Dennis Philps

RE/MAX reported yesterday that ‘the dramatic, decade-long run-up in house prices’ may be over.  This will be a big shock for Edmonton homeowners who have enjoyed  a compound annual growth rate of 9.25% over the past decade.  The Canadian Real Estate Association has revised its house price projections to 1.3% growth in both 2011 and 2012!  Those who saw real estate as a surefire investment may be in for a major shock in the days ahead!

Does it still make sense to own your own home?  Absolutely!  It is better than paying rent.  Besides mortgage rates are still very affordable –even though they are now creeping above 4% for a 5 year term.

Even in a static market, selling and buying again still amounts to an equity exchange.  As well, there will always be motivated sellers who need to sell and price their homes accordingly.

One of the biggest urban myths that is widely circulated among the real estate crowd is that foreclosure properties are available at severely discounted prices.  Granted there are a growing number of foreclosure properties available for sale with probably a steady stream of them yet to come.  But the reality is that these properties are placed on the market by the lending institution at their perceived market value.  Any price reduction will normally be unavailable for the first 30-45 days or more.

There are some very important considerations to bear in mind when placing an offer on a ‘foreclosure’ or ‘judicial’ listing.  The risks are much greater than in a normal real estate transaction:

1.  Did you know that these homes are normally sold to the highest bidder in an open-ended bidding process/

2.  Did you know that once an offer to purchase is made to the courts, it becomes a matter of public record and open therefore to all other potential buyers who may not submit a higher offer to negate yours?

3.  Did you know that the ‘offer to purchase’ you must submit places most, if not all of the risk, on your shoulders?  The property is being sold on an ‘As is, where is’ condition.  For example, the purchase contract you must submit must be accompanied by a ‘Schedule A’ or ‘Schedule B’.    Accordingly, the bank or the court will eliminate from the standard contract any obligation to provide a Real Property Report (where applicable), to deal with any existing property location problems known or unknown, to ensure that all appliances are in normal working order on possession day (In fact, the seller will not warrant the ownership of the appliances and the new buyer may see them repossessed even after taking possession!), to provide vacant possession on Completion Day (The sheriff may have yet to evict them!), to assume responsibility incurred on the property between the time of making the offer and gaining possession (making offers sight unseen is not uncommon), to pay any applicable GST that has not yet been paid (for extensive renovations done by current owner), or, in the case of a condominium, to provide an Estoppel Certificate or pay for any special assessments levied after the submission of the offer?

4.  Did you know that unconditional, cash offers are the only ones given serious consideration?

Now, if you still are determined to buy a foreclosure, it is strongly suggested that you get legal counsel to assess your risk and obligations BEFORE the offer to purchase is submitted for consideration.    The risk to you is enormous!

In most cases, bargain hunter’s would be advised to look for a ‘motivated’ seller out on the open market where the risk factor decreases dramatically.  Buyer’s clauses like ‘subject to satisfactory financing’ and subject to ‘a building inspection by a qualified inspector satisfactory to the buyer’ are normal and expected.

To be forewarned is to be forearmed!  Please note that these ideas have largely come from the pen of ‘Legal Lou’ Pesta, a well-repected real estate lawyer in Calgary!

Jim Flaherty, Federal Finance Minister, announced some significant changes coming March 18, 2011 and April 18, 2011 [HELOC] to existing mortgage lending rules:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Edmonton home buyers take note particularly of the reduced amortization period.  Take the following example as a guide.  A $150,000 mortgage at 4% interest amortized over 35 years requires a monthly payment of $661.20; spread over a 30 year period, the payment becomes $713.28.  In other words, the payment increases by $52.08 per month.  Reducing the payment period to 25 years [and saving yourself ahuge amount of interest payments] would require a monthly payment of $789.03.

If you are thinking of buying this year and you would like to take advantage of the lower payment structure, ACT NOW!

2010 is now in the history books! It is a time to reflect on the real estate events of the past year. There were some interesting developments:

1. Prices rose for the first half as buyers entered the market ahead of changes in the mortgage lending rules.
2. Prices fell off in the second half as the number of listings mushroomed and a ‘buyer’s market’ forced sellers to adjust their asking prices downward to stay competitive.
3. Only 45% of the listings on the MLS listings sold in 2010.
4. The average days of listings on the market was 50, down 3 days from 2009.
5. The average sales price for December for homes was $355,271 and for condos was $223,454.
6. The average Year-to-date sales price for homes was $377,340 and for condos was $240,891. Compared to 2008 prices, home prices were virtually unchanged while condos were lower by $13,000.
7. The most active price range was $250,000 to $299,999 with $200,000-$249,999 coming in second.
8. 73 $1,000,000+ homes sold in 2010 compared to 56 in 2009 and 59 in 2008.

Mortgage lending rates have started to creep to 4% for 5 year closed term. Expect these rates to continue to rise in 2011. Some are predicting at least a 1% increase. NOW is the time to lock in your mortgage pre-approval!

Average Edmonton home prices are expected to rise marginally in this new year [perhaps 4-5%). In a few months, the trends will be easier to identify!

Edmonton Real Estate continues to ride the roller-coaster.  The good news is that single family house prices have risen almost 6 per cent from one year ago to an average selling price of about $391,500.

However that upward trend has been tempered by a 37 per cent decrease in sales compared to June 2009.  1,539 residential sales were recorded in June 2010.  In other words, half of the realtors in Edmonton did not register a sale in the previous month!

It also should be noted that the listing inventory at the end of June was 9,406 which is only 500 shy of the record set in September 2007.  Buyers will be happy with the large selection.  Sellers, on the other hand, need to be aware that in this over-supplied marketplace, price and condition have become huge issues in this ‘buyer’s market.’  Only if a home is priced right and shows well will it have a reasonable chance to sell!

The Realtors Association of Edmonton is now forecasting a slowdown in sales and falling prices in the next few months!

A stable marketplace is nowhere in sight!

The Federal Finance Minister announced three new mortgage guidelines today that apparently will take effect April 19, 2010:

1.  Refinancing will be limited to a maximum 90%.  You will thus need at least 10% equity in the home.

2.  Variable rate mortgages [2.25% today] will need to qualify at the 5 year closed rate [3.69% today].

Non-owner occupied homes [investment properties] will now need a minimum cash down-payment of 20%.

Whether you live in Riverbend, Glastonbury, Fraser or Mill Woods, take note of these changes if your mortgage is close to renewal!

The Conference Board of Canada has just forecasted that Edmonton’s economy will grow a modest 3.2% in 2010 and then 4% between 2011 and 2014. With a GDP decline of 2% in 2009–the biggest drop on record, this indeed is good news! The Conference Board has also predicted that the job market will remain soft this year with an unemployment-rate increase to 7.5%. Retail sales, home resales and the construction sector will all show moderate gains.

Alberta’s oilpatch will see better days in 2010 although a full recovery will not be seen until 2011. Such a recovery will have a significant impact on Edmonton’s economy since the two are inextricably linked.

If you thought the Tiger Woods story was confusing as it unfolded, then as an Edmonton home owner you were quite possibly even more confused by two conflicting newspaper reports. The Realtors Association of Edmonton recently reported that home prices in the Edmonton area had increased over 4% in 2009 and that we were the first place in the country to show signs of an economic recovery from the dreaded recession.

Following on the heels of that optimistic report came news from the City of Edmonton that house values had decreased 10-20% and this was confirmed by the tax notices that arrived in the mail this week!

The confusion is understandable! Who is right? Which side can be trusted? Is one of the sides missing an important information to the puzzle?

The truth is that both sides are correct when the matter is brought into focus from their perspective! The Realtors Association is reporting a modest increase in the actual price of homes sold in 2009 while the City of Edmonton bases their figures on assessed home values for property tax purposes. With the dramatic downturn in 2007 and with the city only reporting annually, it is only natural that they would now be attempting to reflect a current reality.

If you are wondering the market value of your current residence, a realtor should be able to give you a fairly accurate assessment of its current worth based on recent sales data.

Confusion resolved!

In the light of the sub-prime disaster in the USA, Federal Finance Minister Jim Flaherty announced yesterday that he is considering two major changes to the way home mortgages are delivered in Canada. First, the 5% minimum cash down-payment may be increased. This falls on the heels of the cancellation of the no-cash down mortgage. Secondly, the time to pay out a mortgage may be reduced from the present 25 year [300 month] limit. Buyers in the last couple of years have benefited from 30 and even 35 year amortization limits.

Edmonton home buyers, looking to purchase a home or condo in the next while, need to keep these musings in mind. It may well mean that you will need more cash up front in order to qualify. It may also mean that, with higher monthly payments due to a shorter paydown period, you will pay less interest over time but, in the immediate, have to settle for a home less than what you might have expected.

As always, securing a 90-120 day written mortgage pre-approval at today’s attractive rates only makes sense to the wise and informed buyer!