The Importance of Pre-approvals in a Seller's Market

The Vancouver Sun reported yesterday that the latest statistics now put the cities of Toronto and Vancouver into a “Seller’s Market.” But what do the terms “Seller’s Market” and “Buyer’s Market” really mean and what are the pro’s and con’s of each?

A “Seller’s Market” occurs when there are more buyers looking to buy a home than sellers looking to sell their home. This puts increased pressure on prices. The opposite of this is a “Buyer’s Market” where there are more homes listed for sale than buyers looking to purchase them. This causes downward pressure on sale prices as there is a surplus of supply.

So, to figure out if it’s a Buyer’s or a Seller’s Market right now we look to the current trend of sale prices, if they are edging up then it looks like “Seller’s Market” conditions. If prices are falling then it indicates a “Buyer’s Market.” In the Vancouver Sun article, they cite the Teranet-National Bank Composite House Price Index which showed that Vancouver prices edged up, up 0.6 percent for the month.

"Despite the last three months' declines, home prices are still 4.8 percent above their pre-recession peak at the national level, a situation that contrasts sharply with the one prevailing in the U.S., where prices are down 30 percent from their peak dating four years ago," said Marc Pinsonneault, senior economist at National Bank Financial.
"Over the next few months, we would expect price increases to resume in Canada as people try to precede the new (mortgage tightening) measure that will take effect in March.

While it’s obvious that a “Buyer’s Market” is a great situation to be in for someone who is looking to purchase a home, a “Seller’s Market” isn’t as disadvantageous as you might think. Look at it this way, a “Seller’s Market” means that there is a surplus of buyers and not enough homes for sale. This is a strong motivator for people who had been toying with the idea of listing their home for sale to now do so. In a “Seller’s Market” there will typically be a good influx of newly listed homes available to a buyer and that means there will be good deals to be found.

Of course finding a good deal is only half the battle. In order to take advantage of a good deal when you find one you must be able to act fast. That’s why it is very important that you have already spoken to a Mortgage Professional regarding a pre-approval. Our pre-approvals are different from a banks’ because we actually do a full evaluation of your financial situation before pre-approving you and holding an interest rate for you. It’s very possible that your bank is simply holding a rate for you and has not gone through the comprehensive pre-approval process; this leads to delays and possible declines down the line.

Read more: http://www.vancouversun.com/business/Metro+Vancouver+resale+price+indicates+sellers+market/4172028/story.html#ixzz1CGxzUJjh

Some advice on the mortgage renewal letter from your bank

Whatever you do, DO NOT sign and return the mortgage renewal papers you received from your bank. That is, don’t until you’ve received guidance and advice from a mortgage professional.

This is because banks will often send you renewal offers with their absolute worst interest rates hoping that you’ll simply sign and return them without looking into your options.

Here’s a case study that will show you what you stand to lose by not looking into your options when it comes time for your renewal. This is a real example that we recently came across:

The clients have a mortgage with a national chartered bank in Canada. They have an outstanding balance of $190,560.57 on their mortgage and it matures on February 11, 2011. They have 19 years remaining on their mortgage.

The renewal letter states “we are pleased to offer to renew the terms of your mortgage. The renewal options available to you are outlined below…Please initial next to the term you prefer and return this form to us…”

            The terms they have been offered are as follows:

                        1 year closed @ 3.35%

                        2 year closed @ 3.60%

                        3 year closed @ 4.15%

                        4 year closed @ 4.94%

                        5 year closed @ 5.19%

                        5 year variable @ 2.85%

Here are the terms they would have available to them if they speak to a mortgage professional:

                        1 year closed @ 2.60%

                        2 year closed @ 3.20%

                        3 year closed @ 3.45%

                        4 year closed @ 3.59%

                        5 year closed @ 3.69%

                        5 year variable @ 2.25%

Upon speaking to a mortgage professional, they decided that they would like to refinance into a 5 year closed mortgage at 3.69%. Here’s how much money they saved versus their banks offer of 5.19%:

@ 5.19% their monthly payment would be $1,310 and they would owe $156,781 at the end of 5 years

@ 3.69% their monthly payment would be $1,161 and they would owe $152,454 at the end of 5 years

A savings of $149 a month for the next 5 years means our clients will have an extra $8,940 in their pockets. In addition, they will owe $4,327 less on their mortgage!

           

On an interesting note, upon discovering the extent that they would be saving the clients received a call from their bank asking if they had any questions about the their renewal options. They were told that their bank could most likely match the 3.69% rate only AFTER they mentioned it first. By this time they were so thoroughly disgusted by their banks’ behaviour that they told their bank thanks but no thanks.

As a mortgage professional, it is our job to work for our clients. We tell you the best interest rates and options available to you from the beginning and we keep looking out for you from that moment on.

That’s why we urge you to look into your options before renewing because simply signing your renewal letter could likely turn out to be a very costly mistake.

Flaherty tightens mortgage rules

OTTAWA — Finance Minister Jim Flaherty unveiled changes Monday morning to mortgage lending rules that would see Ottawa stop backing home loans greater than 30 years and make it more difficult for households to use their property to access financing.

The changes, as reported by the National Post on Sunday, emerged as worries escalate among Bay Street leaders and the Bank of Canada about the record levels of household indebtedness, and how conditions could deteriorate unless pre-emptive action was taken.

The key change announced is that mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years.

Also, Mr. Flaherty lowered the maximum amount Canadians can borrow against the value of their homes, to 85% from 90%, on a refinancing; and removed federal government backing for home equity lines of credit, or so-called HELOCs, whose popularity soared in the past decade with growth double that of mortgage debt.

"Canada's well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries," Mr. Flaherty said at a media conference. "The prudent measures announced [Monday] build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future."

Executives at Bank of Montreal applauded the government's move.

“The actions announced are prudent, measured, responsible and timely,” said Frank Techar, president of personal and commercial banking at Bank of Montreal.

The changes will be implemented in stages, with adjustments on amortization and refinancing limits coming into force on March 18. Government backing on HELOCs will be removed as of April 18.

The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.

The minimum down payment, at 5%, will remain as is. Further, there are no plans to target condominium purchases by requiring monthly condo fees be added to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage.

Analysts at Scotia Capital said in a morning note the changes had been anticipated for some time. “We remain of our long-held belief that Canada is tapped out on housing and household finance variables that are all at cycle tops, in contrast to the U.S. that has already moved well off cycle tops and may be creating some pent-up demand,” said economists Derek Holt and Gorica Djeric.

The changes to the country’s mortgage rules -- the second in as many years -- emerge amid rising concern about the record levels of household debt, which measured as a ratio of money owed to disposable income nears a startling 150% as of the third quarter of last year. That surpasses the level of debt held by American households, whose appetite for borrowing helped stoke the financial crisis of a few years ago.

The Bank of Canada recently warned debt levels are growing faster than income, and the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a “significant change” in how consumers borrow and banks lend.

Bank of Canada governor Mark Carney said policymakers have a “responsibility” to look at the benefits of pre-emptive action. Joining the chorus have been chief executives at the big banks, most notably Ed Clark at Toronto-Dominion Bank, in publicly advocating for tougher mortgage standards.

Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages.

 In February of 2010, Mr. Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan; reduced the amount Canadian can borrow against their home, to 90% of the property value from 95%; and require purchasers of rental properties to issue a 20% down payment as opposed to 5%. The moves played a role, observers say, in slowing down real estate activity.

The Scotia Capital analysts suggested government regulation was the way to go in terms of curbing household appetite for credit as opposed to the Bank of Canada raising interest rates, which they said would be “imprudent” at this time.

The central bank issues its latest rate statement on Tuesday and it is expected to hold its benchmark rate at its present 1% level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States.

Stewart Hall, economist at HSBC Securities Canada, said the extraordinarily low-rate environment “provides all the incentive to consumers to borrow and spend and none of the incentive to save. You can try to [regulate] that away but that is apt to be fraught with significant frustration.”

National Post

A discussion on the 2011 BC assessment

Homeowners in BC are just now finding their 2011 property assessment notices in the mail. In BC, homes are assessed their market value each year in order to calculate their property and municipal taxes. The 2011 property assessments reflect a value as of July 1, 2010.

Value increases and decreases vary wildly depending on where in BC you live. Homes in Vancouver, for example, increased an average of just over 12% while homes in Victoria only averaged slightly more than a 4% increase in value. In less densely populated parts of the province such as 100 Mile House, property values actually fell on average.

For many homeowners, seeing an increase in their property assessment notice is bittersweet. While it’s nice to see what is perhaps your single largest investment increasing in value, any increase likely means your property and municipal taxes will increase as well. With many families struggling financially, even modest increases in taxes is significant.

For example, let’s say your assessment last year was $359,000 and you owed $1500 in property taxes. This year if the value rises by 10% to $394,900 you would owe $1650 and that’s assuming that the tax rate didn’t go up.

There is an old saying along the lines of “nothing is worth anything until it sells” and that’s very true when it comes to property assessments. If you’re not planning on selling your property (and the majority of people are not planning on selling anytime soon), you’re likely going to want to see as small a change as possible on your assessment. On the other hand, if you are trying to sell your home, you’re going to be hoping for as large an increase as possible on your assessment.

But there is another possibility. Depending on what it said on your 2011 assessment, now may be a good time to look into refinancing your home. With our low current interest rates and potentially your newfound equity it may be a wise decision to look into the possibility of saving money via consolidating high interest debt and/or lowering your current mortgage interest rate.

For further information on the 2011 BC property assessment you can visit the BC Assessment website at:

http://www.bcassessment.bc.ca