Key mortgage rate for five-year fixed plan edges up at last of nation’s major banks

Derrick Penner
Sun

Some 67 per cent of Metro Vancouver households struggle with the high cost of housing, the Conference Board of Canada reported Tuesday, a day that saw more banks edge key mortgage rates up, a move destined to push housing costs even higher.

The Conference Board report, titled Building From the Ground Up: Enhancing Affordable Housing in Canada, defined housing as unaffordable if households paid more than 30 per cent of their pretax income to keep a roof over their heads.

On that basis, the board, relying on Census and Canada Mortgage and Housing Corp. data, estimated that nationally, a lack of affordable housing supply left one in five households -some three million in total -spending too much on housing.

In some cases, the report said, households spent so much on housing it threatened the health of individuals who couldn’t also afford nutritious food or other healthy pursuits.

As of Tuesday, more Canadians will face higher mortgage interest costs as the last of the nation’s major banks raised the posted rate for their benchmark five-year, fixed-rate mortgages to 5.85 per cent, an increase of .6 of a percentage point.

The Bank of Mont real , Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Desjardins Group made the move Tuesday, following the Royal Bank, Toronto Dominion Bank and Laurentian Bank which raised their key rates Monday.

“The era of historically low mortgage rates is coming to an end,” said Sal Guatieri, senior economist, BMO Capital Markets.

Nationally, the lack of affordable housing hurts Canada’s overall productivity, the report said.

“Among the essentials of food, clothing and shelter, shelter costs are the highest,” the report said. “A typical Canadian household spends 50 per cent more on shelter than on food and over five times more than on clothing.”

The Conference Board researchers also found that while relative affordability wavered between improving and deteriorating, about 20 per cent of households have struggled with housing costs for the last 15 years, which suggests “housing unaffordability is a structural feature of the Canadian economy affecting people at a wide range of income levels.”

Conference Board researchers also put nine B.C. communities on the list of the 25 least affordable, based on the expenditure of more than 30-per-cent-of-household-income definition.

Metro Vancouver is 22nd on the list, Abbotsford 21st, Victoria 18th, Nanaimo 17th, Kelowna 16th, Squamish 14th, Penticton 10th, Chilliwack ninth and Vernon eighth.

S t . Catharines-Niagara was ranked least affordable with 74 per cent of residents spending more than 30 per cent of household income on housing.

By contrast, Kitimat on B.C.’s north coast, was ranked the most affordable community in Canada with almost 90 per cent of its households spending less than 30 per cent of their income on housing.

In its report, the Conference Board said high costs have led developers to build homes predominantly for upper and middle-income households, and it argues that governments, the private sector and non-profit housing sector should combine their efforts to increase the supply of affordable housing.

Government, for example, can use its planning and development-approval powers to encourage private-sector developers to include affordable units in their developments.

The report added that private-sector developers are perhaps the best at building such units because of their ability to find ways of reducing construction costs. It said the non-profit sector is distinguished by its ability to operate social housing developments and advocate for addressing poverty issues.

© Copyright (c) The Vancouver Sun

How rate is calculated will be key to qualifying

Garry Marr
Sun

There is a small loophole in the new federal mortgage rules that could make it easier for the banks to loan out money to first-time buyers.

The federal government announced last month new requirements for anyone borrowing money for a house and needing mortgage insurance. If you have less than a 20% down payment and are borrowing from a financial institution covered by the Bank Act, you have to take out mortgage default insurance, which ensures the banks are covered for any losses resulting from payment defaults.

For principal residences, the new rules force consumers to qualify for a loan based on being able to make payments on a five-year fixed-rate mortgage, which has a much higher interest rate than variable mortgages, now as low 1.85%.

Clearly, Ottawa’s view was toward rising rates. And this week, two of the major banks raised their posted rate on five-year fixed mortgages to 5.85%.

But one lingering question is how the five-year rate would be calculated in terms of qualifying a customer. In other words, it would obviously be a lot tougher to qualify for a mortgage under the new rules when using the posted rate of 5.85%. But if using the actual rate consumers get — these days as low as 3.75% — that’s a lot less income you’ll need to buy your first home.

Officials in Ottawa have been mum on what numbers should be used.

But an internal document distributed by Canada Mortgage and Housing Corp. to mortgage brokers, which was obtained by the Financial Post, shows consumers will be able to use their actual rate to qualify for a mortgage if they go for a term five years or longer.

If buyers want a variablerate mortgage, they will have to qualify based on “the benchmark rate,” which is essentially the posted rate.

So, if you want to go short, you had better be able to make payments based on an interest rate as high as 5.85%, which is where the benchmark rate will likely sit by next week.

“Probably 10% of the overall mortgage population is going to be affected by this rule in the sense they are no longer going to be able to qualify for a variablerate mortgage or a one-to four-year term,” says Robert McLister, editor of Canadian Mortgage Trends. “The qualifying rate is going to affect the debt ratios of those people.”

The end result may see more people forced to lock in their rate, which is hardly fair given variable-rate mortgages have been a better deal than fixed-rate rate mortgages about 88% of the time over the last 50 years, before the recent credit crisis.

“This will help people become accustomed to making payments based on where mortgage payments are likely to be going,” said Peter Vukanovich, chief executive of Genworth Financial Canada, the mortgage insurer.

He doesn’t think the changes are a major deal, given that most of the major banks have been qualifying consumers based on their four-and five-year rates. His company was already only insuring products based on rates as high as 4%.

“It’s a good rule change when you are situation right now where we are increasing interest rates,” says Jim Smith, vicepresident of Scotia Mortgage Authority. “Most lenders, ourselves included, have qualified based on at least the three-year posted rate.”

The discrepancy is, the three-year posted rate at most banks is actually higher than the five-year discounted rate.

And that means it is actually going to get easier to get a mortgage — as long as you do what the government tells you to do and lock in your rate.

© Copyright (c) The Vancouver Sun

Housing struggles

Financial Post
Province

The need for affordable housing in Canada is being ignored by developers and largely left to governments, those least able to do the job effectively, according to a Conference Board of Canada study released Tuesday.

The report, titled Building From the Ground Up: Enhancing Affordable Housing in Canada, says 20 per cent of Canadian households struggle to afford their homes because of lack of supply of affordable housing provided by the private market, to the detriment of national productivity and competitiveness.

The study urges developers, governments and civil society organizations to work together and highlights models for financing, building and operating affordable homes.

“The quality and cost of housing are major factors in the health of Canadians. However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities,” said Diana MacKay, director of education and health at the Conference Board of Canada.

Although most developers tend to focus on building homes for high-income earners, the report says the private sector is by nature efficient and innovative, making it best suited to develop affordable housing.

Governments, however, should only be involved in “establishing building parameters and engineering deals to encourage the development of more affordable units, without directly taking part in the execution of projects,” the report said.

Meanwhile, non-profit developers and operators are efficient operators of affordable housing because they have low costs, a passion for their work, and “on-the-ground” perspective.

The Conference Board’s conclusions are based on an extensive data analysis and review of literature, as well as 65 interviews with experts and practitioners and 11 case studies of innovative practices.

© Copyright (c) The Province

Alan Zibel, AP Real Estate Writer
USA Today

A “For Sale” sign is seen in front of a home on October 21, 2009 in Miami, Florida. By Joe Raedle, Getty Images

NEW YORK — Home prices showed the smallest annual decline in almost three years in January, indicating there are surprising areas of strength in the housing market.

The Standard & Poor’s/Case-Shiller 20-city home price index is down just 0.7% from last year on a seasonally adjusted basis. The index reading of 146.32 was almost in line with analysts expectations, according to a survey by Thomson Reuters.

“There was some positive momentum in home prices in January,” wrote Ian Pollick, a portfolio strategist with TD Securities.

Better still, prices rose 0.3% from December to January, the eighth consecutive monthly gain. Among the 20 cities in the index, 12 rose.

The index, released Tuesday, is up nearly 4% from its bottom in May 2009, but still almost 30% below its May 2006 peak.

Still, there are signs that last year’s housing rebound won’t last. Home sales sank during the winter, and government incentives that have propped up the market are ending.

Another reason for the positive news is simply that the Case-Shiller index measures a three-month average of home prices. So January’s report includes November’s strong home sales.

Many analysts expect that the Case Shiller number will eventually turn downward.

“It is only a matter of time before the index records a double-dip in prices,” wrote Paul Dales, U.S. economist with Capital Economics, who forecasts a 5% drop. The market will be tested in the second half of the year, he wrote, when a tax credit that has boosted sales is gone.

Copyright 2010 The Associated Press. All rights reserved

Move will make hot housing market less appealing to buyers who could only afford to pay rock-bottom rates

Tim Shufelt
Sun

For Canadians now accustomed to rock-bottom mortgage rates, a harsh reality looms.

Rates are officially on the upswing, an indication the country’s housing market is finally poised to cool off, and the beginning of the end to historically low rates.

It’s a move being closely monitored by those with variable-rate mortgages trying to cling to minimal monthly payments for as long as possible.

Is now the time to lock in to a fixed rate?

“That’s the million-dollar question,” mortgage broker Paula Roberts said Monday. “We’ve had a great ride for the longest time, and we know the ride’s almost over.”

Variable-rate mortgages have recently dipped as low as 1.5 per cent, Roberts said.

“It’s really difficult for someone who has 1.5 per cent to have to lock in to 3.75 per cent. That’s a big jump, and that’s when grief sets in a little bit. But 3.75 per cent, historically, is still a very, very low rate.”

Canada‘s two biggest banks, Royal Bank of Canada and Toronto-Dominion Bank, as well as Laurentian Bank, announced Monday they are raising the rates they charge on certain fixed-rate mortgages, including the benchmark five-year mortgage, which jumped 60 basis points to 5.85 per cent, effective today.

“This is actually a fairly large increase, reflecting what’s happening in the bond market lately,” said Benjamin Tal, senior economist with CIBC World Markets.

Anticipation over the Bank of Canada raising its overnight lending rate, possibly ahead of schedule, is pushing up bond yields, Tal said. And rising yields puts pressure on fixed-rate mortgages.

RBC and TD also hiked four-year term closed mortgage rates by 40 basis points to 5.34 per cent.

RBC’s three-year product rose by 20 basis points to 4.35 per cent, while the equivalent at Canada Trust gained 40 basis points to 4.7 per cent.

In addition, in mid-April new rules come into effect that tighten lending requirements, making first-time buyers meet an income test that says they can make payments based on the five-year fixed rate.

The two effects combined are certain to price some prospective buyers out of the market, said Gregory Klump, chief economist with the Canadian Real Estate Association.

“Certainly at the margins, this will have an impact,” he said.

While the hikes are significant, Klump said the heightened rates are still very attractive.

“They’re still stimulative, they’re just not as stimulative.”

But analysts say that price growth in Canada’s housing market, which for years has been red-hot and even remained robust during the recession, is not sustainable.

Tempered demand and a smaller pool of buyers is required to moderate prices and make housing more affordable, said Sal Guatieri, senior economist, BMO Capital Markets.

“There is a risk if the market does not cool down, we could see a correction down the road.”

Before the two banks hiked rates, mortgage interest payments as a share of income were around the same proportion as four years ago, when rates were much higher, Tal explained.

“That reflects the fact that we took so much mortgage, which shows the starting point is not great in terms of affordability. That’s why we’ll see the bank being very effective in its ability to slow down the market. And that’s a good thing.”

Expect a gradual softening of the real estate market in the second half of 2010 and through 2011, Tal said. “The highs will not be so high and the lows will not be so low.”

© Copyright (c) The Vancouver Sun

Costs will increase for realtors’ fees, inspections, experts say

Brian Morton
Sun

While the harmonized sales tax (HST) doesn’t directly apply to the selling price of a resale home as it does with new homes, that doesn’t mean buyers of resale homes are completely off the hook for the new tax.

According to industry and tax experts, the homebuyer and seller still face a slightly higher bill because the HST will apply to such things as real estate fees, home inspections, appraisals and the costs of clearing title.

However, it won’t affect other services associated with real estate transactions including bank fees — which are not subject to the GST and won’t be subject to the HST — and notary public and lawyers’ fees, which are already subject to the GST and the provincial sales tax, which add up to the same additional cost as the HST.

As well, buyers of resale homes would be subject to the new tax for such things as renovations, maintenance, upgrades, environmental consultants and moving expenses.

“It can add up, but it’s nowhere near the same degree as you’d pay in HST on a new home,” Michael Welters, a tax lawyer with Bull, Housser and Tupper, said in an interview. “I don’t think the HST will be significant. I think it will be a minor addition in the overall cost.

“But it can still [increase costs]. You can easily pay $2,000 for a small move in the Lower Mainland.”

Neil Davie, real property section chair, Canadian Bar Association, B.C. branch, agreed that the new tax will have an impact on transactions. He said, for example, an environmental consultant may have to be hired by the buyer of an older house to investigate an underground storage tank. That cost would increase with the HST, he added.

Cameron Muir, chief economist for the B.C. Real Estate Association, said in an interview that there’s an added cost for resale homes, but that the real impact will be with new homes.

“It [the HST] will add to closing costs for resale homes,” said Muir. “It will take a bite, but not dramatic enough to have a significant impact on the marketplace.”

So how does this all reflect on the bottom line of buying a resale home?

If someone buys a $450,000 resale home, there will be about $16,500 in closing costs for such things as appraisals, inspections, survey fees and realtors’ fees.

With the HST, the buyer will pay more than $1,100 more due to the new tax.

© Copyright (c) The Vancouver Sun

Tim Shufelt
Province

Mortgage rates are on the upswing in Canada, signalling an end to historically low rates and an indication that the country’s housing market is poised to cool off.

Royal Bank, TD Canada Trust and Laurentian Bank announced Monday they are raising rates on certain fixed mortgages, including the benchmark five-year mortgage, which will jump 60 basis points to 5.85 per cent, effective today.

“This is actually a fairly large increase, reflecting what’s happening in the bond market lately,” said Benjamin Tal, senior economist with CIBC World Markets.

Anticipation over the Bank of Canada raising its overnight lending rate, possibly ahead of schedule, is pushing up bond yields, Tal said. And rising yields puts pressure on fixed-rate mortgages.

While rising mortgage rates are certain to price some prospective buyers out of the market, the trend is required to prevent a housing bubble, Tal said. The market has been red-hot for years and even remained robust throughout the recession.

Before the banks hiked rates, mortgage interest payments as a share of income were around the same proportion as four years ago, when rates were much higher, he said.

“That reflects the fact that we took so much mortgage, which shows the starting point is not great in terms of affordability. That’s why we’ll see the bank being very effective in its ability to slow down the market. And that’s a good thing.”

The banks also hiked four-year closed mortgage rates by 40 basis points to 5.34 per cent.

Royal’s and Laurentian’s three-year products rose by 20 basis points to 4.35 per cent, while the equivalent at TD Canada Trust gained 40 basis points to 4.70 per cent.

© Copyright (c) The Province

Mission: To transform Vancouver’s skyline with innovative structures while saving city heritage

Glen Korstrom
Other

Will Lin will launch presales for his planned 185-condo Rolston development at the north end of the Granville Bridge on April 6.

It promises to be a litmus test for the strength of Vancouver’s rebounding real estate market.

Will homebuyers camp out overnight to have first crack at a Rolston condo? Or is talk about local real estate market strength overblown?

Late last year, both the Onni Group of Companies and the Aquilini Investment Group tested the market with presales.

Aquilini sold most of the 226 units in its Richards project on the site of the former Richard’s on Richards nightclub within two and a half weeks of its September presale launch.

Onni’s Mark development on Seymour Street at Pacific Boulevard then reportedly prompted about 20 prospective buyers to camp out overnight in December in hopes of securing a piece of the Mark. Brokers sold about three-quarters of the development’s 214 homes on its first day of sales.

Lin, who owns the 17-employee Rize Alliance Properties, is coy when asked how enthusiastic he expects buyers will be about his project on the site of the Cecil Hotel.

“We hope to create more demand than supply,” the 44-year-old said with a smile as he showed Business in Vancouver a model of the structure he expects will generate $85 million in sales.

Part of his project involves spending millions of dollars to renovate the adjacent 120-year-old Yale Hotel, which Lin bought for $10 million in 2006 from Waide Luciak.

Once the renovations are completed, Luciak has agreed to spend an undisclosed amount to buy back commercial space at the hotel that houses Luciak’s renowned blues bar.

Lin’s boyish looks disguise the fact that he has 17 years’ experience developing major real estate projects.

Some of his achievements include:

•buying the former Canadian Linen building at Davie and Richards streets and striking a deal in 1998 with the City of Vancouver to renovate what is now a Choices Markets store while transferring 36,457 square feet of density to the 150,000-square-foot, 100-condo Metropolis tower next door;

•spending $13.2 million to buy the London Building in 2002 and renovate the 60,000-square-foot structure at 626 West Pender Street;

•securing Cossette Inc. as the anchor tenant for a 54,000-square-foot office complex in Yaletown that he completed in 2004; and

•completing the 163-home, $72 million Centro project in Richmond last year.

Lin’s expertise at transferring density stems in part from his innovative Metropolis experience, which was one of the city’s first such transactions.

The city also granted Lin about 80,000 square feet of density to renovate the 11-storey London Building. He used about half of that space to increase the height of his Cossette building.

This time, the city will grant Lin an extra 47,600 square feet of density in exchange for renovating the Yale and preserving its 44 units of single-room occupancy accommodation, which Lin will give to the city.

Other developers admire Lin’s courage.

“He’s an adventurous and ambitious developer. I like the work that he does,” said Salient Group president Robert Fung.

“Hopefully, people will embrace the architectural ambition that he is putting into it because it isn’t as inexpensive as doing the other stuff.”

Indeed, the Rolston, which Busby Perkins + Will and IBI/HB Architects designed, is likely to become a landmark given its glass exterior and brilliant orange accents.

The development is the first of many slated for the part of downtown south that some now call Midtown.

Cressey Development Group plans to build a tower one block west of the Rolston at Howe and Drake streets.

City council has also approved two more tower locations and some midrise buildings adjacent to Granville Street, said Michael Gordon, who is the city’s senior central area planner.

Lin has plenty of other projects on the go while he waits for the completion of the Rolston, which is scheduled for 2012.

He has already broken ground on a $20 million development at the corner of Quebec Street and West Broadway that will include 48 homes built in a style consistent with the Mount Pleasant neighbourhood.

Lin plans to build a $115 million industrial structure on the False Creek Flats across from Terminal Avenue and Radical Entertainment’s headquarters. He said the 220,000-square-foot “Containers” building will be completed before the Rolston.

Other future Lin projects include:

•a development on a 50,000-square-foot plot of land that he owns south of East Broadway on Kingsway Avenue; Lin has filed a rezoning application with the city for the site, which was hit by fire on Christmas Day; and

•an 80-home subdivision on the Sunshine Coast.

He has come a long way from the 27-year-old who dared in 1993 to build what many people thought was crazy: a 13-unit residential project in Yaletown.

“I called my dad and borrowed $350,000, somehow. I sweet-talked him into it,” Lin said. “My friend who was going to be involved in the project had to pull out because he couldn’t come up with $350,000. So I called up the vendor [John White] and said, ‘How about I do a joint venture with you? Show me how it’s done.’”

Bankers provided the duo with a $1.1 million loan, and Lin has never looked back.

The success of his first project allowed Lin to repay his father by renovating his westside home before his dad died in 1995.

Lin and his twin brother left Taiwan with four siblings when Lin was 13. After stops in Costa Rica and South Dakota, Lin settled in Winnipeg, where his father co-owned a sausage factory.

His parents lived in Taiwan, and Lin describes his teen years as being those of an “astronaut child” taken care of by friends and relatives.

After completing a bachelor of commerce degree at the University of Winnipeg, he came to Vancouver in 1989.

He worked at a small importing company as a door-to-door salesman selling wadding and chalk for manufacturers to mark metal.

“It wasn’t easy,” Lin said “but it taught me how to create value.” 

Province

Ginger is a nine-storey, 78-residence new-home project straddling Vancouver’s Strathcona neighbourhook, edging on Chinatown and overlooking downtown. It’s excellent quality and value in an up-and-coming neighbourhood.

The kitchens are superbly finished with bright, classy cupboards and drawers, double sinks and cleverly built-in appliances.

The view from one of the balconies is breathtaking with the city’s lights providing a magnificent backdrop.

The nine-storey building features iron balcony railings that are accentuated by brightly coloured glass panels.

Soft, sexy colours are used discreetly in the bath areas, which have sculpted bowls and oversized ceramic tile floors.

An on-site party room at Ginger has a wet bar and large TV. The developer anticipated Ginger buyers as typically young urban dwellers.

THE FACTS

WHAT: Ginger, nine-storey concrete building, 78 residences

WHERE: Strathcona, Vancouver DEVELOPER: Porte Development Corp.

SIZE: studio, 1, 2 bed, 454 sq. ft. -1,100 sq. ft.

PRICES: $319,900 -$855,000 OPEN: Sales centre on site at 718 Main, hours, noon -5 p.m., Sat -Thurs

When twenty-something Amie Halsall became a new resident of the Ginger building at Main and East Georgia, she found that her home not only met her expectations — it surpassed them.

“I was originally looking in my old neighbourhoods of Kits and South Granville, but I really wanted to be in an area that was culturally diverse, up and coming, but one that would hold onto its cultural identity,” says Halsall, an accessories designer at Vancouver’s John Fluevog Shoes.

Ginger is comprised of 78 smartly outfitted homes in a nine-storey building, and straddles Strathcona, edging Chinatown and overlooking downtown. It’s an area that’s rife with both history and enticing new hot spots.

“I had only been to Chinatown once before I bought, but it’s my nature to just go for it, so I took the plunge,” says Halsall, who is able to walk to work in Gastown, stroll downtown or to the seawall, or jump on the SkyTrain and major bus routes.

Porte Development Corp. anticipated Ginger’s buyers as typically young urban dwellers. There is also a wet bar in the party and Wii room on site.

“For our young or first-time buyer, it’s just a great opportunity to have value, quality and an up-and-coming location all combined,” says Porte president David Porte of Ginger, which has decidedly swank modern living spaces and higher-end appliances such as AEG and Fischer Paykel. “It’s a terrific proposition.” At Ginger, which is now ready for occupancy, what was offered at pre-sale was delivered as promised, despite rollicking construction costs and a fluctuating market over the past 30 months.

“Construction costs went up and our costs went up with them,” says Porte. “But we didn’t skimp on the quality or finishing — we made a clear commitment to our buyers and to our contractors on what we were planning to do and we set out to deliver it.”

Even the special features, usually the first to go when costs rise, didn’t get nixed.

These include frosted-glass sliding walls, sustainable finishes, graphic entry-door treatments and other architectural elements such as the iron balcony railings, which are accentuated with brightly coloured glass panels, and an embossed dragon on the side of the building.

One of Halsall’s new neighbours is also a first-time homebuyer in his twenties. Electrician Jared Power moved to Ginger from Peachland, and has also been pleasantly surprised by the vibrancy of the neighbourhood, which he overlooks from his 100-square-foot covered deck.

“There’s a real exciting mix of cultures and people here,” says Power. “You don’t have to go far to find whatever you need — coffee shops, markets, SkyTrain.”

Just over half of the building was sold when it launched in 2007. Now the rest of the suites, including the sub-and proper penthouses, are available for purchase and occupancy.

The neighbourhood is responding well and will continue to change as new retail moves into the mixed-use storefront spaces at Ginger and beyond, says Porte.

“I am born and raised in Vancouver, so Chinatown for me has always been an area of lots of life and activity and that has sort of gone away in recent times,” says Porte.

“But what’s now starting to emerge is new life and activity in Chinatown and Ginger is a part of that new energy and we’re very pleased by that.”

© Copyright (c) The Province