Higher Interest Rates Affect Your Affordability

THE VIEW FROM OAK PARK

The Official Krisztina Blogsite

On May 25th, 2 major banks went on the record saying that Canadians will find it more expensive to own a home this year and in 2011 as higher interest rates are expected to chip away at affordability even as the rise in home prices begins to subside. RBC Economics Research points out that the rising interest rates will increase mortgages and other loan payments. As housing demand cools and supplies increase, the pace of price increases will slow, but won’t fall fast enough to offset the rising interest rates. As we are all aware, the Bank of Canada will raise its key lending rate for banks sometime this summer from the current record lows. Although the rates are predicted to rise very slowly through the rest of 2010 and 2011, affordability will continue to deteriorate even as prices level off.

My suggestion: pay close attention to your housing budget and if you are currently shopping for a home, make sure you complete a thorough cost analysis. Can you continue to afford this home if interest rates rise half a per cent? One per cent? You must factor such increases into your buying power. A recent report found that Canadians today spend 15.6% of their average gross personal income on mortgage payments (about the same as 10 years ago). When you add in electricity bills and property taxes, that figure rises to about 22%.

AND THE MOST IMPORTANT CONSIDERATION RIGHT NOW: If you got your mortgage approval before April 19, you MUST re-apply because the by-laws have changed. You may have been approved for a variable rate mortgage. Now, everybody must be approved at a 5 Year Fixed Rate, NOT the best rate you can find. This is reflective of Canada’s conservative approach to mortgages in order to avoid the U.S. situation of people carrying mortgages for more than the value of their home and I think it is a good gauge to ensure affordability down the line. But beware, when you get approved – this may drop your price point significantly. Some buyers previously approved for about $700,000 are now forced down to approximately $600,000. For some, it may be the difference between moving and not moving. I have had a client who was previously eligible for a $730,000 mortgage with $100,000 down, but now was only approved for $600,000 with the same $100,000 down. These are huge swings!!

And then there are other factors to consider…longer term job security, rising financial demands of older children (camps, sports leagues, vehicle, post-secondary education etc.), rising financial demands of aging parents, replacement timetable for your cars and so on.

And just a reminder, once you’ve been approved for a ‘shopping’ figure at the 5 Year Fixed, I can offer you more affordable payments (for those who qualify) through my relationship with AstrumStar (who has created a coalition with our Re/Max office). Please check my website (KrisztinaNeglia.com) for more information on how you can apply.

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Market Trending Downward

THE VIEW FROM OAK PARK

The Official Krisztina Blogsite

On May 5th, the TD Bank came out with several projections regarding the Canadian Real Estate Market. They said home sales would be significantly lower in the second half of 2010 and all of 2011, and that prices were dropping. They also said that this new outlook is in accord with previous expectations BUT that TD now believes that the slowdown from the current hot housing market will be even sharper than formerly anticipated. Mostly this is because the first half of 2010 was HOTTER than expected. They believe home prices in the Toronto area will drop in the 3% range. As stated in my May State of Real Estate in Oakville video, I also see the market trending downward. Specifically in Oakville real estate, the number of residential sales for April Year-To Date 2010 has increased 55% versus April Year-To-Date 2009. BUT, we usually see April outperforming March. In 2009 April outperformed March by 32%. In 2010, April did outperform March, but only by 6%. The ‘downward’ trend has already begun, homes are reducing their prices versus just a few months ago and buyers are getting pickier. However, as this trend continues, fewer houses will be listed on the market and buyers will have very little inventory to choose from. Couple this downward trend with a rise in interest rates, and the onset of the HST means we can expect a slow summer in the Oakville housing market.

The biggest indicators of this trend are usually the high end of the market and the lower end of the market. In Oakville we are seeing a slowdown of sales in the $1,000,000+ range. And the lower end homes such as the stacked Mattamy Townhome semi’s in the $300,000 range are no longer receiving multi-offers, and some have even seen price drops. Both these waves will ripple into the mid-range housing market.

So this is the time when your property has to be perfectly priced for the current market. You cannot compare home prices to 2 months ago. It is crucial that your home shows well to generate a sale. Needless to say, this is where an experienced Real Estate Agent is your best ally. That experience will give you a huge advantage in pricing your home and discerning what improvements and upgrades your home requires prior to listing. This is also the time that you cannot wait to list. That delay could cost you tens of thousands of dollars. There is also a change in mindset. Two months ago, homeowners felt they could buy first and then put their home on the market. Now, I say, SELL FIRST with a longer closing. This will give you an advantage in choosing the property you want to move into.

Great Fun…Great Fundraiser!!

THE VIEW FROM OAK PARK

The Official Krisztina Blogsite

Thanks to all who participated in the May 1st Moms & Tots Garage Sale Fundraiser. The crowds are getting bigger every year as people take advantage of good deals for a good cause. And my horse & carriage rides remain extremely popular with families and the little ones. I am so pleased to say that this is my 4th year participating in the event. As well, for every home I sell in Oak Park, I donate an additional $100 to Moms & Tots. I know I have spoken about them a lot, but I continue to rave because of the community they provide for Oakville moms. Networks and friendships have been forged among moms through this organization. And kids have flourished in the many programs they offer – from Circle Time storytelling to dance and crafts. When I spoke to some of the Moms at the Fundraiser, they especially raved about the staff. Anything we can do to help this organization will benefit our young families. Stay tuned to my May Oak Park Report video airing mid-month, because we had the opportunity to cover the event and talk to some of the Moms who use Moms & Tots. I hope many of you took advantage of my carriage rides through the Oak Park neighbourhood. Once again I worked with Dream Catcher Stables. Brad and Tina provide an excellent service (and apparently joke to the kids about the horses’ ‘exhaust system’ during the ride!!).