economists say the problem is even worse.

“Declines in real estate prices would have a strongly disproportional impact on young homeowners,” CCPA economist David Macdonald said. “If, or more likely when, real estate prices fall, families in their 20s and 30s can expect to lose a substantial portion of their net worth, and could find themselves owing more than their house and other assets are worth.”

He offered some crunched numbers to back up that contention.

The debt-to-income ratio for people in their thirties has almost doubled since 1999, hitting a new high of 4 to 1, the highest of any age group.

Young families hit hardest

If Canada sees a housing correction near the midpoint of the Bank of Canada’s projections, younger families would be disproportionately hit by that:

  • Families with people in their thirties would lose an average of $60,000, which represents 39 per cent of their net worth.
  • 1 in 10 families with people in their thirties or younger (169,000 families across Canada) would have a negative net worth, meaning their debts are larger than their assets. Today, the CCPA says there are 44,000 families in this group who are under water even before any housing price correction.
  • If the correction is larger, say something in the range of 30 per cent, the impact would be even greater, as 294,000 households or one in seven families would be underwater.
  • People in their twenties would lose less in dollar terms, less than $40,000 each on average, but that figure would reduce their net worth by 45 per cent.
  • Families headed by people in their forties and up would lose more in dollar terms to a housing correction because their houses tend to be larger and worth more. But with an average loss of $70,000 to $80,000, that only represents 23 per cent of their net worth because they tend to owe less, and they tend to have other assets beside their house.

Housing corrections tend to have a cascading impact on the rest of household finances because of the large amounts of leverage involved in buying a home. As a rule of thumb, every 10 per cent decline in house prices represents a loss of 20 per cent on the average person’s net worth, Macdonald said.

“In cities with higher prices, like Toronto, Vancouver and Calgary, young families would likely see declines in net worth dramatically worse than the national average due to higher leverage,” he said.

“A badly managed downturn in real estate prices could wipe out the wealth of a large number of Gen-Xers and Gen-Yers,” he said. “We need to recognize that young families are the most likely group to be plunged underwater by a nasty housing correction.”

Source; CBC News Pete Evans, CBC News Posted: Nov 09, 2015 9:27 AM ET

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Miles apart: suburbs vs. city

Two couples, four downtown jobs, two different lifestyles. As more Canadians trade off affordable homes for longer commutes, we spend a day in the life of two families travelling different roads

This is a tale of two families: the Lee-Wongs, who live in Toronto, and the Fuscos, who live in a suburb east of the city. Mornings see both families engaged in the same rituals as millions of other Canadians. Alarms go off, children are roused, breakfasts are eaten and lunches packed. There are car keys and transit passes to locate, and phone calls to confirm that grandparents will be there for after-school pickups. Then comes the last-minute scramble to make sure everyone gets to school and work on time. What makes these families different is how far the parents travel to their jobs in downtown Toronto. For the Lee-Wongs, the city core is just 13 km away. For the Fuscos, it’s a 100-km round trip.

Jimmy Lee, 32, works in IT at a major bank. He could take the subway to work, but he likes a guaranteed seat, so he pays $3 extra for the GO train (the regional commuter transit service). His trip takes 45 minutes, door to door, and he often uses the time to catch a quick nap. Jimmy’s wife, 37-year-old Tracy Wong, is an optometrist who owns her own practice and also works in another medical office. Half the time she drives to Etobicoke, a neighbourhood in Toronto’s west end, and half the time she rides the subway downtown. It takes her between 45 minutes and an hour, depending on where she’s headed. Their commuting costs are about $4,080 a year.

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The Fuscos take a much longer route from their home in Ajax, a city of 90,000 people east of Toronto. Kelly, 37, is a nurse who switches between early morning, day, and night shifts. She drives to the downtown hospital district, and while a 7 a.m. or 7 p.m. start isn’t great for her sleep patterns, it does cut down on time spent in traffic jams. Commuting takes her up to 90 minutes. Antonio Fusco, 42, works in IT at the Hockey Hall of Fame and takes the GO train, a one-hour ride that costs $220 a month. If Kelly has time, she’ll drop him off at the train station; otherwise, he parks their second car at the commuter lot. Getting to work costs the couple about $6,600 a year—over 60% more than the Lee-Wongs pay.

What the Fuscos pay out in transportation, they save in housing costs. Their three-bedroom home in Ajax cost them $154 a square foot when they bought it seven years ago (it’s worth an estimated $213 per square foot today). The Lee-Wongs, on the other hand, paid $280 a square foot for their four-bedroom place four years ago, and it’s now worth at least $368. Their mortgage payments are $3,200 a month, twice what the Ajax family shells out. Families who live right in the downtown core make an even more dramatic trade-off between commuting costs and housing: two years ago, my husband and I bought a home four km from Toronto’s core. We spend $1,625 a year commuting by bicycle, public transit and occasional car sharing. Not including the finished basement, our house is worth about $518 a square foot.

For all the crunching of numbers, there’s a long checklist of factors people consider when choosing where to live. Balancing the size of the home one can afford with the time and money spent travelling to work is important, but so are school quality, crime rates and access to grocery stores and amenities. There is no one perfect neighbourhood that would suit every family—both the Lee-Wongs and the Fuscos say they’re happy and that they wouldn’t trade the city for the suburbs, or vice versa. Still, we wanted to look at the financial implications of each choice.

The Personal

“We wanted to start a family, so we needed space to grow,” says Kelly about the move she and Antonio made to Ajax seven years ago. “I like to have a big backyard.” Before they married, the Fuscos rented an apartment in Toronto’s lively Greektown. They liked walking to restaurants and boutiques, and they really liked the quick subway trips to their downtown workplaces.

When they began thinking about having kids, however, it soon became obvious that houses in their urban neighbourhood were out of their budget. Kelly grew up in Scarborough, in the city’s east end, but even that was out of their price range. So the couple decided to move to the suburbs.

“It was a little hard in the beginning,” says Kelly. “Ajax had just started to grow, and we had to drive everywhere. But now we can walk to a lot of little bakeries and shops.” One great benefit of the move was that they were now only a 20-minute drive from Kelly’s parents, who live in the town of Brooklin. This became extremely handy when the couple had their first daughter, Sofia, four years ago. Their second daughter, Tania, is now two. The Fuscos currently pay nothing for childcare: in the morning, Sofia goes to kindergarten and Tania to free nursery school. Kelly’s schedule means that she’s off work some afternoons; otherwise, her parents handle the babysitting.

The Fuscos don’t mind the trade-off: they feel that extra time spent travelling to work allows them to enjoy more space at home. In fact, the family is moving even farther out this spring to Brooklin—an added 18 km from downtown Toronto, but just around the corner from Kelly’s parents. “We’re getting a much bigger house without a huge increase in our mortgage,” says Kelly. “We love the area, even if it’s a further commute.”

Distance from grandparents was also a major consideration for the Lee-Wongs. Jimmy grew up in North York, on the subway line above the city centre. He knew he didn’t want to move very far after he married Tracy, a Hong Kong expat, eight years ago. “My parents are older and my dad has Alzheimer’s,” he explains. “I need to be there to help my mom out.” It’s a mutually beneficial arrangement now that the couple has a three-year-old: most mornings, Tracy drops their son off at a Montessori school, and the Lee grandparents are responsible for the 3 p.m. pickup. Childcare costs the family $1,000 a month.

The couple’s first home was a condo just minutes from the North York office where Jimmy was working at the time. When they decided to buy a house, Tracy and Jimmy assumed their budget would lead them to the suburbs, not too far from Jimmy’s parents, but far enough out of Toronto that prices would be lower. The couple had bid and lost on two houses just north of the city boundary when a buyer offered them a great price for their condo. They sold it and moved in with Jimmy’s parents, then kept up their real estate search for a year and a half, still focusing outside of the city.

Then a house went up for sale one street over from Jimmy’s parents. The price was about 20% higher than the couple had budgeted for, but homes in the neighbourhood don’t go on the market very often. They decided to pounce. Built in the 1960s, the house needed major renovations, and Jimmy and Tracy had contractors strip it down right to the drywall. The move turned out to be more expensive than they expected. “We bought beyond our means,” Jimmy says. “But we have a philosophy—live now. We’ve seen a lot of family and friends saving, saving, saving to pay off the house, and once they do, they kick the bucket a year later.” Tracy and Jimmy are both ambitious in their careers, and they have no non-mortgage debt. They feel comfortable enough with their finances to take two vacations a year.

Jimmy says he’s happy the family decided not to move outside the city, even though homes there would have been much more affordable. “North of Toronto isn’t the suburbs anymore—it’s another city, and traffic is just as chaotic. We have friends that live up there and it takes them 30 minutes just to get close to downtown.”

The Financial

Most people assume that living in an urban centre like Toronto is sure to be more expensive than life outside the city limits. We asked Alfred Feth, owner of Feth Financial Services in Kitchener, Ont., to look at both families’ income and expenses to see if that held true.

“If we just take these two families, it’s definitely cheaper to live in the suburbs,” says Feth. “But there ain’t a lot of difference.”

The higher amount the Fuscos pay out in transportation costs is still less than the difference between the families’ housing costs. But mortgage payments are the only dividing factor: both families pay property taxes that work out to about $2.40 per square foot of house.

The other big difference is the cost of childcare. While the Fuscos get free childcare from Kelly’s parents, most others aren’t so fortunate, whether they live in the city or the burbs. According to Statistics Canada, the average family spends $3,500 a year in childcare—but that number isn’t very useful, because it includes everything from occasional babysitting to live-in nannies. No national organization keeps stats on urban and suburban differences, but the topic is a hot one among parents on the online forums we visited. The average cost for daycare in Toronto and Vancouver is about $50 a day. In the suburban areas outside those cities, it’s often $5 to $20 cheaper. But there are huge regional differences: families in Halifax reported finding good childcare for as low as $20 a day, while a few parents from Vancouver quoted prices as high as $80 a day. Feth points out that the Lee-Wongs could save a lot by enrolling their son in full-day kindergarten next year when he turns four.

Feth believes that both of our families are living in homes they can comfortably afford. The Fuscos and the Lee-Wongs both spend less than 35% of their gross salaries on housing, although our urbanites are close to that upper limit. Kelly and Antonio have debts other than their mortgage, including a line of credit and an interest-free loan from their parents. But for Jimmy and Tracy, like many city dwellers, their huge mortgage is a hungry mouth always demanding to be filled. The Lee-Wongs do not make regular RRSP contributions because they put all of extra money towards their home loan.

While real estate is the largest single investment most Canadians make, Feth cautions people not to rely on their houses as a retirement plan. The federal government has tried to discourage buyers from taking on excessive mortgages by eliminating 40-year loans and increasing mandatory down payments. But Canadians continue to pile on plenty of mortgage debt. If housing prices drop significantly—and we’re overdue for a correction—things could end badly for homeowners with huge mortgages.

As well, a house is much less liquid than other types of investments. There’s no guarantee that you’ll receive your asking price when you’re ready to sell, as neighbourhoods that are trendy now might not be so in 15 years. Feth also says that people who use their home as a retirement plan underestimate its emotional value, and how hard it is to downsize. “There’s a huge difference between a house and a home. A house is an investment. A home is where you raise your kids.”

The Bigger Picture

The urban/suburban decision is often framed in terms of time saved in commuting versus the benefits of a bigger home. But that may be the wrong way to think about it. “In equilibrium, the extra commute matches the lower housing expenses, but people live differently,” says Trur Somerville, director of the Centre for Urban Economics and Real Estate at the University of British Columbia. In real life, he says, most downtowners and suburbanites don’t feel like they’re trading space for time. Rather, the choice often comes down to personal preferences. Some people want a backyard big enough for a hockey rink, while others see extra bathrooms as just more to clean.

Hardcore city dwellers might not understand that many families genuinely prefer living outside the city. “There’s a snobbery that you have to turn the clocks back an hour and put your mom jeans on when you move to the suburbs,” says Sarah Daniels, one half of the real estate team that hosts HGTV’s Urban Suburban. “But my clients are generally surprised at how much they like it. They realize it’s all people like them, who came from the cities.”

Her statement is backed up by data—the 2006 census showed that more people are moving out of Toronto, Vancouver and Montreal to the surrounding suburbs than the other direction. Most of the people moving are new parents aged 30 to 34.

Daniels says that the growth of businesses in former bedroom communities now means it’s easier to make a living outside of the city core. Even the term “suburb” is up for debate—developers hate it, preferring to market new communities as all-in-one urban areas. This is in part to avoid the stigmas still attached to the burbs, but it also reflects the reality that lots of people in these places lead lives that are totally separate from the city.

For suburbanites who do need to commute to downtown, however, traffic is a growing complaint. Across Canada, a quarter of workers spend 90 minutes or more travelling to and from work every day, up from 17% two decades ago. Toronto is the worst, with an average commute of 33 minutes one way, followed closely by Montreal, at 31 minutes. The commute in Calgary has increased 14 minutes since 1992. Health researchers have long pinpointed excess time spent getting to work as a cause of heart problems, back pain and stress. Of full-time Canadian workers who took 45 minutes or more to travel to work, 36% told Stats Can that most days were quite or extremely stressful. For people who had a commute time of 15 minutes or less, under a quarter of them felt equally stressed out. And the growth of suburban industry hasn’t eliminated commuting as much as sent it in the opposite direction—morning rush hour in the Toronto area now sees a lot of professionals travelling out of the city as well as into downtown.

Governments aren’t helping: in fact, they are artificially reducing the price of suburban housing by accommodating commuters, says Jane Londerville, an associate professor at the University of Guelph. She thinks regular car commuters should shoulder more of the cost for infrastructure and transportation. “Developers do pay a charge that goes to roads and fire trucks and libraries,” says Londerville, who teaches commerce and real estate. “But if you really calculate the cost of building and maintaining highways largely so that people can get back and forth to work in the city, then those charges really don’t cover the cost.”

Londerville would like to see Canadian municipalities raise money for roads and highways through fees aimed at car commuters. She points to London, England, where there are road tolls for entering the core, and mentions hefty development fees (along the lines of $10,000 a house) dedicated to transportation maintenance. The idea of road tolls has been floated in Toronto, but so far no Canadian politician has had the courage to make it happen.

Increasing access to transit in the suburbs would be one commuting solution that would be cost-effective for users. Jill L. Grant, a professor in urban planning at Dalhousie University, has interviewed plenty of suburbanites who would be happy to take transit to work if they could get a smooth ride with minimal transfers. In other words, a subway. This, unfortunately, is impractical when new neighbourhoods are built specifically so that people can live in single-family homes.

“Subways are not an affordable transit system to service low-density areas,” says Grant, who has studied Canadian development patterns for a decade. Even the loathed, lurching public bus is sometimes too expensive to run through streets of single-family homes. “I remember seeing a sign in a new subdivision outside Calgary that said ‘Future Bus Stop,’” she says. “Developers say these neighbourhoods are designed ready for transit, but the service can’t make ends meet.”

What We All Want

If money is the motive, then the cost of a suburban home is cheaper—although the savings are not as significant as families might hope. If quality of life is equally important, then every family needs to decide based on its personal wish list, whether that includes a backyard hockey rink or a sushi spot within walking distance.

If time is what you’re hoping for, well, that seems to be the working family’s most precious commodity. In 2001, the Public Health Agency of Canada did a survey on families and work, and asked participants what they would spend more free time on, if they had it: time with family; personal time; education; sports and fitness; or work. Nobody said work or education, and most people said family or themselves. “I’d have to say personal time, honestly,” said Kelly Fusco, whose work schedule includes at least one full day on the weekend. “I just do not get any right now.”

“Family time, for sure,” said Jimmy Lee, whose wife, Tracy Wong, spends her Saturdays at work. “By the time my wife gets home from work, my son is usually asleep.” Whether you prefer a big yard or a short commute, it appears that the one thing none of us can buy is time.

Source: Money Sense by Denise Balkissoon March 16th, 2012

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Bank of Canada slashes key rate as economy contracts, exports stall

The Bank of Canada is cutting its key interest rate for the second time this year, citing a larger-than-expected first half contraction and a “puzzling” stall in non-energy exports.

The central bank lowered its benchmark overnight rate by a quarter percentage-point Wednesday to 0.5 per cent, blaming faltering global growth, disinflation and low prices for oil and other commodities. The Canadian dollar fell more than a cent in the wake of the decision.

The bank stopped short of characterizing the economy’s first-half stall as a recession, even a mild one. But some economists say that is exactly what Canada is facing.

The latest rate cut marks a sudden about-face by Bank of Canada Governor Stephen Poloz, who has repeatedly insisted that the economic hit from the oil price collapse would be quickly offset by surging non-oil exports, such as car parts, lumber and machinery and equipment. He had characterized his earlier January rate cut as “insurance.”

But six months later the rebound remains elusive, in spite of a much cheaper Canadian dollar, now worth less than 80 cents (U.S.).

The bank acknowledged in its latest forecast, also released Wednesday, that the failure to get a lift from non-energy exports is “puzzling.”

Making matters worse a massive plunge in business investment – down 16 per cent in the first quarter – has become a dead-weight on the economy. The bank now says it expects investment in Canada’s oil patch to plummet close to 40 per cent this year, significantly worse than the 30 per cent it initially thought, as long-term investments in the oil sands are delayed or put on hold until the price of crude comes back.

A lower overnight rate typically prompts banks to cut rates on home mortgages and other loans – a situation that could exacerbate record household debt levels in Canada and add fuel to the hot housing market in cities such as Toronto and Vancouver.

But Mr. Poloz and his central bank colleagues say the risk of weak growth and disinflation outweighs the worry that Canadians may pile on more debt.

“While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment,” the bank said in its statement. “Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.”

The bank’s new forecast calls for a contraction in the first half of this year, with the economy shrinking at an annual rate of 0.6 per cent in the first quarter and 0.5 per cent in the second quarter. The bank does not use the word “recession,” although a recession is typically marked by two consecutive quarters of shrinking GDP.

Nonetheless, the bank said it expects growth for the entire year to hit 1.1 per cent – a sharp downgrade from the 1.9 per cent growth it forecast just three months ago. It’s calling for growth of about 2.5 per cent in 2016 and 2017.

The central bank said the Canadian economy won’t return to full capacity until the first half of 2017, versus its previous target of late 2016.

Canada’s fundamental problem is that it now has a distinctly two-track economy – one faltering badly because it’s tied to oil and other commodities, and another growing due to “solid” household spending and the recovering U.S. economy.

“As the second track gains strength and Canadian producers benefit from the depreciation of the Canadian dollar, it should re-emerge as the dominant one,” the bank said in its statement.

The non-energy economy makes up more than 80 per cent of the Canada’s GDP, but that side of the economy has been swamped by the effects of the oil price shock.

For now, the weight of the economic decline in Canada’s resource-dependent provinces is dragging on the national economy. Since last November, unemployment is up 1.3 percentage-points in the energy-intensive regions of the country, while retail sales are down nearly 1 per cent, along with steep declines in car and home sales.

It’s a vastly different picture in the rest of the country, including Ontario and Quebec, which depend more heavily on manufacturing exports.

The central bank put the blame on the U.S. and China, where growth “faltered in early 2015.” This has depressed prices for oil and many other commodities that typically drive Canada’s export-led economy.

Also Wednesday, the central bank matched the cut in the overnight rate by lowering the bank rate to 0.75 per cent from 1 per cent and the discount rate from 0.5 per cent to 0.25 per cent.

Source: BARRIE MCKENNA OTTAWA — The Globe and Mail Published Wednesday, Jul. 15, 2015 10:01AM EDT

Buying a House Together Before Marriage? Read This First

house keys in a ring box

Love may be blind, but don’t go into a real estate purchase with your eyes closed.

Serious young couples used to mark their commitment to each other with an engagement ring, but now they’re in the market for a bigger asset: a set of shiny new house keys.

One in four couples between the ages of 18 and 34 bought a house together before they were married, according to a study by Coldwell Banker Real Estate. MONEY found in our own poll of 500 millennials’ financial attitudes that 40% think it’s a good idea for a couple to buy a home together before marriage, while 37% think the purchase should take place prior to the wedding.

Low-rate mortgages, rising rental costs, and the ability to deduct mortgage interest from income taxes all make being a homeowner now rather than later seem like an attractive option. And while making that move first can work out well, as it did for Seattle couple Katy Klein and Charles Hagman, not every story has that same happy ending.

In fact, many financial planners advise against it. That’s because buying a home is often the biggest and most financially complicated move a couple makes, and unwinding it can be especially difficult for unmarried partners if the relationship ends. So if you’re buying a home with your beloved before getting hitched, spare yourself any potential financial heartbreak by following these tips.

Compare Credit Scores

You and your partner have probably already shared details about your income and savings when determining if you could afford to buy. But another piece of information you’ll need to share well in advance of closing is your credit report.

“If a couple is entering into a business deal, which is what a home purchase between two non-married people is, they should know the creditworthiness of their business partner. A person’s credit score will impact your ability to obtain a mortgage and the interest rate you will pay,” says Pewaukee, Wisc.-based financial adviser Kevin Reardon.

If you or your mate has a poor score, it could influence how you decide to title the property and who takes responsibility for the loan. Married couples are generally viewed by creditors as a single unit, but unmarried couples are assessed as individuals, even if applying for the loan together.

“This can work to your advantage if you have the person with stronger credit purchase the home,” says Sandra O’Connor, regional vice president with the National Association of Realtors. By eliminating the poorer score from consideration, you can secure better rates. On the flip side, with only one person applying for the loan, and thus one income on record, the amount you qualify for could be lower than what you could get with two incomes. And, of course, only one person’s name will be on the loan and deed, leaving the other partner vulnerable in the event of a breakup.

Open a Joint Account

Consider setting up a joint bank account, if you don’t already have one, that can be used to pay the mortgage, property taxes, insurance, and maintenance, Reardon suggests. Each of you can set up automatic monthly deposits into the account from individual bank accounts; this way neither party can forget. You can further simplify bill paying and budget tracking by having home expenses automatically deducted from the account each month.

Decide How to Manage Costs

When you cosign on a mortgage, you are 100% liable for the debt, which means if the relationship turns sour and your partner stops paying, you must assume the entire obligation. For this reason, financial planner Alan Moore, co-founder of the XY Planning Network, recommends choosing a home with a mortgage you can swing on one income. That can also be a huge help down the road in the event of unexpected illness or injury, since you’ll still be able to afford the monthly payments.

Before setting a housing budget, both partners need to have an honest conversation about the amount of debt they’re comfortable living with. Just because you can borrow the maximum amount doesn’t mean it’s a good idea. Stretch your combined budget too far, and any unexpected expense will likely have one of you coming up short when the monthly payments are due.

Put Your Agreement in Writing

Contact a real estate lawyer to prepare a written document, such as a property, partnership, or cohabitation agreement, that clearly outlines the full details of your arrangement, including what percentage of the home’s equity each partner is entitled to, especially if you contributed different sums to the down payment or mortgage balance, and what will happen to the property if you split up.

“The contract should specify whose name will be on the deed or lease, one or both, who will pay for what—I pay the utility bill, you pay the cable bill—etc.,” says Reardon. “It would be productive to note what happens if one party can’t pay. Will both parties move out? Will one party take over the payments for the other, if they are able to, then create a note receivable from the partner who can’t pay to the partner who can? Will this note be collateralized? It’s great to iron out these details in advance because it removes any doubt or emotions in the event things turn out badly.”

Title It Right

You and your partner must decide how you will own the home or take title. You have three options: One person can hold the title as sole owner, both of you can hold title as “joint tenants,” or you can share title as “tenants in common.”

Typically, you would want both parties to hold title, as putting the property in only one partner’s name leaves the other partner without equity in his own investment. (You’ll certainly want that separate written contract mentioned above if you go this route.)

If both partners sign the title as tenants in common, then each owns a specified percentage of the property. One person may own a 60% interest, while the other owns 40%, for example. This split is specified in the deed. If one partner dies, ownership will not automatically transfer to the other homeowner unless that person is named in the will; instead the deceased owner’s heirs will inherit his or her share.

When you hold title as joint tenants with right of survivorship, you are considered equal owners, and if one of you were to die, the other would automatically inherit the other’s stake and own the entire property.

Bottom line: No matter how you hold title, it is important that you and your partner enter this agreement with a complete picture of each other’s finances and a written contract outlining your desires for the property’s division should the relationship end.

Source: Time.com  July 1, 2015

How banks/lenders weigh your mortgage application

Understanding the Gross Debt Service Ratio (GDS) and the Total Debt Service Ratio (TDS) and how it affects your mortgage application.

Before a lender approves your mortgage application, they will attempt to quantify how your debt affects your finances and predict your ability to make mortgage payments. They measure your affordability using two ratios: the Gross Debt Service Ratio (GDS) and the Total Debt Service Ratio (TDS).

Gross Debt Service Ratio (GDS)

The GDS looks at the percentage of your income that is needed to cover your required monthly housing costs; this includes your monthly mortgage payments, property taxes,heating costs, and 50% of your condo maintenance fees (if applicable).Generally, this percentage must not exceed 32% of your gross monthly income, to qualify for a mortgage. For example, if your gross monthly income is $3,500,you should be spending less than $1,120 on monthly housing expenses.

Your GDS ratio max limit: $3,500 x 32.0% = $1,120

Total Debt Service Ratio (TDS)

The TDS ratio takes the GDS ratio one step further, by including ALL debt obligations into the calculation, such as car payments, credit card debt, lines of credit, and alimony (if applicable). The percentage of your income that is needed to coverall monthly obligations must not be greater than 40%. For example, if your gross monthly income is $3,500, you should not be spending more than $1,400 per month.

Your TDS ratio max limit: $3,500 x 40.0%= $1,400

Both the GDS and TDS are tools used to measure your credibility and risk. The guideline limits are enforced by the Office of the Superintendent of Financial Institutions (OSFI),which is the primary regulator of banks and other financial institutions in Canada.

Falling outside the limits

Can you still get approved if the bank determines your GDS and TDS ratios are just outside the upper limits?

“The limits to the GDS and TDS ratios aren’t set in stone; however, banks do treat them as a hard guideline,” said SteveLevine, a mortgage broker with True North Mortgage. “Every lender is a little different, in terms what they are willing to accept beyond the max limits. Some banks will accept TDS ratios of 41% or 42%, depending on the situation, so there is a bit of wiggle-room. However, no bank will accept a TDS ratio that is 5% above the limit.”

When asked on what mortgage applicants need in order to get an exception with high GDS/TDS scores, Mr. Levine says that consumers need “clean files” with strong credit scores.

“Mortgage brokers have unique relationships with lenders, so if I have a client that is slightly above the limit, I might call a mortgage underwriter with a particular bank and explain my clients’ case, so long as I believe the client has a quality file – one that the lender will find appealing.”

If you find yourself outside the GDS and TDS limits, you may also implement four strategies to lower your GDS and TDS percentages, before submitting your mortgage application:

1) Increase your down payment amount

2) Reduce your overall debt

3) Increase your gross household income (i.e. add on a spouse’s income)

4) Choose a less expensive property

Understanding your Gross Debt Service Ratio and Total Debt Service Ratio is important before you plan to buy a home, because these ratios are used to determine your credit worthiness to lenders.

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