B.C. has the highest average prices for homes sold in Canada, which has led to an affordability squeeze for some low equity buyers.

Sun

Mortgage loan insurance helps consumers buy a home with little or no money down.

Saving for a down payment can be the hardest part of buying a home. Mortgage loan insurance helps consumers buy a home with little or no money down and enjoy the competitive interest rates normally reserved for home buyers who make a larger down payment.

Most financial institutions will require mortgage loan insurance when the homebuyer has less than a 20-per cent down payment.

The insurance premium associated with mortgage loan insurance is calculated as a percentage of the loan and generally passed on to the borrower. It can be paid as a lump sum or included as part of your mortgage payments.

Lenders typically require mortgage loan insurance when homebuyers make a down payment of less than 20 per cent of the purchase price.

Mortgage loan insurance helps protects lenders against mortgage default, and enables consumers to purchase homes with little or no down payment – with interest rates comparable to those with a 20 per cent down payment.

As with any insurance, there are insurance premiums to be paid. The amount of the premium varies and can range between 0.65 per cent and 2.75 per cent depending upon how much of the purchase price/home value is financed with a mortgage loan.

Remember: without mortgage insurance you may avoid the insurance premium but you’ll typically pay much higher interest rates and additional administrative fees.

At the end of the day, for the vast majority of borrowers, the cost of CMHC Mortgage Loan Insurance is more than fully offset by the savings achieved.

CMHC offers lenders a wide range of flexible mortgage loan insurance products and options to help them tailor their mortgage offerings to homebuyers’ unique situations:

– CMHC Flex 100 allows qualified borrowers to obtain a mortgage of up to 100 per cent of the home’s value. Launched in November 2006, CMHC Flex 100 is available to borrowers who have a proven track record of managing their debt and who have the financial capacity to repay the mortgage, but have not yet saved for a down payment.

– CMHC Flex Down enables borrowers to use a wide range of sources for a 5-per-cent down payment, including borrowed funds, gifts and lender cash-back incentives. To be eligible, borrowers must have a proven track record of managing their debt and sufficient income to support mortgage payments.

– Extended amortization periods of up to 40 years allow qualified borrowers more flexibility in financing their mortgage over a longer term to reduce their monthly payments.

Since Canada Mortgage and Housing Corporation (CMHC) introduced Canadians to mortgage loan insurance in 1954, it has facilitated the financing of more than nine million homes – helping generations of Canadians achieve their dream of homeownership.

CMHC continually strives to reduce the cost of mortgage financing for Canadians, having reduced homeowner mortgage loan insurance premiums for first-time homebuyers by up to 30-per-cent since 2003 and eliminated application fees in 2006.

For more information on CMHC mortgage loan insurance, borrowers are encouraged to contact their lenders or visit www.cmhc.ca.

© The Vancouver Sun 2007

Derrick Penner
Sun

Buying the average B.C. home this month requires $21,150 more in annual income than it did at the start of the year, according to the B.C. Real Estate Association.

That means a family would need to earn an income of $114,000 to qualify for a mortgage to buy the average $454,945 B.C. home at the current, posted five-year mortgage rate of 7.24 per cent, according to Cameron Muir, B.C. Real Estate Association chief economist.

The monthly payment on that mortgage would be $2,987.

The average family income was around $65,000 in 2005, according to the latest figures available from Statistics Canada.

That monthly payment assumes a mortgage with a 10-per-cent down payment and a 25-year amortization, and is now $516 more than it would have been in January, Muir added.

Prices that have risen an average 12 per cent over the last year are partly to blame, but rising mortgage rates “are the lion’s share” of the problem.

“Certainly the combination of record-high home prices with recent elevations in mortgage rates is going to impact [housing] affordability,” Muir said.

That means more people can’t afford to buy in B.C.’s high-priced markets, which Muir said will serve to slow sales and price growth.

The term economists use to describe slowing sales is moderation, and Muir said “the recent uptick in mortgage rates is going to operate to moderate the market a little bit more quickly than it had been doing as a result of rising prices.”

The B.C. Real Estate Association counted 11,683 Multiple-Listing-Service-recorded home sales in May, which is three per cent more than the same month a year ago, Muir said, and the highest number ever recorded.

Posted mortgage rates have been on the rise due to inflation fears. The five-year fixed-rate of the major banks hit a high of 7.44 last week from an average of 6.64 per cent in April. The rate dropped to 7.24 per cent Tuesday, but is expected to go up again in July when the Bank of Canada is expected to raise its key overnight lending rate to combat inflation, and may go up again in September.

Christina Pughe, a mortgage development manager at Vancity credit union, said the best interest rate brokers can get for clients today is 5.79 per cent for a five-year, fixed-rate. Six weeks ago, that rate was 5.09 per cent.

“[The market] is very frantic right now,” Pughe said. “Anybody who had a pre-approval is jumping now and buying property trying to keep their guaranteed rates.”

Kyle Liu is one of Pughe’s clients who, with his wife Jenny, was able to jump in and buy a home in North Burnaby for under $460,000 while keeping a 5.1-per-cent mortgage rate.

Liu, a power line technician, added that Greater Vancouver’s high prices worried him more than current interest rates, which he finds “fairly reasonable.”

“There is always the fear that if your mortgage is too big and rates go up a point or two, you could be in big trouble,” he added.

For him and his wife, however, there is a sense of relief from having gotten into the market when they did. “I feel for the people trying to get in again now.”

Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said high prices and rising interest rates will hurt the market, but how much depends on what else is going on in the market.

With rising employment and incomes in the province, he added that he can’t foresee small changes in mortgage rates hurting markets that much.

© The Vancouver Sun 2007

Sauder Business School arranges ‘Condos versus offices’ debate

Frances Bula
Sun

Vancouver’s 19th-century downtown is on the way out.

Instead, the city’s 21st-century downtown is very likely to be a mix of residences for highly skilled local professionals and second homes for rich people from elsewhere, along with a tight core of office space for high-end dealmakers and a scattering of services for all those groups of people.

That’s the provocative future UCLA economist Matthew Kahn is going to discuss this week in a debate the University of B.C.’s Sauder School of Business has put together on the controversial question of “condos versus offices” in downtown Vancouver.

“There’s certainly a possibility that there’s been a resortification in Vancouver,” said Kahn, in an interview from San Francisco. “But why is that bad?”

The city currently has a moratorium on residential development in part of the downtown next to the central business district that was put in place after rising concern from business groups and commercial brokers that office space was under threat.

But Kahn said Vancouver could be evolving into what San Francisco already is — an attractive downtown that is largely a home to the upper middle class.

“In San Francisco, no one is worried about its health.”

He also pointed out that Vancouver is experiencing the same trends that have been documented in other North American cities. As the price of land goes up, firms leave their deal-makers downtown but move the bulk of their back-office work out to the suburbs.

Some cities, like San Francisco or New York or Vancouver, are then able to attract people to live in their “consumer downtowns.”

And there’s nothing wrong with that, says Kahn.

From an urban economist’s point of view, it’s an advantage to be able to attract skilled professional people to your downtown. Those people will then either accept slightly lower wages in order to work close to where they live, and firms that can save money on wages will be willing to spend it on the cost of space downtown. Or they will reverse commute to the suburbs.

From a public-finance economist’s point of view, having about 15 per cent of residential space downtown taken up by second homes for wealthy people from elsewhere is also a benefit.

“It’s a free lunch, with these people moving in, paying taxes, and demanding no services at all.”

The businesses that remain downtown will be those that can survive with a minimum of space or the ones that keep their high-ranking people downtown while the rest of the work moves out to the suburbs.

“There’s still a demand to be downtown for the power lunch,” says Kahn. As well, there will be many jobs in the arts, culture and retail sectors that serve that downtown community.

Along with Kahn, others debating the future of Vancouver’s downtown will be UBC professor Robert Helsley and Vancouver’s planning director, Brent Toderian. It will be held Wednesday at UBC’s Robson Square campus from 5 p.m to 7:30 p.m.

Tsur Somerville, the UBC professor who organized the panel, said he decided to tackle the topic because “people are concerned about what the downtown is going to look like.” However, at the moment, the debate has been limited mostly to business groups arguing for more office space and residential developers arguing for more room to build condos.

“Urban economics tend to have a long view and a different perspective.”

© The Vancouver Sun 2007

Sun

You think you’ve insured your home against any eventuality — fire, theft, vandalism, water damage or a litigious visitor slipping on your stairs. For additional peace of mind, you have installed smoke and burglar alarms, deadbolts, window locks and motion-sensor lighting. Despite all those safeguards, you’re still not protected from a crook stealing your house and selling it, or refinancing your home and making off with the money.

Not only are such outrageous offences easy to commit, with sky-high house prices and a competitive mortgage lending market, they have become the crime of our time.

Canadians hold more than $1.6 trillion worth of land and residential buildings and owe more than $600 billion in residential mortgages. Royal Lepage predicted that the average sale price of homes this year will rise 6.5 per cent to $293,000 over a year earlier, while the number of units sold will slip to 468,000. In other words, the value of residential real estate transactions in 2007 will be something in the order of $137.1 billion.

That’s too much money for criminals, especially organized crime, to ignore. The annual take from real estate fraud is estimated to range from $300 million to $1.5 billion. The risk-reward ratio is compelling. The chance of getting caught is low and, even if apprehended, penalties are light. Often, neither the victim nor the police realize that a crime has been committed until months after the fact.

The two principal components of real estate fraud are title fraud, in which a criminal transfers ownership of a property to himself/herself or others, and mortgage fraud, which may involve securing a mortgage against a property the criminal does not own or using fraudulent documents to meet eligibility requirements for a mortgage.

In one recent case, a thief stole a homeowner’s identity, — a simple task with so much personal information now transmitted and stored electronically — mortgaged the home for $300,000 and disappeared with the money, leaving the homeowner saddled with a mortgage in default. It took two years and $35,000 in legal fees, during which time the homeowner faced the threat of eviction, to restore proper title and terminate the mortgage.

Owners of investment property are particularly vulnerable. In a hot property market, when deals are done fast, conditions are waived and due diligence is dispensed with, a tenant using phony ID may pose as the owner, list the property for sale and actually sell it to an unsuspecting buyer. The criminals may be long gone before the legitimate owner realizes what’s happened.

A number of these frauds could be significantly reduced if all parties in a transaction would take due diligence more seriously and were less concerned with completing the transaction in the shortest time possible. Faster means less scrutiny. Appraisals may be automated rather than done in person. Proof of income and employment letters may not be adequately checked. Tax and utility bills may not be reviewed. Photo ID may not be properly verified.

It should be noted that British Columbia offers more title protection than some jurisdictions because it uses the Torrens System of Land Registration, which provides a clear line of title and a registry where all transactions are recorded.

Advice usually given to consumers to guard their personal information — change passwords, use security software, check credit reports, shred receipts and empty residential mailboxes — have merit but may not deter a determined thief.

Perhaps we should take a tip from the financial institutions that lend mortgage money. They protect themselves with title insurance. This protects the mortgage lender from any title defects, such as undischarged mortgages, old construction liens and property description errors, that they may not have noticed.

As it happens, title insurance policies also cover fraud, forgery and identity theft. If lenders think title insurance is a good investment, why wouldn’t individuals benefit too?

Title insurance is cheap — premiums would be be around $250 for a home with a purchase price of up to $500,000. And they’re paid just once. The average selling price of a home in Vancouver last month was $591,722. An online quote generated on the Chicago Title Insurance Co. Canada website for a residential property at that price was $255.72, or less than 0.05 per cent of the purchase price. Real estate lawyers might want to consider making title insurance part of the package of services they provide. It’s low-cost risk management and inexpensive peace of mind.

© The Vancouver Sun 2007

A July interest rate hike is ‘a near certainty,’ says bank economist

Eric Beauchesne
Sun

OTTAWA — Tuesday’s May inflation report could provide Canadians with a reprieve from a looming round of interest rate increases next month, but don’t bank on it.

Overall inflation, and core inflation which excludes volatile food and energy prices and which the Bank of Canada monitors for underlying inflation trends, are both expected to remain above the bank’s two-per-cent target.

And other Statistics Canada reports, also being released this coming week — including leading economic indicators, and wholesale and retail sales — are expected to point to a strong economy, which central bank governor David Dodge this past week said was operating above its non-inflationary capacity.

The index of leading indicators, a basket of 10 economic activities used to forecast the direction of the economy over the coming few months, being released Wednesday, is expected to rise, reflecting recent strength in the stock market, home sales, factory shipments and employment, said Scotiabank economist Karen Cordes. Also on Wednesday, the report on wholesale sales for April is expected to show modest strength, while the retail sale report Thursday is expected to show another strong increase, reflecting in part a near seven-per-cent jump in auto sales.

TD Securities economist Jacqui Douglas said there’s not much in the way in economic information between now and the July 10 fixed date for any interest rate adjustments to deter the bank from raising rates to bring inflation back down to the two-per-cent level.

“At this point, we see a rate hike in July as a near certainty, and only some fairly extreme economic data would be able to change that view,” she said. “There’s only a handful of Canadian data releases, and none of them seems likely to sway the Bank of Canada.”

Further, over the past 10 years the central bank has never raised rates just once and then stopped, she noted.

“So we think that another rate hike in September is also a good bet.”

She said the odds of a third rate hike are no more than 50 per cent, especially if the loonie continues to rise, as TD Securities expects it will.

Meanwhile, a Statistics Canada report Monday on Canada’s international transactions in securities in April should help explain some of the loonie’s recent strength, and another on Wednesday on travel between Canada and other countries that month should give some indication of whether the strong currency is encouraging Canadians to visit other countries, especially the U.S., and discouraging foreigners, especially Americans, from visiting Canada.

While consumers and businesses, especially those with mortgages, are watching for hints about how high rates might go, the federal government and its critics will want to eye a report Monday that assesses how Canada’s government stacks up against 21 others in delivering services to its citizens.

Canada ranked first in the last study in 2005, and any slippage will be pounced on by the official Opposition Liberals as evidence of the Conservative government’s shortcomings.

Meanwhile, Finance Minister Jim FlahertyVancouver Sun will meet with provincial and territorial ministers responsible for securities regulation on Tuesday at a government resort just north of Ottawa at which he will push again for a common national securities regulator, and other measures outlined in a March budget document “Creating a Canadian Advantage in Global Capital Markets.”

Then, on Wednesday, he meets at the Meech Lake resort with provincial finance ministers to get their support for the federal government’s “Advantage Canada” economic plan, which was released last November, including its call for elimination of total government debt within a generation, the harmonization of provincial sales taxes with the GST, and the elimination of inter-provincial barriers to the free flow of goods, services and labour.

However, his chances of getting them on board may be undermined by the bitter public dispute with several Atlantic provinces and Saskatchewan over the federal government’s equalization program reforms.

© The Vancouver Sun 2007