Laurin Jeffrey | January 29, 2012
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Real Estate: 10 things you need to know

It’s true what they. When buying a house, location is everything.

By Tony Wong – Toronto Star MoneyVille

Next to public speaking, buying or selling a home is at the top of many people’s fear and loathing list. A home is the biggest investment you’ll ever make and while exciting, the potential for things to go wrong is pretty big.

Here are 10 things to consider when buying a home.

1. The housing market isn’t really a market

At least not in the way you might think. While housing analysts like to compare real estate returns to stock market returns, it is a misleading comparison.

The first big difference is that a stock market is a place where you can by and sell immediately. In the real estate market you can wait months for the home you want to come on the market and just as long to find someone who wants to buy yours. The price you expect may not bear any resemblance to the one you get.

The long run return on stocks is also a lot better. The average stock in the Standard & Poors 500 index, a basket of blue chip U.S. stocks, has returned about 6.3 per cent a year after inflation in each of the last 25 years. The average increase in the value of a Canadian home over the same period petty much tracks the rate of inflation which during the same period was 2.5 per cent.

A home is also more than an investment. It has all kinds of intangible qualities, including a neighbourhood you want to live in, a spot with a particular view or landscape, a type of architecture that you enjoy. So, while it’s tempting to think of your primary home as a profit centre ripe for a flip, that shouldn’t be the main purpose.

Comment: True dat! Your house is first and foremost a home, where you live. The rest is incidental.

Besides, your Microsoft stock can’t keep you warm at night. (Unless you bought it when Bill Gates was still working out of his garage. In which case, you probably have your own heating company.)

2. It’s always a good time to buy

No it isn’t. People who bought at the height of the market in the 1989 real estate bubble, didn’t break even until prices bounced back in 2002. That’s 13 years. And even then they didn’t make their money back. Factoring in inflation, they actually lost money. House prices don’t go up forever. Buy when your circumstances dictate, not because your neighbor the agent says it’s a good time to.

Comment: Actually, the price of every goes up, always. It is called inflation. That is why movies do not cost a nickel anymore, like they did for grampa.

3. Location, Location, Location.

Yah, they’re right. You’ll pay more initially, but investing in a property in the good neighborhood close to transit will pay dividends down the road when it comes time to sell

4. Buy the cheapest house on the street

Some people argue you shouldn’t, because the home will compare poorly to the other homes when you sell.

I say go for it. It may already be discounted because it looks like a shack compared with other properties and provides far more upside if you spruce it up in the future. A rising tide can also help to lift all boats. As the street gentrifies, infill housing will continue to keep property values high. Getting your foot in the right address is half the battle. Hello Park Place!

5. Do I need an agent?

No, you don’t. While a good realtor can be a huge asset, not everyone needs professional advice. If you have time, selling your own home can save you a ton of money on commissions. With the advent of the internet, and the opening up of the Multiple Listing Service there are many more services for the do it yourselfer to choose from.

Comment: Except that private sales take longer and usually end up selling for less. Well over 99% of homes sell through the MLS system – why would you give up that massive marketing vehicle? Just to save a few bucks? Except, if you sell for less, then you did not save a thing.

6. If you want an agent…

If you don’t have the time, or would rather use professional advice, a good realtor can be a boon, because they know the neighborhood and can potentially get you top dollar. But like any other service, the results will vary. So make sure you interview several before choosing.

7. Renovating will give me huge return

Stop watching all those television shows where some fancy designer redos the entire house in a week with faucets that cost more than your BMW. Okay, I like them too, but that doesn’t mean you have to gut your kitchen to sell your home.

Comment: Exactly. HGTV is the worst for creating house envy. Trust me, granite counters will not make your life complete.

Most experts say you’ll get the best bang for your buck by redoing the kitchen and washrooms. But even for the most sought after features by homebuyers, the return on investment is anywhere from 75% to at best 100%. That means in many cases if you spend $10,000 you’ll only add that much vale at best and maybe far less.

8. It just needs a coat of paint

When it comes times to sell, you may have been living in your home for so long that you don’t notice the coffee stains on the couch and the Sponge Bob wallpaper in the washroom. Get a second pair of eyes to have a look around. This could be friend, relative or your agent and hopefully they’ll tell it like it is.

You may want professional help in the form of a home stager who can arrange your furniture and make your place look showroom ready. But you don’t need to pay big bucks. Start by asking a friend. She’ll tell you why Sponge Bob must go.

Comment: And if you are not willing to make the changes, then be prepared to accept a lower price.

9. Don’t try to time the market

I know people who sold their home at the peak of the market, and rented a condo while riding out the crash.

After the crash, they repurchased near the same neighborhood for substantially less. This is the dream of every home investor. I also have friends who thought the market was going to crash, so they waited for four years to buy a home. Prices kept going up and they finally threw in the towel and bought at a higher price than they expected. Then the market crashed. Housing is a long term investment, and sometimes you just have to commit.

10. Keep your perspective

My friends think think their 1,500 square foot semi is worth a bundle, because they spent hours building the deck and hand painting the cute gold cherubs on the walls.

Being emotionally attached to your home means that when it comes time to sell, your objectivity is compromised. In a down market, with more competing listings, your home is going to be difficult to sell and the price less than you expect. Can you accept that?

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Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Category: Buying Real Estate, General Real Estate, Selling Real Estate | Tags: , , , , , , ,
Laurin Jeffrey | January 27, 2012
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Is a 2.99% mortgage too good to be true?

By Madhavi Acharya-Tom Yew – Toronto Star MoneyVille

Bank of Montreal made headlines with the 2.99% five-year mortgage it unveiled last week.

Most of the other big banks have followed suit, but before signing on the dotted line you should read the fine print. These mortgages have restrictions that you won’t find on other products.

“It’s the lowest rate available but I would only recommend it to people who are very sure of their circumstances for the next five years,” said Kerri-Lynn McAllister of RateHub.ca, a Web site that compares mortgage rates.   “You may want to look at a slightly higher rate that offers all the flexibility of a standard mortgage.”

The Bank of Montreal says this mortgage offers Canadians a way to be mortgage-free faster because it offers a great rate and a shorter amortization. But it differs from a typical mortgage in several ways.

1) The maximum amortization period is 25 years. A typical mortgage offers an amortization period of up to 30 years.

2) You can make as lump sum payment once a year equal and increase your monthly payments as long as the total doesn’t exceed 10% of the principal amount owed. Most mortgages let you make monthly and lump sum pre-payments of 20% or more.

3) You cannot skip or double-up on a payment.

4) You cannot refinance or switch your mortgage to another lender for five years. Most home owners who sign a five-year term don’t make it that long. On average, they last three years and 9 nine months, and then they either refinance or move.

McAllister said that because the amortization is capped at 25 years, you may not be able to borrow as much. That could hurt first-time buyers in markets such as Toronto and Vancouver where home prices are in the stratosphere.
The refinancing restriction means, the only way you can refinance is if you do so with BMO,” McAllister said. “They know you’re locked in to them so you don’t have any bargaining power if they don’t offer you a good rate or term.”

BMO agrees that this mortgage is best-suited for someone who plans to be in their home for awhile.

“Customers were telling us they wanted something simple and easy to understand that would allow them to be mortgage-free faster,” said Katie Archdekin, head of mortgage products at the Bank of Montreal.
Archdekin said the shorter amortization rate is designed to do just that.

While many home owners have good intentions when it comes to pre-payments, very few actually take advantage of these options, she added.

“This product carries fewer features than our other mortgage products but it’s very easy to understand,” Archdekin said. “This product really supports customers to pay off their mortgage faster by instilling that discipline directly into the regular payments.”

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Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
———————————————————————————————————————

Category: Buying Real Estate, Mortgages | Tags: , , , , , , , , , , , , , , ,
Laurin Jeffrey | January 25, 2012
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Buy now to get an unheard-of rate for a 10-year mortgage

Rob Carrick – Globe and Mail

There’s a brilliant reason to get into our expensive and quite possibly weakening housing market right now.

A 10-year mortgage is now available for under 4%. You can thank the banks for this unheard-of rate. In the past week or so, competition between them on mortgage rates has gone nuclear.

Have you caught all the warnings about how the house that you can afford now because mortgage rates are so low will crush you when borrowing costs rise? With a 10-year mortgage, you’ve got long-term cost certainty. “This is a fantastic opportunity for somebody to lock in and have peace of mind for 10 years without worrying about a renewal,” said veteran mortgage broker Vince Gaetano of MonsterMortgage.ca.

Now, about the housing market. Numbers released Monday show average prices are down almost 3% since April, even after ticking a bit higher last month. At a conference last week, some of the country’s top bankers talked as if a cooling in the market is a done deal.

Comment: And that is absolute hogwash. Comparing prices down, in a low point for the year, with April which is one of the high points. Let’s compare January 2012 to January 2011 – prices are up 8.5% in Toronto. December 2011 was up 4% over December 2010. Comparing to April is misleading and dishonest.

Price-wise, patience will very likely be rewarded in the housing market: Prices could easily decline enough to make a difference to buyers – especially in markets like Vancouver and Toronto.

Comment: They could, as they are in Vancouver. But they won’t in the GTA. At least not a meaningful enough amount. Prices were up 8% in 2011 over 2010, even if that slows to 0% over the next year or two, then drops 10% over the following couple of years – that means in 5 years, prices will be about where they were in 2010. That is not going to make a whit of difference to buyers. My house in Pickering has jumped 20% in the past 30 months, for instance. My street is not going to suddenly drop 20% in the short term.

But low mortgage rates also have a big impact on affordability, and that’s a point that supports buying now if you plan to live in your house for a good long while and can afford the costs of home ownership while meeting your savings obligations.

Low is a word that may actually undersell what’s happening in the mortgage market right now. Last week, Bank of Montreal announced a 2.99% rate for five-year fixed-rate mortgages amortized over 25 years or less. That’s the lowest rate on record for this type of mortgage.

Other banks announced a special rate of 3.99% for seven years, a deal that Vancouver mortgage planner Robert McLister said was not as good as the BMO offer despite providing two more years of rate certainty. “There’s no question in my mind that the five-year rate would work out better,” said Mr. McLister, editor of the Canadian Mortgage Trends blog.

It’s a different story with a 10-year mortgage for 3.99%, which became available late last week from online bank ING Direct. According to the RateHub.ca website, 10-year rates as low as 3.84% can be had through lenders working with mortgage brokers.

A 10-year mortgage at less than 4% “creates a much more interesting conversation,” Mr. McLister said. Monster Mortgage’s Mr. Gaetano said that when the cost of locking in for 10 years gets as cheap as it is now versus the five-year term, “you have to pounce on it.”

Not too long ago, Mr. Gaetano was one of many experts who believed variable-rate mortgages were superior to all fixed-rate options. But while the banks have been highly competitive on fixed-rate mortgages lately, they’ve pretty much ruined the variable-rate option by cutting way back on discounting.

You can get a variable-rate mortgage today for 2.8% to 3% at best, which is darn close to the cost of locking in for four or five years right now, and you’ve got zero rate certainty. Every time the prime rate rises in the next several years, so will your borrowing costs. “The variable-rate party’s over,” Mr. Gaetano said. “Those products are dinosaurs.”

Let’s get back to the housing market for a moment. The biggest support for prices right now are the low mortgage rates we’ve been talking about here. When rates rise, that support crumbles. Things could get ugly.

Comment: But they are not going to rise for the foreseeable future. The BoC and Mark Carney are leaving the overnight rate alone until 2013, then we see. And while predictions of rising mortgage rates have been shouted from the rooftops for years now, we actually have 5-year rates 2.5% LOWER than they were in early 2008. Even if they go back up to 5%, which is completely reasonable, that will not ruin the market. That means an extra $350/month on a $485,000 mortgage. Not chump change, but not enough to take the market down.

Why consider buying now? Because you can borrow money at 3.99% or a bit less for 10 years. It’s like freezing time at the exact best moment ever to finance the purchase of a house. If the price of your home declines, it’s bound to be on the rise again a decade from now. Meanwhile, you’d have the chance to put a decade’s worth of salary increases to work in ramping up your payments and making periodic lump-sum payments.

One hitch with 10-year mortgages is that you won’t likely get the best rates from the big banks. Mr. Gaetano said the banks don’t much like 10-year mortgages because they can’t easily securitize them, which means packaging them up to sell to investors. That means you’ll may need to visit a mortgage broker or check out ING Direct.

———————————————————————————————————————
Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
———————————————————————————————————————

Category: Buying Real Estate, Mortgages | Tags: , , , , , , , , , , , , , , ,
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