McPherson Group

Market prices vs. Interest rates

Glen McPherson Group — Sun, 31 Aug 2008 16:10:00 GMT

Many factors contribute to the decision to buy real estate. Let's look at one:
Market prices and mortgage interest rates;
If you are financing a property, it is the interest rate that ultimately determines what you pay.

For example, let's say buyer "A" purchases a home today for $500,000, puts 20% down and mortgages $400,000 at 6% on a 30 year fixed rate.

Buyer "B" decides prices are still dropping and waits six months to a year to purchase that same home. If the price drops 10% over that wait period, buyer B would be able to get that same home for $450,000.

However, during that same time, if the interest rate goes up by 1.25 percent to 7.25 percent, even with 20 percent down and mortgaging only $360,000, Buyer B would actually be paying $10,750 more for that same house.

This means that although buyer "B" saved $50,000 on the purchase price, he paid $60,750 more for his financing. Ironically, the buyer who bought sooner and paid more saves over $67 per month on his mortgage payment. A small 1.25% increase in interest rate can more than offset a 10% reduction in purchase price.

A buyer needs to scrutinize the trends in both real estate prices and interest rates.

July 2008 Sales data for Vancouver Island Real Estate Board

Glen McPherson Group — Tue, 12 Aug 2008 01:47:00 GMT

NANAIMO, BC – Multiple Listing Service® (MLS®) sales summary data released by the Vancouver

Island Real Estate Board (VIREB) for July 2008, reports declines in unit sales volume with increases in

the inventories of properties listed for sale.

There were 444 sales of single family properties in the VIREB area through the MLS® in July 2008, up

from the month before but down nearly 28 per cent from the 616 sales in July 2007.

“If properties are priced correctly, they are selling. Unit sales in July 2008 were actually up in four of

VIREB’s six zones from the previous month,” says VIREB President Subhadra Ghose.

“I think that shows that consumers are listening to their REALTOR® and adjusting their pricing to reflect

the current marketplace.”

Inventory continues to increase, as single family properties listed for sale in July 2008 were up over 40%

from the end of July 2007.

On a 12-month year to date basis, average sale price across the VIREB region for July 2008 was

$354,120. This is a six per cent increase from the $333,024 posted at the end of July 2007.

“While the 12-month average sale prices continue to rise slowly, we saw monthly average prices come

down from the previous month in all zones except Port Alberni,” Ghose says.

“This further shows that consumers are being educated by their REALTORS® that properties that are

priced right are continuing to sell.”

For the 12-month period from the end of July 2007 to July 2008, average sale prices rose in five out of six

of VIREB's zones: Campbell River declined three per cent (to $315,261), the Comox Valley was up 10

per cent (at $363,679), Nanaimo is up four per cent (to $364,182), Parksville/Qualicum grew four per cent

(to $382,108), Port Alberni increased 17 per cent (to $256,214) and the Cowichan Valley increased 15 per

cent (to $406,375).

Ghose says recent government changes reducing mortgage amortizations back to 35 years, and

eliminating 100% financing, is a good incentive for buyers to act now before the changes take place.

“We’re seeing lots of buyers out there. They need to act now to get those deals in motion, because the

changes take effect October 15th,” she says.

VIREB represents approximately 1,214 licensed REALTOR® members in more than 85 member offices

on Vancouver Island (north of Victoria).

Residential Listings Reach New Levels

Glen McPherson Group — Tue, 12 Aug 2008 01:42:00 GMT

New MLS® residential listings reach new levels

OTTAWA – July 15, 2008 – New listings of homes for sale on the Multiple Listing Service® (MLS®) in Canada’s major markets reached record levels in the first half of 2008, while sales activity retreated from the record levels reported in 2007, according to MLS® statistics released by The Canadian Real Estate Association (CREA).

New MLS® residential listings in Canada’s major markets numbered 332,958 units in the first six months of 2008, up 8.1 per cent from the previous record set in the same period last year. For the third time in as many months, seasonally monthly adjusted new MLS® residential listings topped 50,000 units in June 2008.

More new properties were listed in April, May, and June this year than in any other month on record. This pushed seasonally adjusted new listings to new levels in the second quarter of 2008, up 7.5 per cent from levels the previous quarter. New listings reached record or near-record levels in Toronto, Vancouver, Ottawa, Regina, and Saskatoon. This more than offset a decline in new listings in Edmonton and Calgary, which continue retreating from peaks in March.

By contrast to rising new listings, sales activity in the first half of 2008 was down compared to the same period of 2007, which was a record-setting year. Transactions declined by 13.3 per cent year over year to 169,265 units in the first half of 2008. Seasonally adjusted transactions fell on a month-over-month basis in the first two months of the year, with the February decline being the largest in more than four years. Activity in 2008 subsequently posted four consecutive monthly increases, but remains below where it stood at the end of last year.

New year-to-date sales activity records were set in St. John’s and Thunder Bay in June. In the second quarter, seasonally adjusted activity reached the second highest level on record in Winnipeg, Quebec City, Gatineau, and Saint John. Quarterly transactions also posted their third highest levels in Ottawa, St. John’s, and Thunder Bay, and reached their fourth highest ever level in Montréal.

Over the past six months, easing sales activity and a surge in new listings caused the resale housing market to become considerably more balanced in many major housing markets. Vancouver, Regina, and Saskatoon were the most balanced major markets in June.

Protect Your Profit from Capital Gains Taxation

Glen McPherson Group — Wed, 04 Jun 2008 01:47:00 GMT

Tax-free profit on the sale of your principal residence is alluring, but it can be elusive. Under the federal Income Tax Act, property owners are entitled to tax-free profit on the sale of their principal residence, provided they follow the Canada Revenue Agency (CRA) guidelines. Capital gain is the net difference between the cost of a property and the sale price.

Many Canadians take the tax-free status of their home for granted. To protect your principal residence exemption from capital gains taxation, seek professional advice before you act. For instance, if you made a profit on the sale of your cottage, but did not report it on your tax return, the CRA may consider the cottage as your designated principal residence and disallow tax-free status for your home. You can also lose the exemption if you move frequently since that may be considered a business activity which does not qualify.

"Capital gains are the second least taxed type of income after the principal residence tax-free exemption," said Louis J. Sapi, CA, MBA, a founding partner of Toronto-based Hinchcliffe Sapi LLP, who agreed to participate in a Q & A session, drawn from reader queries and common concerns. Sapi stressed that the information provided in his answers does not replace professional advice and is not intended to provide a professional opinion or advice for a specific tax issue. Contact professional tax and legal advisors to assess your particular situation and needs.

Question: I lived in my home for 10 years then rented it out for 3 years while renting another place. What would the tax consequences be if I now decide to sell my home?

Answer: If you move from your home, rent it out and then decide to sell after several years, tax rules permit you to designate your home as a principal residence for four years after a change of use. Write the Minister of Revenue a letter to "elect" to designate your home as a principal residence at change of use. You must not claim any capital cost allowance or depreciation on the home while it is rented during the election period. The same rule would apply if you bought another home.

In that case, during the first four years, the new home would not be designated a "principal residence" if you elected your former residence (rental) property as your principal residence for those same years. You and your significant other (including common law or same sex partner) cannot own two principal residences at the same time for tax purposes. You must choose one during the over-lapping period after 1981. Professional advice will help you optimize tax benefits.

Question: I used part of my home as an office and part as a principal residence. Will this impact on my claim for tax-free status if I sell my home?

Answer: If you also use your home as a place of business and claim capital cost allowance, you would need to assess that portion of the home used for business and prorate the capital gain between the tax free principal residence portion and the business portion. The business portion would be taxed at the current capital gains inclusion of 50 percent of the gain taxed at your marginal tax rate. If you use one room in your home as an office or nominal use of your home and do not claim capital cost allowance, you may be able to avoid any capital gains tax on the sale of the home. The particulars of your case would need to be assessed by your tax advisor to ensure that you could avoid capital gains tax on the sale of this home.

Question: I have a family cottage that I inherited while I owned a principal residence. The cottage has sky-rocketed in value since I got it and now I want to sell. Do I need to pay tax on this property and, if so, how much?

Answer: The cottage property was inherited at its fair market value at the time of title registration in your name. If you renovated the cottage, additional costs would be added to the fair market value at inheritance. The cottage value and costs of renovation would be the tax cost of the cottage for purposes of capital gains tax. In certain circumstances, you may also add property taxes paid for the cottage. The proceeds you receive are reduced by the legal fees/disbursements and sales commission to the real estate agent, if any, and the tax cost of the property. Fifty percent of the capital gain is included in your income and taxed at your marginal tax rate. Contact a tax advisor to evaluate the net after-tax result before you sell.

Question: What if I move back into the cottage? How long would I need to wait before I could sell it as my principal residence tax free?

Answer: It does not matter if you move back in. The tax rule requires you to allocate the number of years that you held the cottage as your principal residence. Remember that only one principal residence can be owned after 1981. If you own two residences during the same or part of the time, you will need to prorate the capital gain on the sales of each residence to the extent the residence sold was designated your 'tax free' principal residence. The necessary calculations are best carried out by those well versed in the tax rules.

Question: I want to buy properties, rent them out and have the tenants pay the mortgage and expenses while I write-off net rental losses against my other income. Is there any tax problem with this plan?

Answer: The properties need to be available for rent during the tax period. The tenants should be paying rents at prevailing market rates. Your children or relative tenants renting at discounted rates would increase net loss and raise a flag with tax authorities. You must add the costs of renovation to the value of the building during the period the rental unit is not available for rent. The value of land, if any, is separated from the building value that is subject to capital cost allowance. You may reduce rental profit by the capital cost allowance for that particular rental property. You may not increase a rental loss by capital cost allowance. Mortgage interest, not mortgage principal, would be tax deductible expense. Net rental losses would be deducted against other income.

Question: I want to give my home to my son and his wife. What are the tax issues?

Answer: If you give your home to your child, there would be a deemed disposition and capital gains tax would accrue only to the extent that the property was not your principal residence. This is determined by counting the years you claim the gifted property as your principal residence plus 1 year, then divide this number by the total number of years you owned a principal residence. The prorated gain, if any, would be included in your taxable income at the current inclusion rate of 50 per cent and taxed at your marginal tax rate.

Complications could include the following:

Issues that may arise under family law that could result in the donated residence being attached by your former daughter or son in-law upon dissolution of your child's marriage.
If your child is spend-thrift or possibly insolvent and subject to creditors, they may attach liens on the property that you donated.
Transferring the property to a family trust may prove wise. Your tax and legal adviser and an estate planner can help you to decide on the best way to gift property to your children or to provide financial support to relatives and avoid unexpected disappointment.

Yes, capital gains issues are complex, but the right professional advisor will help you find the best tax strategy to achieve your real estate and related goals, short- and long-term. Ask a lot of questions before you act.

Written by PJ Wade

Nanaimo residential construction turns hot

Glen McPherson Group — Wed, 16 Apr 2008 12:18:00 GMT

Nanaimo residential construction turns hot

Carla Wilson, Times Colonist; With files from CNS

Published: Wednesday, April 09, 2008

Nanaimo was the hot spot of residential construction on Vancouver Island last month.

Contractors in the Harbour City built 134 new housing units -- projects that included an apartment building and several townhouse projects -- to more than double the 58 units that went up during the same month a year ago.

According to the Canada Mortgage and Housing Corp., Nanaimo has 247 new housing units over the first three months of the year, compared with 165 over the first quarter of 2007.

"Increased demand for both single and multi-family housing in Nanaimo boosted March's housing total housing starts on Vancouver Island," said Peggy Prill, senior market analyst with the Canadian Mortgage and Housing Corp.'s office in Victoria.

A total of 287 new housing units were started on Vancouver Island in March. That was up from 250 during the same month a year ago. However, the 881 new housing starts for the first three months of the year are lower than the 952 built during the same quarter in 2007.

All other major Island centres showed declines in new housing over the quarter. Greater Victoria had 391 starts over the first three months, compared with 468 a year ago. Duncan slipped to 46 from 61, Parksville-Qualicum 49 to 64 and Courtenay 148 to 194.

A total of 86 homes were started in Victoria last month, down from 119 in February. The largest number of starts among local municipalities took place in Langford, where work began on 20 single-family homes. Saanich had 15 starts in March.

"Certainly the level of pre-sales [on the Island] are continuing to be strong, although perhaps not quite as strong as in the last couple of years," Prill said.

The federal agency is predicting that new home starts this year will be healthy, but not reach the numbers of last year.

New home starts in B.C. urban centres decreased considerably to 29,800 (seasonally adjusted), from 47,400 in February.

Nationally, the housing market cooled slightly in March, with construction slipping to 254,700 units from 255,600 the previous month, CMHC said.

But last month's building activity was still stronger than most analysts had expected, given recent indications that Canada's hot market is beginning to retrench to more realistic levels. Forecasts ranged from 218,000 to 222,500 new units in March.

"The high level of starts posted in February continued in March, thanks to the multiple segment and particularly condominium starts, which registered a significant rise in Alberta," said Bob Dugan, chief economist at CMHC.

"Nevertheless, the single-detached component, which is usually a strong trend indicator, decreased slightly. This is consistent with our view that the housing market will moderate gradually throughout 2008."

The Canadian economy will avoid recession: report

Glen McPherson Group — Wed, 16 Apr 2008 12:13:00 GMT

The Canadian economy will avoid recession: report

Eric Beauchesne

Canwest News Service

Monday, April 14, 2008

OTTAWA - The Canadian economy will avoid being dragged into a recession by the U.S. downturn thanks to healthy domestic activity and strong commodity prices, a major Canadian financial institution forecast Monday.

However, CIBC World Markets warned that Canada may slowly bleed factory jobs for years, and long after what it sees as a relatively short U.S. recession ends.

"The energy-and resource-rich Canadian economy will manage to sit out this U.S. recession ...," said Jeff Rubin, CIBC economist and one of the authors of the forecast. "Nevertheless manufacturing - and in particular, autos and parts - remains vulnerable, both to a U.S. recession and a parity exchange rate."

CIBC is forecasting that high commodity prices, which are cushioning Canada's resource sector, will push the loonie to $1.05 US by year end. The currency closed at 98.08 cents US Monday, up from 97.71 cents US Friday.

Oil, which CIBC sees reaching $150 US a barrel over the next several years, rose more than a dollar to a record high close of more than $111 US a barrel Monday. TD Bank, meanwhile, reported that its commodity price index, led by surging oil prices, "rallied strongly last week" to a "whopping" 29 per cent more than a year earlier.

CIBC forecast that continuing high commodity prices and the strong dollar will hurt central Canada's manufacturing-based economy.

"Weakness in the Ontario economy, which will likely come the closest to outright recession of any of the provinces, will likely spur further Bank of Canada rate cuts," Rubin said.

CIBC expects another three quarters of a percentage point reduction in interest rates here, somewhat less than in the U.S., which will also help lift the loonie.

Canadian economic growth will slow to 1.6 per cent this year from 2.7 last year, it forecast but would rebound to a healthy three per cent next year.

While the U.S. slipped into recession in the first quarter of this year and will remain in a recession this quarter, it will start to recover in the summer, leading to 0.9 per cent growth for the year, accelerating to 2.3 per cent in 2009.

While the U.S. rebound will help Canada's struggling manufacturers, the strong dollar and a relatively heavy reliance on labour will continue to weigh heavily on the sector, it warned.

"Relative to the U.S. Canadian manufacturing was loading up on workers during the cheap Canadian dollar era ...," Rubin noted, warning, "we could see years of slow bleeding in factory jobs and activity ... ."

The forecast was issued amidst further evidence of Canada's strong domestic economy - a continuing non-residential construction boom in the first quarter of this year led by activity in Alberta and then Ontario.

"Last year's pace for investment in non-residential building construction continued into the first three months of 2008, again the result of major construction activity of office buildings underway in Alberta and Ontario," Statistics Canada said in reporting that investment hit $10.3 billion, up 1.6 per cent from the fourth quarter, the 20th consecutive quarterly increase.

Even another Statistics Canada report of a 3.2 per cent drop in Canadian auto sales in February was not seen as a serious economic setback as it followed two months of strong sales and the level was still the fourth highest on record.

And business leaders, at least outside of the struggling manufacturing sector, remain relatively upbeat about the outlook for sales and employment, according to a Bank of Canada survey.

"While the weaker U.S. economic situation is weighing more heavily on the outlook, firms are not expecting a marked change in the pace of business activity," it said in releasing the results of its quarterly Business Outlook Survey.

Businesses continued to report higher sales from a year earlier, although the balance of opinion on future sales growth has turned slightly negative, reflecting slower sales in the struggling manufacturing sector, but still suggesting that overall they expect sales to continue to rise at nearly the same pace as over the past year, it said.

Fewer firms reported facing capacity pressures or labour shortages, but inflation expectations have increased with more looking to an acceleration of prices for what they buy and what they sell. However, inflation expectations are within the central bank's one-to-three-per-cent inflation control range, it noted.

Also, for the third straight quarter, firms reported increased difficulty getting credit.

Still, more firms expected to boost rather than cut back on investment, although the gap between those who plan to purchase new machinery and equipment and those that will cut back on such purchases narrowed closer to zero.

"Among firms planning to invest less, most of whom are based in Central and Eastern Canada, the most common reason cited was significant investment spending over the past year, followed by a desire to preserve cash given uncertainty about the economic outlook," the Bank of Canada said. "Firms located in Western Canada generally expect to increase investment spending over the next 12 months."

The latest quarterly survey of an economically representative sample of senior managers from 100 firms was conducted from Feb. 22 to March 20.

BMO Capital Markets economist Michael Gregory said the survey results justify a further half a percentage point cut in interest rates by the central bank after its rate review meeting next week.

And TD Securities economist Jacqui Douglas said comments to the media by Bank of Canada governor Mark Carney since the weekend meeting of G-7 finance ministers and central bank governors also suggest the central bank is ready to cut rates further.

"His comments were dovish and emphasized the need for a forward-looking approach to monetary policy, supporting our call for a (half-a-percentage point) rate cut," she said. "If there was one over-riding theme in Governor Carney's remarks, it was that despite the fact that domestic demand in Canada continues to hold up, he's still very concerned about the outlook for growth."

Meanwhile, the March U.S. retail sales report was "marginally" better than expected with a 0.2 per cent increase.

"On balance ... it does not change the trend in consumer spending by any measure," said TD Bank analyst Charmaine Buskas, adding that TD still expects a further half a percentage point cut in U.S. rates later this month.

"The consumer continues to be buffeted by a number of headwinds, including high energy prices, weak job growth, and difficult credit conditions," she said "All these factors have translated into slumping consumer confidence which in turn, will remain a drag on retailing activity."

Scotia Cards

Elaine Dillabaugh — Tue, 01 Apr 2008 00:43:00 GMT

Scotiacards are now available to mortgage and loan only customers.This enhancement gives mortgage and loan only customers the ability to obtain a Scotiacard and access the floowing services through Automated Banking Machines(ABMs), Internet and telephone banking.

Customer benefits include:

Scotia Online Financial Services

-view your mortgage details including balance, interest rate, maturity date, tax balance amount.

-increase your mortgage and property tax payment.

-change your mortgage payment frequency.

-renew your mortgage within 90 days of renewal date.

-obtain your STEP information.

-get your loan balances.

-open a bank account.

-apply for a credit account.

ABM

-view your mortgage details including balance, interest rate, maturity date

-get your credit summary.

-get your loan balance amount.

TeleScotia Telephone Banking Service

-obtain your mortgage details including balance, interest rate, maturity date.

-obtain your credit summary.

-obtain your loan amount

Recommendation to clients from Glen McPherson

Glen McPherson Group — Mon, 31 Mar 2008 15:40:00 GMT

Are you in need of a mortgage? Perhaps you are after a pre-approval in the event the right property comes available or maybe you just would like some sound advice on your mortgage options. I would like to recommend Elaine Dillibaugh. Very professional! Elaine will be posting information on this site regarding markets & mortgages. Please don't hesitate to give her a call.

Elaine Dillabaugh

Scotia Mortgage Specialist

Elaine.dillabaugh@scotiabank.com

250-743-0559 BUS

877 887 8834 Toll Free

250-380-8326 cell

250-743-9372 fax