http://lindalinfoot.com/ViewBlog/ This page contains the blog. Thu, 20 Nov 2008 09:33:00 +0000 http://ubertor.com/?v=1.0 en This is an XML content feed. It is intended to be viewed in a newsreader or syndicated to another site, subject to copyright and fair use. http://lindalinfoot.com/ViewBlog/165/ http://lindalinfoot.com/ViewBlog/165/#comments Sun, 09 Nov 2008 11:07:15 +0000 General http://lindalinfoot.com/ViewBlog/165/ Until, or if, the federal government changes the GST, you will be required to pay it if you buy a new home that's newly constructed or substantially renovated.


The good news is that you may be eligible to claim a rebate for a portion of the GST or amount you pay on the purchase price or cost of building your new home if you meet one of the following:




You buy a new or substantially renovated home and buy or lease the land from a builder.




You buy a new mobile home, new floating home or new modular home from a builder or seller.




You buy a share in the capital stock of a co-operative housing corporation.




You construct or substantially renovate your own home or hire another person to do it.




Your home is destroyed in a fire and is substantially rebuilt.




If you merely redecorate or add an addition without substantially renovating your existing home, you do not qualify for a rebate.


Builders from whom you purchase your new or substantially renovated home, mobile home, or floating home can pay or credit you with the amount of the rebate for which you qualify. If they do, they are responsible for sending the rebate application to Revenue Canada.


Should you decide to apply directly to Revenue Canada for the rebate, you must use the appropriate form available from any Revenue Canada Excise/GST district office.


The rebate applications involve the purchase of a new single unit residential complex or a residential condominium unit from a builder. To apply for the rebate you need to meet all of the following conditions:




The builder sells both the building and the land the home is on.




The home is intended as the primary place of residence for yourself or a relation.




The purchase price of the home (both building and land) is under $450,000.




Ownership of the home is transferred to you after the construction is substantially completed.




You or a relation are the first occupants, or you sell the home and transfer ownership before anyone occupies it.




You pay GST, or GST is included in the price of the home.




You have up to four years to claim your rebate from the date ownership of the home is transferred to you.


Buyers purchasing such homes priced up to $350,000 will qualify for the maximum rebate of $8,750, or 36 per cent of the GST paid on the purchase price, whichever is less.


For homes priced at more that $350,000, but under $450,000, the rebate is gradually reduced. There is no rebate for homes selling for $450,000 or more.


Example A - Purchase price/fair market value (not including GST) is under $350,000




Purchase price
$200,000


GST paid (6% of purchase price)
$ 12,000


GST rebate ($12,000 x 36%)
$ 4,320





Example B - Purchase price/fair market value (not including GST) is over $350,000




Purchase price
$400,000


GST paid (6% of purchase price)
$ 24,000


GST rebate
$ 4,375


Calculation:
$450,000 minus $400,000 (purchase price) =


 
$50,000/100,000 X $8,750 = $4,375



Read More]]> Until, or if, the federal government changes the GST, you will be required to pay it if you buy a new home that's newly constructed or substantially renovated.


The good news is that you may be eligible to claim a rebate for a portion of the GST or amount you pay on the purchase price or cost of building your new home if you meet one of the following:




You buy a new or substantially renovated home and buy or lease the land from a builder.




You buy a new mobile home, new floating home or new modular home from a builder or seller.




You buy a share in the capital stock of a co-operative housing corporation.




You construct or substantially renovate your own home or hire another person to do it.




Your home is destroyed in a fire and is substantially rebuilt.




If you merely redecorate or add an addition without substantially renovating your existing home, you do not qualify for a rebate.


Builders from whom you purchase your new or substantially renovated home, mobile home, or floating home can pay or credit you with the amount of the rebate for which you qualify. If they do, they are responsible for sending the rebate application to Revenue Canada.


Should you decide to apply directly to Revenue Canada for the rebate, you must use the appropriate form available from any Revenue Canada Excise/GST district office.


The rebate applications involve the purchase of a new single unit residential complex or a residential condominium unit from a builder. To apply for the rebate you need to meet all of the following conditions:




The builder sells both the building and the land the home is on.




The home is intended as the primary place of residence for yourself or a relation.




The purchase price of the home (both building and land) is under $450,000.




Ownership of the home is transferred to you after the construction is substantially completed.




You or a relation are the first occupants, or you sell the home and transfer ownership before anyone occupies it.




You pay GST, or GST is included in the price of the home.




You have up to four years to claim your rebate from the date ownership of the home is transferred to you.


Buyers purchasing such homes priced up to $350,000 will qualify for the maximum rebate of $8,750, or 36 per cent of the GST paid on the purchase price, whichever is less.


For homes priced at more that $350,000, but under $450,000, the rebate is gradually reduced. There is no rebate for homes selling for $450,000 or more.


Example A - Purchase price/fair market value (not including GST) is under $350,000




Purchase price
$200,000


GST paid (6% of purchase price)
$ 12,000


GST rebate ($12,000 x 36%)
$ 4,320





Example B - Purchase price/fair market value (not including GST) is over $350,000




Purchase price
$400,000


GST paid (6% of purchase price)
$ 24,000


GST rebate
$ 4,375


Calculation:
$450,000 minus $400,000 (purchase price) =


 
$50,000/100,000 X $8,750 = $4,375



Read More ]]> http://lindalinfoot.com/ViewBlog/165/#comments http://lindalinfoot.com/ViewBlog/163/ http://lindalinfoot.com/ViewBlog/163/#comments Sat, 08 Nov 2008 05:32:23 +0000 General http://lindalinfoot.com/ViewBlog/163/
NEW WESTMINSTER, BC, Nov. 7 The Government of British Columbia announced on November 1st, 2008 that the BC Assessment Authority will not be issuing new property tax assessments for 2009, but will lock in the 2008 assessed values. In this effort to "avoid confusion, anxiety and unnecessary assessment appeals" many lenders, legal professionals and homeowners find themselves wondering what measures to use next year when valuing properties.

Though Landcor Data Corporation utilizes the BC Assessment property roll as the data source for many of its products, their flag-ship product, the Property Valuator does not rely on assessed value to produce a market value estimate. Landcor uses an appraisal based methodology that incorporates more than 30 property characteristics to identify recently sold comparable properties used to calculate current market value. Rest assured the accuracy of the Landcor Property Valuator will not be compromised by this latest BC Assessment announcement.

In fact, the Property Valuator will be one of the few accurate and cost-effective methods of obtaining the current market value of a property in BC this coming year. As many lenders and legal professionals rely on property assessments in low risk property valuation scenarios, Landcor's Property Valuator will serve as an alternative report without delaying transaction times or incurring substantial cost increases.

Landcor is also looking to release an alternative product to fill the property assessment void in 2009 that will be made available at a lower cost than the Property Valuator.  Stay tuned for more information regarding this new and innovative product in the months ahead.
 
About Landcor

Landcor Data Corporation is BC's premier real estate data and analysis provider, serving lenders, legal professionals, real estate professionals and consumers since 2001. Working closely with the BC Assessment Authority to leverage government issued information to help businesses and consumers make informed real estate decisions and mitigate risk, Landcor Data Corporation relies on registered sales data from BC Land Titles and Survey Authority. This data is complete and final and does not utilize pending sales agreement information made available through Realtors.




Read More]]>
NEW WESTMINSTER, BC, Nov. 7 The Government of British Columbia announced on November 1st, 2008 that the BC Assessment Authority will not be issuing new property tax assessments for 2009, but will lock in the 2008 assessed values. In this effort to "avoid confusion, anxiety and unnecessary assessment appeals" many lenders, legal professionals and homeowners find themselves wondering what measures to use next year when valuing properties.

Though Landcor Data Corporation utilizes the BC Assessment property roll as the data source for many of its products, their flag-ship product, the Property Valuator does not rely on assessed value to produce a market value estimate. Landcor uses an appraisal based methodology that incorporates more than 30 property characteristics to identify recently sold comparable properties used to calculate current market value. Rest assured the accuracy of the Landcor Property Valuator will not be compromised by this latest BC Assessment announcement.

In fact, the Property Valuator will be one of the few accurate and cost-effective methods of obtaining the current market value of a property in BC this coming year. As many lenders and legal professionals rely on property assessments in low risk property valuation scenarios, Landcor's Property Valuator will serve as an alternative report without delaying transaction times or incurring substantial cost increases.

Landcor is also looking to release an alternative product to fill the property assessment void in 2009 that will be made available at a lower cost than the Property Valuator.  Stay tuned for more information regarding this new and innovative product in the months ahead.
 
About Landcor

Landcor Data Corporation is BC's premier real estate data and analysis provider, serving lenders, legal professionals, real estate professionals and consumers since 2001. Working closely with the BC Assessment Authority to leverage government issued information to help businesses and consumers make informed real estate decisions and mitigate risk, Landcor Data Corporation relies on registered sales data from BC Land Titles and Survey Authority. This data is complete and final and does not utilize pending sales agreement information made available through Realtors.




Read More ]]> http://lindalinfoot.com/ViewBlog/163/#comments http://lindalinfoot.com/ViewBlog/161/ http://lindalinfoot.com/ViewBlog/161/#comments Wed, 05 Nov 2008 08:02:56 +0000 The Informed Buyer / Seller http://lindalinfoot.com/ViewBlog/161/ Read More]]> Read More ]]> http://lindalinfoot.com/ViewBlog/161/#comments http://lindalinfoot.com/ViewBlog/159/ http://lindalinfoot.com/ViewBlog/159/#comments Tue, 04 Nov 2008 06:28:36 +0000 Listings http://lindalinfoot.com/ViewBlog/159/ I just sold this Condo at 215 6888 SOUTHPOINT Drive, Burnaby South, British Columbia .
View this recently sold Condo or see all my home sales Read More]]> I just sold this Condo at 215 6888 SOUTHPOINT Drive, Burnaby South, British Columbia .
View this recently sold Condo or see all my home sales Read More ]]> http://lindalinfoot.com/ViewBlog/159/#comments http://lindalinfoot.com/ViewBlog/155/ http://lindalinfoot.com/ViewBlog/155/#comments Tue, 04 Nov 2008 06:10:58 +0000 General http://lindalinfoot.com/ViewBlog/155/ Residential housing price decline


creates buying opportunities




VANCOUVER, B.C. – November 3, 2008 – Housing price reductions across Greater Vancouver over the last six months have eliminated price gains witnessed in the first quarter of 2008.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential benchmark prices, as calculated by the MLSLink Housing Price Index®, declined 8.8 per cent between May and October 2008, resulting in a 3.9 per cent year-to-date price reduction for detached, attached and apartment properties in Greater Vancouver between Octobers 2007 and 2008. In May 2008, the overall residential benchmark price was $568,411, compared to $518,668 in October 2008.


“Home sales are not keeping pace with the positive economic conditions in BC,” said REBGV president, Dave Watt. “That’s a direct result of a loss of consumer confidence in the overall market. Accordingly, today’s housing market is characterized by moderating home prices and wide selection. It’s definitely a buyer’s market.”


Residential property sales in Greater Vancouver declined 55 per cent in October 2008 to 1,364 from the 3,028 sales recorded in October 2007.


Active listings totalled 19,257 in October 2008, a three per cent decline from the 19,852 active listings reported in September 2008. New listings for detached, attached and apartment properties increased one per cent to 4,867 in October 2008 compared to October 2007, when 4,819 new units were listed.


Sales of detached properties in October 2008 declined 56.5 per cent to 493 from the 1,133 sales recorded during the same period in 2007. The benchmark price for detached properties declined 4.7 per cent from October 2007 to $695,962. Since May 2008, the benchmark price for a detached property in Greater Vancouver has declined 9.8 per cent.


Sales of apartment properties in October 2008 declined 52.7 per cent to 647, compared to 1,368 sales in October 2007. The benchmark price of an apartment property declined 3.5 per cent from October 2007 to $358,359. Since May 2008, the benchmark price for an apartment property in Greater Vancouver has declined eight per cent.


Attached property sales in October 2008 are down 57.5 per cent to 224, compared with the 527 sales in October 2007. The benchmark price of an attached unit declined 1.4 per cent in Greater Vancouver between October 2007 and 2008 to $448,152. Since May 2008, the benchmark price for an attached property in Greater Vancouver has declined 6.4 per cent.

Read More]]> Residential housing price decline


creates buying opportunities




VANCOUVER, B.C. – November 3, 2008 – Housing price reductions across Greater Vancouver over the last six months have eliminated price gains witnessed in the first quarter of 2008.


The Real Estate Board of Greater Vancouver (REBGV) reports that residential benchmark prices, as calculated by the MLSLink Housing Price Index®, declined 8.8 per cent between May and October 2008, resulting in a 3.9 per cent year-to-date price reduction for detached, attached and apartment properties in Greater Vancouver between Octobers 2007 and 2008. In May 2008, the overall residential benchmark price was $568,411, compared to $518,668 in October 2008.


“Home sales are not keeping pace with the positive economic conditions in BC,” said REBGV president, Dave Watt. “That’s a direct result of a loss of consumer confidence in the overall market. Accordingly, today’s housing market is characterized by moderating home prices and wide selection. It’s definitely a buyer’s market.”


Residential property sales in Greater Vancouver declined 55 per cent in October 2008 to 1,364 from the 3,028 sales recorded in October 2007.


Active listings totalled 19,257 in October 2008, a three per cent decline from the 19,852 active listings reported in September 2008. New listings for detached, attached and apartment properties increased one per cent to 4,867 in October 2008 compared to October 2007, when 4,819 new units were listed.


Sales of detached properties in October 2008 declined 56.5 per cent to 493 from the 1,133 sales recorded during the same period in 2007. The benchmark price for detached properties declined 4.7 per cent from October 2007 to $695,962. Since May 2008, the benchmark price for a detached property in Greater Vancouver has declined 9.8 per cent.


Sales of apartment properties in October 2008 declined 52.7 per cent to 647, compared to 1,368 sales in October 2007. The benchmark price of an apartment property declined 3.5 per cent from October 2007 to $358,359. Since May 2008, the benchmark price for an apartment property in Greater Vancouver has declined eight per cent.


Attached property sales in October 2008 are down 57.5 per cent to 224, compared with the 527 sales in October 2007. The benchmark price of an attached unit declined 1.4 per cent in Greater Vancouver between October 2007 and 2008 to $448,152. Since May 2008, the benchmark price for an attached property in Greater Vancouver has declined 6.4 per cent.

Read More ]]> http://lindalinfoot.com/ViewBlog/155/#comments http://lindalinfoot.com/ViewBlog/153/ http://lindalinfoot.com/ViewBlog/153/#comments Sat, 25 Oct 2008 18:35:02 +0000 Listings http://lindalinfoot.com/ViewBlog/153/ This is an opportunity to visit this excellent Detached House for sale in beautiful Thornhill Heights.
Please come with any questions you may have. In the meantime you can take a virtual tour of this Thornhill Heights Detached House for sale.
As always please do not hesitate to give me a call at if I can answer any questions before the open house, or if you would like to book a private showing.
Linda Linfoot
Park Georgia Realty Ltd. Read More]]> This is an opportunity to visit this excellent Detached House for sale in beautiful Thornhill Heights.
Please come with any questions you may have. In the meantime you can take a virtual tour of this Thornhill Heights Detached House for sale.
As always please do not hesitate to give me a call at if I can answer any questions before the open house, or if you would like to book a private showing.
Linda Linfoot
Park Georgia Realty Ltd. Read More ]]> http://lindalinfoot.com/ViewBlog/153/#comments http://lindalinfoot.com/ViewBlog/151/ http://lindalinfoot.com/ViewBlog/151/#comments Sat, 25 Oct 2008 18:28:46 +0000 Listings http://lindalinfoot.com/ViewBlog/151/ This is an opportunity to visit this excellent Detached House for sale in beautiful Thornhill Heights.
Please come with any questions you may have. In the meantime you can take a virtual tour of this Thornhill Heights Detached House for sale.
As always please do not hesitate to give me a call at if I can answer any questions before the open house, or if you would like to book a private showing.
Linda Linfoot
Park Georgia Realty Ltd. Read More]]> This is an opportunity to visit this excellent Detached House for sale in beautiful Thornhill Heights.
Please come with any questions you may have. In the meantime you can take a virtual tour of this Thornhill Heights Detached House for sale.
As always please do not hesitate to give me a call at if I can answer any questions before the open house, or if you would like to book a private showing.
Linda Linfoot
Park Georgia Realty Ltd. Read More ]]> http://lindalinfoot.com/ViewBlog/151/#comments http://lindalinfoot.com/ViewBlog/149/ http://lindalinfoot.com/ViewBlog/149/#comments Fri, 24 Oct 2008 09:37:52 +0000 General http://lindalinfoot.com/ViewBlog/149/ Read More]]> Read More ]]> http://lindalinfoot.com/ViewBlog/149/#comments http://lindalinfoot.com/ViewBlog/141/ http://lindalinfoot.com/ViewBlog/141/#comments Sat, 18 Oct 2008 12:41:55 +0000 General http://lindalinfoot.com/ViewBlog/141/

The fallout from the subprime mess south of the border has been filling business pages for months with stories of foreclosure epidemics, real-estate market meltdowns, lenders and investment banks going under and a global credit crunch. But what exactly is at the root of it all, and why has Canada not caught the subprime virus like we do most other economic ailments of our largest trading partner? Forthwith, an explanation. 
 
 
First off, what the heck is a subprime mortgage?
No, it's not a mortgage offered at below-prime interest rate, though that's a common misconception. The term "subprime" instead describes the borrower -- a person who doesn't meet a financial institution's criteria for a loan and so wouldn't qualify for a standard mortgage. Perhaps the client has a lousy record for paying off debts, or lacks regular employment. Subprime borrowers are often low-income people, the elderly and new immigrants. Wags have coined an acronym for those who most benefited from the subprime craze -- NINJAs, or folks with No Income, No Jobs or Assets.
  To account for the risk, subprime mortgages come with hefty interest rates. However, to persuade people that they can, in fact, afford them, those rates typically kick in only after a year or two at an introductory low (or teaser) rate. The mortgages dangle other lures, such as loan amounts that exceed the value of the home (you need some cash for the furniture, after all!). Some even work like reverse mortgages, meaning the homeowner gets monthly payments that are added to the principal. The sales pitch is that the surging housing prices would allow borrowers to refinance their loans at higher values, keeping their payments affordable indefinitely.
  Why did everyone fall for this?
  Well, up until 2005, the pitch worked beautifully. Real estate was on a tear, with home prices in cities like Phoenix, Las Vegas and Miami rising by up to 30% a year. When you're on a roll -- especially in Vegas -- it's easy to forget that your luck could run out. So homeowners, dazzled by their homes' values on paper, enthusiastically tapped into home-equity lines of credit, jacking up their principals to the sky. The fact that mortgage interest payments are tax-deductible in the U.S. only bolstered the subprime market's growth by spurring people to become homeowners while offering little incentive for paying off the loans.
  The subprime industry was getting rich as well. For those selling them, subprime loans came with cushy commissions, creating fierce competition for the business. Those issuing them, meanwhile, bundled the mortgages into complex stock market securities peddled to others, and so no longer had to fear if the borrowers defaulted. Aggressively marketed, irresistibly priced, subprime mortgages comprised an incredible one-third of all mortgages in the United States by last year.
   So what ended the party?
   As the real estate market started to slow and then slump, the proverbial chickens came home to roost. With values of their homes reversing course, by early this year one-tenth of American homeowners found that what they owed on their mortgages exceeded what their homes were worth. Unable to afford the higher rates kicking in after the teasers expired, more and more people defaulted. Now, as many as two million U.S. homeowners may lose their homes. In a recent report, Benjamin Tal, senior economist with CIBC World Markets, concluded, "The price appreciation in the U.S. housing market over the past two years was, in many ways, artificial -- boosted by aggressive lending and irresponsible borrowing."
 
 
Do we have subprime mortgages in Canada?
  Yes, we do. More and more, in fact. They're typically called "alternative" mortgages and tend to cater to the self-employed and immigrants without Canadian credit history to qualify for loans. From no-money-down to cash-back mortgages, the volume of such exotic products has more than doubled in the past five years.
  So how come the same disaster hasn't unfolded in Canada?
 Because our market has developed differently due to regulation, immaturity and plain old timidity. The reasons are manifold.
  Lending practices: In Canada, it's difficult, expensive and impractical to buy a home without any down payment. Anyone who puts less than 20% down on the home can't qualify for mortgage insurance by the Canada Mortgage and Housing Corp. or Genworth Financial, and such uninsured, high-ratio mortgages charge substantially higher rates. Banks and other mainstream financial institutions also won't provide a mortgage that exceeds a home's purchase price. Even alternative lenders have tended to eschew some of the worst American excesses, such as super-low teaser rates and loose income criteria for borrowers. Option adjustable rate mortgages (ARMs), which allow homeowners to change their monthly payments, sometimes not even covering the interest, haven't seen much uptake. According to Paul Grewal, head of the Canadian Association of Accredited Mortgage Professionals, "We have not seen the aggressive lending practices common south of the border." Backing his assertion is the fact that mortgage defaults are today near all-time lows, hovering around half a percent.
  Subprime infancy: The subprime mortgage industry in Canada is very young. Only five percent of mortgages fall into that category, compared to about one in five U.S. mortgages. (We're more risk-averse in general; only 22% of subprime borrowers in Canada use variable-rate mortgages that are susceptive to interest rate gyrations, half the ratio seen in the U.S.) In a report, CIBC's Tal also points out that there is little connection between Canada's real estate boom and subprime loans. "Granted, some of those exotic mortgages are now being offered in Canada, but their share in the market is too small to have any material impact," he writes.
   Real estate market: While most of Canada (Alberta excluded) didn't get the crazy price increases some U.S. cities saw, it's also not getting the same dramatic decline. Housing prices have been easing and most observers agree the boom is over, but continuing strong employment, a healthy stock market and low interest rates create little reason to expect the bottom to fall out any time soon. This is in part because our market has been largely driven by renters becoming owners rather than by investors looking to cash in on quick flips.
   Still, could we catch the subprime bug?
   According to Garth Turner, federal MP and author of a new book, "Greater Fool: the Troubled Future of Real Estate", "Absolutely, without a doubt, that contagion is spreading to the Canadian real estate market." Pointing to dropping home prices and sales volume, and tightening lending criteria among financial institutions, he suggests that signs of a real estate market meltdown are "all around us."
   However, most economists and observers are more sanguine, believing a Canadian version of the subprime mess is possible but it'd take a much less severe form. Both federal Finance Minister Jim Flaherty and the Bank of Canada have recently worried aloud about the growth in long-amortization and no-down-payment mortgages. Forty-year mortgages now represent up to a third of new mortgage business at some institutions. And because such a large portion of our net worth tends to be locked in our homes, many Canadians certainly are exposed to risks if house prices plummet or interest rates soar.
  Still, for once, we can take heart in the fact that our more boring, prudent ways will likely save us from the disaster down south. 


Read More]]>

The fallout from the subprime mess south of the border has been filling business pages for months with stories of foreclosure epidemics, real-estate market meltdowns, lenders and investment banks going under and a global credit crunch. But what exactly is at the root of it all, and why has Canada not caught the subprime virus like we do most other economic ailments of our largest trading partner? Forthwith, an explanation. 
 
 
First off, what the heck is a subprime mortgage?
No, it's not a mortgage offered at below-prime interest rate, though that's a common misconception. The term "subprime" instead describes the borrower -- a person who doesn't meet a financial institution's criteria for a loan and so wouldn't qualify for a standard mortgage. Perhaps the client has a lousy record for paying off debts, or lacks regular employment. Subprime borrowers are often low-income people, the elderly and new immigrants. Wags have coined an acronym for those who most benefited from the subprime craze -- NINJAs, or folks with No Income, No Jobs or Assets.
  To account for the risk, subprime mortgages come with hefty interest rates. However, to persuade people that they can, in fact, afford them, those rates typically kick in only after a year or two at an introductory low (or teaser) rate. The mortgages dangle other lures, such as loan amounts that exceed the value of the home (you need some cash for the furniture, after all!). Some even work like reverse mortgages, meaning the homeowner gets monthly payments that are added to the principal. The sales pitch is that the surging housing prices would allow borrowers to refinance their loans at higher values, keeping their payments affordable indefinitely.
  Why did everyone fall for this?
  Well, up until 2005, the pitch worked beautifully. Real estate was on a tear, with home prices in cities like Phoenix, Las Vegas and Miami rising by up to 30% a year. When you're on a roll -- especially in Vegas -- it's easy to forget that your luck could run out. So homeowners, dazzled by their homes' values on paper, enthusiastically tapped into home-equity lines of credit, jacking up their principals to the sky. The fact that mortgage interest payments are tax-deductible in the U.S. only bolstered the subprime market's growth by spurring people to become homeowners while offering little incentive for paying off the loans.
  The subprime industry was getting rich as well. For those selling them, subprime loans came with cushy commissions, creating fierce competition for the business. Those issuing them, meanwhile, bundled the mortgages into complex stock market securities peddled to others, and so no longer had to fear if the borrowers defaulted. Aggressively marketed, irresistibly priced, subprime mortgages comprised an incredible one-third of all mortgages in the United States by last year.
   So what ended the party?
   As the real estate market started to slow and then slump, the proverbial chickens came home to roost. With values of their homes reversing course, by early this year one-tenth of American homeowners found that what they owed on their mortgages exceeded what their homes were worth. Unable to afford the higher rates kicking in after the teasers expired, more and more people defaulted. Now, as many as two million U.S. homeowners may lose their homes. In a recent report, Benjamin Tal, senior economist with CIBC World Markets, concluded, "The price appreciation in the U.S. housing market over the past two years was, in many ways, artificial -- boosted by aggressive lending and irresponsible borrowing."
 
 
Do we have subprime mortgages in Canada?
  Yes, we do. More and more, in fact. They're typically called "alternative" mortgages and tend to cater to the self-employed and immigrants without Canadian credit history to qualify for loans. From no-money-down to cash-back mortgages, the volume of such exotic products has more than doubled in the past five years.
  So how come the same disaster hasn't unfolded in Canada?
 Because our market has developed differently due to regulation, immaturity and plain old timidity. The reasons are manifold.
  Lending practices: In Canada, it's difficult, expensive and impractical to buy a home without any down payment. Anyone who puts less than 20% down on the home can't qualify for mortgage insurance by the Canada Mortgage and Housing Corp. or Genworth Financial, and such uninsured, high-ratio mortgages charge substantially higher rates. Banks and other mainstream financial institutions also won't provide a mortgage that exceeds a home's purchase price. Even alternative lenders have tended to eschew some of the worst American excesses, such as super-low teaser rates and loose income criteria for borrowers. Option adjustable rate mortgages (ARMs), which allow homeowners to change their monthly payments, sometimes not even covering the interest, haven't seen much uptake. According to Paul Grewal, head of the Canadian Association of Accredited Mortgage Professionals, "We have not seen the aggressive lending practices common south of the border." Backing his assertion is the fact that mortgage defaults are today near all-time lows, hovering around half a percent.
  Subprime infancy: The subprime mortgage industry in Canada is very young. Only five percent of mortgages fall into that category, compared to about one in five U.S. mortgages. (We're more risk-averse in general; only 22% of subprime borrowers in Canada use variable-rate mortgages that are susceptive to interest rate gyrations, half the ratio seen in the U.S.) In a report, CIBC's Tal also points out that there is little connection between Canada's real estate boom and subprime loans. "Granted, some of those exotic mortgages are now being offered in Canada, but their share in the market is too small to have any material impact," he writes.
   Real estate market: While most of Canada (Alberta excluded) didn't get the crazy price increases some U.S. cities saw, it's also not getting the same dramatic decline. Housing prices have been easing and most observers agree the boom is over, but continuing strong employment, a healthy stock market and low interest rates create little reason to expect the bottom to fall out any time soon. This is in part because our market has been largely driven by renters becoming owners rather than by investors looking to cash in on quick flips.
   Still, could we catch the subprime bug?
   According to Garth Turner, federal MP and author of a new book, "Greater Fool: the Troubled Future of Real Estate", "Absolutely, without a doubt, that contagion is spreading to the Canadian real estate market." Pointing to dropping home prices and sales volume, and tightening lending criteria among financial institutions, he suggests that signs of a real estate market meltdown are "all around us."
   However, most economists and observers are more sanguine, believing a Canadian version of the subprime mess is possible but it'd take a much less severe form. Both federal Finance Minister Jim Flaherty and the Bank of Canada have recently worried aloud about the growth in long-amortization and no-down-payment mortgages. Forty-year mortgages now represent up to a third of new mortgage business at some institutions. And because such a large portion of our net worth tends to be locked in our homes, many Canadians certainly are exposed to risks if house prices plummet or interest rates soar.
  Still, for once, we can take heart in the fact that our more boring, prudent ways will likely save us from the disaster down south. 


Read More ]]> http://lindalinfoot.com/ViewBlog/141/#comments http://lindalinfoot.com/ViewBlog/137/ http://lindalinfoot.com/ViewBlog/137/#comments Wed, 17 Sep 2008 05:41:51 +0000 General http://lindalinfoot.com/ViewBlog/137/
NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS

• The 2008 federal budget gave birth to arguably the most dramatic change in Canada’s savings

system since the introduction of the Registered Retirement Savings Account (RRSP).

• The Tax-Free Savings Account (TFSA) is simply a tax exempt savings account which is available to

any individual aged 18 and over. At this point, the maximum contribution is $5,000 a year—a


figure that will be indexed to inflation in multiples of $500. Unlike RRSPs, TFSA contributions are


not tax deductible, and the investment earnings are not subject to income tax. Any unused TFSA


contribution room can be carried forward, and amounts can be withdrawn at any time. So in


many ways, TFSAs are RRSPs in reverse.

• How popular will the new scheme be? And to what extent will Canadians utilize the $120 billion annual

TFSA contribution room that will be available to them starting next year? Where will the money come


from? Will it be new money or will it be transferred from other accounts?

• In this context, looking at the experience of similar plans in other countries might be a good starting

point. In the US, “Roth IRA” is a similar tax-free scheme, but it is much more restrictive than the TFSA since contributions are limited only to employed individuals and are restricted to only low- and midincome earners. It is also a pure retirement plan as individuals cannot withdraw the money before the age of 59. The British Individual Savings Account (ISA) is much closer to the TFSA—with the main difference being that the British plan imposes some restrictions on the cash/stock distribution held in ISA balances. In this sense, the Canadian TFSA is somewhat more flexible since it does not face such limitations.

• But since the British version is so similar to the new Canadian one, it can provide us with some insightinto the future trajectory of the TFSA. Note that the ISA was introduced in 1999 and it is now a ₤270 billion market ($530 billion). The number of accounts has been rising at a strong average rate of 6% a year. And with the British adult population hardly changed over the past decade, the share of UK citizens that use the ISA has risen to 37% in 2008 from 22% in 2000. The average contribution is close to ₤2,500 ($4,800) out of the ₤7,200 maximum contribution allowed. • Another useful source of information is a recent Harris/Decima* poll which examined Canadians’ knowledge, perception and intentions with regard to the TFSA. The results suggest that no less than 52% of Canadians aged 18 and over are planning to open a TFSA. This is not surprising given that 58% of Canadian households hold an RRSP account. Interestingly, almost one-fifth of those planning to open an account will use borrowed money. Furthermore, as opposed to what is assumed by many, more than 40% of Canadians are likely to use new money in contributing to the TFSA. This is consistent with the situation in the UK where more than half of the money invested in an ISA is new money. While the average contribution to TFSAs is reported to be just over $2,000 a year, 25% of contributors that maximize their RRSP or face a large pension adjustment will maximize their contributions. At the same time, 42% (most likely low-income and young Canadians) will contribute less than $1,000 annually. • The issue of who will contribute is of great importance. While the budget assumption is that two-thirds of the tax savings in the next few years would be enjoyed by low-income Canadians, the experience in the UK suggests otherwise. No less than 50% of high-income individuals contribute to the ISA— significantly above the 30% seen among lower income UK citizens. As well, note that individuals over the age of 55 have the higher tendency to contribute to the ISA. There is no reason to believe that the age and income distribution in the Canadian TFSA scene will be fundamentally different than what we see in the UK. • Based on this information we estimate that Canadians will contribute roughly $20 billion to the newly created TFSA in 2009, and will continue to utilize this vehicle at an impressive rate. Note that we assume a relatively modest 3-4% annual return on capital since the duality feature of the plan (investment for retirement as well as a vehicle to finance consumption) suggests that at least in the first few years, a significant portion of the money parked in TFSAs will be in cash and cash-equivalent accounts. This assumption is supported by the Harris/Decima survey. Accordingly, we project that by 2013, the TFSA market will grow to a $115 billion market**—with a cumulative tax savings for Canadians of roughly $2 billion.

* Harris/Decima poll taken between April 30 and May 5, 2008, sample size: 2,613.


**We assumed 2.5% inflation rate. We also allowed for a gradually rising withdrawal rate—reaching close to 10% by 2013.



Benjamin Tal



Senior Economist


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NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS

• The 2008 federal budget gave birth to arguably the most dramatic change in Canada’s savings

system since the introduction of the Registered Retirement Savings Account (RRSP).

• The Tax-Free Savings Account (TFSA) is simply a tax exempt savings account which is available to

any individual aged 18 and over. At this point, the maximum contribution is $5,000 a year—a


figure that will be indexed to inflation in multiples of $500. Unlike RRSPs, TFSA contributions are


not tax deductible, and the investment earnings are not subject to income tax. Any unused TFSA


contribution room can be carried forward, and amounts can be withdrawn at any time. So in


many ways, TFSAs are RRSPs in reverse.

• How popular will the new scheme be? And to what extent will Canadians utilize the $120 billion annual

TFSA contribution room that will be available to them starting next year? Where will the money come


from? Will it be new money or will it be transferred from other accounts?

• In this context, looking at the experience of similar plans in other countries might be a good starting

point. In the US, “Roth IRA” is a similar tax-free scheme, but it is much more restrictive than the TFSA since contributions are limited only to employed individuals and are restricted to only low- and midincome earners. It is also a pure retirement plan as individuals cannot withdraw the money before the age of 59. The British Individual Savings Account (ISA) is much closer to the TFSA—with the main difference being that the British plan imposes some restrictions on the cash/stock distribution held in ISA balances. In this sense, the Canadian TFSA is somewhat more flexible since it does not face such limitations.

• But since the British version is so similar to the new Canadian one, it can provide us with some insightinto the future trajectory of the TFSA. Note that the ISA was introduced in 1999 and it is now a ₤270 billion market ($530 billion). The number of accounts has been rising at a strong average rate of 6% a year. And with the British adult population hardly changed over the past decade, the share of UK citizens that use the ISA has risen to 37% in 2008 from 22% in 2000. The average contribution is close to ₤2,500 ($4,800) out of the ₤7,200 maximum contribution allowed. • Another useful source of information is a recent Harris/Decima* poll which examined Canadians’ knowledge, perception and intentions with regard to the TFSA. The results suggest that no less than 52% of Canadians aged 18 and over are planning to open a TFSA. This is not surprising given that 58% of Canadian households hold an RRSP account. Interestingly, almost one-fifth of those planning to open an account will use borrowed money. Furthermore, as opposed to what is assumed by many, more than 40% of Canadians are likely to use new money in contributing to the TFSA. This is consistent with the situation in the UK where more than half of the money invested in an ISA is new money. While the average contribution to TFSAs is reported to be just over $2,000 a year, 25% of contributors that maximize their RRSP or face a large pension adjustment will maximize their contributions. At the same time, 42% (most likely low-income and young Canadians) will contribute less than $1,000 annually. • The issue of who will contribute is of great importance. While the budget assumption is that two-thirds of the tax savings in the next few years would be enjoyed by low-income Canadians, the experience in the UK suggests otherwise. No less than 50% of high-income individuals contribute to the ISA— significantly above the 30% seen among lower income UK citizens. As well, note that individuals over the age of 55 have the higher tendency to contribute to the ISA. There is no reason to believe that the age and income distribution in the Canadian TFSA scene will be fundamentally different than what we see in the UK. • Based on this information we estimate that Canadians will contribute roughly $20 billion to the newly created TFSA in 2009, and will continue to utilize this vehicle at an impressive rate. Note that we assume a relatively modest 3-4% annual return on capital since the duality feature of the plan (investment for retirement as well as a vehicle to finance consumption) suggests that at least in the first few years, a significant portion of the money parked in TFSAs will be in cash and cash-equivalent accounts. This assumption is supported by the Harris/Decima survey. Accordingly, we project that by 2013, the TFSA market will grow to a $115 billion market**—with a cumulative tax savings for Canadians of roughly $2 billion.

* Harris/Decima poll taken between April 30 and May 5, 2008, sample size: 2,613.


**We assumed 2.5% inflation rate. We also allowed for a gradually rising withdrawal rate—reaching close to 10% by 2013.



Benjamin Tal



Senior Economist


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