Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

5 things mortgage shoppers can expect in 2015

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Smiling beautiful couple sitting on a bench at summer park and pFrom the Globe & Mail’s mortgage columnist Robert McLister comes this list of five predictions for mortgage shoppers in 2015:

1.) More mortgage restrictions:

McLister says new limits on government-backed mortgage funding will make it costlier for lenders to fund mortgages, or new underwriting rules will make it harder to qualify for mortgages.

2.) Record discounts for variable mortgage rates:

By the end of 2015, some lenders or brokers will be advertising discounts better than prime minus 1%.

3.) Brokers will break into there camps:

These will be full-service, online mortgage brokers and everyday brokers. The latter will be uncompetitive versus other brokers, banks and credit unions, McLister says.

4.) A glut of private money:

Alternative lenders like Mortgage Investment Corporations (MICs) will thrive as investors chase higher yields and the abundance of capital will tempt sub-prime lenders to take more risk. McLister expects that as a result some will offer mortgages with only 10% or 15% down instead of the traditional 20% or 25%. As a result, consumers will have more lending options at lower interest rates.

5.) Brokers will pitch you other stuff:

Expect cross selling of everything from GIS to insurance, credit cards and RRSPs.

The 10-year rule: what home buyers can learn from the stock market

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House With Life Preserver CrashingInteresting piece by the Globe & Mail’s Rob Carrick today about the 10-year rule. The columnist says prospective home buyers should follow the same 10-year rule that investors do with stocks:

“If you can’t wait at least a decade for a transaction to make financial sense, don’t do it.”

Carrick worries about the recent estimate by the Bank of Canada that housing here may be overvalued by 10 to 30%. With all the chaos going on in the world lately, “Houses don’t have immunity. They are financial assets, just like stocks, gold bars and gallons of oil.”

And in an example that hits home, he reminds us that after reaching $254,197 in 1989, the average house price in Toronto fell so long and hard it took until 2002 to set new highs. I recall personally buying a starter home in Toronto in 1988 for $230,000 and ultimately selling in 1996 for $182,000.

It worked out though, since we bought a better home closer to the lake: a strategy known as “moving up in a down market.” That initial $50,000 paper loss has been recouped ten or twenty times over.

On stocks, I’ve often heard experts cite a five-year rule but Carrick says a 10-year rule is more prudent and “a 10-year hold should work for housing, unless we get a crash like the one in the United States or in Toronto in the late 1980s.”

Ouch, he reminded me again!

 

Mortgage financing costs rising for some first-time home buyers

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expensive houses from euro banknotesMortgage costs may rise  up to $600 for typical first-time home buyers, the Financial Post reported Friday. Garry Marr says Canada Mortgage and Housing is tripling the fee it charges to guarantee loans in the mortgage-backed securities market.

Marr suggests the move is consistent with Ottawa’s goal of cutting back its role in mortgage insurance but may also help to put the brakes on an overheated housing market. As Terence Corcoran reports in another column, the Bank of Canada has suggested the Canadian housing market may be overvalued by up to 30%.

For a typical mortgage of $250,000 for a first-time home buyer, Marr quoted a source who estimated the extra cost will be as much as $600.  It could mean a jump of up to 10 basis points on a five-year closed mortgage. The changes are effective April 1, 2015.

Those with less than a 20% downpayment are required to get mortgage default insurance if borrowing from a federally regulated financial institution.

Marr says that among the moves Ottawa has taken to cool the red-hot housing market has been to lower mortgage amortization rates from 40 years to 25 years.

How savers can cope with minuscule interest rates

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Joe Atikian Saving Money Book
Joe Atikian

By Joe Atikian

Special to the Financial Independence Hub

Savers almost everywhere have nearly been beaten into submission by seemingly perpetual Zero Interest Rate Policies (ZIRP) imposed by central banks around the world.

The simple connection is that when interest rates are low, there is no incentive to save money. The flip side is that low interest rates make borrowing cheap, so people raise their debt load. So, is it still worthwhile to save when interest rates are low?

Continue Reading…

Whither oil?

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Oil Wells Means Power Source And DrillingWhat’s going on with oil? Not a day goes by without extensive commentary on (literally) the fuel of the industrial economy worldwide. Plunging oil prices. Keystone and pipelines to the southwest or Canadian east? At the Financial Post this weekend, two of six trending topics are Keystone XL and oil prices. Baker Hughes may or may not merge with Halliburton. Fracking and the shale revolution continues to bring the United States closer to energy self-sufficiency. Saudi Arabia seems happy to supply the West with cheap oil even as that puts the squeeze on nations like Iran and Russia, and other petro nations that desperately need much higher oil prices. And what of Canada’s oil sands? Also in the Post, Yadullah Hussain ties together many of these disparate threads a piece headlined Who will blink first as global oil prices collapse?

Not the consumer, surely? Our family runs two hybrid vehicles but we’re still happy to be able to buy cheaper gas. Airlines and the travel industry surely welcome this development.

What about peak oil?

What ever happened to peak oil? Have we heard from Jeff Rubin lately? Here’s a piece from Canadian Business written two years ago about whether his call was wrong. His book suggested sky high oil prices meant we’d curtail travel and become more local. Luxuries like salmon would become prohibitively expensive?

Weren’t higher oil prices supposed to be inflationary? And wasn’t that supposed to be bad for the stock market? So aren’t low prices to be cheered, unless of course you’re overweight oil stocks?

Here at the Hub, we don’t profess to have all the answers but we will endeavour to point to sources that can shed light on complex geopolitical topics like this one.

This is a theme we will keep close tabs on.