Month: January 2012

Calgary Real Estate News

Pondering merits of low-rate mortgage financing? Crunch the numbers when deciding whether to convert from variable

With today’s unprecedented low interest rates, homeowners may be wondering if it’s a good time to refinance or lock in their variable-rate mortgages.

The Bank of Montreal last week introduced a 2.99-per-cent five-year mortgage — believed to be the lowest five-year fixed mortgage rate ever.

Although BMO’s low-rate mortgage has some restrictions — including a maximum 25-year amortization and limited prepayment options — it could potentially save a lot of money for homeowners who qualify.

After BMO announced the new mortgage, some other banks followed suit, announcing similar low-rate products, but none we found that match the five-year term. TD and RBC announced 2.99-per-cent mortgages for four-year terms.

“In today’s environment, it’s an extremely competitive rate at about [.5 of a percentage point] off what most financial institutions have posted right now,” said Carolyn Heaney, area manager for specialized sales, BMO. “People are very interest-rate savvy, so a 2.99 has caused a lot of inquiries.”

BMO introduced its low-rate mortgage product in March 2010; the product’s previous low was 3.29 in December 2011.

Richmond mortgage broker Chris Pughe said just one of the lenders she deals with, AGF, is offering 2.99 for a five-year fixed mortgage, but several are close.

“There are some with a four-year at 2.99 and a lot of the lenders are at 3.19 or 3.29 right now [for five years],” Pughe said.

Any decision to refinance or lock in will depend on what a person has already committed to — term and interest rate — and what penalties will have to be paid. At BMO, mortgage penalties are whichever is greater: three months’ interest or an interest rate differential, which is a calculation based on what the bank will lose in interest if you pay your mortgage off early and renew at a better rate.

But penalties vary from one financial institution to the other, Pughe said. She gave the example of a five-year mortgage at Vancity, where for the first three years an interest rate differential penalty will apply, but in the last two years the penalty will only be three months’ interest.

Pughe said it only takes a mortgage broker or banker about 10 minutes to figure out if breaking your existing mortgage and renewing at these low rates makes financial sense.

Most people who locked in about five years ago are at about 5.09 to 5.49 now, Pughe said. If they locked in three years ago, in late 2008, rates were 5.0 to 5.5 and in early 2009, they were a bit lower at 4.24 to 4.5. Today, the equivalent rate is about 3.29.

Although 5.29 is the regular posted five-year rate at BMO, the rate charged is usually less because banks offer discounts based on their relationship with a customer.

The 5.29 rate is close to the lowest posted five-year rate BMO has offered in the past 20 years, which was 5.25 in April 2009.

But it’s still anybody’s guess whether this will be the bottom, if rates will drop further, or go up.

“I remember when rates dipped in 2004-05, the best rate was 4.3 and we all thought we’d seen the bottom,” Pughe said.

As far as variable-rate mortgages go, Pughe said if you’re lucky enough to have one with a good discount, it’s probably a good idea to hang onto it.

“The best discount you’re able to get right now with a variable-rate is prime minus two, which is 2.8 per cent,” Pughe said “That has shrunk in the past two or three months because we were able to get prime minus [.8 or .75 of a percentage point] not that long ago.”

Most people taking new mortgages are going with fixed rates, Pughe said.

“It depends on people’s personal risk tolerance,” Pughe said. “There are people who hear on the news that interest rates are going up, then they call you at 11 at night. Those are the people who shouldn’t be in variable rates.”

Even though BMO is promoting its 2.99 mortgage, Heaney said most people opt for a 30-year amortization rather than 25.“Everyone stretches out and that’s not bad advice,” Heaney said.

“One suggestion is to go out to the maximum and then you can control, as the consumer, how you want to pay that back.

“People are more conscious of their debt today, and they want to pay their mortgages off as quickly as possible, but they don’t want to be house poor, where they can’t do anything.”

Heaney said the decision about whether to lock in a variable rate is a matter of how well you will sleep at night.

“It’s always a gamble when you go into a longer-term rate because you don’t know what the future rate will be, but a five-year at 2.99 is pretty much unprecedented,” Heaney said.

For Pughe, the bottom line is if you have a variable mortgage with prime minus .75 or .8 of a percentage point, leave it, because there’s no pressure on prime to go up.

“But if you’re in a fixed term, and if you’re paying a three- month interest charge penalty, it makes a load of sense to make a phone call.”

© Copyright (c) The Vancouver Sun

Calgary Real Estate News

Calgary MLS sales and prices to increase in 2012: CREB

The city’s resale housing market will benefit from consumer confidence in the later part of 2012 pushing MLS sales and average prices higher for the year, says a forecast released Wednesday by the Calgary Real Estate Board.

At its annual forecast breakfast, CREB predicted single-family home sales would jump 12.2 per cent in 2012 to 14,800 transactions while the average sale price would increase by 2.1 per cent to $476,000.

It also forecasts year-over-year sales growth of 5.9 per cent for condominiums to 5,700 units with the average price increasing by 1.7 per cent to $292,000.

And in the towns outside Calgary market, CREB foresees a 3.6 per cent hike in sales to 3,900 transactions and a 0.2 per cent rise in the average sale price to $355,000.

“As the market moves into balanced territory, there will be more opportunities for both buyers and sellers in this market,” said incoming CREB president Bob Jablonski.

“2012 will provide consumers with stable price growth in a low interest rate environment, encouraging both the first-time buyers and the move-up buyers to be more active in the marketplace.”

“While the uncertainty in the global markets is not boosting consumer confidence, strong economic fundamentals point to improvements occurring throughout 2012,” said CREB’s 2012 economic outlook and regional housing market forecast. “The economic uncertainty will continue to weigh on consumer confidence in the first portion of 2012 — limiting activity; however, as the benefits of employment growth and migration settle in, confidence in the local economy will trickle into the resale housing market, moving activity to levels more consistent with long-term trends.

“With no anticipated changes to the interest rate, mortgage rates will remain at historical lows and will continue to support housing demand. This, combined with anticipated wage growth and no significant upward pressure on housing prices, will support affordability levels in Calgary’s housing market throughout 2012.”

The report said the expected increase in sales activity in the single-family market reflects strong employment and migration gains in the city.

Those gains will also boost demand in the condo market as will lower supply in the single-family market.

“Furthermore, reduced condominium construction levels over the past two years will help alleviate some of the supply pressures,” said CREB.

Last year at this time, CREB forecast annual sales for single-family homes to hit 14,500 units and increase by 19.9 per cent in 2011 from the previous year. Condos were forecast for 6,000 sales, up 15.8 per cent. The forecast for the single-family average sale price was $480,000, up 4.1 per cent, and $295,900 for condos, up 1.8 per cent.

But what actually transpired in 2011 was a completely different picture.

There were 13,186 single-family home sales, increasing by 9.06 per cent, and the average sale price was $466,402, up 1.14 per cent. Condo sales were 5,382, up 3.98 per cent, and the average price was $287,172, down 0.94 per cent.

Here’s what some others have forecast for the market in 2012: Royal LePage predicts the average price will rise 3.6 per cent and sales will be up by 10.6 per cent; RE/MAX forecasts sales up by five per cent and the average price to increase by three per cent; TD Economics sees sales up by 0.1 per cent and the average price to increase by 0.5 per cent; and Canada Mortgage and Housing Corporation is calling for a sales increase of 2.3 per cent and a price increase of 2.2 per cent.

© Copyright (c) The Calgary Herald

Calgary Real Estate News

Calgary MLS sales in 2011 beat Canadian average Up 7.0% from the previous year

Calgary MLS sales in 2011 bested the Canadian average for year-over-year growth, according to the Canadian Real Estate Association.

In releasing its year-end data on Monday, the association said sales of 22,466 units last year were up 7.0 per cent from the previous year while in Canada sales grew by 2.2 per cent to 456,749 transactions.

Sales across Alberta jumped by 6.9 per cent to 53,146 units.

However, Calgary and Alberta were behind the national average when it came to the annual price hike.

Calgary and Alberta registered 1.0 per cent year-over-year gains in the average MLS sale price to $402,851 and $355,808 respectively.

The national average was a 7.2 per cent hike to $363,346.

“The momentum in sales activity provides clear evidence that low interest rates continue to draw homebuyers to the housing market,” Gary Morse, CREA’s president, said in a statement. “While buyers have become increasingly cautious, the hand-off for sales activity going into the New Year suggests that Canada’s housing market will continue to benefit from low interest rates in 2012, and continue making a significant contribution to Canadian economic activity.”

Momentum for national sales activity and average price remains positive but is slowing, which suggests that the continuation of low interest rates is not causing the Canadian housing market to overheat, said Gregory Klump, CREA’s chief economist.

“High-end home sales seem unlikely to spike again in the first quarter like they did at the beginning of 2011, so national average price momentum may wane further over the next few months,” he said. “With interest rates widely expected to remain low throughout 2012, home ownership will remain affordable, and continue to support home sales activity.”

Douglas Porter, deputy chief economist with BMO Capital Markets, said the Canadian housing market showed distinct signs of moderation in late 2011, with even some of the hottest of the hot cities simmering down.

© Copyright (c) The Calgary Herald