Raymond C. McMillan BA., Mortgage and Real Estate Advisor – May 4, 2020
A few years ago, I was listening to a program on a local television station and they were discussing the benefits of investing in the stock market and renting over buying your own home. The guest on the program believed it made more sense to pay rent and invest in the stock market, than purchase a home. Then the TV host asked him if he owned his own home, and he responded “yes”. At that point, I turned the television off.
Many will say that in some cases homeownership is overrated. I strongly disagree. Owning a home is one of the fastest ways to grow your net worth and start the journey to creating generational wealth. Not only is growing your net worth important but it is a proven fact that children who grow up in homes, display better overall social character traits.
Buying your first home is much easier than you think, if you have a plan. There are four basic steps in the journey of homeownership. These are: understanding your credit and debt, your down payment, your employment and sources of income, and finding the right home
Understanding Your Credit and Debt: Your credit plays an important role in purchasing your home. Your credit profile or credit report gives the lender a snapshot of the way you manage your finances which determines if you are a good or bad credit risk when it comes to lending you money. This is done by reviewing your credit report. Your credit report is made up of information collected by three agencies and is shared with lenders. The agencies are Equifax, TransUnion and Experian. The agencies use a scoring system to determine your credit worthiness. The score ranges from 360 to 850, with 360 being the worse score and 850 being the best. Ideally your score should be within the range of 620 to 750*. The credit score is determined by how well you pay your bills and how much is owed on credit cards and instalment loans. If your bills are not paid in a timely manner, and you carry high credit card balances, your credit score will be lower. If your bills are paid on time and you have low outstanding balances on your credit cards, you will have a higher credit score. To check your credit score, you can contact one of the three major credit reporting agencies: Equifax Phone: 800-685-1111, Experian Phone: 888- 397-3742 and TransUnion Phone: 800-909-8872.
Down Payment: The next step in the home purchasing journey is having your down payment. Your down payment is the required funds the lender needs you to have to qualify for the home you are purchasing. This can range from 3% – 20% of the home purchase price. The minimum amount of down payment required is 3% of the purchase price of the home. Therefore, if you are purchasing a home for $300,000.00, your minimum required down payment will be a minimum of $9,000.00. Where do you get these funds? It could be a gift from family, money you saved over time or a loan. If it is a loan, you will have to ensure that you are still able to qualify for the mortgage with this additional debt. Once you decide to go house hunting you will be required to have this money readily available. Remember, you will also need money for your closing costs. These closing costs include but are not limited to your lender fees and title fees.
Employment and Sources of Income: The lender will look at are your income sources. This will allow them to understand your ability to pay for the home you intend to purchase. Prior to beginning your search for a home, you should examine your budget to determine how much you can comfortably afford to pay monthly for your mortgage. Remember, home ownership should be enjoyable, not a stressful experience. So, what are the main income sources? These include salary and hourly wages, commission income, self employed income, alimony and child support, investment income, pension income and income from a trust. Note any sources of income that are used for the mortgage application, will be validated by the lender.
Your Home: This is without a doubt the most exciting part of the home buying process, and the one that needs careful analysis. Now that you have knowledge of our credit rating, have your down payment and have been pre-approved based on your income, it is time to determine what home works best for you. My recommendation is to assess your needs. If you are single a condo may work best. If you have a young family, then it many be important to have a backyard for the children. If you work in the city, it may be important to be close to transit. There is much to be considered when determining where to buy your first home. You want to ensure the neighbourhood works for you, because you may be there for a while. Some things to consider are: is it close to transit? What are the schools like if you have school age children? How close or far it is from your family and friends? What is the crime statistics like? Is it a declining or improving neighbourhood? Are there parks and cycling and running trails close by? I am sure you have some of your own things to add to this list.
Now that the four steps have been outlined, it is now time to put your home buying team together.
The writer: Raymond McMillan is a mortgage broker and real estate consultant who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com
When it comes to real estate, the more you spend, the more money everyone makes. And it happens on every level of your home purchase.
The costs start adding up once you find the perfect place. According to the National Association of Realtors, real estate agents get paid by taking a percentage of the purchase price of your home. In other words, the more you spend, the bigger the payday. And the bigger the loan, the higher the closing costs and borrowing fees tend to be – a benefit that goes directly from your pocket to your lender’s.
In case you were wondering, this is why your real estate professional may pay little attention when you tell them you only want to spend X number of dollars on a new home. It’s not that they aren’t professional, or that they don’t care about your financial situation; it’s just that they only stand to benefit if your budget creeps up a few dollars here or there.
And what’s a few thousand dollars between friends?
Budgeting for Your Priorities
I know – I’ve been there. When my husband and I moved to a new town last year, our income qualified us to spend 300% more than we planned. And even though we told our Realtor what our intentions were, it didn’t stop her from suggesting houses outside our comfort zone. In fact, I remember having plenty of conversations about it, and getting advice like this:
“You know, for every $1,000 you spend, your payment will only go up $16.”
“Your kids are getting older – you need a house you can grow into.”
“Interest rates are so low. You can get a lot more house for your money in today’s market.”
In the end, we bought exactly what we wanted, and actually spent less than we planned. And it didn’t end up that way just because we’re cheap; we based our decision on our shared beliefs and goals.
Still, the principles that steered us toward a less expensive home don’t just apply to us; they could apply to your situation, too. There are some really good arguments against borrowing as much as you possibly can. Here are some of them:
What Goes Up Might Come Down
Decades ago, most people believed housing prices would keep climbing for eternity. I remember my mom telling me years ago that, when she and my dad bought their first home, their Realtor pushed them to borrow as much as possible.
“The more you buy, the more appreciation you will see over time,” they were told.
And that notion made sense at the time. After all, land is a limited commodity, and a growing population will always need somewhere to live. Housing prices should go up forever, in theory. The problem? Just because they should doesn’t mean they will stay that way.
In fact, the housing crisis of 2007-08 proved that market corrections are somewhat inevitable. Although some regions remained relatively unscathed, housing prices dropped an average of 30% nationwide. According to Forbes, some of the most overvalued housing markets, such as Las Vegas, saw housing values drop as much as 60% from 2006 to 2011. And other big markets followed suit. For example, the Chicago area witnessed a 40% drop in real estate prices, Detroit endured a 50% correction, and Phoenix saw housing prices plummet as much as 56%.
If you plan on living in your home forever, you may not care how much your new house will be worth. But what if you need to move?
Need an example? Picture this: Two families are shopping for a house in the same neighborhood. Family A drops $400,000 on their dream home, while Family B spends only $200,000. If housing prices drop 20% over the next two years, which family will be better off? (Hint: Family A would lose twice as much equity as Family B — a difference of $80,000!)
Bigger House? Expect Everything to Cost More
But even if housing prices go up, some costs are inevitable. No matter how much house you buy, the sticker price is only one piece of the puzzle. And when you buy a bigger or more expensive home, almost everything costs more.
For example, more space generally means more square footage to heat and cool — in other words, higher utility bills. And nicer, more expensive properties almost always mean higher property taxes and pricier homeowners insurance premiums.
But that’s not all. A bigger house means everything is bigger and more expensive to repair. A bigger roof will cost more than a small one, and the more windows you have, the more expensive it will be to upgrade or replace them. Flooring is typically priced by the square foot, so more carpet and tile will always lead to higher costs. A bigger yard means more landscaping and a longer driveway means more concrete to pour. The list goes on, and all of those additional costs can add up quick.
Kids Need More Than Room: They Need Money
It’s true that kids may benefit from some extra space in the house. They’ll need a place to bring friends when they come over to visit, and it’s always nice when teenagers are able to have their own room.
But you know what’s better? Having money to help your kids through college. Being able to afford a really nice family vacation each year. Having the extra money to pay for the important things your kids will inevitably start asking for as they grow older – fees for school trips, sports, and activities, spending money for weekends, and even their first car.
Buying a house you can easily afford can mean the difference between having extra money for your kid’s changing needs and being house-poor and unable to afford much of anything. That bonus room above the garage might be nice, but not so much when you consider what you had to give up.
Don’t Forget to Save for Everything Else
Speaking of giving things up, the extra money for a bigger house payment has to come from somewhere. By and large, Americans have large houses but tiny bank accounts. According to a recent survey, the average middle-class worker has a median savings of around $20,000 for retirement. Further, a full third of working middle-class adults aren’t contributing anything to retirement at all – not in a 401(k), Roth IRA, or any other retirement savings vehicle.
The poll in question, which was conducted by Harris Poll and included 1,001 middle-class adults ages 25 to 75, also proved we aren’t great at planning ahead. According to results shared in USA Today, around 55% of participants planned to save more for retirement when they’re older to make up for any shortfalls.
If a bad idea ever existed, that would surely be it. Why? Because compound interest needs time to work its magic – and the later you start saving, the less power it will have.
Simply put, if you want to retire one day, you need to start saving today — or maybe yesterday. Not doing so will only cause you grief down the line or delay your retirement altogether. Simply put, when you buy a house that is unaffordable, you will have fewer dollars to sock away for your future self.
Your Mortgage Doesn’t Have to Be Forever
Most people get a 30-year mortgage and pay that monthly payment until the cows come home. Unfortunately, that usually means they never really own a home until the bitter end.
But wait – do people really stay in their homes for 30 years anymore? According to the National Association of Home Builders, the answer is no. In fact, recent data show the average family only stays in their home for around 12 years.
So if you opt for a 30-year-mortgage each time you move, it could easily mean you’ll be making that monthly payment your entire life. Frugal friends, is there anything more depressing than that?
Fortunately, it doesn’t have to be that way, which leads me to the next reason it makes sense to borrow less than you can afford. Obviously, the less you borrow, the faster you may be able to pay it off. And if you buy a house that is on the lower end of your budget, you may even be able to afford the monthly payment on a home loan with a shorter term.
Imagine paying your house off within 15 years and all of the financial freedom that would afford you. Big, expensive houses may have their own set of benefits, but being debt-free will be priceless.
When Life Happens, You’ll Be Prepared
Good health, youth, and job security are often fleeting. In other words, the amazing standard of living you’re experiencing now isn’t guaranteed to last. Further, a study from 2014 showed that as many as 25 million middle-class families are living paycheck to paycheck, meaning they might only be one illness – or one job loss – away from losing it all.
Look at the monthly financial obligations you have and ask yourself how you would meet them if you or your spouse lost your job, got in a debilitating accident, or experienced any other hardship that resulted in a loss of pay. Would you be okay? Could you easily afford your bills? If the answer is no, then you should try to buy even less house than you have now, and certainly not more!
The bottom line: Tragedies happen every day, but if you leave some breathing room in your monthly budget, you will be much more equipped to take them in stride. And if something unfortunate happens to one of you, having a small, manageable payment might mean the difference between keeping your home – and losing everything.
Deciding on a Price Range You Can Live With
Most mortgage companies believe your total debts should make up no more than 36% of your total gross income in any given year. So when they decide how much you qualify to borrow, they use that figure as a guideline. While other liabilities such as car payments, child support, taxes, and insurance can eat into that amount, 36% is still a pretty generous place to start.
The thing is, even the best mortgage lenders don’t know what kind of lifestyle you live. It doesn’t know if you want to help your kids with college, or if you prefer to take two family vacations every year. They’ve never listened to you talk about your dream to retire early and spend your golden years as you wish. To them, you’re just a number on a page. And they’ll be long gone by the time you realize you’ve bitten off more than you can chew.
That’s why it’s up to each of us to decide what we can truly afford to borrow. It’s up to each of us to set a price range we can live with, and not just one we can live with today, but tomorrow, too.
It all boils down to choices; when you spend less than you can afford, you have them, and when you overspend, you don’t. Just remember to look beyond this year, and even this decade, when you make that choice. You might be giving up more than you think.
Prime Minister Justin Trudeau has announced the federal government is launching the Canada Emergency Response Benefit, a new programme that will provide $2,000 a month for four months to individuals who lost their work as a result of the COVID-19 pandemic.
Speaking outside of his residence where he is self-quarantining with his family, Trudeau acknowledged the dilemma facing Canadians trying to process mounting bills without a steady income, noting that “far too many Canadians are having these tough conversations about their finances and their future.”
With nearly 1 million people applying for employment insurance last week, Trudeau stated the new programme is in the process of being set up.
“An application portal will launch as quickly as possible and people should start receiving money as soon as 10 days of applying,” he said.
The programme will replace a pair of initiatives, the Emergency Care Benefit and the Emergency Support Benefit, that were announced last week. Trudeau said the decision to combine the two earlier programmes into a new endeavour was done “in order to streamline the process.”
Some Canadians looking to defer mortgage payments due to COVID-19 say they are facing delays, confusion and outright denials from the country’s big banks.
“My wife called the 1-800 number for Bank of Montreal, talked to an adviser on the line to see what we are eligible for,” said Evan McFatridge of Dartmouth, N.S., whose family is down to a single income because his wife has been laid off from her job at a restaurant.
“She was told that our mortgage was too new to qualify for a deferral,” he said.
As part of the government’s pledge to help Canadians suffering financially due to COVID-19, Finance Minister Bill Morneau asked the heads of Canada’s big banks to allow people to defer mortgage payments for up to six months.
The banks responded by issuing a statement saying they “have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; child-care disruption due to school closures; or those facing illness from COVID-19.”
But some Canadians looking for relief from mortgage payments say they’re encountering a confusing, opaque and seemingly arbitrary process that is only adding to the stress of illness, isolation and lost income.
“I called in yesterday, spent two hours on the phone, and they required a full credit check and credit application in order to even see if I was qualified [for a deferral] and then didn’t even give me a time frame,” said one former BMO branch manager.
CBC has agreed to keep his name confidential because of his concerns that his comments could jeopardize his current employment situation.
“So, they had to speak to both me and my wife over the phone, get all our income, our jobs, our assets, our liabilities, said they had to send it to the credit department for review and that someone would contact us,” he said.
“They had no criteria for what they’re looking for. If they said to me, ‘One of you has to be laid off. One of you has to be in isolation. You have to sign a disclosure statement.’ Fine.”
The man’s wife is on reduced hours at home because she has to care for their kids, whose schools have been shut. Facing the loss of a large chunk of their family income, he said ,he wanted to get ahead of the problem and defer two or three months of payments.
“Even if I had to pay the interest payments during that time and they deferred the principal amount so the balance stayed the same, so be it, that’s fine,” he said.
“I’ve been through things in Alberta like the Fort McMurray fires where basically [all that was required then] was a call in to defer payments.”
Questions for banks unanswered
CBC News asked each of the big five banks for more information on the criteria for the case-by-case-based decisions on mortgage and credit deferrals.
Who would qualify?
Is there an application process?
Does the entire household have to be off work?
Will they require documentation?
None of the banks answered any of those questions.
TD, CIBC and Scotiabank all responded by repeating their commitment to work with personal and small-business banking customers on a case-by-case basis. Each encouraged customers to contact their call centres directly or visit their websites.
BMO and RBC did not respond to emails from CBC News.
‘My family will run out of money’
RBC customer Elsie Mamaradlo of Edmonton said she was also denied a deferral because her mortgage was too new.
“I got so frustrated and at the same time worried,” said Mamaradlo, who lost her job when the public recreation centre she works at was shut down due to coronavirus concerns.
Mamaradlo said that without the mortgage deferral, she faces a grim future.
“My family will run out of money for food and essentials,” she said.
Mamaradlo’s mortgage is insured with the Canada Mortgage and Housing Corporation (CMHC). The government is purchasing up to $50 billion of insured mortgage pools through the CMHC, which says that stable funding for the banks and mortgage lenders is meant to ensure continued lending to Canadian consumers.
In a tweet, CMHC said it “will support lenders in allowing deferral of mortgage payments for up to six months for those impacted [by the coronavirus].”
Alyson Whittle of Cochrane, Alta., said her bank, B2B, which is a subsidiary of Laurentian Bank, told her she could defer her next mortgage payment but then the following payment would be double.
“I was super frustrated,” she said.
Whittle, who works in sales for a home builder, and her husband, a utilities driller, are both out of work.
“My mom came to visit us and she had just come back from Las Vegas and developed a respiratory illness,” she said.
After that visit, Whittle says both she and her husband started feeling similar symptoms. They’re now both off work in isolation but haven’t been tested yet.
Laurentian Financial Group’s assistant vice-president of communications, Hélène Soulard, said it’s possible Whittle called before they were able to inform their call centre representatives about the deferral options.
“Rest assured we are committed to helping our customers who are facing hardships if they are not able to work due to illness, job loss or other reasons related to the COVID-19 crisis,” she said.
Terrio warned that this figure will noticeably increase in the very near future.
“I think 20% estimates will be drastically low if this drags on for months,” he said in an interview with BNN Bloomberg. “This [virus impact] is now drastically out of control.”
Declared as a pandemic by the World Health Organization last March 11, the COVID-19 virus has ground global markets to a standstill, with economies currently on freefall.
As of press time, more than 225,000 cases have been reported in over 150 nations. Jobs markets have suffered as governments worldwide mandated various restrictions, including social distancing and work stoppages.
The possibility of lower, or even zero, income has especially dire implications upon Canadian tenants, Terrio stated.
“Renters who lose their jobs are going to be in big trouble [in major centres]” he explained. “This is going to lead to huge increases in insolvencies, it’s just a matter of when.”
“I’m hoping [the government is] aiming more funds at people who don’t own homes. If 93% of people filing insolvencies are renters, there better be support for renters,” Terrio added.
“Once people lose their jobs and absorb what happened, this is going to be crazy. Could be summer, could be early fall. But I think it will happen within six months, and I think it’s going to be way more than we thought.”
Housing affordability is becoming a top priority for voters in the upcoming federal election, says Penelope Graham, managing editor at Zoocasa.
“However, given the vast geographical size of Canada and its many market nuances, buyers’ ability to purchase a home varies widely depending on local prices and incomes,” says Graham. “The Canadian Real Estate Association has noted a growing gap between price growth in Eastern and Western Canada, with improved affordability concentrated in the Prairie markets, as well as parts of the Maritimes.”
Zoocasa conducted a study to find out how feasible it would be for households on a median income to purchase real estate in Canada, finding median-income households would be able to afford the local benchmark-priced home in eight markets of the 15 markets studied.
“In the remaining seven, a median-income earner wouldn’t qualify for a mortgage large enough to fund their home purchase and would need to supplement it with a hefty downpayment, which, in some urban centres, would require a savings timeline that spans decades, assuming they set aside 20 percent of their total income each year,” says Graham.
In determining the extent of affordability for median-income households, Zoocasa calculated the maximum mortgage they’d qualify for in each region, assuming a three-percent interest rate, 25-year amortization and that the equivalent of one percent of the total home purchase price would be put toward annual property taxes. An additional $100 per month for heating costs was also factored into the calculation.
“Similar to CREA’s observations, Zoocasa’s calculations reveal housing affordability is most prevalent in the Prairies, accounting for five of the most affordable markets,” says Graham. “In these cities, home buyers with a median income would qualify for a large enough mortgage to purchase the average or benchmark priced home, so long as they have the required minimum downpayment of five percent.”
A median income wouldn’t get far in the British Columbia and Ontario real estate markets, says Graham..
“In Greater Vancouver, where the benchmark home price is $993,300, a median-income household earning $72,662 would qualify for a mortgage of only $241,994, leaving a shortfall of $751,306, 76 percent of the total purchase price. That would take a household setting aside 20 percent of their income annually a total of 52 years to save the required funds,” she says. “Fraser Valley and the Greater Toronto real estate markets round out the steepest three, requiring median-income households to come up with 70 percent and 63 percent of purchase prices of $823,300 and $802,400, respectively, requiring prospective buyers to save for 42 and 32 years, respectively.”
Top 5 Most Affordable Cities for Median Income Households
Hey, home buyers, just how stressed out are you these days?
Maybe you’ve finally come to grips with the crazy, sky’s-the-limit prices still sweeping through most major markets. Perhaps you’ve made peace with the ever-looming threat of another recession. Quite possibly you’ve even dismissed all that stuff about a coronavirus pandemic, and you’re blithely unconcerned about any aftershocks from the upcoming elections.
But when it comes to finding available homes on the market—where and when you want to buy ’em—well, that’s a challenge even the most battle-tested wannabe homeowners are struggling with these days.
And make no mistake: It is a battlefield out there. The problem is, there just aren’t enough homes on the market to satisfy all of the would-be buyers—and that causes prices to spike ever higher in many parts of the country.
Nationally, inventory plunged 13.6% in January compared with a year earlier, representing the biggest drop in more than four years. Few markets have been immune to the plunge. There are now 164,000 fewer homes on the market, the fewest number since 2012, when realtor.com® began collecting the data.
In some of the tightest markets, well-priced homes in the most sought-after locations can sell within a few hours of going up for sale. In others, there are enough properties for sale that buyers don’t need to make a split-second decision and can be choosier.
That’s why our economics team searched for the metropolitan areas where it’s easiest to buy a home—and where it’s not.
“Inventory is falling—even in the easiest markets to buy a home,” says realtor.com Chief Economist Danielle Hale. “For buyers, it means there are fewer options to choose from, they have to make quicker decisions when they’re out there shopping, and they’re probably also dealing with rising prices.”
And while this may sound like a bonanza for sellers, keep in mind that most of them are also in the market to buy a new home. So there’s that.
To come up with our findings, we looked at the number of listings per 1,000 homeowner-occupied households in the 100 largest metros in the fourth quarter of 2019. The analysis was based on the number of homes for sale relative to the local population. And we narrowed our findings to one per state for some geographic variety.
So where can buyers get a home without losing their mind, and where would they want to sign up for meditation and relaxation classes? Let’s dig into the findings—and the trends they’re showing.
At first blush, the metros with the most homes on the market may not seem like they have much in common. But many of the metros in this hodgepodge are in the South, a less expensive part of the U.S. long popular with retirees and second-home seekers. But many of the cities in our rankings have strong economies, drawing younger buyers as well.
You want to buy a home fast? Head to Florida!
Why does the Sunshine State dominate our list of easiest places to buy a house, when nationally the trends are going the other way? After all, on our unfiltered list, Florida takes six of the 20 spots with the highest inventories of homes on the market. (We limited our list to just one metro per state.)
Well, some of it is seasonal: Florida’s busy real estate season kicks off in the fall, when the Northerners and Midwesterners head south. Sunshine State sellers begin planting those “For Sale” signs in the yards and listing their homes in earnest toward the end of the year, unlike the rest of the country, which heats up in the spring and summer.
But it’s also a function of the fact that builders are currently stepping up new construction to meet the greater demands of a tsunami of retiring boomers.
Reasonably priced Cape Coral, a city with about 400 miles of canals on Florida’s southwestern coast making it popular with vacation home buyers and seniors, snagged our top spot. The area has been affected by recent hurricanes and toxic blue-green algae blooms in recent years, which may be why the area has a bit more inventory than other Florida destinations.
“It has a city-suburb feeling,” says longtime Cape Coral real estate agent Nelson Rua, of Coldwell Banker Residential Real Estate. “We have local mom and pop stores instead of big franchises, and geographically we’re very well-protected by the storms because we have these barrier islands in front of us.”
The metro’s median home list price was $325,050 in January, according to realtor.com data.
While Cape Coral inventory may seem high, at 37.9 properties per 1,000 households, it’s still falling compared with the previous year. And that’s something it has in common with all of the other Florida entries on our larger list (including Miami, Deltona, North Port, and Jacksonville). Lower mortgage interest rates have spurred more buyers to take the plunge, and inventory in Cape Coral actually plunged 22% year over year in January.
Starter and more affordable homes tend to go quick, while the more expensive ones can linger on the market, according to Brad O’Connor, chief economist of the Florida Realtors, the state’s Realtors association.
It’s just easier to find a home in beach and retirement destinations
For many of the same reasons as in Florida, it’s easier to find homes in beach and retirement destinations with strong economies, like Charleston, SC (No. 3), and Virginia Beach, VA (No. 4). South Carolina and Virginia are both tax-friendly states, appealing to those living on fixed incomes, and both have lots of good jobs and are more friendly toward builders.
Charleston has its port, Boeing and Volvo plants, and a thriving tourism industry driving the economy. And its old-world-style cobblestone streets, hanging moss, gorgeous architecture, and renowned food scene may be why buyers are coming up with the metro’s median list price of $422,500. (That’s about 29% more than the national median of $300,000.)
Real estate broker Randy Bazemore, of Century 21 Properties Plus, is seeing lots of 55-and-up buyers moving to the area as well as younger professionals working in the tech industry.
Meanwhile, Virginia Beach has one of the largest military presences in the nation with more than 86,000 active-duty personnel stationed in the area. The median list price there is $310,000.
For well-heeled retirees or second-home buyers, Honolulu (No. 10), with a median list price of $655,050, has plenty of options for sale.
Watch: The 4 Markets Where Homes Are Appreciating Fastest
New construction gives inventory a boost—at least in some places
Lack of new real estate construction in much of the country has been a big problem ever since the housing crash brought everything to a dead stop more than a decade ago. Finally things are picking up again—at least in those markets where permitting is easier, labor is cheaper, and plenty of land is available for builders to put up more homes.
Often, these places also have fewer regulations, which can hold up the process. That’s partly why Las Vegas (No. 5), Des Moines, IA (No, 8), and Houston (No. 9) made the list. Charleston, as well as many of the Florida metros, has also seen a lot of new construction.
In Des Moines, there’s new construction in the suburbs to the north and west of the city, says local associate broker Paul Walter of Re/Max Concepts. But there are also just more folks putting their existing homes up for sale. Those two reasons may be why the metro area saw a 3% bump in inventory, the only one in our top 10 to not be lower in inventory compared with the previous year.
“Homes not being underwater would be the big driver” in the increase in inventory, says Walter.
The other metros that made our top 10 were Bridgeport, CT, at No. 2. The city has more inventory as there’s less demand than in other parts of the country thanks to the state’s shaky economy and high taxes.
Get ready for a shocker: New York City came in at No. 6! That’s because its metro area is so enormous, there are homes for sale in the surrounding suburbs, exurbs, and smaller cities, including on Long Island and in upstate New York, Connecticut, New Jersey, and Pennsylvania.
Plus, while there’s basically no such thing as affordable homes for sale in Manhattan, there is a glut of luxury condos sitting on the market waiting for uber-rich buyers with millions of dollars to come around—$1.7 million studio condo, anyone?
OK, now let’s go to the dark side—the metros where you’ll have to jump on new listings the moment they hit your inbox. Get ready!
Buyers are having a tough time in tech cities
No surprise here: The tightest U.S. real estate markets are the ones with blazing hot job markets—and these days that usually means tech hubs. And these places often have pricey real estate to match their blazing economies. There’s a constant influx of new workers, all slugging it out for a very limited supply of housing.
Silicon Valley’s San Jose, CA, which had the fewest homes for sale, is also one of the most expensive markets in the country. There are just four, yes four, listings per 1,000 households. That kind of shortage explains why the median list price is just a hair under $1.1 million. If we hadn’t capped our ranking at just one metro per state, fellow astronomically pricey tech metropolis San Francisco would be close behind.
Unfortunately, not all tech workers make seven- or eight-figure salaries, causing them to search for homes farther and farther out from city centers—and their gigs.
But inventory is likely to rise, at least a little, in the coming months, says Patrick Carlisle, the chief market analyst for the San Francisco Bay Area for Compass. “This market takes a while to wake up from the holidays.”
Part of the problem is homeowners are staying in their properties longer so there isn’t much turnaround, says Carlisle. When they do move out, owners often rent out their properties and pocket the lucrative income instead of putting them on the market. And the lack of new construction is exacerbating the crunch. What is erected often skews luxury, well out of the price ranges of most buyers.
In Seattle, home of the online retailing giant Amazon.com—and No. 3 on our tightest inventory list—a simple equation is responsible for the lack of housing, according to Chris Bajuk, a local real estate agent at HomeStart Real Estate Associates.
“When people have good-paying jobs plus low interest rates, that’s fuel for the fire,” he says.
Plus, there’s not much available land for builders. The city and outlying suburbs are constrained by water, mountains, and zoning rules.
Other tech meccas on our list include Salt Lake City (No. 6), aka Silicon Slopes; Boston (No. 7), a financial, higher education, and tech center; and Washington, DC (No. 9). The real estate market in DC has exploded since Amazon announced it would be installing its second headquarters just outside of the nation’s capital, employing thousands of tech workers.
Inventory is drying up in the Rust Belt’s comeback cities
On the opposite side of the booming, ultraexpensive tech meccas are the Rust Belt cities in the Northeast and Midwest. Some of these urban meccas have been investing in their downtowns and staging comebacks, becoming more appealing to buyers and investors seeking affordable real estate without sacrificing amenities. And many folks want to get in while they still can afford to buy.
The one-time industrial hub of Buffalo, NY, which sits on the Canadian border near Niagara Falls, came in second place. If we didn’t cap our list at just one metro per state, nearby Rochester, NY, would have been next in our rankings.
Buffalo’s revitalization is attracting folks from other parts of the country, says associate real estate broker Ryan Connolly of Re/Max Plus. The Buffalo metro’s median list price was $197,950 in January—about a third less than the national median.
“We are seeing incredibly, incredibly low inventory levels,” says Connolly. The number of homes for sale fell 16% year over year in January, to 6.1 listings per 1,000 households. “It’s really frustrating for buyers.”
That’s leading to multiple offers and folks offering over the asking price on homes in good shape during the busy season. It’s so bad that about a year ago, he saw 23 offers come in on a three-bed, two-bath ranch home in a Buffalo suburb.
“It was a nice home, be we weren’t expecting that,” Connolly says.
Buyers are also clamoring for homes in Columbus, OH, which earned the fifth spot in our ranking. It’s the capital of Ohio and home to Ohio State University and its roughly 45,000 students—buoying it economically. But there simply aren’t enough homes to go around.
“When we had the recession, we didn’t build any new houses. [And] we’re still not building enough homes,” says real estate agent Jeff Cotner of Re/Max One in Pickerington, OH, a Columbus suburb. “The inventory shortage is not going to go anywhere for a while.”
Rent-to-own is becoming an increasingly attractive option for investors. While the practice isn’t as popular with our neighbours south of the border, here in Canada it is a great option to consider especially with tightening regulations, a complex market and new mortgage rules.
With more than 11 billion people across the country renting, and housing prices becoming more unattainable, tenants are looking for more options and investor interest is brewing on what opportunities are out there.
A rent-to-own strategy is an alternative route to home ownership for buyers who aren’t quite able to purchase their new home but are interested in eventually attaining ownership. It could be a great option for someone who is self-employed, new to Canada or has a damaged credit. The tenant would pay a monthly fee similar to rent, but a portion of that goes toward a down payment for that home. In addition, at the end of the agreed -upon term, the tenant would be in a position to qualify for a mortgage through traditional lending institutions and the property title will transfer to their name.
“There are many people across the country who are so close to getting their own home but need someone on their team like Homeowners Now and our partners that can support them through those last few steps,” said Conrad Field, VP Partnership at rent-to-own company, Homeowners Now.
From an investor’s perspective, rent-to-own is a low risk option that can maximize cash flow, target areas with high appreciation and allow for turnkey operations to occur. “Rent-to-own models have the ability to both grow wealth in strong markets, as well as protect it in a correction,” said Field.
According to him, rent-to-own is like a cross between shorter-term development projects and longer-term buy-and-hold properties. You get the benefit of receiving your capital back with profit in a relatively short time period like a development project, but also the security of monthly rent revenue like with a buy-and-hold. “There are benefits for everyone in the eco-system, from our partners, tenants and the rent-to-own company. As a wealth-building vehicle for our partners, some of those benefits include the security of substantial deposits, additional revenue streams under contract, minimal ongoing management, reduced expenses and more,” he added.
Homeowners Now has partnered with some of the most experienced professionals in the real estate industry to put systems and processes in place to maximize the success of tenants and provide security for their partners. The tenant-first approach is a key aspect of that, according to Field. “We find the tenant, qualify them for our program based on a set of financial criteria and then they pick their dream home on the market that is within the price range they can afford. What’s great about this is the tenant truly gets the house of their choice instead of having to select from a potentially very small list of available properties,” said Field. This means the tenant is more motivated to follow through with the program and likely to have years of happiness in their home. Homeowners Now uses a deferred purchase agreement, rather than a lease option, which is able to provide additional security for investors.
In a new whitepaper, Field shares more detailed information on how to maximize return on investments this year through a rent-to-own strategy. “A lot of people don’t have the time to put these pieces in place and are looking for a hands-off way to get involved. They want their money working for them so they can focus on other priorities,” said Field.
Source: Canadian Real Estate Magazine – by Kasi Johnston 30 Jan 2020
As she entered third-year residency at University of Toronto medical school, Dr. Lorraine Jensen was on track to become an academic physician at Women’s College Hospital, an ambitious teaching facility that attracts some of the world’s best doctors.Her husband, Brian Wilson, a former Bay Street lawyer who worked for the Metrolinx transit agency at the time, was building a promising career in one of Canada’s highest-profile legal communities.
“I was very interested and involved in clinical teaching,” said Jensen. “I always wanted that to be part of my career.”
Those goals didn’t change when they had their first child, a boy named Colton, in 2014. But other priorities suddenly shifted into view.
Jensen and Wilson both grew up in small towns and began talking about where they wanted to raise their family. They agreed it wasn’t in the frenzied downtown of a big city, so in 2015 they left Toronto and moved to St. Catharines, a smaller centre in Ontario’s Niagara region.
“It was a long discussion,” said Jensen. “But Brian and I love the Niagara region … and it kind of checked all our boxes — career-wise for myself, and then also in terms of the community that we wanted to raise our children in.”
Jensen accepted a teaching position at the Niagara campus of McMaster University Medical School and also works as the site lead in general internal medicine at Niagara Health’s new state-of-the-art hospital in St. Catharines.
Wilson initially commuted to his job in Toronto — three-plus hours on a good day, four on a bad one — but later accepted his current role as legal counsel for Niagara’s regional government, which serves 12 local municipalities.
“My satisfaction with work and life increased dramatically,” he said. “And I don’t miss it.
“There’s a lot of big-city amenities with a small-town feel, so I don’t feel like we’re wanting for anything by not having that Toronto connection.”
This kind of story is increasingly common. Young families, tech entrepreneurs and mid-career professionals are moving to Niagara in large numbers, seeking an alternative to the harried and hectic life they find in larger centres.
“There’s a feeling of serenity out here,” said Stephanie Petroff, a realtor in Niagara-on-the-Lake who previously
worked in public relations at the LCBO head office in Toronto.
“When I come off the highway … it feels like my shoulders go down about three inches just because it’s a feeling that you are vacationing where you live.”
Niagara’s population is projected to rise by 40 per cent over the next two decades, thanks in part to its affordable real estate, excellent school systems, vibrant arts community and an alluring urban-rural mix that provides big-city amenities with small-town charm.
Last year the average house price was $413,700 — roughly half the cost of a typical home in Toronto, and less than the average Toronto condo. Niagara real estate is also a prime investment opportunity — the fifth-best market in Canada, according to MoneySense magazine.
World-class elementary and secondary schools are located throughout Niagara, and Brock University and Niagara College provide exceptional post-secondary education at the foot of the Niagara Escarpment, a UNESCO Biosphere Reserve.
St. Catharines also has a stellar rising culinary scene — young, urban and world-class — that complements Niagara’s renowned wineries, distilleries, craft breweries and fruit orchards.
The region also has some of North America’s least-congested roads. By the standards of any major city, rush hour simply doesn’t exist there.
“I love the fact that you can get anywhere in about 15 minutes,” said Lloyd Oliver, Petroff’s partner and a fellow Niagara-on-the-Lake realtor who previously worked at Maple Leaf Sports and Entertainment in corporate sales.
“Here you can just get in your car and go — whether it’s commuting to work, shopping, eating out or even crossing the border, everything is at your fingertips.”
Niagara-on-the-Lake is home to the world-renowned Shaw Festival theatre, and the Meridian Centre in St. Catharines is a 5,300-seat stadium with OHL hockey, minor-league basketball and big-name concerts.
Jerry Seinfeld, Elton John and John Mellencamp have performed there, and A-listers Adam Sandler, John Legend and Kelly Clarkson have played Fallsview Casino in Niagara Falls.
Niagara residents enjoy all the attractions tourists do — picking peaches or riding horses on summer afternoons, sipping cocktails at some of Canada’s best restaurants in the evening and watching Grammy-winning artists at night.
“It’s a great place to live,” said Dr. Lorraine Jensen. “It’s a fantastic place to raise a young family, and from a medical perspective, it’s very feasible to meet your career goals here.”
“Do it,” added the lawyer Brian Wilson, urging others to put down roots in Niagara. “You won’t regret it … it’s a great place to live, work and play. People shouldn’t think twice.”
Increasing the length of mortgage terms isn’t just about allowing consumers greater choice; it could have the added benefit of enhancing financial stability, writes Michael K. Feldman in the latest report from the C.D. Howe Institute, an independent not-for-profit research organization.
The idea of longer-term amortizations got a lot of attention in the lead-up to last fall’s federal election. PC Candidate Andrew Scheer was particularly vocal about his intent to raise amortizations for first-time homebuyers, along with various real estate boards. Lengthening mortgage terms would also have a big impact on consumers as well as the overall economy.
Feldman first waded into the conversation regarding longer-term mortgages in 2018. He has since been joined by Bank of Canada Governor Stephen Poloz, whose remarks to the Canadian Credit Union Association in 2019 noted three ways that more variety in mortgage durations would contribute to a safer financial system: if more borrowers had longer-term mortgages, they wouldn’t face the risk of having to renew at higher interest rates as often; homeowners would have the potential to build more equity within a single term, giving them more options upon renewal; and fewer borrowers would be renewing their mortgages in any given year.
Feldman adds that longer-term mortgages act as a protection in the event of systemic instability.
“A significant downturn in the real estate market could result in the insolvency of some mortgage lenders, particularly unregulated lenders. If this were to happen, borrowers from these lenders may not be able to renew their mortgages if their lenders were being liquidated and may not be able to refinance their mortgages due to the downturn in the real estate market,” Feldman writes. “This would lead to additional defaulted mortgages, which could further depress the real estate market. This risk decreases with more longer-term mortgages because there will be fewer renewals throughout the amortization term.”
There are, however, some regulatory obstacles that stand in the way of longer mortgage terms becoming commonplace in Canada, and one of those is demand.
The government would have to provide incentives to both borrowers and lenders to jump-start this demand, and/or make some regulatory changes. Feldman writes that these changes could include revising the stress-test for longer-term mortgages.
“Since the main purpose of the stress test is to predict the ability of borrowers to continue to service their mortgages if they must renew at maturity at a higher interest rate, it would be logical to loosen the stress test for borrowers willing to fix their rates for terms longer than five years. For example, if the stress test for a 10-year mortgage was set at the contract rate plus one percent (or zero percent) without any reference to a “Bank of Canada 10-year mortgage rate” (in recognition of the added refinancing flexibility after 10 years compared to five years), then borrowers could qualify for larger mortgages by opting for 10-year mortgages. This would encourage them to seek out longer-term mortgages and require lenders to offer competitive rates to retain market share.”
Other changes include amending the Interest Act to reduce the pricing premium that a lender would have to charge for its reinvestment risk on mortgages up to 10 years and reducing that risk in general by giving borrowers a short-term redemption period; increasing covered bond limits, and developing a private residential mortgage-backed securities market.
Limiting mortgages to five-year terms is thought to have grown out of a 19th-century statute that allowed the borrower to pay off the mortgage with a set penalty of no more than three months’ interest any time after five years following the initial date of the mortgage. The practice then evolved to where borrowers could renew their mortgage for another five years after the initial five-year period, with that renewal date becoming the new date of the mortgage. As long as the lender provided borrowers the opportunity to “redeem” the mortgage once every five years, they could prevent borrowers from prepaying the mortgage in full during the rest of the term without penalty.
As a result of this evolution, lenders can avoid reinvestment risks associated with prepayments by offering mortgages and renewals with terms no longer than five years, Feldman writes. From a borrower perspective, however, if there were increased desire for 10-year mortgages and increased competition from lenders to meet the demand, the cost of prepayment penalties would be reduced.
The majority of regulated financial institutions in Canada fund most of their uninsured residential mortgages by accepting deposits, including GICs that are insured by the CDIC. The CDIC, however, may only insure deposits having a term of five years or less. This limit posts a challenge for issuing longer-term mortgages from institutions that rely on these deposits.
This hurdle, however, may soon be removed. The federal government amended the CDIC Act to eliminate the five-year term limit on insured deposits, which comes into effect on April 3rd, 2020. This, Feldman believes, should make it easier for federally regulated financial institutions to fund longer-term mortgages—in theory.
“This will depend upon the retail demand for longer-term deposits,” he writes. “In a flat yield curve environment, as we have now, one would expect that most retail demand would be for shorter-term deposits; however, once the yield curve reverts to a more common rising curve, a demand for longer-term deposits may develop.”
Ultimately, Feldman writes, the current five-year term is “too well-entrenched to be overcome organically” and that the federal government will have to modify certain rules and create policies and programs in order to change the status quo.