Milton Ontario Real Estate, Opinion, & News

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Rate Hikes Could Hurt Overspenders

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The original posting of this story by Report On Business spurred me to add my commentary, is italics throughout.

Over-exuberant Christmas shoppers only have months to get control of their overspending before higher interest rates risk further complicating their lives, credit counselling experts warn.

With Canadians swimming in debt, forecasts of higher interest rates midway through 2010 could push more people over the edge by hampering their ability to pay off expenses.

“It’s a huge concern,” says Laurie Campbell, executive director of the non-profit counselling service Credit Canada.

Routing Number VIRGINIA COMMERCE BANK

Those most at risk are homeowners who must renegotiate their mortgages. Higher rates would increase monthly payments, leaving less to pay other debt.

I don’t read mainstream media consistently, because of the melodramatic way they report things. In Mississauga, with the average house value being in the $360,000 range and a 20% equity, people would have an 80% mortgage, or a mortgage of $288,000. If rates rise 1% all in one fell swoop, the payment would go up by $155 a month. While that is no small chunk of change, it is an easily-manageable amount. That’s less than the cost of buying lunch every working day; it’s less than many spend at Tim Horton’s in a month; and it’s far less than the average person spends unnecessarily on discretionary stuff. Oh, sorry, my readers, I forgot, logic doesn’t trump lousy reporting and scare tactics in the media. My bad.

Spending by Canadian households averaged $71,360 last year, 2 per cent more than in 2007, with shelter representing about 20 per cent of the load.

The Bank of Canada has repeatedly warned of late that record household debt is the biggest risk facing the country’s financial system. Bank Governor Mark Carney said that up to 10 per cent of households could face difficulties in meeting monthly payments when interest rates rise to normal levels.

However, an estimated 40 per cent of mortgage holders with high debt payments could increase their flexibility by suspending accelerated pay-downs on principal.

Um, yeah, okay, I guess the writer has never tried to do that! It’s one thing to increase your principal payments – they love to let you do that. But, in a completely absurd twist of logic, they make you re-apply for a mortgage if you want to lessen the principal payments. Yeah, makes sense to me – when you take away the banks interest income, by paying your mortgage off faster, they greet you with open arms; give them the opportunity to make more interest income and they make you jump through so many hoops. Once again, my bad for thinking logic has any part of all this. No wonder it’s easier to buy a $75,000 car that you could drive to LA & sell for $45,000 than it is to buy a house that ain’t goin’ anywhere!

Of course, presuming you used a great mortgage broker to get your mortgage, and he/she advised you not to write the loan at the higher principal payments, you’ll be fine with this and can just stop making the extra principal payment.

High interest rates have a major effect on a person’s cash flow, said Paul Salewski of Ottawa-based financial, credit and debt counselling agency Doyle Salewski. A doubling of mortgage rates to eight per cent would, for example, increase monthly payments by nearly $500 for homeowners with a $200,000 mortgage.

Please, don’t be so insulting! Talk about fear-mongering!! First of all, does a single breathing person actually believe that they’ll double rates overnight? Does anyone believe that there won’t be massive media attention paid in advance? Your great mortgage broker will be completely on top of things and advising you when to move your mortgage from a Variable Rate to Closed Rate. I’m equally sure that they will have had a chat with you when arranging your mortgage about what the payments would be at higher rates.

“All of a sudden they’re maybe have to increase their payments or who knows what they have to do in order to get by,” he said.

Since it’s too late to avoid the commercialization of Christmas, credit counsellors suggest people look at strategies for dealing with their spending spree as soon as the holidays wind up.

Recommendations include tackling high-interest credit card debt first — obtain a line of credit or consolidation loan if possible, stick to a spending budget and try to amass an emergency fund.

Yeah, that’s the ticket – arrange a line of credit, which usually means it’s going to be tied to prime, and increase your exposure. No, the answer is to start right now on eliminating all that discretionary spending.

Whatever you do, don’t rack up more credit card charges as you develop a plan of action to tackle debt.

Ms. Campbell said there’s no need to have more than one or two charge cards. Paring the number of cards over time will also limit the ability to make foolish decisions.

Despite increased restrictions, she expects that more Canadians will turn to bankruptcy to address their financial problems in 2010. Among them will be high-income earners who have begun to seek credit counselling in greater numbers.

“I think it’s really important for people to understand not to panic,” Ms. Campbell said, adding that help from counsellors is available.

Mark says a huge weight has been lifted off his shoulders since he sought such help to address $10,000 of debt he had amassed following his divorce several years ago.

“I just didn’t know how to quite handle my new freedom,” he said in an interview.

His credit woes caused him mental anxiety, depression and loss of sleep.

The 56-year-old caretaker said his problems worsened when he turned to pay-day loans to accommodate his increased spending on cigarettes, alcohol and general living expenses.

Every two weeks he would pay $25 interest for each $100 borrowed at a store-front operation in Toronto.

“You get to a point where you have to borrow again to get yourself back to where you were,” said Mark, who didn’t want to be identified.

Consolidation of his debt and regular monthly payments should allow him to resolve his financial problems and re-establish his credit within two years.

“As long as I keep a handle on it, it’s OK.”

Sorry, I know that more and more people are facing financial difficulty these days, and a lot of it is brought on by their emotional approach to things. When I was active as a mortgage lender, I was amazed at how many people would have $100,000 in high-interest debt, and $200,000 in equity in their house. They wouldn’t dream of re-financing their house at 7% to pay off their 20% debt, because of the emotional attachment to owning their house free-&-clear. That’s plain crazy!

IF you have a VRM, you need to start now paying attention to all the talk about where interest rates are going. You need to hook up with a mortgage broker, NOT talk to your bank about things, and you need to consider locking in your mortgage NOW.

Sure, I’m pretty conservative when it comes to this, and haven’t taken the ride on the VRM-train.

If you need contact info for a great mortgage broker, just ask.

Thinking of Buying?

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My friend, mentor, and excellent real estate agent in Austin, Texas, Krisstina Wise originally published this piece on her blog. I have taken the general information presented and related it to our local marketplace. My commentary is in italics throughout the article.

On the fenc

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e?

  • If I said that Interest Rates were going to increase tomorrow?
  • If I said home prices were going to increase tomorrow?
  • And if I said that both interest rates and home prices were going to increase tomorrow?

According to the report released by Bank of Canada Governor Mark Carney last week, we can fully expect interest rates to rise, although it won’t be tomorrow. Likewise, according to the activity we see in real estate markets around Southern Ontario, there is a likelihood of house prices increasing. The laws of supply and demand dictate that a shortage of product and an abundance of buyers is the recipe for prices to rise, and we are most certainly in that position.

What would you do?

I wonder why people today are on the fence. The question is somewhat rhetorical because I’m pretty sure that it is because they are waiting for prices to hit bottom – but really - are we still kidding ourselves to think we can time the market? Even expert investors are kicking themselves for failing to spot the bubbles in both the housing and stock markets — Isn’t that indicator enough that we cannot?

So if we are on the fence because we are waiting for bottom – that begs the question of:

What is the Bottom?”

I think that most people think of “The Bottom” as housing prices hitting bottom before they begin their upward climb. But, if we agree that we can’t time the market, then really, how do we assess a good time to buy? How do we know the bottom when we can’t predict the bottom?

To answer this question I use the “Housing V”

The V shows us that the “Bottom” is not solely determined by home prices hitting “Bottom”, which is what I think most people think the “Bottom” is. The V shows that the “Bottom” is where both Interest Rates & Home Prices are at, well, the bottom (of the V). So let’s take a look:

austin real estate prices and interest rates

To explain, let’s look at 3 different situations.

Situation 1:         1980s:

  • Where were IR’s?
  • Where were prices?
  • Where was your mortgage payment?

milton ontario real estate agent chris newell 1980 market

In the market crash of the 80s, prices were at an all time low. That was the good news if you were a qualified buyer. The bad news was that the Interest Rates (IR’s) were at a record high (18%).

So, despite prices being low, High IR’s limited your buying power.

Situation 2:         2000s:

  • Where were IR’s?
  • Where were prices?
  • Where was your mortgage payment?

chris newell milton ontario real estate agent 2000 market

In the mid 2000’s, before our recent crash, IR’s were historically low, BUT prices were at record highs. Yet, buyers flooded the market pushing prices even higher.

So, despite IR’s being low, high prices limited your buying power. Most buyers could only buy because of sub-prime loan deals.

Here in Canada, we didn’t have the same kind of sub-prime mortgages that they had in the USA, but we certainly had some questionable lending practises going on. People were racking up great debt levels on the backs of low interest rates, not only with mortgages, but with easily-attainable credit for most-all purposes. Fortunately, our financial system has the checks-&-balances in place to prevent the mess like the USA experienced.

Situation 3:         2009!:

  • Historically low interest rates AND Low home prices

chris newell real estate agent milton ontario perfect storm market

Right now, we are in what I like to call the ‘Buying Zone’. Interest rates are at historical lowsAND, Austin (milton house prices are following the same trend as those in Austin, as of the date of writing) home prices are lower than they have been in years. This combination of low rates and prices produces the perfect storm for buyers. Never, in my career, have we experienced this situation. I have only ever seen either one or the other of the two previous situations.

So let me ask you, do you really think interest rates will continue to go lower?

Do you really think prices are going to drop much more? Really?

How likely do you think it is that both dots will drop lower on the graph?

And, what happens if either dot jumps higher on the graph?

The Buying Zone

My interpretation and speculation: we are at a bottom. We are, in this moment, in a time where we can take advantage of both low interest rates and low prices meaning the ideal ‘buying zone’. What is important to note is that inflation equals higher IR’s. Interest rates are artificially low because the Fed is holding them down in order to stimulate the sluggish economy. Once the artificial hold is released, interest rates will climb. It is a matter of fundamental economics.

In addition to the perfect storm of a buying zone, in Austin (same goes in Milton) we have noticed spikes in sales activity, higher asking prices, multiple offers, shorter marketing times, more construction starts, and fewer incentives. Yes, in my interpretation, now is a time to buy and if you wait much longer – you may have missed one of the best buying opportunities we have seen in a long time. Waiting will mean a higher mortgage payment. Even if prices were to drop a little more, if interest rates spike, you will have waited too long. Another instance of “bad timing”.

Here come higher interest rates … if that is true … what will you do?

As further commentary, the Bank of Canada recently has started saying that it cannot guarantee holding off on raising interest rates until next Summer. Following is the just-released schedule of monetary policy announcement dates:

OTTAWA – The Bank of Canada today released its 2010 schedule of eight dates for announcing decisions on its key policy interest rate and confirmed the announcement dates for the remainder of this year.

The announcement dates from September 2009 through December 2009 are:

Thursday, 10 September 2009
Tuesday, 20 October 2009
Tuesday, 8 December 2009

Will we see rates rising on those dates? Hard to know, but I sure won’t be surprised. How about you?

Is It Happening?

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Is the ride coming to an end? I just received a Twitter update from a mortgage broker in Toronto, saying that some lenders have raised their 5 year closed rates by 1/2 % to 4.09%, and that we should expect other lenders to be doing the same thing.

Routing Number VIRGINIA COMMERCE BANK

If you haven’t locked your rate in yet, now is the time to do it, just in case!!

Your Dollar’s Buying Power – Milton Real Estate Market Update

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Here’s the latest update from the Milton real estate market. As you can see in the first chart, the Total Market Annual Summary, the inventory of available homes is slowly tracking downwards. We now have a similar amount of inventory to what was available before the new construction started back in 2001, yet we have 4 times the number of houses. Sales activity is remaining fairly constant, and as the days on market reveals, things are selling quite quickly. 

Here’s the annual update, showing overall activity:

annual-summary-05-29-09

And here’s the Weekly Price Range Summary

tmo-05-29-09

 

As the Weekly Summary by Price Range (above) reveals, activity is spread across the lower ranges. An interesting note is that, with today’s mortgage rates, money has a much stronger buying power, and I think that is partly why the sales over $375,000 are fairly good.

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For example, at 3.6%, the monthly payment on a $100,000 mortgage is approximately $505; if rates were 5.5%, that same payment would only get you $81,000 of mortgage. Double those numbers and your $1010 will now get you into a $200,000 mortgage vs a $162,000 mortgage. More realistically, multiply those numbers by 3.5 and your $1,768 will get you a $368,000 mortgage at 3.6% vs a $284,000 mortgage at 5.5%. THIS IS HUGE!!! This difference alone moves you from the mid-range semi-detached homes and the upper-end row houses (townhouses) into the lower-mid-range detached homes. For the same monthly payment. Sure, your taxes will be a touch higher, and the downpayment required a little bit more, but not by a significant amount. 

And here’s the graphical listings and sales information (listings in green; sales in red):

listings-sales-annual-summary-05-29-09

Milton Real Estate Market Overview 05-22-2009

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Another fascinating week of activity in town, with the number of sales being down 33% over the previous week, and the number of available properties staying relatively consistent. I’ve included a graph to give a clearer visual presentation of the trend over the past 8 months, and it is quite interesting.

I have to repeat what I’ve been saying every week – multiple offers abound. I was involved in 2 more this week. Also, as agents are catching up to the changing market, some of the benefits to buyers

Routing Number VIRGINIA COMMERCE BANK

are already disappearing. For a couple of months, it was easy to get an offer accepted conditional upon the sale of the buyer’s property; now it is virtually impossible. Why, you might ask? Because if the house is priced properly and shows well, it seems increasingly likely that there will be multiple offers, so there won’t be a need to accept a conditional-on-sale offer.

What this means for sellers is that NOW is a good time to sell! What this means for buyers is that the window is rapidly slamming shut! The perfect storm I’ve been talking about is rapidly dissipating. Sure, it may come back, but it may not come back for 5, 10, 15 years. I have to speak straight from the heart, and ask when people are going to get off the fence and take action? We’ve seen prices inching up; the supply is down, and still people are trying to time the market. Guess what folks – you missed the bottom of the market. Don’t keep trying to do the impossible; just get into the market now!

Call me today at 905-208-7002, and we’ll get you moving along the path to owning a home, or an investment property, while the options are still out there.

Here’s the updated Annual Summary:

 

Milton Real Estate Activity Summary 05-22-09

Milton Real Estate Activity Summary 05-22-09

 

And here’s the weekly overview:

 

 

Milton Real Estate Weekly Summary

Milton Real Estate Weekly Summary

 

And here’s the weekly summary graph of listings (green) and sales (red):

 

listings-sales-annual-summary-05-22-09

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