The cost of a home has shot up by 29 per cent in San Diego, and by 40 per cent in the surrounding suburbs. Los Angeles is up 23 per cent. The median average price of a house in San Francisco is $636,000 US.

Here in B.C., prices in Nanaimo are up by 29 per cent and Parksville is up an amazing 32 per cent.

In Vancouver, used condos have increased in value by 23 per cent. But new condo prices are down 20 per cent, following a trend that started last September. Buyers have every right to wonder what is going on.

Are builders selling smaller units? Are completed buildings having a more difficult time to attract tenants? Are more tenants buying with CMHC’s no-money-down financing?

The answers are yes, yes and yes.

Since 1995, I have been advising investors to buy Vancouver condos. Now, the pre-sale frenzy makes me wonder whether all the investors buying today will find the tenants to pay for their investments tomorrow, when the units are completed.

I have warned before about rising vacancy rates in Toronto, Calgary and Edmonton. (Toronto is now at a 14-year high). There are concerns, as well, about Vancouver.

The official vacancy rate only tells part of the story. CMHC only reports on buildings of three suites or more and the individual “investor units” are not included. These investors account for as much as 50 per cent of new purchases, and they will all be looking for tenants.

The real vacancy rate in Vancouver is already likely five to seven per cent in the West End and downtown. Take a look at the “for rent” ads in today’s paper, compared to two years ago. The volume of new ads has increased sharply.

This brings us to the recent headlines screaming: Condo Building Sells Out in One Day! Like an Elvis spotting, this sounds too good to be true.

In fact, most condominium developments that sell out in a day or two were actually marketed intensively to pre-qualified buyers for months before the ribbon-cutting.

The day of the “first opportunity” to buy does give some buyers their first look at the property, but not the first crack at buying.

One new building on West Georgia Street in Vancouver advertised its grand opening for March 27 at noon. However, anyone who walked into the sales centre on March 20 found it was already open. Salespeople told of the building being “80-per-cent sold already.”

If you are a prospective buyer, remember that good marketing does not necessarily mean good value.

Some of today’s pre-sale units, selling at $500 per foot with few amenities, no parking stall and no storage locker, should make you stop and think.

If you must buy a pre-sale unit, read this first:

1. Take a deep breath.

2. Don’t get carried away.

3. Know what you are buying, what the suite will look like when it is finished.

4. Don’t buy over or beside a garage entrance.

5. Find out what amenities are included (recreation room, visitors parking, playground, etc.)

6. Ask whether the balcony, hallway, etc. has been calculated in the total square footage of the unit. Ask what square footage has been used to calculate your common area cost.

7. Find out if you own your parking spot or if it is leased. What about a locker?

8. Ask for a copy of the builder’s warranty. What items are covered, and for how long?

9. Check the building’s design. Some architectural styles are more prone to water leaks than others.

10. Be sure to get instruction manuals and warranty information on all appliances, the hot water tank and the security system.

11. You should also do some investigating of the builder or developer. Ask for the names of satisfied people living in other projects. Check into the company’s reputation with the Better Business Bureau.

12. Find out when the building will be completed and what happens if it is not completed on time. Ask when registration of the condominium corporation will take place.

13. If there are several phases to the project, when will they be built and what will the finished development look like?

14. Discover how many units can be sold to buyers who will rent them out. Are these owners local residents, or offshore investors.

15. Find out the total amount of the deposit required and the payment schedule. Is this deposit money held in trust, and with whom? What about closing costs and property taxes?

While all of this might seem like a lot to ask, it is important to get good answers to these questions. If you don’t, you should walk away.

This is particularly true if the builder is small, unknown or from offshore.

We advise anyone looking at a pre-sale situation to remember that as the person with the money, you are in charge. Don’t rush yourself into signing for a pre-sale deal if you have any doubts.

In today’s new “unlimited financing” world, you can own almost anything you want. The trick is to make sure you want what you own.

Ozzie Jurock is the publisher of www.Jurock.com, B.C.’s Real Estate Marketplace — an independent real estate advisory service.

You can reach him at 604-683-1111

© The Vancouver Sun 2004

‘Where we want to go with our family, both my direct family and my global family, does dictate a change of role’ for Avtar Bains. CREDIT: Stuart Davis, Vancouver Sun   Avtar Bains, 48, stands among some West Hastings office buildings he sold, loved the business culture from the day he entered at 23. CREDIT: Stuart Davis, Vancouver Sun

Avtar Bains makes it look easy. It’s not, of course, but that’s part of the trick. He’s friendly, easygoing, and his elegant suits hang well on him. If you run into him on the street, he gives the impression of having time to stop and chat, even if he’s on his way to a meeting where millions of dollars are on the table.

Part of it has to do with his work schedule. At 48, he still starts his day at 6 a.m., Monday through Saturday, at the Granville Square offices of commercial real estate consultants Colliers International, where he’s senior vice-president. He’s there until 6 p.m. weekdays, and his concession to the weekend is to knock off around noon Saturday.

“There are very few guys who work as hard as he does,” says Jim Szabo, vice-president of investment properties at CB Richard Ellis and one of the handful of commercial realtors who handle most of the big deals in the Lower Mainland.

“He logs a lot of hours. There’s a few of us in this business who do, and he’s one of them.”

Bains‘ 16th-floor office — far from palatial, but favoured with a strategic view of many of the city’s office buildings — reveals his priorities. On its cluttered walls, dozen of plaques for top sales in commercial real estate vie for space with artwork created by his thee young children.

On his desk, an open daybook reveals neat columns of tight handwriting, each of the dozen-or-so lines a task to be accomplished that day. With a slight air of embarrassment, he admits to having “a number of lists going at the same time.”

For two decades, he has been the king of commercial real estate in this market; his personal lifetime sales topped $4.5 billion last fall.

Now he wants do something different.

Bains started on this path when he was 23 years old, studying economics and arts at UBC. When he walked into Colliers’ predecessor, Macaulay Nicolls Maitland, the city’s oldest real estate firm, something clicked.

“I got a summer job here on May 21, and I knew on May 23 that I was going to try to find a way to stay with Colliers and not go back to university,” he recalls. “I came in here and I loved the company, I loved the culture, I loved the asset class, I liked the people we dealt with outside the office. I had a very warm and cosy feeling for the environment.”

If he was ready for commercial real estate, commercial real estate was also ready for him. Macaulay Nicolls Maitland had been around since 1898, but the business of buying and selling commercial real estate had been primarily an adjunct to the legal profession: when the lawyers completed property deals for their clients, the real estate pros took care of the details.

However, as Bains was beginning to get a handle on the business, events far beyond his reach were starting to reshape Vancouver. With Expo 86 approaching, money was appearing from all over the world, and commercial real estate brokers were turning into deal-makers, cultivating clients and properties and putting them together.

“The first big change that happened in Vancouver was an influx of non-Canadian capital to invest in Canada,” says Bains.

“There were different motivations for that in the early ’80s than the motivation for those same people today. In those years, there was political instability in parts of the world, so part of it was just preserving capital — let’s get capital to Canada, Canada‘s where we want our children and grandchildren to be raised.”

The Asian money came mostly from Hong Kong, Singapore and Taiwan, with Hong Kong the dominant force in light of southern China‘s long association with the West Coast and the impending return of the Crown colony to Beijing.

But Europeans were also well-represented, even if they did not stand out as much in the crowd.

“If you looked at the Europeans that invested, they invested in Canada for different reasons. Canada is what Europe used to be — clean air, you could go to the Interior and have hunting and ranching and all the things that were [once] provided in Europe.”

Bains learned the proclivities of his clients: the English were more institutionally based, the Germans went for private equity and office buildings, the Asians preferred retail properties in growing areas like Richmond. The Japanese, with their powerhouse economy still ascending, leaned toward the hospitality industry, particularly hotels.

But by the early 1990s, things had changed. The reverberations of Tiananmen Square were dying away, the idea of the handover of Hong Kong to China was largely accepted, Japan‘s real-estate bubble had burst, and the Europeans had diversified their assets to a satisfactory level. The money began to flow out again, looking for new opportunities.

The pull of the international financial tides made it clear how much Canada depends on foreign capital.

“It’s always been difficult for Canadians to finance what we have to finance to live the way we want from internal sources,” Bains says. “So on the one side of the coin, there’s resentment when foreign capital comes in; on the other side of the coin, if that foreign capital didn’t come in — and I’m not just talking about real estate, I’m talking about governments financing themselves and their activities — if it wasn’t for that foreign investment coming in, we could not live in the lifestyle and the standard of living that we enjoy, and demand.

“So sometimes the very people that criticize offshore investment are the ones that may in fact benefit the most.”

His own history is inextricably tied to the growth of the province. His parents were both born in India, and emigrated to Canada, settling in Victoria. Kuldeep Bains opened a travel agency in Victoria in 1952; in 2002, he received an award from the City of Victoria for being active in business for 50 years. Today, at 83, he remains in touch with the family enterprise, which is run by one of Avtar’s cousins.

But Kuldeep Bains did more than sell travel packages from behind the Tweed Curtain: he was deeply involved in the Indo-Canadian community, a much smaller and less-influential group then than it is today.

“Dad was one of the key Indian leaders in Victoria when we were growing up,” Bains remembers. “He was the president of our temple in Victoria for six or seven or eight years consecutively, so he had a lot to do with the growth of the Indo-Canadian community in British Columbia and, indeed, Canada.

“He went to Ottawa with a delegation in 1947 to fight for Indo-Canadians’ right to vote in Canada.”

Asians and Indo-Canadians were finally allowed to vote in 1948, 30 years after women won their fight, and 12 years ahead of first nations.

As the middle child between two sisters, Bains felt perfectly at home in Victoria.

“I don’t think, growing up, that we had to prove something,” he says, “but with most Indian families, the children are raised in a culture that encourages you to try to do something, and maybe that’s the difference.

“Did I feel when I entered downtown Vancouver that I had to prove something to third parties? I don’t think I did. I think if I had pressure, it was a pressure that I had put on myself to prove something to myself.

“Plus, in ethnic families — in all families, but particularly in ethnic families — one goes out of their way to make the family proud. One typically goes out of their way not to embarrass the family or community and that was definitely the spirit in the Indo-Canadian community for decades and decades and decades.

“We wanted to participate in Canadian life, we wanted to maintain our own culture we wanted to be part of the fabric of Canada to the point where, if Indo-Canadians do something, it’s not regarded as special because they’re Indo-Canadian. That’s something I don’t think about, at all, and quite frankly, I don’t want my kids to think that way.”

As the tide of offshore money receded, institutional investors filled the gap. Large pension plans for teachers and municipal employees suddenly became landlords to Canadian business. Today, their concentration in the market has eased somewhat, and Bains sees every kind of commercial investor — foreign, private, and institutional all at once.

“The last trend has been the emancipation of the private investor. They are now allowed to compete at every level — interest rates are low on a real-cost basis — and they can, in some cases,compete more aggressively for product, even out-competing against institutions.

“The last five years have really allowed the individual to come back into the he marketplace and it’s much more of a level playing field.”

He feels the local economy is performing relatively well, but is concerned that real estate is outperforming the economy as a whole.

“Where we have to pay attention is the B.C. economy as it stands on its own two feet in a competitive playing field against other provinces in Canada, against the American marketplace that we compete with, and now new competition in almost every asset class that we’re in,” he says.

After a quarter century of operating intimately within the local business community and developing a good working knowledge of regional economies across the country and even further afield, he worries that B.C. has a conflicted relationship with its own businesses.

“We haven’t done a good job of celebrating people that have accomplished a lot. I think we should do more of that in the marketplace and look at the things they’re providing and doing for society, not just because they’re trying to build a bigger personal net worth. That’s a real problem, we can’t get over that.

“It’s almost as if you do something well in B.C., you get slapped on the wrist and other markets or other cultures in North America and around the world encourage it better than we do. I wish I knew why there is less middle ground in this province from an attitudinal perspective.”

Today, Bains can easily reach into a file cabinet in his office and check to see exactly how much commercial real estate he has sold since the day he started, but he still professes a certain degree of wonder at how it has all turned out. He credits a certain degree of creativity for staying ahead of the pack.

“The cookie cutter always has to change, because if you don’t change your cookie cutter, someone else is going to make advancements. I’ve done my level best to stay at the highest end of the market with as much market share as I can in the last 20 years.”

He’s not stopping yet, but candidly says he will not be doing this five years from now. He married former VJ and CityTV news anchor Monika Deol when he was 40, and he has, he says, “the best natural motivation and incentive in the world to keep moving forward in my business life, and those three incentives are a seven-year-old, a six-year-old and a four-year-old.

“Every family has different goals, and where we want to go with our family, both my direct family and my global family, does dictate a change of role for me in the next five years.”

He may stay at Colliers, but says he won’t grinding out the big sales numbers. Instead, he sees an increase in community work: his family already supports cancer care at Vancouver General Hospital and heart surgery at St. Paul’s out of gratitude for the care received by family members, and he looks forward to increasing that kind of work.

“We certainly would like to be involved in more community activities, and that’s a role we get satisfaction out of because the community’s been good to us, as individuals and as families, and the more we give back, the more it’s a win-win situation.”

But from a business perspective, he expects to remain involved in commercial real estate in some capacity.

“The wonderful thing for me now in this part of my business is I’ve got some exceptional relationships in the marketplace, and it doesn’t matter what you’re selling or producing, the strength of your relationship may have as much bearing as the service you are providing.

“That is something that is traditionally underestimated in business, in life, in sport — I don’t care what area of life. Creating and maintaining trusting relationships is such a key to your inner contentment, to your self-esteem, to how you deal with others, how you make others feel — these relationships are key.

“It’s not that I was born knowing this; I have made so many mistakes and done so many things in my life that it has taken me at least 45 years to understand that if I treated my relationships as I wanted to be treated myself, I’d be even happier than I innately am.”

Profile of and interview with Avtar Bains.

© The Vancouver Sun 2004

Residential property sales soared in B.C. in March, when a record $3.04 billion worth of homes changed hands on the Multiple Listing Service, shattering the previous monthly dollar-volume high of $2.53 billion set last July.

In terms of units sold, a total of 10,612 transactions took place last month, up 33.5 per cent from March 2003.

MLS figures show this was only the third time since 1990 that the number of sales has topped the 10,000 mark. During the housing boom largely driven by Asian immigration in the early ’90s, 10,328 homes totalling $1.8 billion sold in April 1991, followed by 10,038 units totalling $1.9 billion trading in March 1992.

“I have never seen home sales like this,” veteran Surrey realtor David Herman said Thursday.

“Even though inventories are low in some areas, there are a number of options in B.C. for people looking to buy.”

Through the first three months of 2004, housing sales across the province reached 23,124 units, worth $6.5 billion, an improvement of 33.8 per cent over the same period last year, and a 38.7 per cent increase over the first quarter of 2002.

Herman, president of the B.C. Real Estate Association, representing 13,000 licensed realtors, said all 12 member real estate boards reported “significant” sales gains in March, compared to the same month in 2003.

“That means people are buying homes right across the province, despite varying economic conditions and markets,” Herman noted. “This is shaping up to be another record year.”

For all of 2003, B.C. consumers purchased a record $24.2 billion worth of residential real estate, shattering the previous mark of $19.7 billion set in 2002 by $4.5 billion, a year-over-year rise of 23 per cent.

Unit-wise, a total of 93,211 homes sold on the MLS in B.C. last year, just 353 properties short of the record set in 1992.

In Greater Vancouver, 4,514 sales totalling about $1.64 billion changed hands in March, compared to 3,403 units totalling about $1.07 billion in March 2003, representing increases in units and dollar volume of 32.65 per cent and 53 per cent, respectively.

Condominiums were by far the hottest ticket last month in Greater Vancouver, with 1,432 units sold, up 60 per cent from 1,229 sales the previous year. March’s total condo value of $500 million was up a whopping 87 per cent from $260.7 million a year ago.

In the Fraser Valley, 1,986 homes sold last month, up 27.3 per cent from 1,560 the previous year. March’s total dollar volume of $575 million in the six valley communities was 46.5 per cent higher than $392.4 million the year before.

Around B.C., MLS unit sales rose sharply last month compared to the previous March in Kamloops, up 69 per cent; the Kootenays, up 53.5 per cent; northern B.C., up 46.2 per cent; Vancouver Island, up 44.4 per cent; Chilliwack, up 44.3 per cent; and Victoria, up 31 per cent.

In dollar volume, sales climbed on Vancouver Island, up 72 per cent to $176 million; Kamloops, up 70.5 per cent to $41.3 million; Chilliwack, up 68 per cent to $59.34 million; Powell River, up 58.45 per cent to $31.9 million; and Victoria, up 51.4 per cent to $263.5 million.

“With mortgage rates as affordable as they are, investing in a home is a solid choice,” Herman said.

© The Vancouver Sun 2004

The housing bubble continued to balloon last month as B.C. home sales set yet another record, this time an all-time high.

B.C. Real Estate Association reported total home sales broke the $3-billion mark in March, popping the previous one-month record of $2.53 billion set in July 2003.

“This is something we certainly weren’t expecting, association president David Herman said yesterday.

Some 10,612 homes worth $3.04 billion sold in March — a 51-per-cent increase in dollar volume over March 2003 and a 33-per-cent rise in sales.

Sales of more than 10,000 units in a month has only occurred twice: In April 1991 and March 1992.

All 12 B.C. real estate boards showed gains in March compared to last year, said Herman.

Kamloops had the hottest housing market, he said, with a 70-per-cent jump in sales over March 2003.

Both Vancouver and the Fraser Valley boards also saw solid growth, with dollar volumes up 52 per cent and 46 per cent, respectively.

According to the association, 2004 could be another record year for real estate.

In the first quarter of the year, individual unit sales hit 23,124 totalling $6.5 billion, up 33 per cent from the same quarter in 2003 and up almost 39 per cent from 2002.

So when’s the bubble going to burst?

“We’re all wondering that,” Herman said.

“I guess as long as interest rates stay low, it appears we can go for a while. I guess the question is, when do we run out of people to buy?”

© The Vancouver Province 2004

NEW YORK — Think Vancouver house prices are high? You need to be a millionaire to buy an “average” apartment in Manhattan today, and out of that amount you’ll at best come away with just $1,095 to furnish it.

One new residential real-estate report says $998,905 US is now the average sale price for a place to live in New York’s premier borough, while another announces the price has already broken through the psychological barrier of $1 million to reach $1,001,000.

The quarterly reports compiled for two leading real-estate brokerages say a return of big bonuses on Wall Street coupled with tight market supply and low interest rates are driving up prices at startling rates.

Some buyers are taking apartments “sight unseen,” said a spokeswoman for Corcoran Group, which said the average sales price exceeded $1 million in the first quarter of this year.

The other survey, done for Douglas Elliman, said even the median price — which is in the exact middle of all sales — is now $625,000, which is approaching $1 million Cdn.

Million-dollar apartments are invariably priced at $999,000 to avoid the city’s one-per-cent mansion tax on the sale.

“Sweeping views are but a few of the charms” of a one-bedroom condo on Central Park South, which the Corcoran Group lists for that amount. But the marble foyer leads to only 873 square feet of living space. And you have to be in the bedroom to see Central Park itself.

© The Vancouver Province 2004

Canada‘s big banks raised long-term mortgage rates by more than a quarter of a percentage point Thursday.

The Royal Bank, the Bank of Montreal, CIBC, TD Canada Trust and National Banks all announced rates on two-year to 10-year mortgages would increase, effective Friday.

A two-year closed mortgage at CIBC jumps a quarter point to 4.8 per cent, while a five-year term increases nearly one-third of a point to 6.25 per cent and a 10-year term increases by one-fifth of a point to 7.95 per cent.

At the Royal, a two-year closed mortgage rises one-quarter point to five per cent and a 10-year term increases by four-tenths of a point to 8.15 per cent.

BMO will increase two-year closed mortgages by 0.15 of a percentage point to 4.8 per cent, and 10-year mortgages by one-fifth of a point to 7.9 per cent.

At TD Canada Trust two-year closed mortgages will jump by one-fifth of a point to 4.9 per cent and 10-year mortgages increased almost one-third of a point to 7.9 per cent.

At National, a five-year term rises a quarter point to 5.95 per cent.

The rate hikes are the second in the last two weeks as interest rates rise in the bond market, where banks finance their mortgage lending. With the U.S. economy beginning to recover, most investors expect the U.S. Federal Reserve Board to begin raising general interest rates by this fall.

In Canada, however, rates have been falling because the Canadian economy is growing more slowly than its U.S. counterpart.

© The Vancouver Sun 2004

Chantel Zhang looks over the three towers in the new King Edward Village complex — a large residential project that is expected to appeal to Chinese and Vietnamese buyers. CREDIT: Mark van Manen, Vancouver Sun

Immigrants are more likely to purchase their own residence within the next year than their Canadian-born counterparts, according to a national home-ownership and mortgage survey released Wednesday by CIBC.

And more immigrants say they would rather put their money into real estate than investing it in the stock market.

Meanwhile, immigrants are more apt to take out riskier but lower-rate and shorter-term variable rate mortgages than would Canadian-born home buyers.

Among other key findings, immigrants who arrived in Canada later in life purchased their homes twice as fast as younger immigrants did.

In B.C., 26 per cent of homeowners and prospective purchasers said they were born outside Canada, compared to 15 per cent in the rest of Canada.

“The dream of home ownership has become a reality sooner for new Canadians who currently own a home,” said Paul Mims, CIBC vice-president of mortgages and lending.

“We also found that the older immigrants are when they arrive, the sooner they are able to purchase their first home.”

CIBC’s poll indicates that immigrants who arrive between the ages of 18 and 34 take an average of 8.9 years to buy their first home. By comparison, it takes less than half as long — just over four years — for those who arrive between ages 35 and 49.

Veteran Vancouver realtor David Campbell concurred with the survey’s findings.

“Immigrants want to put down roots and be Canadian, so owning a home is one way of doing it,” said Campbell, who over the years has sold hundreds of properties in the Strathcona and Commercial Drive areas.

“It’s at the top of their list. So some of them will struggle very hard to achieve home ownership.”

Often, especially among working-class immigrants, an entire family consisting of parents and several children will pool their resources to qualify for a mortgage, said Campbell, of Re/Max Real Estate Services.

He recalled the instance 10 years ago of three Filipino sisters in their late 20s who got together to purchase a modest five-bedroom, 1,950-square-foot home on Semlin Drive for $250,000.

One-by-one, the sisters got married and moved out, ultimately prompting them to get Campbell to sell the property for them last August for $335,000.

A new residential project coming on stream in Vancouver that is expected to have huge immigrant appeal is the 380-unit King Edward Village, being built by Tri-Power Developments at Kingsway and Knight, a well-known working-class immigrant neighbourhood.

While selling won’t start until May 1, project marketer Bob Rennie already has more than 1,200 people on a priority list, about 70 per cent of them with Asian surnames.

The condominium units are to range in price from about $150,000 for a studio, to $400,000 for a penthouse.

In the mid-1990s, a Vancouver Sun study of land registry data indicated that although Chinese and other Asians make up only about one-third of the Lower Mainland’s population, they accounted for more than 50 per cent of all homes sold.

When the $1-million threshold was factored in, Asians jumped to between 80 and 90 per cent.

Anecdotal evidence suggests those demographics remain largely unchanged, even if choices of property types may have.

“The trend hasn’t changed much in recent years,” said realtor Grace Kwok, co-owner of Anson Realty.

“Asian culture trains people at an early age to own their shelter. Only now, instead of picking monster homes, they are focusing more on condos.”

At two Richmond condo projects that Anson sold out quickly in recent months — the 225-unit Perla and the 97-unit Jade — Kwok noted the majority of purchasers were Chinese immigrants.

The CIBC/Decima poll, conducted between Jan. 29 and Feb. 10, was based on random telephone interviews with 1,267 Canadian household decision-makers across the country. A sampling this size has a margin of error of plus or minus 2.8 per cent, and results are considered to be accurate 19 times out of 20.

CIBC is Canada‘s second-largest residential mortgage provider, with $77.9 billion in loans under administration.

© The Vancouver Sun 2004

Costs are driving new home prices up across Canada. CREDIT: Ric Ernst, The Province

Despite yesterday’s quarter-point drop in the Bank of Canada’s interest rate, homeowners should not expect longer-term mortgage rates to decline. In fact, long-term rates may increase, observers say.

The major chartered banks dropped prime-lending rates to 3.75 per cent effective today, which will reduce variable and short-term mortgage rates.

Longer-term mortgage rates, however, are based on the bond market, not the Bank of Canada.

Bond yields were up slightly this week, which suggests a rate increase for longer-term mortgages by the end of the week or early next week, said Karl Madsen, regional sales manager for national mortgage broker Invis.

“It’s hard to predict where interest rates are going, but if you’re out shopping for a house, I’d recommend getting pre-approval for a mortgage so the rate is guaranteed for 120 days,” Madsen said. “It costs you nothing and it gives you four months to shop for a house without having to worry about an increase in the mortgage rate.”

Variable-rate mortgages will remain lower than fixed-rate mortgages for the foreseeable future so homebuyers who don’t mind fluctuating rates will benefit, he said.

For people who prefer the stability of a locked-in term, the rates are as low as they’ve been for a generation.

In a widely expected move, the Bank of Canada dropped its overnight interest rate to two per cent — a level rarely seen in more than 40 years.

But the central bank also hinted this could be as low as interest rates are going to go. And that means borrowing costs could start to rise late this year or early in 2005, analysts said.

“Make no mistake about it — this cut is the last,” said Marc Levesque, senior economist with TD Bank Financial Group.

Analysts were struck by the bank’s optimistic statement that risks to its outlook “now appear balanced.”

That suggests the central bank is in neutral and, since it foresees healthy growth this year and in 2005, the logical next move is towards higher rates.

“The bank definitely seems to have drawn a line in the sand and effectively said they now think their work is done — unless there is some unforeseen surprise,” said Doug Porter, senior economist with BMO Nesbitt Burns.

The last time the Bank of Canada’s key lending rate touched two per cent was in January, 2002. It lingered there for three months as central banks around the world reacted to the terrorist attacks of Sept. 11, 2001.

Before that, the rate hadn’t dipped so low since September, 1960.

Builders across the country raised their prices for new housing in February by 0.4 per cent from January, Statistics Canada said yesterday.

Higher costs for labour and building materials were behind the increase, the agency said. Across Canada, new-house prices rose in 15 of 21 cities. Vancouver showed an increase of 0.2 per cent and Victoria was up by a slight 0.1 per cent.

Comparing year-over-year prices in February, Victoria posted the largest increase at 10.1 per cent — the fifth consecutive month it has posted Canada‘s largest 12-month increase.

© The Vancouver Province 2004

One in four home buyers is paying more than necessary each month because they haven’t reviewed their mortgages over the past two years, says Ben Tal, an economist with CIBC World Markets.

The five-year mortgage rate hasn’t moved dramatically over that period but it stands 2.5 percentage points lower than it was four years ago, while short-term mortgage rates have fallen by close to four percentage points since 2000. Those declines mean it could be worth refinancing your loan, even with penalties for early renewal.

CIBC research shows that almost one in two mortgage holders have refinanced during the past two years, saving close to $7 billion, or more than $4,000 per household.

Another 25 per cent of home buyers could lower their payments if they refinanced today, Tal says. However, a lot of people are not aware of this, or they just haven’t bothered to do anything about it.

A widely expected cut in interest rates today by Bank of Canada governor David Dodge will mean savings for borrowers with variable rate mortgages which float up and down with the bank prime rate.

There could also be some decrease in rates for short-term mortgages of up to one year, says Paul Mimms, vice-president of marketing and sales for CIBC Mortgages and Lending.

But longer term rates won’t necessarily follow Dodge’s lead because they are pegged to the bond market which has already anticipated a decrease in the prime lending rate.

In fact, bond yields moved a little higher in trading Monday, suggesting less chance of lower long-term mortgage rates, said Dean Marsland, a mortgage broker with Invis in Vancouver.

However, bond rates can turn on a dime and Tal says they have room to fall if the market anticipates another decrease at the Bank of Canada’s next rate fixing in June.

Much will depend on Dodge’s comments on the over-all state of the economy. Another rate cut is more likely if the outlook is bleak.

Widespread expectations of an interest rate cut knocked some strength from the Canadian dollar Monday with the currency falling by 0.50 cent to close at 74.87 cents US, at one point drifting as low as 74.59 cents.

The decline followed a 0.99-cent tumble last Thursday in the wake of a disappointing March employment report, in which the jobless rate rose one-tenth of a point to 7.5 per cent.

“I perceive that the economy is worse than people think,” Mimms said Monday. “Also, there is no real inflation, so there is no real reason to have higher long-term rates.”

Whatever happens to the prime rate, borrowers would be smart to revisit their mortgages not only because rates are very low but also because borrowing capacity has been rising with house prices and it makes sense to get higher-cost car loans or credit card debt refinanced at a lower rate.

“There may be penalties but you can often realize a saving,” Mimms said. “It may not make sense in all circumstances but at least visit your bank and have the conversation.”

Tal says housing prices have risen 40 per cent since 1997 and one in three borrowers who refinanced in 2002-03 also pulled more money out of their homes by increasing their mortgage principal by an average $28,000.

The widening spread between five-year and short-term rates has propelled a gradual shift into variable rate mortgages. Currently, variable rate mortgages account for 20 per cent of all mortgage debt in Canada, up from only eight per cent in 2000.

On a typical $200,000 mortgage over 25 years, Monday’s best available five-year variable rate mortgage of 3.25 per cent — three-quarters of a percentage point below bank prime — would set you back $972.33 a month, Marsland says. That will drop to $946.49 today if Dodge trims another quarter of a percentage point off the prime rate.

That means the floating rate borrower will save $327.19 each month over the typical posted five-year rate of 5.95 per cent which translates to a monthly payment of $1,273.68 on a $200,000 loan.

Variable rate borrowers risk higher payments if interest rates move up but will also enjoy further decreases if Dodge cuts again. As well, many lenders allow variable rate borrowers to lock into a fixed term at any time without penalty, although it may not be the best-available fixed rate at the time.

For those who want greater security, the best available five-year fixed rate at Invis Monday was 4.55 per cent from HSBC Canada, for a monthly payment of $1,112.51 on $200,000 amortized over 25 years. That could add up to significant savings for qualifying borrowers who haven’t looked at their mortgages for a couple of years or more.

© The Vancouver Sun 2004