Wishing Everyone a
Merry Christmas
and a Fantastic New Year!!
Thursday, December 16, 2010
Monday, November 8, 2010
October Market Watch Report
October Price Growth Reflects Healthy Housing Market Conditions
TORONTO - November 3, 2010
Greater Toronto REALTORS® reported 6,681 sales through the Multiple Listing Service® (MLS®) in October 2010. This represented a 21 per cent decrease compared to the 8,476 sales recorded in October 2009. Through the first ten months of the year, sales amounted to 75,582 –up one per cent compared to the January through October period in 2009.
“The annual change in sales and average selling prices has been quite uniform across the GTA and by property type as the market has balanced out from record levels of sales in the second half of 2009 and first few months of 2010,” said Toronto Real Estate Board (TREB) President Bill Johnston.
“The composition of GTA home sales does differ depending on location. Condominium apartments accounted for 42 per cent of total sales in the City of Toronto and almost 60 per cent of sales in TREB’s central districts,” Johnston continued. “In regions surrounding the City of Toronto, in contrast, low rise home types accounted for almost 90 per cent of transactions.”
The average price for October transactions was $443,729 – up five per cent compared to the average of $423,559 reported in October 2009. The average selling price through the first nine months of the year
was $430,802. “The average selling price in the GTA has continued to grow relative to 2009 because home ownership has remained affordable,” said Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “A household earning the average income in the GTA can comfortably afford the mortgage payments associated with the purchase of an average priced home.”
“The outlook for mortgage rates and income growth over the next year is favorable. The average home selling price could increase moderately next year and remain affordable for the average GTA household,” continued Mercer.
Jonathan’s Opinion:
Notice that the number of sales is still decreasing, while the number of active listings is increasing; if this continues, there will be a higher level of price reductions from sellers whose homes are currently on the market. New listings have decreased indicating that many potential sellers are on the sidelines, waiting to see what the future holds for the market. The market has begun to show signs of a brief cooling, where Buyers are not just “rushing in” to their purchases, and houses are taking longer to sell. However, prices have not been adversely affected yet.
TORONTO - November 3, 2010
Greater Toronto REALTORS® reported 6,681 sales through the Multiple Listing Service® (MLS®) in October 2010. This represented a 21 per cent decrease compared to the 8,476 sales recorded in October 2009. Through the first ten months of the year, sales amounted to 75,582 –up one per cent compared to the January through October period in 2009.
“The annual change in sales and average selling prices has been quite uniform across the GTA and by property type as the market has balanced out from record levels of sales in the second half of 2009 and first few months of 2010,” said Toronto Real Estate Board (TREB) President Bill Johnston.
“The composition of GTA home sales does differ depending on location. Condominium apartments accounted for 42 per cent of total sales in the City of Toronto and almost 60 per cent of sales in TREB’s central districts,” Johnston continued. “In regions surrounding the City of Toronto, in contrast, low rise home types accounted for almost 90 per cent of transactions.”
The average price for October transactions was $443,729 – up five per cent compared to the average of $423,559 reported in October 2009. The average selling price through the first nine months of the year
was $430,802. “The average selling price in the GTA has continued to grow relative to 2009 because home ownership has remained affordable,” said Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “A household earning the average income in the GTA can comfortably afford the mortgage payments associated with the purchase of an average priced home.”
“The outlook for mortgage rates and income growth over the next year is favorable. The average home selling price could increase moderately next year and remain affordable for the average GTA household,” continued Mercer.
Jonathan’s Opinion:
Notice that the number of sales is still decreasing, while the number of active listings is increasing; if this continues, there will be a higher level of price reductions from sellers whose homes are currently on the market. New listings have decreased indicating that many potential sellers are on the sidelines, waiting to see what the future holds for the market. The market has begun to show signs of a brief cooling, where Buyers are not just “rushing in” to their purchases, and houses are taking longer to sell. However, prices have not been adversely affected yet.
Tuesday, November 2, 2010
Condo Market Shows Signs of Strain
"Is the Greater Toronto Area condominuium market poised for a correction?"
Click below to read full article. Very very interesting. A MUST READ!!
http://www.moneyville.ca/article/884199--strong-gta-condo-market-shows-signs-of-strain
Jonathan's Opinion:
Simple economics does state that when demand of any product is low, and supply of that same product is high, in order for that product to sell, the price must be lowered to the point that demand begins to increase again.
If the article is correct in stating that 36,000 new units will all come to market next year, or shortly, there will undoubtedly be an excess of supply, and if sellers want to sell their condos, they MUST reduce their prices because of all the competition.
Hypothetically, if none of these condos go for sale, then there will not be a correction in prices. The fact is that most condo buyers are speculators (people who buy pre-construction, at a good price, in order to sell once the building is up, and has appreciated in value).
In most cases this is the ideal situtation, and a great way to make a quick buck, however, just think if everyone of the 36,000 unit owners are thinking the same thing, and selling at the same time. I would definitely agree that they would have a hard time seling for a profit, uness there are 36,000 buyers out there just waiting...that, I sincerely doubt.
Click below to read full article. Very very interesting. A MUST READ!!
http://www.moneyville.ca/article/884199--strong-gta-condo-market-shows-signs-of-strain
Jonathan's Opinion:
Simple economics does state that when demand of any product is low, and supply of that same product is high, in order for that product to sell, the price must be lowered to the point that demand begins to increase again.
If the article is correct in stating that 36,000 new units will all come to market next year, or shortly, there will undoubtedly be an excess of supply, and if sellers want to sell their condos, they MUST reduce their prices because of all the competition.
Hypothetically, if none of these condos go for sale, then there will not be a correction in prices. The fact is that most condo buyers are speculators (people who buy pre-construction, at a good price, in order to sell once the building is up, and has appreciated in value).
In most cases this is the ideal situtation, and a great way to make a quick buck, however, just think if everyone of the 36,000 unit owners are thinking the same thing, and selling at the same time. I would definitely agree that they would have a hard time seling for a profit, uness there are 36,000 buyers out there just waiting...that, I sincerely doubt.
Monday, November 1, 2010
Canadian Real Estate Overvalued, According to Report
"A worldwide survey conducted by The Economist magazine shows that, on average, Canadian homes cost 23.9% more than they are worth"
Click on link below for full article
http://www.propertywire.ca/news/latest/529-canadian-real-estate-overvalued-according-to-report.html
Jonathan's Opinion
You'll notice that some people posted comments on this article, and it seems to me that these people are not too "in tune" with economics, or logic.
Of course the 23.9% figure for Canada is an average. Logically it would be impossible for economists to dervie a figure representing the value of a property for every single city in every province of our country. The only plausible way of attaining this number is to look at sample averages.
Those averages represent both sale price and rental rate of returns.
In economics, the "real" value of some thing is determined by comparing the investment to its rate of return, or yield. If the rate of return yields a positive cash flow, then the investment is either properly valued or undervalued. If the rate of return yields a negative cash flow then the investment is overvalued.
In the case of real estate, if a property is purchased with a 20% downpayment (which is mandatory on an investment property), and the rental income is less than the mortgage payment on that property, then that property was overvalued.
So, what this article is illustrating is based strictly on averages and simple economics. The only way to feasibly arrive at these numbers is to take averages. There is no other efficient way.
It is a great article!!
Click on link below for full article
http://www.propertywire.ca/news/latest/529-canadian-real-estate-overvalued-according-to-report.html
Jonathan's Opinion
You'll notice that some people posted comments on this article, and it seems to me that these people are not too "in tune" with economics, or logic.
Of course the 23.9% figure for Canada is an average. Logically it would be impossible for economists to dervie a figure representing the value of a property for every single city in every province of our country. The only plausible way of attaining this number is to look at sample averages.
Those averages represent both sale price and rental rate of returns.
In economics, the "real" value of some thing is determined by comparing the investment to its rate of return, or yield. If the rate of return yields a positive cash flow, then the investment is either properly valued or undervalued. If the rate of return yields a negative cash flow then the investment is overvalued.
In the case of real estate, if a property is purchased with a 20% downpayment (which is mandatory on an investment property), and the rental income is less than the mortgage payment on that property, then that property was overvalued.
So, what this article is illustrating is based strictly on averages and simple economics. The only way to feasibly arrive at these numbers is to take averages. There is no other efficient way.
It is a great article!!
Monday, October 18, 2010
September Warket Watch Report
September 2010
GTA Housing Market Conditions Remain Healthy in September
TORONTO - Tuesday, October 5, 2010
Greater Toronto REALTORS® reported 6,310 sales through the Multiple Listing Service® (MLS®) in September 2010. This represented a 23 per cent decrease compared to the 8,196 sales recorded during the same period in 2009. Through the first nine months of the year, sales amounted to 69,069 – up four per cent compared to the first three quarters of 2009.
“The level of sales in the second half of 2010 has been lower, representing a balancing out period following record levels of sales in the latter half of 2009 and first few months of 2010. We remain on track for one of the best years in history for existing home transactions in the GTA,” said Toronto Real Estate Board President Bill Johnston.
The average price for September transactions was $427,329– up five per cent compared to the average of $406,877 reported in September 2009. The average selling price through the first nine months of the year was $429,657. “Resale homes in the GTA remain affordable,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
“It is important to consider the positive impact of declining mortgage rates over the past two decades. Simply considering home prices relative to incomes does not allow for an accurate analysis of affordability,” continued Mercer. “The share of average household income going toward a mortgage payment on the average priced home in the GTA remains within accepted lending guidelines. This is why the average home selling price has continued to grow.”
Jonathan’s Opinion:
Notice that the number of sales is decreasing, while the number of new and active listings is increasing; if this continues, there will be a higher level of supply and a lower level of demand. This will give buyers a larger selection, and will force sellers to reduce their prices in order to remain competitive. It is quite possible that at “Buyer’s Market” is soon approaching.
GTA Housing Market Conditions Remain Healthy in September
TORONTO - Tuesday, October 5, 2010
Greater Toronto REALTORS® reported 6,310 sales through the Multiple Listing Service® (MLS®) in September 2010. This represented a 23 per cent decrease compared to the 8,196 sales recorded during the same period in 2009. Through the first nine months of the year, sales amounted to 69,069 – up four per cent compared to the first three quarters of 2009.
“The level of sales in the second half of 2010 has been lower, representing a balancing out period following record levels of sales in the latter half of 2009 and first few months of 2010. We remain on track for one of the best years in history for existing home transactions in the GTA,” said Toronto Real Estate Board President Bill Johnston.
The average price for September transactions was $427,329– up five per cent compared to the average of $406,877 reported in September 2009. The average selling price through the first nine months of the year was $429,657. “Resale homes in the GTA remain affordable,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
“It is important to consider the positive impact of declining mortgage rates over the past two decades. Simply considering home prices relative to incomes does not allow for an accurate analysis of affordability,” continued Mercer. “The share of average household income going toward a mortgage payment on the average priced home in the GTA remains within accepted lending guidelines. This is why the average home selling price has continued to grow.”
Notice that the number of sales is decreasing, while the number of new and active listings is increasing; if this continues, there will be a higher level of supply and a lower level of demand. This will give buyers a larger selection, and will force sellers to reduce their prices in order to remain competitive. It is quite possible that at “Buyer’s Market” is soon approaching.
Tuesday, August 31, 2010
Resale Housing Forecast Revised
Information Watch - August 2010
The Canadian Real Estate Association (CREA) revised its forecast downward for home sales activity via the Multiple Listing Service(R) (MLS(R)) Systems of Canadian real estate Boards and Associations, and elevated its average price forecast.
Weaker than anticipated sales activity during the crucial spring home buying season in Canada's four most active provincial markets prompted the revision. The decline is consistent with the exhaustion of pent-up demand from deferred purchases during the economic recession, and sales having been pulled forward into early 2010 due to changes in mortgage regulations.
National sales activity is forecast to reach 459,600 units in 2010, representing an annual decline of 1.2 per cent. Additional expected interest rate increases will keep homebuyers in a cautious mood, with sales activity expected to continue easing over the second half of the year as a result. In 2011, weaker economic growth and consumer spending will contribute to a decline in national sales activity of 7.3 per cent, with annual sales totaling 426,100 units.
"The Bank of Canada recognizes that inflation remains well contained and that economic growth will soften, so interest rates will rise slowly and at a measured pace, which will keep home financing within reach for many homebuyers," said Georges Pahud, CREA President. "While the jump in national sales activity earlier this year likely borrowed from the future, local markets trends are not necessarily in sync with national trends, so buyers and sellers would do well to consult with their local REALTOR(R) to best understand the outlook in their market."
Average price trends have remained stable as new listings began to shrink in the last two months of the second quarter. Supply is expected to continue to adjust to lower demand, keeping the resale housing market balanced on a national basis and in most provinces.
The national average home price is forecast to rise 3.5 per cent in 2010 to $331,600, with increases in all provinces.
"Slowing first-time home buying activity means lower - and mid-priced homes are making a smaller contribution to the average price calculation, causing the average price to be skewed upward as a result," said Gregory Klump, CREA Chief Economist. "It also means pricing momentum will lose steam due to rising competition among current homeowners looking to trade up."
Although modest average price gains are forecast in 2011 in most provinces, the national average price is forecast to ease by 0.9 per cent to $328,600.
"The hangover from accelerated home purchases earlier this year is expected to persist over the rest of the year, but positive economic and job market trends bode well for home price stability," said Klump. "Sales activity and new supply are both expected to continue to ease, so inventories are unlikely to pile up the way they did during the recession.
"Transitory factors that resulted in big swings in housing supply and demand may now be largely in the rearview mirror, so while resale housing activity is expected to ease, the pace of declines should begin to slow," he added. "Homebuyers will no doubt welcome a more relaxed housing market in places where there was a shortage of supply earlier in the year."
The Canadian Real Estate Association (CREA) revised its forecast downward for home sales activity via the Multiple Listing Service(R) (MLS(R)) Systems of Canadian real estate Boards and Associations, and elevated its average price forecast.
Weaker than anticipated sales activity during the crucial spring home buying season in Canada's four most active provincial markets prompted the revision. The decline is consistent with the exhaustion of pent-up demand from deferred purchases during the economic recession, and sales having been pulled forward into early 2010 due to changes in mortgage regulations.
National sales activity is forecast to reach 459,600 units in 2010, representing an annual decline of 1.2 per cent. Additional expected interest rate increases will keep homebuyers in a cautious mood, with sales activity expected to continue easing over the second half of the year as a result. In 2011, weaker economic growth and consumer spending will contribute to a decline in national sales activity of 7.3 per cent, with annual sales totaling 426,100 units.
"The Bank of Canada recognizes that inflation remains well contained and that economic growth will soften, so interest rates will rise slowly and at a measured pace, which will keep home financing within reach for many homebuyers," said Georges Pahud, CREA President. "While the jump in national sales activity earlier this year likely borrowed from the future, local markets trends are not necessarily in sync with national trends, so buyers and sellers would do well to consult with their local REALTOR(R) to best understand the outlook in their market."
Average price trends have remained stable as new listings began to shrink in the last two months of the second quarter. Supply is expected to continue to adjust to lower demand, keeping the resale housing market balanced on a national basis and in most provinces.
The national average home price is forecast to rise 3.5 per cent in 2010 to $331,600, with increases in all provinces.
"Slowing first-time home buying activity means lower - and mid-priced homes are making a smaller contribution to the average price calculation, causing the average price to be skewed upward as a result," said Gregory Klump, CREA Chief Economist. "It also means pricing momentum will lose steam due to rising competition among current homeowners looking to trade up."
Although modest average price gains are forecast in 2011 in most provinces, the national average price is forecast to ease by 0.9 per cent to $328,600.
"The hangover from accelerated home purchases earlier this year is expected to persist over the rest of the year, but positive economic and job market trends bode well for home price stability," said Klump. "Sales activity and new supply are both expected to continue to ease, so inventories are unlikely to pile up the way they did during the recession.
"Transitory factors that resulted in big swings in housing supply and demand may now be largely in the rearview mirror, so while resale housing activity is expected to ease, the pace of declines should begin to slow," he added. "Homebuyers will no doubt welcome a more relaxed housing market in places where there was a shortage of supply earlier in the year."
Thursday, July 15, 2010
HST Does NOT Affect the Real Estate Resale Market.
Toronto Star Column (as it appears each Friday in the Toronto Star)
HST will not affect resale homes
July 9, 2010 -- As of July 1st, the new Harmonized Sales Tax (HST) will be in effect and Ontario consumers will be hard-pressed to avoid this so called “tax on everything”. While that less than flattering nick name for the HST may be pretty close to the truth, it’s not completely accurate, especially when it comes to real estate, where the HST applies differently depending on the type of real estate, whether it is resale housing, newly constructed housing, or business properties.
Anyone who has ever purchased a home or has considered purchasing a home knows that budgeting for taxes is an important part of determining what they can afford. Whether it is the on-going cost of property taxes, or the upfront cost of land transfer taxes, the cost of taxes on housing can add up.
With that in mind, one of the most important things to know about the HST is that, fortunately, it will not increase the tax burden on the purchase price for homebuyers who purchase resale housing. That’s because resale housing, which was never subject to Provincial Sales Tax (PST) or the federal Goods and Services Tax, will continue to be exempt from both taxes once they are combined under the HST.
The same is not true for newly constructed homes, which will be hit with additional tax under the HST. Newly constructed housing has always been subject to the GST, meaning thousands of dollars of tax for home buyers choosing this option. Now, with the HST, new housing will also be subject to PST, meaning thousands of dollars in added costs for home buyers of new housing.
There is a silver lining for new housing: the provincial government provides a rebate of 75 per cent of the PST on the first $400,000 of a newly constructed home, or a maximum of $24,000. For example, someone purchasing a new home priced at $500,000 would face $40,000 in additional tax from the provincial portion of the HST, which would be reduced to $16,000 with the rebate. Obviously, the rebate softens the blow, but an extra $16,000 of tax for a newly constructed home is nothing to laugh at.
Fortunately, home buyers choosing to purchase a resale home don’t have to worry about paying HST on the price of their home. That’s money that they can keep in their pocket, or use to keep their mortgage costs down.
There is also encouraging news when it comes to real estate for businesses. Although the costs of purchasing or renting a commercial property are subject to HST, businesses are allowed to claim tax credits to offset these costs. Even better, when purchasing a commercial property, the business can claim the tax credits immediately so that no upfront costs are incurred for the HST, and cash flow is not impacted.
It won’t be long before the HST is a reality in Ontario and taxes on a long list of goods and services will increase. Although it would be nice if HST didn’t apply to any real estate transactions, luckily, there is some encouraging news, especially for homebuyers of resale housing, who won’t see the purchase price of their home increase due to HST, and businesses buying or renting commercial properties, who will be able to offset their HST costs.
HST will not affect resale homes
July 9, 2010 -- As of July 1st, the new Harmonized Sales Tax (HST) will be in effect and Ontario consumers will be hard-pressed to avoid this so called “tax on everything”. While that less than flattering nick name for the HST may be pretty close to the truth, it’s not completely accurate, especially when it comes to real estate, where the HST applies differently depending on the type of real estate, whether it is resale housing, newly constructed housing, or business properties.
Anyone who has ever purchased a home or has considered purchasing a home knows that budgeting for taxes is an important part of determining what they can afford. Whether it is the on-going cost of property taxes, or the upfront cost of land transfer taxes, the cost of taxes on housing can add up.
With that in mind, one of the most important things to know about the HST is that, fortunately, it will not increase the tax burden on the purchase price for homebuyers who purchase resale housing. That’s because resale housing, which was never subject to Provincial Sales Tax (PST) or the federal Goods and Services Tax, will continue to be exempt from both taxes once they are combined under the HST.
The same is not true for newly constructed homes, which will be hit with additional tax under the HST. Newly constructed housing has always been subject to the GST, meaning thousands of dollars of tax for home buyers choosing this option. Now, with the HST, new housing will also be subject to PST, meaning thousands of dollars in added costs for home buyers of new housing.
There is a silver lining for new housing: the provincial government provides a rebate of 75 per cent of the PST on the first $400,000 of a newly constructed home, or a maximum of $24,000. For example, someone purchasing a new home priced at $500,000 would face $40,000 in additional tax from the provincial portion of the HST, which would be reduced to $16,000 with the rebate. Obviously, the rebate softens the blow, but an extra $16,000 of tax for a newly constructed home is nothing to laugh at.
Fortunately, home buyers choosing to purchase a resale home don’t have to worry about paying HST on the price of their home. That’s money that they can keep in their pocket, or use to keep their mortgage costs down.
There is also encouraging news when it comes to real estate for businesses. Although the costs of purchasing or renting a commercial property are subject to HST, businesses are allowed to claim tax credits to offset these costs. Even better, when purchasing a commercial property, the business can claim the tax credits immediately so that no upfront costs are incurred for the HST, and cash flow is not impacted.
It won’t be long before the HST is a reality in Ontario and taxes on a long list of goods and services will increase. Although it would be nice if HST didn’t apply to any real estate transactions, luckily, there is some encouraging news, especially for homebuyers of resale housing, who won’t see the purchase price of their home increase due to HST, and businesses buying or renting commercial properties, who will be able to offset their HST costs.
Saturday, July 10, 2010
Market Watch Report
Market More Balanced in June
July 6, 2010 -- Greater Toronto REALTORS® reported 8,442 sales through the Multiple Listing Service® (MLS®) in June. This represented a 23 per cent decrease compared to the record 10,955 sales reported in June 2009. Sales for the second quarter of 2010 amounted to 28,810 – up one per cent annually. Year-to-date sales through June were up 23 per cent to 50,455 compared to the first six months of 2009.
"We experienced a record number of existing home sales during the first half of 2010, but these sales were weighted more towards the beginning of the year," said Toronto Real Estate Board President Bill Johnston. "The pace of home sales has moderated from record levels over the past two months with the prospect of higher mortgage rates."
The average price for June transactions was $435,034 – up eight per cent compared to the average of $403,972 recorded for June 2009.
"With more homes to choose from in the second quarter, many home buyers have been making less-aggressive offers. This has resulted in less upward pressure on the average selling price," said Jason Mercer, TREB's Senior Manager of Market Analysis. "The annual rate of average price growth in the second half of 2010 will be in the single digits."
Jonathan's Opinion
Jonathan’s Opinion
As expected, the real estate market has begun to cool off at a healthy pace. The reason sales have decreased in June is simply because of the law of supply and demand.
When interest rates were at a historical low the amount of buyers was much higher than the amount of sellers, thus leading to quick sales and higher prices.
As interest rates increase we notice that the amount of buyers and sellers are beginning to reach equilibrium. What will happen is that buyers will begin having more selection, and no longer have to overpay, or compete for a house.
This will lead to sellers not selling their homes as quickly anymore, and may also, in the future, lead to a slight correction in prices.
I say in the future because in order for a price correction to occur, interest rates must be much higher than they currently are, and although they are going up, they are still low enough to be attractive to buyers.
It is not necessarily a “Buyer’s Market” just yet, but it will get there.
Remember, this is a good thing, as it restores normality and balance in the real estate market, which is what is needed!
July 6, 2010 -- Greater Toronto REALTORS® reported 8,442 sales through the Multiple Listing Service® (MLS®) in June. This represented a 23 per cent decrease compared to the record 10,955 sales reported in June 2009. Sales for the second quarter of 2010 amounted to 28,810 – up one per cent annually. Year-to-date sales through June were up 23 per cent to 50,455 compared to the first six months of 2009.
"We experienced a record number of existing home sales during the first half of 2010, but these sales were weighted more towards the beginning of the year," said Toronto Real Estate Board President Bill Johnston. "The pace of home sales has moderated from record levels over the past two months with the prospect of higher mortgage rates."
The average price for June transactions was $435,034 – up eight per cent compared to the average of $403,972 recorded for June 2009.
"With more homes to choose from in the second quarter, many home buyers have been making less-aggressive offers. This has resulted in less upward pressure on the average selling price," said Jason Mercer, TREB's Senior Manager of Market Analysis. "The annual rate of average price growth in the second half of 2010 will be in the single digits."
Jonathan's Opinion
Jonathan’s Opinion
As expected, the real estate market has begun to cool off at a healthy pace. The reason sales have decreased in June is simply because of the law of supply and demand.
When interest rates were at a historical low the amount of buyers was much higher than the amount of sellers, thus leading to quick sales and higher prices.
As interest rates increase we notice that the amount of buyers and sellers are beginning to reach equilibrium. What will happen is that buyers will begin having more selection, and no longer have to overpay, or compete for a house.
This will lead to sellers not selling their homes as quickly anymore, and may also, in the future, lead to a slight correction in prices.
I say in the future because in order for a price correction to occur, interest rates must be much higher than they currently are, and although they are going up, they are still low enough to be attractive to buyers.
It is not necessarily a “Buyer’s Market” just yet, but it will get there.
Remember, this is a good thing, as it restores normality and balance in the real estate market, which is what is needed!
Wednesday, June 2, 2010
Housing Market Forecast for the Rest of 2010 and 2011
CREA Lowers Housing Forecast as Market Weakens
TORONTO -- Rapidly changing market conditions have led the Canadian Real Estate Association to lower its forecast for housing sales this year...
see entire artcile at:
http://www.financialpost.com/news/CREA+lowers+housing+forecast+says+house+prices+will+drop/3101899/story.html
TORONTO -- Rapidly changing market conditions have led the Canadian Real Estate Association to lower its forecast for housing sales this year...
see entire artcile at:
http://www.financialpost.com/news/CREA+lowers+housing+forecast+says+house+prices+will+drop/3101899/story.html
Thursday, May 6, 2010
What's Taxable Under the HST and What's Not??
Click on the link below and you will find a great chart that may answer this question:
https://outlook.exchserver.com/exchange/jcicerani@royallepage.ca/Inbox/FW:%20HST%20Handy%20Chart.EML/1_multipart_xF8FF_2_HST.PDF/C58EA28C-18C0-4a97-9AF2-036E93DDAFB3/HST.PDF?attach=1
https://outlook.exchserver.com/exchange/jcicerani@royallepage.ca/Inbox/FW:%20HST%20Handy%20Chart.EML/1_multipart_xF8FF_2_HST.PDF/C58EA28C-18C0-4a97-9AF2-036E93DDAFB3/HST.PDF?attach=1
Monday, April 5, 2010
Our Unstoppable Housing Market May Have Met its Match
This article is a must read.
http://www.nationalpost.com/news/story.html?id=2740736
Makes you realize that while extraordinarily low interest rates may seem ideal, and promising, they can lead to even worse conditions than high interest rates, if not adjusted the correct ways.
http://www.nationalpost.com/news/story.html?id=2740736
Makes you realize that while extraordinarily low interest rates may seem ideal, and promising, they can lead to even worse conditions than high interest rates, if not adjusted the correct ways.
Saturday, April 3, 2010
Mortgage Rates
Do you currently have a closed mortgage?
See the closed mortgage rates that all finiancial institutions are offering:
http://www.financialpost.com/personal-finance/rates/mortgage-closed.html
Do you currently have an open mortgage?
See the open mortgage rates that all financial institutions are offering:
http://www.financialpost.com/personal-finance/rates/mortgage-open.html
See the closed mortgage rates that all finiancial institutions are offering:
http://www.financialpost.com/personal-finance/rates/mortgage-closed.html
Do you currently have an open mortgage?
See the open mortgage rates that all financial institutions are offering:
http://www.financialpost.com/personal-finance/rates/mortgage-open.html
Thursday, March 25, 2010
Interest Rate Increases
Higher interest rates on way, Carney warns
March 25, 2010
OTTAWA–Bank of Canada Governor Mark Carney has put Canadians on notice that today's rock-bottom borrowing costs are likely headed upwards by midsummer – if not sooner.
He acknowledged Wednesday that inflation and economic growth are rebounding faster than the bank predicted and left the door open for a rise in the central bank's trend-setting overnight rate more quickly than Canadians have expected.
Nearly a year ago, Carney decided to combat the recession by taking the unusual step of promising to keep the bank's overnight rate at a record low 0.25 per cent until the end of this June.
But, in a reminder that he has the option to hike rates sooner, he drove home the point on Wednesday that he has always said the bank would re-examine its stance if inflation – its main concern – threatened to get out of control.
The commitment to rock-bottom interest rates "is expressly conditional on the outlook for inflation," he reiterated in a speech to the Ottawa Economics Association.
"The bank has an unwavering commitment to price stability," Carney said.
"That means keeping inflation low, stable and predictable," he added.
Rising Bank of Canada rates cause commercial banks to follow suit, driving up borrowing costs for consumers, homebuyers and business. This slows economic expansion and cools inflation, but it is not without risks. Raising rates too quickly could slow Canada's rebound from the recession.
Economic growth and price increases have both exceeded expectations in recent months. The core inflation rate, which excludes volatile items such as gasoline, rose to 2.1 per cent in February, Statistics Canada said last week.
This is considerably more than had been predicted by Carney, who forecast that core inflation would average 1.6 per cent in the January-through-March period and not hit 2 per cent until the second half of this year. The bank's long-term goal is to head off runaway inflation, which it tries to do by manipulating interest-rate policy to keep price increases in the 2 per cent range.
With inflation rising, analysts have speculated that the bank might not wait until mid-year to raise interest rates.
But Carney was careful not to tip his hand, saying Canadians will have to wait until the bank's next interest-rate setting on April 20 for a decision. As for a reading of inflation dangers, the bank will publish its analysis in its quarterly report on April 22.
In the meantime, he warned Canadians that sooner or later interest rates will be rising now that the economy is recovering from the recession.
"We're not trying to give personal financial advice," he said at a news conference. But "certainly in any sort of major purchase or financing that individuals are considering, (they should) recognize that interest rates are at extraordinarily low levels" and will be going up, Carney said. Canadians should "think about your ability to service your debts if rates move to a more normal level."
While acknowledging inflation is "slightly firmer" than the bank forecast and economic expansion in the early months of this year is stronger than expected, Carney was guarded in his assessment of the outlook.
He pointed out that Canadians are dealing with "an economy that is just emerging from a very deep recession."
And he noted that the sharp rise in inflation in February may reflect a one-time phenomenon – the rise in accommodation costs during the Vancouver Winter Olympics.
Still, the fact Carney is not hinting at any changes to his year-old promise to hold the bank's overnight rate at 0.25 per cent until the end of June is an indication borrowing costs will likely be going up at mid-year, said CIBC World Markets economist Avery Shenfeld.
"By saying nothing about what happens after June, it starts to become a hint that rates will move up in July."
But it will be a tricky call for Carney because pushing up rates could strangle the economic rebound and drive up the value of the loonie on exchange markets, hurting the ability of exporters to sell goods in the key United States market.
"We're still in the relatively early stages of a recovery, and I think the bank probably should err on the side of trying to stimulate the economy," said United Steelworkers economist Erin Weir.
"The other big risk of raising interest rates too soon is that it could drive the Canadian dollar even higher, which of course would hurt export industries and could staunch the recovery."
JONATHAN'S OPINION
One issue of vital importance to all those that currently possess variable rates on their mortgage is, should you fix them?
In listening to a forecaster from BMO today, he mentioned that at this time next year, the prime rate will be 2% higher than it is today. This means that it will be at 4.25%. This will, in turn, force the fixed rates on, say a five year term, to reach at least 7%.
Today you can get a five year fixed mortgage rate at approximately 3.8%. In my opinion, rates are the lowest they've ever been, and they must go up in order to halt inflation.
If I were you, I would lock in today. If not, at least keep a keen eye on them.
March 25, 2010
OTTAWA–Bank of Canada Governor Mark Carney has put Canadians on notice that today's rock-bottom borrowing costs are likely headed upwards by midsummer – if not sooner.
He acknowledged Wednesday that inflation and economic growth are rebounding faster than the bank predicted and left the door open for a rise in the central bank's trend-setting overnight rate more quickly than Canadians have expected.
Nearly a year ago, Carney decided to combat the recession by taking the unusual step of promising to keep the bank's overnight rate at a record low 0.25 per cent until the end of this June.
But, in a reminder that he has the option to hike rates sooner, he drove home the point on Wednesday that he has always said the bank would re-examine its stance if inflation – its main concern – threatened to get out of control.
The commitment to rock-bottom interest rates "is expressly conditional on the outlook for inflation," he reiterated in a speech to the Ottawa Economics Association.
"The bank has an unwavering commitment to price stability," Carney said.
"That means keeping inflation low, stable and predictable," he added.
Rising Bank of Canada rates cause commercial banks to follow suit, driving up borrowing costs for consumers, homebuyers and business. This slows economic expansion and cools inflation, but it is not without risks. Raising rates too quickly could slow Canada's rebound from the recession.
Economic growth and price increases have both exceeded expectations in recent months. The core inflation rate, which excludes volatile items such as gasoline, rose to 2.1 per cent in February, Statistics Canada said last week.
This is considerably more than had been predicted by Carney, who forecast that core inflation would average 1.6 per cent in the January-through-March period and not hit 2 per cent until the second half of this year. The bank's long-term goal is to head off runaway inflation, which it tries to do by manipulating interest-rate policy to keep price increases in the 2 per cent range.
With inflation rising, analysts have speculated that the bank might not wait until mid-year to raise interest rates.
But Carney was careful not to tip his hand, saying Canadians will have to wait until the bank's next interest-rate setting on April 20 for a decision. As for a reading of inflation dangers, the bank will publish its analysis in its quarterly report on April 22.
In the meantime, he warned Canadians that sooner or later interest rates will be rising now that the economy is recovering from the recession.
"We're not trying to give personal financial advice," he said at a news conference. But "certainly in any sort of major purchase or financing that individuals are considering, (they should) recognize that interest rates are at extraordinarily low levels" and will be going up, Carney said. Canadians should "think about your ability to service your debts if rates move to a more normal level."
While acknowledging inflation is "slightly firmer" than the bank forecast and economic expansion in the early months of this year is stronger than expected, Carney was guarded in his assessment of the outlook.
He pointed out that Canadians are dealing with "an economy that is just emerging from a very deep recession."
And he noted that the sharp rise in inflation in February may reflect a one-time phenomenon – the rise in accommodation costs during the Vancouver Winter Olympics.
Still, the fact Carney is not hinting at any changes to his year-old promise to hold the bank's overnight rate at 0.25 per cent until the end of June is an indication borrowing costs will likely be going up at mid-year, said CIBC World Markets economist Avery Shenfeld.
"By saying nothing about what happens after June, it starts to become a hint that rates will move up in July."
But it will be a tricky call for Carney because pushing up rates could strangle the economic rebound and drive up the value of the loonie on exchange markets, hurting the ability of exporters to sell goods in the key United States market.
"We're still in the relatively early stages of a recovery, and I think the bank probably should err on the side of trying to stimulate the economy," said United Steelworkers economist Erin Weir.
"The other big risk of raising interest rates too soon is that it could drive the Canadian dollar even higher, which of course would hurt export industries and could staunch the recovery."
JONATHAN'S OPINION
One issue of vital importance to all those that currently possess variable rates on their mortgage is, should you fix them?
In listening to a forecaster from BMO today, he mentioned that at this time next year, the prime rate will be 2% higher than it is today. This means that it will be at 4.25%. This will, in turn, force the fixed rates on, say a five year term, to reach at least 7%.
Today you can get a five year fixed mortgage rate at approximately 3.8%. In my opinion, rates are the lowest they've ever been, and they must go up in order to halt inflation.
If I were you, I would lock in today. If not, at least keep a keen eye on them.
Wednesday, March 17, 2010
MARCH MID-MONTH HOUSING STATISTICS
TORONTO, MARCH 17, 2010
Greater Toronto REALTORS® reported 4,353 sales through the Multiple Listing Service® (MLS®) during the first two weeks of March. This represented a 70 per cent increase compared to the 2,562 sales recorded during the same period in 2009 when resale transactions had dipped markedly due to the recession. The mid-month sales total was also 16 per cent higher than the previous March midmonth high reached in 2006.
“The spring-like weather in the first half of March brought the first green sprouts of the recurring spring market. Every year, monthly sales climb steadily through May,” said Toronto Real Estate Board President Tom Lebour. "People are buying homes because they are confident in the current economic recovery and mortgage payments on the average priced home remain affordable."
The average price for March mid-month transactions was $440,153 – a 20 per cent increase over 2009. New listings within the Toronto Real Estate Board boundaries were up 34 per cent to 8,540.
"Look for double-digit annual price increases to cease later in 2010, as new listings rebound from the low levels experienced in 2009," said Jason Mercer, TREB's Senior Manager of Market Analysis. "Increased listings will give buyers more choice, resulting in less upward pressure on home prices.”
Jonathan's Opinion
Some might wonder how sales can increase at such as dramatic pase in such a short period of time. The reason is simple; there is an imbalance of supply and demand.
In general, when supply of products is larger than the demand of the same products, the selling prices must come down in order to entice those with little demand to buy the product anyway.
In real estate, the same principle applies.
From the end of 2008 to approximately the middle of 2009 all consumers were afraid to buy anything because of the recession. Then, in order to get us out of the recession, the government artificially decreased interest rates to a historical low.
What did this do?
This allowed consumers to borrow money at a very low rate, allowing for lowered monthly mortgage payments. When people (particularly first-time buyers) realized how "cheap" a house could be, everyone wanted one. Therefore an influx of consumers were ready to purchase houses and take advantage of these low rates. This meant that demand was very high.
But the problem was that no one was selling, allowing for very little supply. So demand was high, and supply was low...which is the formula for an increase in prices.
In the latter half of 2010, as interest rates begin to increase, and the HST tax becomes in effect, the demand for houses will undoubtedly decrease. There will be a more normal balance between supply and demand, which will cause prices to level off, and sales to cool down.
We must see this as a good thing, because housing prices were increasing too fast in too little time, which could have negative consequences on consumers.
Greater Toronto REALTORS® reported 4,353 sales through the Multiple Listing Service® (MLS®) during the first two weeks of March. This represented a 70 per cent increase compared to the 2,562 sales recorded during the same period in 2009 when resale transactions had dipped markedly due to the recession. The mid-month sales total was also 16 per cent higher than the previous March midmonth high reached in 2006.
“The spring-like weather in the first half of March brought the first green sprouts of the recurring spring market. Every year, monthly sales climb steadily through May,” said Toronto Real Estate Board President Tom Lebour. "People are buying homes because they are confident in the current economic recovery and mortgage payments on the average priced home remain affordable."
The average price for March mid-month transactions was $440,153 – a 20 per cent increase over 2009. New listings within the Toronto Real Estate Board boundaries were up 34 per cent to 8,540.
"Look for double-digit annual price increases to cease later in 2010, as new listings rebound from the low levels experienced in 2009," said Jason Mercer, TREB's Senior Manager of Market Analysis. "Increased listings will give buyers more choice, resulting in less upward pressure on home prices.”
Jonathan's Opinion
Some might wonder how sales can increase at such as dramatic pase in such a short period of time. The reason is simple; there is an imbalance of supply and demand.
In general, when supply of products is larger than the demand of the same products, the selling prices must come down in order to entice those with little demand to buy the product anyway.
In real estate, the same principle applies.
From the end of 2008 to approximately the middle of 2009 all consumers were afraid to buy anything because of the recession. Then, in order to get us out of the recession, the government artificially decreased interest rates to a historical low.
What did this do?
This allowed consumers to borrow money at a very low rate, allowing for lowered monthly mortgage payments. When people (particularly first-time buyers) realized how "cheap" a house could be, everyone wanted one. Therefore an influx of consumers were ready to purchase houses and take advantage of these low rates. This meant that demand was very high.
But the problem was that no one was selling, allowing for very little supply. So demand was high, and supply was low...which is the formula for an increase in prices.
In the latter half of 2010, as interest rates begin to increase, and the HST tax becomes in effect, the demand for houses will undoubtedly decrease. There will be a more normal balance between supply and demand, which will cause prices to level off, and sales to cool down.
We must see this as a good thing, because housing prices were increasing too fast in too little time, which could have negative consequences on consumers.
Tuesday, March 9, 2010
Harmonized Sales Tax (HST)
How the Ontario HST Will Impact You in 2010
By Randy Selzer
The Ontario Government recently enacted legislation which will implement the much-dreaded HST Tax. This new tax will take effect on July 1, 2010. The HST tax will effectively combine the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new "harmonized" total tax of 13% percent. This new tax will be applicable to many real estate services which, until now, only had one or the other tax applied. The HST will result in a 13% tax on new home construction, but my post today will concern those ancillary costs pertaining to the buying and selling of resale residential real estate properties in Ontario...
First, the good news....there is no HST tax payable on the sale of a resale home (residential). So the single largest dollar amount exchanged is not taxable under HST.
However, under the harmonized sales tax (HST), home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.
In a nutshell, after July 1, 2010, if you are a seller, there will be a 13% percent tax payable on the real estate commission you pay - currently there is only the 5% percent GST payable on this fee. Your lawyer's fee will also be subject to the 13% percent HST, as will the cost of a Condominium Status Certificate.
If you are a buyer, any Home Inspection you pay for will be subject to the 13% percent HST. And so will the cost of movers hired. In addition, the cost of the CMHC premium for "high-ratio" mortgages has traditionally been taxable for PST - this amount will now be taxable for the full 13% percent HST.
So one can see that, with the introduction of the HST, whether you are buying or selling a Resale Home in Ontario, costs will be going up.
A press release from the Ontario Real Estate Association earlier this year summarized some of these changes which will take place - the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs. Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.
The HST Ontario Tax will add to the cost of buying and selling a resale home. Many market watchers are predicting a flurry of activity leading up to the July 1, 2010 implementation date, as buyers and sellers both try to avoid paying the tax.
By Randy Selzer
The Ontario Government recently enacted legislation which will implement the much-dreaded HST Tax. This new tax will take effect on July 1, 2010. The HST tax will effectively combine the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new "harmonized" total tax of 13% percent. This new tax will be applicable to many real estate services which, until now, only had one or the other tax applied. The HST will result in a 13% tax on new home construction, but my post today will concern those ancillary costs pertaining to the buying and selling of resale residential real estate properties in Ontario...
First, the good news....there is no HST tax payable on the sale of a resale home (residential). So the single largest dollar amount exchanged is not taxable under HST.
However, under the harmonized sales tax (HST), home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.
In a nutshell, after July 1, 2010, if you are a seller, there will be a 13% percent tax payable on the real estate commission you pay - currently there is only the 5% percent GST payable on this fee. Your lawyer's fee will also be subject to the 13% percent HST, as will the cost of a Condominium Status Certificate.
If you are a buyer, any Home Inspection you pay for will be subject to the 13% percent HST. And so will the cost of movers hired. In addition, the cost of the CMHC premium for "high-ratio" mortgages has traditionally been taxable for PST - this amount will now be taxable for the full 13% percent HST.
So one can see that, with the introduction of the HST, whether you are buying or selling a Resale Home in Ontario, costs will be going up.
A press release from the Ontario Real Estate Association earlier this year summarized some of these changes which will take place - the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs. Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.
The HST Ontario Tax will add to the cost of buying and selling a resale home. Many market watchers are predicting a flurry of activity leading up to the July 1, 2010 implementation date, as buyers and sellers both try to avoid paying the tax.
Friday, March 5, 2010
2010 Federal Budget
Yesterday at 3:30pm eastern, our Finance Minister Jim Flaherty, announced what the Canadian budget would be for the next 5 years. Click on the link below for a breakdown of this budget. When you are in this page, focus on the right hand column entitled "Budget Highlights"
http://www.bnn.ca/15921.html
Jonathan's Opinion
What I gather from this is that within the next year, our government will spend approximately $49.2 billion on things that should help with our economic recovery.
Everything that the stimulus money is being spent on is very important, but what people have to understand is that all this money will have to be repaid between 2011 and 2015. If you look at how much has to be paid back within each year, the average is about $13.5 billion per year.
How can we possibly come up with that kind of money?
- Our taxes will have to go up. (HST is one form of increase)
- Our insurance premiums will have to go up. (Most businesses will have to pay higher employment insurance premiums to pay for the increasing support that has gone to the legions of unemployed, many of whom have still not found jobs)
- Our interest rates will go up.
How does this affect the real estate market?
Overall, if taxes increase, premiums increase, and interest rates increase, Canadians will generally have less money. Therefore, they will also spend less money on items because borrowing money will be too expensive due to the increase in interest rates, and saving money will be more enticing because the higher interest rates will yield a better return on their money iif they have it in GIC's or their savings account.
When people have less money to spend, they will not buy many things, especially expensive things, such as houses. If not many people are buying houses, demand decreases. If demand decreases, prices of houses will also decrease.
Therefore, I do believe that a correction in housing prices into 2011 is inevitable. How much of a correction is unpredictable for now.
http://www.bnn.ca/15921.html
Jonathan's Opinion
What I gather from this is that within the next year, our government will spend approximately $49.2 billion on things that should help with our economic recovery.
Everything that the stimulus money is being spent on is very important, but what people have to understand is that all this money will have to be repaid between 2011 and 2015. If you look at how much has to be paid back within each year, the average is about $13.5 billion per year.
How can we possibly come up with that kind of money?
- Our taxes will have to go up. (HST is one form of increase)
- Our insurance premiums will have to go up. (Most businesses will have to pay higher employment insurance premiums to pay for the increasing support that has gone to the legions of unemployed, many of whom have still not found jobs)
- Our interest rates will go up.
How does this affect the real estate market?
Overall, if taxes increase, premiums increase, and interest rates increase, Canadians will generally have less money. Therefore, they will also spend less money on items because borrowing money will be too expensive due to the increase in interest rates, and saving money will be more enticing because the higher interest rates will yield a better return on their money iif they have it in GIC's or their savings account.
When people have less money to spend, they will not buy many things, especially expensive things, such as houses. If not many people are buying houses, demand decreases. If demand decreases, prices of houses will also decrease.
Therefore, I do believe that a correction in housing prices into 2011 is inevitable. How much of a correction is unpredictable for now.
Tuesday, March 2, 2010
New Mortgage Rules
OTTAWA -- Jim Flaherty, the Finance Minister, says he is targeting "reckless" speculators who buy up multiple condominium units in the country's biggest cities with new rules introduced yesterday that will make it tougher for Canadians to get a mortgage....
Read entire article at http://www.nationalpost.com/scripts/story.html?id=2569008
Jonathan's Opinion:
Do you remember what happened near the end of 2008 in the U.S.? The sub-prime mortgage meltdown happened! It was so devasting to all major developed nations worldwide, that it almost lead to what some economists were calling, "the greatest depression".
This occured (in a nutshell) because of the lack of consumer savings, and excessive consumer spending. The worst part is that the consumers were spending BORROWED MONEY.
Lets look at this in a step by step, easy-t0-understand fashion:
Why were consumers borrowing, and spending?
Because interest rates were so low, and it was therefore cheap to borrow money.
How were consumers borrowing this money?
They borrowed against the equity in their house. (e.g. if your house is worth $500,000 and you have a $400,000 mortgage, this means that there is $100,000 of equity in your home. Banks would lend up to 95% of that equity. So in this case, the bank would lend you $95,000)
What did consumers do with this money?
They spent in on cars, vacations, clothes, cell phones, TVs, etc.
Why didn't consumers save their money, and only use it if they really needed too?
They thought that real estate prices would never fall, and they could therefore always borrow against their houses, and never be out of money.
Boy were they ever wrong!
And we all know what happened next. U.S houses lost as high as 70% of their values in just one year. There were millions of foreclosures, and bankruptcies.
I don't know about you, but I see the same thing starting to happen here in Canada. We have extraordinarily low interest rates, consumer debt levels are the highest they have ever been, and real estate prices are at their all-time highs.
If we do not want to see the same fate as the U.S., then mortgage regulations like the ones announced by our finance minister are not hurting us...rather, they are saving us.
I just hope it is not too late!!
Read entire article at http://www.nationalpost.com/scripts/story.html?id=2569008
Jonathan's Opinion:
Do you remember what happened near the end of 2008 in the U.S.? The sub-prime mortgage meltdown happened! It was so devasting to all major developed nations worldwide, that it almost lead to what some economists were calling, "the greatest depression".
This occured (in a nutshell) because of the lack of consumer savings, and excessive consumer spending. The worst part is that the consumers were spending BORROWED MONEY.
Lets look at this in a step by step, easy-t0-understand fashion:
Why were consumers borrowing, and spending?
Because interest rates were so low, and it was therefore cheap to borrow money.
How were consumers borrowing this money?
They borrowed against the equity in their house. (e.g. if your house is worth $500,000 and you have a $400,000 mortgage, this means that there is $100,000 of equity in your home. Banks would lend up to 95% of that equity. So in this case, the bank would lend you $95,000)
What did consumers do with this money?
They spent in on cars, vacations, clothes, cell phones, TVs, etc.
Why didn't consumers save their money, and only use it if they really needed too?
They thought that real estate prices would never fall, and they could therefore always borrow against their houses, and never be out of money.
Boy were they ever wrong!
And we all know what happened next. U.S houses lost as high as 70% of their values in just one year. There were millions of foreclosures, and bankruptcies.
I don't know about you, but I see the same thing starting to happen here in Canada. We have extraordinarily low interest rates, consumer debt levels are the highest they have ever been, and real estate prices are at their all-time highs.
If we do not want to see the same fate as the U.S., then mortgage regulations like the ones announced by our finance minister are not hurting us...rather, they are saving us.
I just hope it is not too late!!
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