The Versatile Investor Blog: Mark Loeffler

The Canadian Real Estate Association reported yesterday that national resale housing activity retreated in January, after a strong finish in December 2011.

Among the highlights:

Home sales were down 4.5 per cent from December to January

Activity came in 4.0 per cent above levels in January 2011, and stood even with the five and 10 year averages for January sales.
The number of newly listed homes edged down 1.4 per cent from December to January.

With sales down by more than new listings, the national market shifted further into balanced territory.
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Was it all too good to be true?

The recent mortgage wars – the major banks and other lenders introducing all-time low rates on new products – seem to be coming to an end sooner than expected.

You may recall a few weeks ago, BMO threw down the gauntlet first when it unveiled a five-year fixed-rate mortgages at 2.99 per cent and an amortization of 25 years. The other major lenders soon followed suit with similar mortgage products.

BMO’s offer was to expire Jan. 25, and carried fine-print restrictions. A similar mortgage from RBC was to be available until Feb. 29.
Now, however, these lenders are already pulling back the reins on these products, ending them sooner than planned, and some of the big banks even raising rates for some products. Other smaller lenders, however, seem to be staying the course and resisting the pressure to raise rates.
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As real estate investors, we know how important immigration is to our business. Immigration, as “new Canadians” enter the country in search of opportunity, leads to population growth. Over the course of a year or so, this growth, in turn, leads to increased rental demand, tightening vacancy rates, rising rents and increased property demand and prices.

For owners of investment properties, this is all music to our ears.
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Mortgages

Yesterday, we mentioned how some lenders were beginning to restrict mortgages to self-employed Canadians and immigrants. Now today comes news that the federal finance ministry is actively leaning on banks to take such action on their own – or another new round of mortgage rules will do it for them. Ottawa is worried that banks continue to introduce low-interest rate products and make a push on home loans, while Canadians household debt continues to rise.
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Tighter mortgage rules already on the way We’ve written a few times about he likelihood that the federal government may decide to introduce tighter mortgage lending rules, in lieu of raising interest rates.

Interest rates are expected to remain at their currently low historic levels through much – if not all – of 2012, since a rise in rates might inadvertently put the brakes on the continuing (but tenuous) economic recovery.

The next best thing, in Ottawa’s eyes at least, might be to make it more difficult for Canadians to apply for a mortgage, as a way of keeping the market from overheating.
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Consumer confidence began the New Year on an encouraging note, as the Index of Consumer Confidence from the Conference Board of Canada increased in January.

The four-point increase to 73.9 is good news, given that in December the index fell to its lowest point in two years.

More importantly, the rebound in confidence occurred across the country, with the exception of Quebec.

Despite the improvement, the Board – as well as other sources – indicates many Canadians are struggling with their finances. On the question of whether they are better or worse off financially than they were six months ago, positive responses were basically the same as last month. However, negative responses continue to outweigh positive ones – which has persisted for more than three years.
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A real estate investor (a relative newcomer to the business) was lamenting to me recently about the headaches caused by self-managing his properties.

“Well, how’s your accountant?” I asked him?

“Excellent,” he said – and I’m not a CA so he’s the man!

“And your realtor?” I asked.

“The best. Really knows his stuff.”

“What about your lawyer?”

“He’s key to my team. I’m not a lawyer, so I obviously couldn’t do that job,” he said.

I smiled and then asked: “Are you a licensed electrician? Are you experienced at contract work? Are you a qualified plumber?”

He knew where I was going with this…
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Commercial real estate in Toronto was in the news big time this week, as Scotiabank announced it was considering selling its landmark 68-storey head office tower – with a reported price tag possibly as high as $1 billion.

While such high profile sales are sure to generate front-page coverage, not to mention widespread interest from prospective buyers, you don’t need to be looking at projects of that magnitude if you’re interested commericial real estate in the city.

Indeed, strong fundamentals had much of Canada’s commercial real estate markets enjoying stability and growth in 2011, despite global economic uncertainty.

In fact, even better days may await Canadian commercial real estate, as financial conditions in the US and around the world improve, according to Avison Young’s 2012 Canada, US Forecast, which assesses markets in 20 Canadian and US metropolitan regions, including Toronto, Calgary, Edmonton, Ottawa, Regina and Vancouver.
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Healthy population growth, employment and growing economic diversity are among the contributors that have earned Toronto the top ranking in CIBC World Markets’ index of national metropolitan economic activity.

The city showed the fastest economic momentum as of the third quarter of 2011, CIBC says.
“What’s so impressive about the ranking of Toronto in our current reading is not that the city is once again ranked first among the country’s largest 25 metropolitan areas, but the fact that it has been in the top five for more than six consecutive years, with the only exception being the 2009 recession when Toronto’s ranking slipped to the 7th place,” says CIBC deputy chief economist Benjamin Tal.

The city’s index of economic momentum is currently at its highest level in more than 10 years, led by growth in population, employment and housing starts, according to CIBC.
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It has the makings of a new reality TV series, though obviously this topic is serious business.

Mortgage rates are all over the news this week, as various lenders drop the gloves to take on Bank of Montreal after BMO announced a new five-year fixed rate mortgage at a rate of 2.99 per cent. Since then, RBC, TD and other major and secondary lenders in this competitive business have come out with their own ultra-low interest rate products.

Banks and brokers are already reporting a huge increase in consumer interest in these mortgages, as Canadians seek to take advantage of these new record low rates while they can.
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