Everything You Should Know About Buying Vacant Land in Canada

 

When buying a home in the Canadian real estate market, many commonly assume that the bulk of the cost is for the home, but in reality it, it is the land that the house is built on that is of most value.

The housing market is all about the land since, especially in hyper-dense cities, is ostensibly finite. While Canada is one of the largest countries in the world by land mass, and are are still plenty of development opportunities from coast to coast, it is also one of the most expensive markets on the planet.

But whether you purchase an empty lot in the middle of Toronto or vacant land in the outskirts of Saskatchewan, it is an entirely different process than buying a conventional property.

So, what do you need to know?

Everything You Should Know About Buying Vacant Land in Canada

Here are eight things that you should know when purchasing vacant land in the Canadian housing market:

#1 An Investment Opportunity

Buying vacant land can serve as a tremendous investment opportunity to generate steady income or save for retirement. Depending on where you live, there are so many ways that you can utilize this land, from operating it as a rental property to using it for commercial purposes. Indeed, one of the key advantages of buying vacant land is that you can decide what you want to do with it.

#2 Conduct or Review Recent Surveys

Land surveys are critical for land buyers. The purpose is to determine the property’s legal boundaries and easements. Unless the survey was done within the last year or two, it is essential that you conduct a survey with your name attached to the endeavour. You can hire a professional firm to help you begin the rigorous process. Costs will vary on the size of the land survey.

#3 Know the Costs of Developing the Vacant Land

So, without existing infrastructure on the vacant property, you will need to develop it yourself. Indeed, this goes beyond just putting together lumber and building kitchens. Instead, you will need to clean and level the land, access power lines, and identify water and sewage solutions. Suffice it to say, there is much to do when buying vacant land, which can be pretty expensive.

#4 Where Are the Roads and Utilities?

Be it residential or industrial property, you need to ensure that your land is near utilities, such as power lines, phone lines, a water main, water and gas. This can be difficult to secure in a remote area. If the property is very remote, you may need to plan to go off-grid with solar power, which will depend on local law. Investigate the rules associated with incorporated versus unincorporated townships – some will allow greater flexibility than others. In addition, when you are exploring vacant lands, it would be prudent to locate well-maintained roads enabling easy access to essential services.

#5 Understand Zoning Laws

The objective of zoning laws is to differentiate the property between commercial, industrial, and residential. Therefore, it is your job – with the help of your real estate agent – to discover which zoning laws apply to the area you want to buy. Of course, you can always apply for rezoning the property, which requires research and due diligence.

#6 Request a List of Restrictions

While you’re researching the zoning laws, request a list of restrictions, such as constructing a fence, parking a certain number of automobiles, or the height of any building built on the land. While you can always negotiate changes to the list, especially if they are outdated, it is always best to develop within the confines of these restrictions.

#7 Natural Disasters

Canada’s remote areas are more prone to natural disasters than jurisdictions closer to city centres. Some of these regions will see flooding, tornados and severe snowstorms. This can be harder to handle when you live in an unpopulated part of the country. Therefore, it is imperative not to have vacant land that is more vulnerable to these devastating events since it could threaten life and the property might not be insured.

#8 Financing

The last thing you need to determine is the type of mortgage that you will be applying for as you develop the vacant land. Here are some of your options:

Land Mortgage: This is similar to a residential mortgage, except the chief difference is that you will need to put down a more significant down payment and pay higher interest rates.

Construction Mortgage: This is the type of loan utilized to acquire vacant land so you can build on top.

Agricultural Loan: If the sole purpose of this vacant land is to develop agriculture, you can apply for agriculture-related loans, such as the Canadian Agricultural Loans Act (CALA) offered by the federal government.

Conclusion

Building a home, farm or commercial property from scratch can offer immense opportunities. Everything is new, and you can design it the way you want. It is truly an incredible feeling.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  RE/MAX

The First-Time Home Buyer Incentive – 2022 Edition

 

Housing prices are at record highs across Canada. These prices are hard on those looking for a new home, especially first-time home buyers. Buying your first home is stressful enough, but high prices, and rising interest rates, have first-time home buyers looking for help to make their mortgage payments more affordable. One option is the First-Time Home Buyer Incentive.

The First-Time Home Buyer Incentive (FTHBI) is a shared-equity mortgage aimed at making home ownership more affordable for first-time home buyers. The program is designed to lower their monthly mortgage payments without increasing the amount they need to save for a down payment. Sounds great, right? But there is more to the story, including who qualifies, how to apply, and the long-term viability of the incentive. We’ll dig into it all here.

Canada’s First-Time Home Buyer Incentive

1. How does the First-Time Home Buyer Incentive work?
2. Why is the First-Time Home Buyer Incentive important for Canadians?
3. Who qualifies for the First-Time Home Buyer Incentive?
4. How to apply for the First-Time Home Buyer Incentive?
5. Is the First-Time Home Buyer Incentive worth it?

How does the First-Time Home Buyer Incentive work?

The First-Time Home Buyer Incentive helps qualified home buyers ease the load of their monthly mortgage payments. It is a shared-equity mortgage loan with the Government of Canada. Yes, you co-own the home with the government.

The percentage of support changes depending on the type of home you are buying:

• 5% or 10% for a newly constructed home
• 5% for a resale home
• 5% for a new or resale mobile or manufactured home

The incentive is a loan based on the property’s fair market value. It is interest-free, and you can repay it anytime without incurring penalties. You should be aware of the following conditions:

1. The loan must be repaid within 25 years of the date borrowed or when you sell the home, whichever comes first.
2. While the loan is interest-free, it’s a “shared equity mortgage,” which means the government shares in any gains or losses on the property value up to a maximum profit or loss per year of 8% (not compounded).

Why is the First-Time Home Buyer Incentive important for Canadians?

First-time home buyers have a hard time getting the downpayment for their future home. A recent survey conducted by Leger on behalf of RE/MAX reveals that many Canadians struggle with housing affordability. This affordability is the primary reason the federal government launched this incentive in 2019.

Here’s an example of how the incentive benefits first-time home buyers in Canada. Let’s say Muhammad wants to buy an existing home in Regina for $400,000. He has saved $20,000 to put toward the down payment (5% of the purchase price).

Because it is an existing (or resale) home, Muhammad can receive $20,000 (5% of the cost of the home) through the First-Time Home Buyers program. That money will increase Muhammad’s down payment, resulting in lower monthly payments.

Who qualifies for the First Time Home Buyer Incentive?

The aim of the First-Time Home Buyer Incentive is to help middle-class home buyers who need a boost. Here’s how you qualify for the program:

• You must be a first-time homebuyer
• You must have a household income of less than $120,000
• The mortgage is capped at four times the maximum household income of $120,000, or $480,000. This means the average price of a home would be $500,000 to $600,000, depending on the down payment.
• You are a Canadian citizen, permanent resident, or non-permanent resident authorized to work in Canada
• You meet the minimum down payment requirements with traditional funds (which include savings, RRSP withdrawals) or a non-repayable financial gift from a relative or immediate family member.

Last year, the government modified the eligibility criteria for homebuyers in Toronto, Vancouver, and Victoria. First-time homebuyers in those metropolitan areas are now eligible for an increased Qualifying Annual Income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income. This change would increase their buying power to roughly $722,000, up from $505,000.

In terms of the home itself, it must be in Canada and suitable for full-time, year-round occupancy. It must be your primary residence and can’t function as an investment property.

How to apply for the First Time Home Buyer Incentive

The first steps are similar to the path of any home buyer. First comes pre-approval for a mortgage through your bank or mortgage broker. Then you find your ideal home, ideally with the help of a skilled real estate agent.

If you’re eligible, it’s time to apply for the incentive. Like any government program, there is extensive paperwork to complete. You provide those documents to your lender, and they submit the application for you. From there, you wait for acceptance and follow the instructions provided.

Is the First Time Home Buyer Incentive worth it?

Critics have questioned the value of the First-Time Home Buyer Incentive, arguing that it does little to help homebuyers in Canada’s priciest housing markets – the people who need the incentive the most.

We can see Toronto as an example where the incentive may fail first-time home buyers. According to the RE/MAX Toronto Housing Market Outlook Report, the average sale prices of homes in Toronto are well above the threshold of the program. The average sale price of a home was $1,054,992 in 2021. It’s estimated to hit $1,160,491 this year. The max for the incentive is $722,000, limiting the inventory that a first-time buyer can choose.

Critics point to the restrictive eligibility criteria, unnecessary extra fees, and disinterest from prospective homeowners having to co-own a home with the government as all drawbacks of the program.

Additionally, the market has seen record sale prices since the onset of the pandemic. As those prices soar, it increases the amount that you have to pay the government to settle the loan. You may end up paying more than you borrowed, a risk of the incentive.

What does the future hold for the program? The Liberal government introduced this incentive in 2019, hoping 100,000 Canadians would take advantage of the shared-equity mortgage. But recent reports have revealed that only 16,000 Canadians have benefited.

The program has paid roughly one-fifth of the expected amount ($269 million) since 2019. The three-year deadline arrives in September 2022, so we will see if the program changes, remains the same, or is scrapped.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  RE/MAX

Canadian Housing Market Outlook: Fall 2022

 

RE/MAX Canada Network expects Canadian housing market prices to decrease 2.2 per cent this fall

• RE/MAX brokers and agents anticipate prices in the Canadian housing market to ease by 2.2 per cent this fall, due to high inflation, rising interest rates and economic uncertainty
• Rising interest rates have prompted 44 per cent of Canadians to temporarily shelf their home-buying aspirations, while 34 per cent say they won’t hold on purchasing a home for the foreseeable future
• Recession worries have impelled 41 per cent of Canadians to wait to purchase/sell their home in fall 2022

Toronto, ON and Kelowna, BC, September 28, 2022 – RE/MAX brokers and agents are anticipating the national average residential sale price in the Canadian housing market to decline 2.2 per cent in the final months of the year (September-December), according to RE/MAX’s 2022 Fall Canadian Housing Market Outlook Report. This market moderation comes on the heels of rising interest rates, record-high inflation and broader global and economic uncertainties that have impacted consumer confidence and market activity. Bucking the downward trend, seven out of 30 Canadian housing markets analyzed are likely to experience modest price appreciation between 1.5 and seven per cent. Meanwhile, RE/MAX brokers and agents expect a decline in sales this fall, in 18 out of 30 markets surveyed.

In a survey of RE/MAX brokers and agents, 25 out of 30 said rising interest rates have affected activity in their local residential market this year, with some indicating that this has been the biggest factor impacting homebuyer and seller confidence – a trend that is likely to continue for the remainder of 2022. These insights are supported by a new Leger survey commissioned by RE/MAX Canada, which reveals that 44 per cent of Canadians agree that rising interest rates are compelling them to hold on buying a property this fall, while 34 per cent say they won’t hold.

“While we are still facing significant housing supply shortages across the Canadian housing market, many regions are experiencing softer sales activity given recent interest rate hikes. This provides some reprieve from the unprecedented demand and unsustainable price increases we’ve seen across Canada through 2021 and in early 2022,” says Christopher Alexander, President at RE/MAX Canada. “However, the current lull in the market is only temporary. Until housing supply increases, these ‘boom’ and ‘bust’ cycles will likely be a recurring event.”

“Despite the fact that nearly half of Canadians are waiting to buy or sell a home, we’re confident that as economic conditions improve by mid-2023, activity will resume,” says Elton Ash, Executive Vice President, RE/MAX Canada. “Timing the market for short-term investment is extremely difficult and rarely successful. But as a long-term investment, the Canadian housing market continues to yield solid returns. If someone needs to buy or sell, regardless of those cyclical peaks and valleys, being informed and working with an experienced real estate professional can help consumers clarify some of those unknowns and make the best decision possible.”

Regional Canadian Housing Market Trends

RE/MAX brokers and agents in Canada were asked to provide an analysis of their local market this fall and share their estimated outlook for the remaining months of 2022 (September-December).

Western Canada and the Prairies

In regions such as Vancouver, BC, Victoria, BC, Kelowna, BC, and Edmonton, AB, RE/MAX brokers reported rising interest rates as a factor impacting local market activity, resulting in softening consumer confidence, fewer multiple offers from buyers, and a shift toward more balanced conditions between buyers and sellers. In all regions analyzed in Western Canada and the Prairies, with the exception of Calgary, AB and Edmonton, AB, the average residential sale price is expected to decline between zero and 6.5 per cent.

In Calgary, AB, interest rate hikes and recession worries have not had a notable effect on the market, due to the region’s relative affordability. As such, a modest three-per-cent price increase is expected through the remainder of the year. In Edmonton, AB, rising interest rates have had the greatest impact on homes priced from $500,000 to $1,000,000, while those priced at $400,000 or less are still relatively affordable and a good entry point into the market, despite the current economic climate. Edmonton is likely to experience a modest price increase of 1.5 per cent for the remainder of the year. In both Vancouver, BC and Edmonton, AB, demand for luxury properties has remained stable, with interest rate hikes having a minimal impact on this segment of the market. This is expected to continue into the fall months. Low inventory remains a pressing concern in Kelowna, BC, Victoria, BC, Vancouver, BC and Calgary, AB, and is expected to place upward pressure on home prices in 2023 and beyond. In contrast, recent commercial and industrial developments have eased inventory concerns in Winnipeg, MB for the time being.

 Ontario

Much like other provinces across the country, Ontario has not been immune to the impacts of rising interest rates. Many markets including Oakville, Windsor, Barrie, Durham, Kingston and Kitchener-Waterloo, anticipate – and in some cases already experiencing – a reduction in the number of units sold over the coming months. Apart from Oakville and Muskoka, average residential sale prices in Ontario are likely to remain steady or decrease between two to 10 per cent in the fall months.

Similar to Western Canada, the luxury market has remained resilient and in-demand among buyers in Oakville, despite rising interest rates and a looming recession – a contributing factor to the modest two-per-cent average residential sale price increase expected in Oakville this fall. Muskoka continues to attract homebuyers to the area, while simultaneously, many sellers are eager to sell before year-end. Given a steady stream of demand, Muskoka is expected to experience a modest five-per-cent increase in average residential sale price this fall. In Peterborough, interest rate hikes and the subsequent effects on the stress test have eroded affordability in the area, which is the main factor contributing to the seven-per-cent decrease in average residential sale price expected in the coming months. The return of conditional offers has been a prevalent trend across the province, including in Kingston, Kitchener-Waterloo, Muskoka and Peterborough. Echoing many regions across Canada, Durham, London, Sudbury, Ottawa, the Lakelands and the Greater Toronto housing market are expected to regain balance in 2023, albeit with low inventory continuing to place upward pressure on prices. As one of the more affordable markets in Ontario, Thunder Bay is unlikely to experience any significant fluctuations in average residential sale prices this fall.

 Atlantic Canada*

Similar to Western Canada and Ontario, economic factors such as rising interest rates and a possible recession have contributed to decelerated home-buying activity in the region. Charlottetown, PEI experienced immediate impacts as interest rates rose, with the number of sale transactions reduced by almost half on a month-over-month basis, particularly among properties in the $500,000 to $1,000,000 price range. Despite these circumstances, Atlantic Canada continues to attract out-of-province buyers due to its affordability, relative to the rest of Canada. The majority of Atlantic Canada housing markets analyzed are expected to experience modest price increases through the end of 2022, including Halifax, NS (+1.5%), Moncton, NB (+6%) and St. John’s, NL (+7%). The outlier is Charlottetown, PEI, where average residential sale price is expected to decline by two per cent in the fall months.

Housing affordability continues to attract buyers in Moncton, who have been able to leverage the recent decrease in demand to negotiate with sellers and include conditions on purchases. Meanwhile in St. John’s, NL, economic pressure from rising interest rates has resulted in extended rent periods by would-be buyers, despite this region anticipating an increase of seven per cent in average residential sale prices. The trend has been further exacerbated by low housing inventory. However, recent “green” government announcements and initiatives are anticipated to boost the local economy and in tandem, the housing market. In spite of concerns over supply falling short of demand, Charlottetown, PEI is expected to regain more balance in 2023. However, inflation coupled with the increased cost of living will likely result in a moderate two-per-cent decline in average residential sale prices through the end of 2022.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  RE/MAX

Bank of Canada hikes key rate by another 75 bps, warns more hikes ahead

 
The Bank of Canada hiked its benchmark interest rate by 75 basis points on Wednesday, the fourth consecutive outsized hike, and the central bank warned further increases are to come.

The hike brings the key interest rate to 3.25 per cent, the highest level since April 2008, when the Bank was slashing its rate in the midst of the Great Recession. Canada now has the highest policy interest rate among G7 countries.

The central bank warned the policy rate will need to rise further "given the outlook for inflation."

"As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target," the Bank said in a statement released with the decision.

"The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2 per cent inflation target."

Economists widely expected the Bank of Canada to issue its fourth consecutive outsized hike on Wednesday, with a majority of those surveyed by Bloomberg anticipating a 75 basis point increase.

Wednesday’s decision brings the benchmark rate into restrictive territory. The Bank of Canada has estimated that the neutral range for its interest rate, where it is not stimulative nor does it weigh on the economy, to be within two and three per cent.

The Bank of Canada has aggressively hiked interest rates since March as it attempts to set a firehose against scorching inflation. The central bank raised its benchmark rate by 100 basis points in July, the first full percentage point increase since 1998, a decision that came after two consecutive 50 basis point hikes. Before March, the interest rate sat at 0.25 per cent.

Canada’s inflation may have hit a peak, with the July’s Consumer Price Index (CPI) decelerating for the first time since last June, but it remains well above the central bank’s target of around 2 per cent.

The Bank of Canada said Wednesday that while GDP growth in the second quarter was "somewhat weaker" than it had originally forecast, domestic demand remains strong, with consumption growing by 9.5 per cent and business investment up by nearly 12 per cent. The central bank also noted that core measures of inflation (excluding gasoline) continue to increase, and that surveys suggest short-term inflation expectations remain high.

"The longer this continues, the greater the risk that elevated inflation becomes entrenched," the Bank said.

The warning that the policy rate will need to rise further sets the stage for another increase on October 26, economists say. CIBC World Markets chief economist Avery Shenfeld lifted the target for the end of the Bank of Canada's targeting cycle, "with at least another quarter point on tap for October."

"Even then, the Bank is likely to want to leave the door open to go beyond 3.5 per cent until it gets more definitive evidence of a deceleration in growth and inflation pressures," Shenfeld wrote in a note shortly after Wednesday's decision was released.

"We see that as likely to be in evidence over the next few quarters, but probably not fast enough to forestall at least a small further hike in October."

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: Yahoo Finance

Can you get a zero-down mortgage in Canada?

 

When it comes to buying a home, the down payment is probably the biggest barrier that new homebuyers face. For this reason, it is common for buyers to try and buy with a lower down payment in order to purchase their home sooner. Especially with prices as high as they are, this option has proved useful for many homebuyers.

Generally, when it comes to buying a home, the lowest possible you can go on a down payment is 5% of your home's purchase price. But what if there was another way to get your home while paying even less?

It turns out there may be. Though zero-down mortgages are rare in Canada, there are some ways you may be able to make it work. However, this option will not be suitable for everybody. In general, your mortgage will be riskier the less you pay, and your mortgage terms may also become less favorable. But if you have no other options and are willing to put in a bit of extra work, this may be the path for you.

In this article, we will explore your options for a zero-down payment mortgage in Canada, how to qualify, and whether or not it is right for you.

Do zero-down payment mortgages exist in Canada?

You might be surprised at this article’s topic if you thought that a zero-down payment mortgage was not an option in Canada. Technically you're right, but that isn’t the whole story.

The vast majority of lenders in Canada will not offer you a mortgage with no down payment at all. In fact, the more highly regulated major lenders legally could not if they wanted to.

In most cases, the lowest you can go is 5% of your home's purchase price. This is only available for homes under $500,000 and will incur mortgage default insurance costs.

But, just because you can't get a zero-down payment mortgage doesn't mean that the down payment money has to be your own. It is possible in some cases to use borrowed money as the down payment to borrow more money for a mortgage, resulting in effectively zero-down on your part. This is the basic principle that makes zero-down payment mortgages possible in Canada.

How does a zero-down mortgage work?

Essentially, if you want to put zero-down upfront on your mortgage, you will need to get the money somewhere. There are a few options where you may go for this loan.

Naturally, this comes with some complications. The first and most obvious is that you are now taking on two separate debts to buy your home. This can put you at a lot of risk as a borrower and will mean higher monthly costs requiring strong money management skills.

Further, lenders don't just give you a mortgage if you show up with a down payment. They want to know where the down payment came from and that you have the money to support the payments. If they know you went into deep debt to get your down payment funds, they might just disqualify you from getting the mortgage anyway. You may be required to shop around to different lenders willing to work with someone in your position.

On top of everything else, you will need a great financial profile to qualify. Obviously, your savings aren't great if you had to take out a loan for a down payment, and now your debt service ratios may not be great either. To make up for this, you will have to have an excellent credit score and a high and stable income to boot.

Where does the money come from?

When looking to put zero-down on a house, there are a few places you can look to find funding.

Borrowing money from family

One increasingly common option among young home buyers is to receive money from parents or a close family member to help buy a home. There are two ways this can be handled.

The first is simply a gifted down payment. With a gifted down payment, your money will not impact your debt ratios, as it is technically not considered borrowed. The gifter is legally not allowed to collect any repayment for this gift. If you are not self-employed, this gift can make up the entirety of your down payment.

If you have borrowed money from a family member that you intend to pay back, like the rest of the options listed here, you will need to inform your bank about the repayment and potential interest on this loan so they can take it into account when qualifying you.

Personal loans

Another option may be to get a personal loan. Personal loans can be found at several different institutions, though you will likely have to pay a pretty hefty interest rate for your borrowed money. This may be a good option if your down payment is very small, such as for an inexpensive home.

Personal lines of credit

A third option would be a line of credit, which will have better interest rates than personal loans. However, you will likely need to get a line of credit from a different lender than you get your mortgage from, and the same debt service rules will apply if you are making regular payments on your line of credit.

Borrowing from home equity

Finally, many homeowners choose to fund a second property with equity from their first. This is technically borrowed money, though since it is secured against your home most people simply see this as using your enquiry directly. Unfortunately, having an existing home to borrow against is not necessarily a viable home buying strategy for many buyers looking to make their home purchase cheaper.

Credit cards

Buyers may also be tempted to consider using credit cards to help fund part or all of their down payment. This is not recommended. Credit cards are best used for small and medium-sized purchases that you can pay back promptly. A large amount like a down payment, even if your credit limit would allow for it, would incur massive amounts of debt in a very short period of time, and this is a very bad idea.

How does getting approved work?

Getting approved for a mortgage with a borrowed down payment will be similar to being approved for any other mortgage. Your lender will need documentation to support your income, savings,employment, debt obligations and credit score in order to determine your creditworthiness. As mentioned previously, you will need to inform them of where your down payment funds have come from if they are borrowed so they can take this debt into account. Finally, you will need to pass the mortgage stress test as well.

To make up for increased debt service, you will need to prove your creditworthiness in other ways. You will firstly need a reliable job that pays you a high enough income to cover your increased debts. Though you can borrow money for your down payment, you can't borrow your monthly payments and will need to keep up with those.

You will also need a high credit score. Lenders already prefer borrowers with high credit scores, so the higher, the better when going for a no-down payment mortgage.

Being in good financial health will also be necessary when it comes to getting your down payment loan in the first place. You should take a careful look at your financial circumstances and consider talking to a mortgage broker before getting a loan to be sure you will be able to get a mortgage.

What's the lowest down payment I can make?

If you are borrowing money for a down payment, you will need to borrow at least 5% of your home’s value, though more expensive homes may require higher down payments. In addition, consider what additional costs you may be required to pay from things like closing costs and mortgage insurance. If you don’t have money for these, you may need to borrow an even larger loan to ensure your home purchase goes through.

Borrowing only part of a down payment

You may also choose to borrow only a portion of your down payment to increase the amount you can put down. This would be useful, for example, if you had less than 20% for a down payment and

were interested in reducing your cost from mortgage default insurance. Depending on how far off you are, borrowing money may cost less than paying the insurance premium. Another example may be to pay more for a better interest rate. Generally, it will be easier to qualify with only part of your down payment borrowed as opposed to attempting a zero-down mortgage.

You may also want to borrow a bit of extra money when buying your home if you find you are falling short of closing costs. In this case, your option would be to borrow the money or break the purchase agreement, making it a clear choice. For purposes like this, some banks offer cash-back mortgages, allowing you to receive extra cash after your mortgage closes.

What are the downsides of a zero-down mortgage?

When you are looking to find a way around the minimum requirements for a mortgage, it is important to understand that these requirements are in place for a reason. This is partly to protect lenders from defaults, with mortgage insurance being the best example. But by protecting from defaults, these limits also protect consumers from financial disaster.

The trouble, then, when you try to circumvent these minimums is putting yourself at increased risk. First, you also pay more interest by borrowing more money. You may feel like you are saving money upfront, but you would pay a lot more down the line. Furthermore, increased debt service will limit your disposable income and make you more susceptible to financial shocks.

At the same time, though you own your home, you will have very little equity due to borrowing such a large amount. This will make it hard to use something like a HELOC until you have made significant payments toward your principal.

Finally, when you have two loans instead of one, especially with something like a personal loan, you will be affected much more by interest rate increases. If you don't anticipate the possibility of rate increases, you could run into trouble down the line if things increase.

Conclusion

Though many homebuyers aren’t aware of the option, it may be possible to reduce the amount you need to pay with a down payment. However, this will make it harder to get your mortgage approved and will end up costing you more down the line. Though it still presents a viable option for some buyers, you should carefully consider your financial status and speak to a financial advisor or mortgage specialist before you pursue this option.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  Real Estate Wealth

 

Housing Affordability in Canada: 2022 RE/MAX Report

Relocation, relocation, relocation: Canadians love their neighbourhoods, but will move to achieve housing affordability

• For 64 per cent of Canadians, relocation is among the top sacrifice they’d be willing to make in order to achieve housing affordability; however, half (50 per cent) agree that the farthest they would go would be less than 100 kilometres     

56 per cent say that moving to a different neighbourhood/community would be one of the top three sacrifices they would make

38 per cent would make the sacrifice of moving to a different city/province/region regardless of the distance        

• 38 per cent of Canadians define housing affordability as a home they can afford that meets their basic needs, and includes some liveability elements, such as green spaces and restaurants
• Based on average residential selling price, Brandon, MB ranked as the most affordable market in 2022, replacing Winnipeg which was most affordable in RE/MAX Canada’s 2021 ranking. This is followed by Regina, SK (which remained on the list year-over-year), St. John’s, NL, Moncton, NB and Red Deer, AB
• Based on the share of income spent on mortgage payments, Red Deer, AB ranked as Canada’s most affordable housing market, with 25.86% of average monthly income spent on the average-priced home. This is followed by Regina, SK (26.94%) and Brandon, MB (27.73%) in Western Canada. Eastern Canada’s most affordable regions to buy a carry a mortgage include Thunder Bay, ON (29.78% of monthly income spent on mortgage), followed by St. John’s, NL (31.45%) and Moncton, NB (33.4%)

Toronto, ON and Kelowna, BC (July 20, 2022) — RE/MAX® Canada’s 2022 Housing Affordability Report reveals that 68 per cent of Canadians are willing to make at least one sacrifice to buy a home they can afford, according to a Leger survey commissioned by RE/MAX Canada. The most common concession is relocation, as identified by 64 per cent of survey respondents – a trend that continues to reign as a primary influence in local housing markets across the country, say RE/MAX brokers. This is followed by 56 per cent indicating they would be willing to sacrifice the type of home they purchased; purchasing a home under co-ownership with family and friends, as identified by 29 per cent of survey respondents; and renting a part of their home for additional income, at 27 per cent.

According to the same Leger survey, 43 per cent of Canadians said the high price of real estate in their area was a barrier to entry into the market. This is up one per cent from last year. Other hurdles include a higher cost of living (35 per cent); a shortfall in salary (24 per cent, down two per cent from 2021); market volatility (24 per cent); and rising interest rates (24 per cent, up six per cent from 2021).

“Despite affordability challenges across the cost-of-living spectrum, Canadians are still eager to engage in the housing market – even if it means making some sacrifices in the short-term to achieve affordable home ownership,” says Christopher Alexander, President, RE/MAX Canada.

 RE/MAX Canada asked Canadians to define what “housing affordability” means to them – 38 per cent of survey respondents defined affordable housing as “a home they can afford and meets their basic needs, and includes some of the liveability elements they like such as proximity to school; or walkable neighbourhoods,” to name a few.

 “While we wait for governments to implement a national housing strategy to boost Canada’s supply of affordable housing, in the short-term the market is starting to cool and balance itself out, bringing some much-needed relief from the sky-high prices that we experienced during much of the pandemic. This trend is largely being driven by higher interest rates,” says Alexander.

Housing Affordability in Canada: Regional Market Trends

RE/MAX Canada brokers and agents in 24 key markets across the country were asked to provide their analysis on local market activity and housing affordability trends for the first half of 2022.

Housing Affordability in Western Canada

Across Western Canada, competition from out-of-town or move-over buyers has put upward pressure on home prices year-over-year. Double-digit year-over-year price increases were noted in Kelowna/Central Okanagan, BC (+21.1% from $778,657 in 2021 to $942,977 in 2022), Vancouver, BC (+19.69% from $1,097,000 in 2021 to $1,313,000 in 2022), Victoria, BC (+14.93% from $885,117 in 2021 to $1,017,292 in 2022), and Winnipeg, MB (+12.66% from $388,291 in 2021 to $437,460 in 2022). Meanwhile, more modest price increases were seen in markets including Calgary, AB (+5.85% from $499,229 in 2021 to $528,440 in 2022), Edmonton, AB (+4.73% from $390,490 in 2021 to $408,961 in 2022), Red Deer, AB (+3.24 % from $345,576 in 2021 to $356,779 in 2022), Regina, SK (+0.42% from $322,600 in 2021 to $323,950 in 2022), Brandon, MB (+1.75% from $304,929 in 2021 to $310,252 in 2022) and Saskatoon, SK (+1.45 from $368,079 in 2021 to $373,410 in 2022).

In regions such as Victoria, BC, and Vancouver, BC, some of the most significant factors impacting housing affordability include the high cost of living, inflation, and the housing supply shortage, which is being further compounded by new-home construction delays. Some of these factors reign true as well in regions such as Edmonton, AB, where affordability challenges are being attributed to residential construction delays; out-of-province/out-of-region buyers driving up demand and prices; and rising interest rates. In Calgary, the primary factor has been rising interest rates.

As buyers navigate high housing prices, some regions across Western Canada are experiencing trends such as properties being purchased as a primary residence while also renting part of the home to supplement monthly mortgage payments. The pooling of finances between friends and family has continued to remain a trend, as noted by the local RE/MAX broker in Victoria, BC.

The most affordable neighbourhoods across Western Canada regions surveyed include:

• Victoria, BC – Sooke, Saanich West and View Royal
• Kelowna/Central Okanagan, BC – Rutland, Glenrosa and Kelowna North
• Edmonton, AB – Beverly/Beacon Heights, Prince Rupert/Queen Mary Park and Westwood
• Calgary, AB – Dover, Erinwoods and Abbeydale
• Red Deer, AB – Vanier Woods, Sunnybrook South and Laredo
• Winnipeg, MB – Transcona, North Kildonan and Riverbend
• Brandon, MB – Souris, Wawanesa and Rivers
• Saskatoon, SK – Riversdale, King George and Casewell Hill

Housing Affordability in Ontario

Similar to Western Canada and Atlantic Canada, some of the smaller regions outside of Toronto/GTA have experienced some of the highest year-over-year price increases in the first half of 2022, due to rising demand and limited supply – Windsor, ON (+24.42% from $542,225 in 2021 to $674,637 in 2022), Barrie, ON (+24.40% from $767,004 in 2021 to $954,133 in 2022), Sudbury, ON (+23.85% from $402,855 in 2021 to $498,939 in 2022 ), London, ON (+23.26% from $632,302 in 2021 to $779,383 in 2022), Hamilton, ON (+22.35% from $775,742 in 2021 to $949,099 in 2022), Thunder Bay, ON (+17.58% from $315,321 in 2021 to $370,761 in 2022), Kingston, ON (+20.83% from $574,844 in 2021 to $694,576 in 2022), Ottawa, ON (+11.46% from $728,205 in 2021 to $811,653 in 2022). In Kitchener/Waterloo, ON, the increase was more modest at +4.29% year-over-year from $759,115 in 2021 to $791,674 in 2022. Unsurprisingly in Toronto/GTA, year-over-year price increases sit at +16.88% from $1,075,636 in 2021 to $1,257,257 in 2022.

Alternatives to traditional home ownership have also seen an uptick in some Ontario regions, as identified by RE/MAX brokers in Hamilton and Windsor. Some of the most significant factors impacting housing affordability in Ontario, highlighted by brokers in Windsor, Sudbury and Ottawa among others, include low or diminishing housing supply, rising interest rates, cost of living and inflation, out-of-province/out-of-region buyers, economic and employment conditions.

The most affordable neighbourhoods across Ontario regions surveyed include:

• GTA, ON – Oshawa, Orangeville and Essa
• Hamilton, ON – Crown Point North, Durand North and Central South
• Kingston, ON – Kingscourt, Henderson and Rideau Heights
• Thunder Bay, ON – Westfort, Current River and East End
• London, ON – London East, St. Thomas and South London
• Ottawa, ON – Rockland, Herongate/South Keys and Bells Corners
• Sudbury, ON – Onaping Falls, Capreol and Wahnapite

Housing Affordability in Atlantic Canada

In Atlantic Canada, Halifax has experienced significant year-over-year price growth (+23.59% from $460,787 in 2021 to $569,475 in 2022) as a result of the move-over buyers migrating to the region for its relative affordability. More modest price increases were experienced in St. John’s, NL (+6.23% from $313,364 in 2021 to $332,900 in 2022), Moncton, NB (+2.11 % from $331,003 in 2021 to $337,992 in 2022) and Charlottetown, PEI (+29.30% from $355,000 in 2021 to $459,000 in 2022).

Affordability in regions across Atlantic Canada, such as Halifax, St. John’s and Charlottetown, has been impacted most by rising interest rates and inflation, low housing supply, out-of-province/out-of-region buyers, the return of immigration, and insufficient new-home construction further impacting growing demand.

The most affordable neighbourhoods across Atlantic Canada regions surveyed include:

• Halifax, NS – Lower Sackville, Eastern Passage and Fairview
• St. John’s, NL – Paradise, Conception Bay South and Portugal Cove St. Philips
• Charlottetown, P.E.I – Summerside, Rural and Cornwall
• Moncton, NB – Moncton Centre, Moncton East and Riverview West

Interest Rate Effect on Housing Affordability in CanadaThe record-low interest rates that first appeared in 2020 and continued throughout 2021 presented an exceptional opportunity for Canadians to enter or move up in the housing market. However, they also added fuel to an already hot market. With inflation at a 40-year high and interest rates rising, the housing market is starting to cool. In late 2021, RE/MAX Canada had anticipated steady price growth for the year ahead, with an estimated 9.2-per-cent increase in average residential sale prices across the country for 2022. Currently, with the exception of Hamilton, Ontario, price growth appears to be easing ­– a trend that is expected to continue through the remainder of 2022, with growth likely to occur in the single digits, and some markets expected to experience a modest decline.

“Despite current economic conditions, rising interest rates are not the biggest factor impacting housing affordability,” says Benjamin Tal, Deputy Chief Economist, CIBC. “Instead, it’s the pace at which interest rates increase that poses a greater risk to the housing market and economy in the short-term. In the long-run, factors such as rising immigration levels putting further strain on demand, limited housing supply, supply chain hold-ups, and the shortage of skilled labourers will be the greatest hurdles in overcoming Canada’s housing affordability crisis. These must all be addressed in order to help balance supply.”

Adds Elton Ash, Executive Vice President, RE/MAX Canada, “The shifts we are seeing in the housing market, with prices starting to ease across the country in tandem with softening demand and sales, are an overdue adjustment. A healthy housing market is characterized by price appreciation in the mid- to high-single digits, and many markets across Canada are re-entering that comfort zone.”

Based on broker insights and external data, as indicated within the accompanying RE/MAX Canada Housing Affordability Index, the average monthly mortgage amount across Canada ranges from approximately $1,492 to $6,314. Depending on regional income levels and with a 20-per-cent down payment, this accounts for anywhere from 25.86 to 112.25 per cent of Canadians’ monthly income. According to the Leger survey, 18 per cent of Canadians define housing affordability as allocating only 30 to 40 per cent of their monthly household income toward housing costs, including mortgage payments, property taxes and other housing-related expenses.

Thus, concern over the ability to afford a home remains among Canadians, with 68 per cent of survey respondents agree that they can’t afford to buy a home in the neighbourhood/region they choose in the next six months; 64 per cent say that eroding housing affordability is making them less confident in their ability to purchase a home; and 63 per cent express that rising interest rates are prompting them to put their home-buying plans on hold for the foreseeable future. Unsurprisingly, 70 per cent of Canadians agree that Canada needs a national housing strategy to solve the housing crisis. This number is up 10 per cent from last year.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  RE/MAX

 

 

The percentage of residential sales involving foreign buyers has dropped to record lows over the past 18 months.BC Ministry of Finance

While the province continues to take action to cool the housing market, the original target of government intervention has been quietly sticking to the sidelines.

The latest round of property transfer tax data released by the BC Ministry of Finance shows that foreign buyers accounted for a record low proportion of residential transactions in June at just 1 per cent. This is consistent with a downward trend seen even before the pandemic, when international borders shut to foreign travellers and potential purchasers.

The proportion of residential transactions with foreign involvement has not been above 1.5 per cent since July 2020 nor has the proportion been consistently above 2 per cent since April 2019.

The low level of activity is a shift from July 2016, when the province reported that foreign nationals were involved in 9 per cent of residential transactions and began charging those buyers an additional property transfer tax of 15 per cent of transaction value.

Popularly known as the foreign buyers’ tax, it had a short-lived chilling effect on transactions. Residential transactions fell to 1.4 per cent of all residential sales in August 2016 before normalizing to a level of three to four per cent for the duration of 2017. When the new BC NDP government raised the additional tax to 20 per cent in February 2018, the rate fell below three per cent and stayed there even as sales surged as the economy reopened.

Sorted by municipality, the latest figures indicate that Surrey, Richmond and Vancouver are the top municipalities for foreign buyers of residential real estate. Surrey saw 84 residential transactions involving foreign buyers in the first half of this year, followed by Richmond with 64 and Vancouver with 44.

Of the 11 jurisdictions reporting residential sales involving foreign nationals, Whistler is the only one outside Metro Vancouver. (When other types of transactions involving foreign buyers are included, Ashcroft also figures.)

The relatively low percentage of foreign buyers now active in the market underscores that the tight market hinges more on a lack of supply than competition from those who wish to park capital here.

Underscoring this is provincial data regarding first-time buyers.

During the first half of this year, first-time buyers accounted for 4,426 residential purchases. That’s a 46 per cent decrease from the same period last year, when first-time buyers made 8,130 purchases.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source:  Western Investor