March Commentary - Economy, Housing and Mortgages

Spring is nearly here, in Toronto at least, (sorry Halifax) the snow is fast disappearing and while the weather has graced us with a couple of warm days we are at least seeing longer days. I love the sunshine. Maple season is here for those heading out to the sugar bush events and houses are being listed and sold at a searing pace, with the first 2 weeks of March seeing 3,838 sales through MLS, an 11.8% increase over this time last year.

The Bank of Canada has held rates down and while banks did finally drop their prime rates, 15 bps, they did not match the 25 bps the Bank of Canada announced in January.   This has still been great for variable rate borrowers.

As ever the pundits are calling for the rates to stay low and to go up.  While the US economy is doing well, places like Brazil and India have less momentum than they did, and if we can get around the official numbers it looks like China is slowing down more than the world had hoped. 

The spillover effect of the sanctions imposed on Russia for their acts of hubris are hurting Germany, the engine of Europe, so this is going to be a lose-lose on the sanctions game, but since no one wants war with Russia and they still want to take a moral stance I guess there is still a price to be paid.

Canada is now more than ever a petro-dollar economy and so we will probably not see our dollar go back up anytime soon, the hope that other sectors would pick up has not proved as successful at offsetting the declines due to oil, as had been hoped, so the dollar is low, rates are low and in some sectors jobs are being lost.  This does not suggest that we will see rate increases any time soon.

An average single detached house price in Toronto is now $1 million, a nice milestone to keep the news hounds happy, but what does this mean.  A few things, 1) cheap financing  2) there is a LOT of money in Toronto, 3) people keep coming to Toronto and 4) land is finite.   Developers, are now seeing the writing on the wall and are starting to invest in rental housing, they see that the long term prospects of owning a home will be further diminished as the wealth divide increases and more people will rent.

This means 2 things for the some people  1) it is a good time to invest in buying rental properties and 2) house prices are not likely to drop too much even when rates increase. 

Our personal (non-mortgage) debt levels keep rising, but we seem to be managing.  The government has not jumped on the banks for dropping their lending rates on mortgages this time, and Harper has indicated that they "are not planning to take any immediate action." This is good news for the real estate sector.

On a side note I have yet to see a news story where banks are dropping their credit card interest rates, but then those are not underwritten by government insurance and somehow they keep it out of the news. 

Something always happens, at the moment though I do not think it will be much. 

I do not think there should be a mad rush to buy just because of the current interest rates, while they may rise and fall a bit we are still in crazy low territory, so take your time and buy what you want when you can.

When you or someone you know is ready to buy, refinance or renew give me a call I will always work to get you a great deal and take advantage of the battle of the lenders to make sure you get the RIGHT mortgage at a GREAT Rate.  More often than not I can get you something better than most people can find on their own.


All the best.

Debt - Inheritance - Get your affairs in order!

This article from the CBC (http://www.cbc.ca/news/business/high-consumer-debt-reflects-laissez-faire-attitude-to-borrowing-1.2988768) and others discuss the growing debt burden on Canadians. They make allowances for the fact that house prices are insane, and interest rates are also historically low, and that despite the slump in the oil sector a lot of Canadians do not feel that the economy is too bad, but the pundits still feel their is a need to worry.

Then there are other articles about the transfer of wealth, and in the case of the Maclean's article, the battles that can come with that transfer (http://www.macleans.ca/society/life/the-inheritance-wars/).

So, how much of the transfer will offset the debt? And an insufficiently covered part, until I read the Maclean's piece, was how much will the lawyers get.

There are several battles waging for the money that might be transferred. The longevity and health of the people currently holding the wealth: they may be healthy enough to spend it travelling, or need more expensive medical care. The amount that their children might have needed during the much rockier times since the 70s with more schooling, poor job markets and now, high costs of housing. Then of course there is also the philosophical position of those holding the wealth. In 2013 this article came out (http://www.businessinsider.com/tycoons-not-leaving-money-to-their-kids-2013-8?op=1) and while being taken care of by billionaire parents might be more than most would get, it is still not what the rest of us thought might happen. I also know middle class families that hold the same views, that children need to make their own way and should not rely on their parents to get ahead.

I think I lie somewhere in the middle. The world is a tough place and while I think children, young or grown, need to be able to fend for themselves and build a future and not depend on what may be left to them, I think some help is OK. Some might want to build a dynasty, or grow family wealth and set things up so that whatever you are given by your parents you must give each of your children at least that amount. If this were the case then someone must double, or triple their net worth to keep those standards if they have children. Is this done through a Trust? How can you hold people to this? I think the key thing is raising your children with the values you really want them to have, and giving them too much will definitely lead to zero motivation to succeed on their own. So what this help looks like will be different for every family, but what I can say is whatever your plans make sure you get them down on paper and make sure they cover all eventualities.

Do not forget you, or a family member, may get dementia and you should know that, in Ontario anyway, the laws are against the family in the case of a single adult with dementia. Why do I say this? If you think children can be nasty fighting over their inheritance just think about what could happen if a nice man, or woman, saw your single mother, or father, with dementia and a tidy nest egg. Maybe the Will was in place before your parent got dementia, and maybe mom, or dad cannot legally sign a contract to buy a car, but they can get married, and in Ontario at least, if they get married that Will they wrote back when they knew what they wanted, becomes NULL & VOID, and then when they die, well, I guess the lawyers could get most of it, but it certainly will not shake out the way it was planned. (In case you want to read more check out this book, it is well worth the investment if you, or your parents have any net worth that might be targeted. http://www.carswell.com/product-detail/capacity-to-marry-and-the-estate-plan/ and/or listen to the following broadcast http://podcast.cbc.ca/mp3/podcasts/ontariotoday_20150115_54711.mp3 ).

I could go on, but my belief is that we are not going to see debt ratios getting any better while interest rates are so low and housing prices remain so high. I also think despite articles warning that there may be less than one planned when parents die, and it may come later, people are still going to pretend they will rely on their inheritance to get them through their own retirement. This kind of wishful planning is not the best path so whatever your beliefs, or plans, make sure you have the paperwork and budgets in line to meet your own, and your family's goals.