Year End Report – Michael Campbell – Verico Economic Consultant

Take a few minutes and read this interesting report by Michael Campbell.  He is one of Canada’s most respected Business Analysts and also the host of Canada’s top rated syndicated business radio shows, MoneyTalks.  Click below to download the PDF

Year End Report – 2016

Five things to know after receiving a massive increase in your 2017 B.C. property assessment

Now that Lower Mainland homeowners have their 2017 property assessments in hand they may have lingering questions about how those values soared so high — single-family homeowners typically saw increases of 30 to 50 per cent — and what to do if they disagree with the results.

Below are five things you should know about your property assessment and how to dispute what you think is inaccurate.

“The first question you want to ask yourself is, as of July 1, 2016, is this a reasonable expectation for what I could have sold my property for?,” said Jason Grant, B.C. Assessment’s area assessor for Greater Vancouver.

1 – Your assessment is essentially an appraisal of your property’s value, considering both changes in land value, including things such as rezoning nearby, and improvements to the building, set by the B.C. Assessment Authority as of July 1 every year.

“Whatever (market) changes happened after July 1, 2016, will be factored into 2018 assessments,” Grant said.

2 – Municipalities use assessments to adjust property-tax rates to account for changes in assessed values for various property classes. The concern for homeowners is whether their assessment rose by more than the average for their property class. If so, Grant said, they will see a tax increase larger than a municipality’s general increase. Homeowners whose assessments rose by less than the average will get a tax break.

3 – The provincial government uses property assessments to establish eligibility for the B.C. Homeowners Grant (the $570 per household grant offered to help defray property taxes on homes that are their principal residence). The threshold value for 2016 was set at $1.2 million, above which the grant is reduced $5 per $1,000 value. However, Finance Minister Mike de Jong said Tuesday that the province is reviewing the threshold considering soaring assessments.

4 – Homeowners with questions about their assessments can go online at B.C. Assessment’s e-valueBC site to check how their assessment compares with their neighbours and comparable property sales that would have been used in setting the value. If that doesn’t answer questions, they’re welcome to call B.C. Assessment, said Brian Smith, deputy assessor for the Fraser Valley. It gives assessors a chance to figure out if there are any discrepancies.

“We always encourage people to call us first,” Smith said. “Sometimes it’s something we’re able to easily resolve, or with a potential better understanding of where their assessment does come from, people are more content with having seen that type of increase.”

5 – Homeowners have the right to formally appeal their assessments if they still disagree with the result, said Grant. “Failing an understanding at that level, (homeowners) can certainly file an independent complaint,” he said. Those are heard by three-member independent, property assessment review panels in each community. The deadline to appeal is Jan. 31. Typically, one to two per cent of homeowners appeal assessments, Grant said.

depenner@postmedia.com

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Five things to know after receiving a massive increase in your 2017 B.C. property assessment

Bank of Canada rate cut still on the table for 2018 – doesn’t mean mortgage rates will drop

There is no pressure in Canada to raise rates says VERICO Economist, Michael Campbell.

“While 3rd quarter economic growth was good, the recovery in energy in the aftermath of production cuts due to the Fort McMurray fires played a huge part.  After consistently revising their economic growth forecasts downward for the past four years, most financial institutions are predicting in the neighbourhood of 2 ½% growth in 2017,” says Mr. Campbell.

“Bank of Canada Chair, Stephen Poloz has been dropping broad hints that there is no rate hike until 2018 at the earliest.  In fact, he hinted last week that a rate cut was still on the table. But as we’ve seen in the last month that doesn’t mean that mortgage rates remain unchanged.  Mortgage rates are being influenced by the increase in bond yields and the reduction in competition from non-bank lenders in the aftermath of the new mortgage rules,” adds Mr. Campbell.

If you are in the market for a new home purchase or need to renew your mortgage, contact me to find out how raising rates will impact you.  As a mortgage professional, I can help you develop money saving strategies that will save you more over the lifetime of your mortgage.

Why homeowners and buyers can expect more mortgage rate hikes from the big banks

Falling government-bond yields are usually good for homeowners in Canada because mortgage rates tend to follow suit. Not this time.

Three of Canada’s biggest lenders have raised mortgage rates and more increases are expected as new regulations, a weak economy and higher costs prevent banks from capitalizing on lower borrowing rates in the debt market where they finance their mortgages.

“When you look at the funding picture, it’s getting more expensive for the banks,” Meny Grauman, a financial analyst at Cormark Securities in Toronto, said by phone Wednesday. “We’ve started to see cracks in credit and we know that’s probably going to continue to intensify. If it continues, the same logic that caused the banks to raise will continue to apply.”

The higher mortgage rates add to measures by the federal government and the national housing agency to cool the housing market, which the Bank of Canada has identified as one of the major risks to the economy. Housing prices in Vancouver and Toronto have almost doubled in the past decade, raising concern that a market crash could lead to a rash of loan defaults.

Even as speculation mounts the Bank of Canada could return interest rates to a record low this year, homeowners face higher mortgage costs as the banks look to protect their bottom lines in a deteriorating economy. This week, Royal Bank of Canada became the latest lender to raise its mortgage rates, following Toronto-Dominion Bank and Bank of Nova Scotia.

Rate cut

Yields on five-year benchmark government bonds, the part of the market where banks usually fund their mortgage lending, touched the lowest since August on Wednesday as new signs of slowing growth in China pushed the price of crude oil below US$35 per barrel. That led derivatives traders to assign a more than 50 per cent chance the Bank of Canada will cut the benchmark interest rate to its record low of 0.25 per cent by mid-year.

The only other time Canada’s benchmark interest rates were that low was 2009, and it kicked off a housing boom fueled by rising oil prices and cheap mortgage rates. This time around, bond yields are falling because the economic trouble is hitting much closer to home, with a deteriorating outlook for exports along with an inflated housing market.

The banks are feeling the pinch with higher borrowing costs as pressures on the economy make them look less credit-worthy. Investors now demand about 129 extra basis points of yield to hold five-year bonds from top-rated Canadian banks compared with government benchmark notes, the biggest premium tracked by Bloomberg data since 2010. That premium was 51 basis points at the end of 2009.

Paying up

“Given the Canadian banks are a play on the Canadian economy, a slowdown in the economy can’t really be seen as positive for the banks,” Kris Somers, a Canadian debt analyst at Bank of Montreal, said by phone from Toronto. “Banks are paying more money for debt than they have in the past.”

In addition to the higher borrowing costs generally, new government rules are also imposing higher costs on mortgage lending. Canada Mortgage & Housing Corp. increased the fees it charges banks to securitize mortgage debt and the Department of Finance increased the minimum down payment requirement for insured mortgages. The Office of the Superintendent of Financial Institutions, the bank regulator, also proposed higher capital buffers to back the loans. Canadian lenders hold 75 per cent of the country’s mortgages.

Margin buffer

With the bank increases, the rate on a five-year fixed mortgage at Royal Bank rises to 3.04 per cent on Jan. 8, from 2.94 per cent. The five-year variable rate, tied to the bank’s prime rate, rises to 2.6 per cent from 2.45 per cent. Toronto-based Royal is the country’s No. 2 bank by assets.

The government announcements were made to cool a housing market that’s been on a tear, with housing prices nationwide rallying 27 per cent in the last five years, according to the Canadian Real Estate Association. Vancouver and Toronto have outpaced other cities, prompting concern from the Bank of Canada and Fitch Ratings Inc., among others. Home sales flew to a record in Toronto and Vancouver in 2015 and prices continued their climb. The average price rallied 9.5 per cent to $609,110 in December in Toronto and jumped 19 per cent to $760,900 in Vancouver, according to those cities’ real estate boards.

The trend of banks maintaining a margin buffer even with lower costs in the public debt market started last year, when the Bank of Canada cut its overnight lending rate and the banks didn’t pass the full savings onto consumers through their prime lending rate. The prime rate is used to price everything from variable mortgage rates to lines of credit. The same thought process prevails this year, Grauman said, as banks try to eke out profit in a tough economic environment.

“‘Flat’ is the new ‘up,’” Grauman said. “You’re just trying to hold the line on your margin.”

 

Katia Dmitrieva and Ari Altstedter, Bloomberg News | January 7, 2016 4:34 PM ET

Vancouver has highest increase in luxury-home prices in the world

Surge of 20.4 per cent in prime real estate puts city at top of list

The price of luxury homes in Vancouver continues its skyward march, placing the city tops on yet another global real estate list.

Prices of Vancouver’s “prime” real estate, defined as the top five per cent of the housing market, surged by 20.4 per cent between September 2014 and September of this year, surpassing 33 other cities around the world,according to a new report by London-based international real estate consultants Knight Frank.

The price increase corresponds with tighter supply, with the number of homes for sale down 32 per cent and comes as “local demand is strengthening alongside foreign interest.”

Sydney and Shanghai placed second and third, also recording double-digit annual growth at 14 per cent and 11 per cent, respectively. But overall growth in the luxury real estate segment has slowed significantly, from seven per cent two years ago to two per cent this year, the report said.

Recent data from Vancouver real estate firms active in the local luxury homes market show similar findings.

According to Sotheby’s International Realty, sales of Vancouver homes in the $4-million range rose by 71 per cent in the first half of 2015, while sales of homes over $3 million in Greater Vancouver jumped 79 per cent over the same time period, said a report from RE/MAX.

David Eby, MLA for Vancouver-Point Grey, represents a west side riding where streets are lined with multi-million dollar homes. Yet in one of the wealthiest ridings in the region, many of his constituents are amazed at the continued climb of their home’s assessed value — as well as corresponding property tax hikes — and worried about affordability in the region.

“They’re just absolutely blown away by what is happening to the market,” said Eby. “It has no connection for them, and keep in mind these are doctors and business people who are relatively wealthy and … (real estate prices are) still disconnected even from their income levels.”

With Vancouver homes now a hot commodity globally, prices could keep spiralling up, added Eby, calling on senior levels of government to start collecting data on real estate buyers and take a hard look at the issue.

“We’re still lower than places like London and New York and Hong Kong. There’s still lots of spaces for prices to continue to rise and have a knock-on impact on the value of other homes in the Lower Mainland.”

The trickle-down effect of a soaring luxury homes market on prices in the rest of the region is up for debate. The argument is that buyers who are priced out of Vancouver’s tony west side are now moving east and south in Vancouver, which pushes other buyers out into the suburbs, resulting in a lack of affordable housing across the region.

The benchmark price of a single-family detached home in Vancouver’s west side rose 20 per cent to $2.77 million compared to last year. Other areas also saw significant year-over-year increases, including East Vancouver (23 per cent), Richmond (23 per cent), North Burnaby (24 per cent) and Tsawwassen (26 per cent).

Cameron Muir, chief economist of the B.C. Real Estate Association, said the price jumps are reflective of the high demand and low supply of single-family homes across the region, and have little to do with luxury home prices.

The luxury housing segment makes up only two per cent of the housing market in Metro Vancouver, said Muir. “It’s really nothing to do with everything else.”

Muir said less than two per cent of the sales in Metro Vancouver were priced over $3 million, and nearly 80 per cent were below the $1-million mark.

As densification builds and most housing starts today are for multi-family dwellings, single-family homes become scarcer, driving up their value.

“When we look at affordability in Vancouver, we have to look at the housing stock itself, not what homes are looking like in Point Grey.”

chchan@theprovince.com

BY CHERYL CHAN, THE PROVINCE

Original Article

How the Chinese send billions abroad to buy homes

Bloomberg News

The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China.

This flood of cash is being felt around the world, driving up real estate prices in Sydney, New York, Hong Kong and Vancouver. The Chinese spent almost $30 billion on U.S. homes in the year ending last March, making them the biggest foreign buyers of real estate. Their average purchase price: about $832,000. Same trend in Sydney, where Chinese investors snap up a quarter of new homes and are forecast to double their spending by the end of the decade. In Vancouver, the Chinese have helped real estate prices double in the past 10 years. In Hong Kong, housing prices are up 60 percent since 2010.

In total, UBS Group estimated that $324 billion moved out last year. While this year’s numbers aren’t yet in, during the three weeks in August after China devalued its currency, Goldman Sachs calculated that another $200 billion may have left.

So how do these volumes of cash get out when Chinese are limited by rules that allow them to convert only $50,000 per person a year?

The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends — a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China.

“It’s not legal for people to use secret channels to move money abroad, because this is smuggling,” says Xi Junyang, a finance professor at Shanghai University of Finance & Economics. “But the government has kept a laissez-faire attitude until recently.”

Now, policy makers are starting to take the outflow seriously. While it’s not about to run out of money, China has intensified a crackdown on underground banks that illegally channel cash abroad. It’s also trying to capture officials suspected of fleeing overseas with government funds.

Longer term, China has pledged to remove its currency controls and make the yuan fully convertible by 2020. Here are some common methods millions of Chinese are using to get a head start:

http://www.bloomberg.com/news/features/2015-11-02/china-s-money-exodus

 

Property Purchase Transfer Tax

The Property Purchase Transfer Tax is a tax payable to the Provincial Government by purchasers of real estate.  The tax applies to all types of real estate, whether residential, commercial or industrial.

The amount of the Property Purchase Transfer Tax is 1% on the first $200,000.00 of the property’s fair market value and 2% on the remaining fair market value.

There are a number of exemptions available to purchasers so that the tax is not payable.  The most common is the exemption for “First Time Home Buyers”.  To qualify for an exemption to the Property Purchase Tax as a First Time Home Buyer, the following criteria must be met:

  • Purchaser must never have owned an interest in a principal residence anywhere in the world at any time;
  • Purchaser must be a citizen of or a permanent resident of Canada;
  • Purchaser must have resided in B.C. for 12 consecutive months immediately before the date they become the registered owner, or the Purchaser has filed two income tax returns as a British Columbia resident within the prior 6 years of becoming the owner;
  • To obtain full exemption, the purchase price must not exceed $475,000.00. A partial exemption is available for homes between $475,000.00 and $500,000.00

Other facts about Property Purchase Transfer Tax:

  • Homes are not charged PTT on the GST component of the price, for sales where GST applies.
  • If two people buy a home together, and one is eligible for the First Time Home Buyers Special rate, and one isn’t, then tax will be charged proportionately to their ownership share.
Property Transfer Tax should not be confused with Property Tax.  The Property Transfer Tax is a one time tax paid to the Provincial Government by purchasers of real estate.  The Property Tax is the tax paid on an annual basis to the local City/Municipality. –
See more at: http://www.bcrealestatelawyers.com/faqs/ptt.php#sthash.MOJqXvbh.dpuf

– See more at: http://www.bcrealestatelawyers.com/faqs/ptt.php#sthash.MOJqXvbh.dpuf

– See more at: http://www.bcrealestatelawyers.com/faqs/ptt.php#sthash.MOJqXvbh.dpuf

 

Property Purchase Transfer Tax Changes in BC – Finally!!!

Screen Shot 2013-04-29 at 9.55.28 AMThe government has announced, effective February 19, 2014, under the Property Transfer Tax (PTT) First-Time Home Buyers’ Exemption program, qualifying first-time buyers can buy a home worth up to $475,000 and be exempt from paying the tax.  The previous threshold was $425,000.

  • The purchase must be a principal residence and a first time purchase
  • The value must be $475,000 or less and registered on or after February 19, 2014
  • The partial exemption continues and will apply to homes valued between $475,000 and $500,000
  • This cost can not be incorporated into a mortgage, so it must come out of cash funds the buyers had to save along with their down payment.

PTT is calculated as 1% on the 1st $200,000 of the home value & 2% on the balance and is charged on all residential purchases.   With this change, the government estimates 1,700 additional first-time buyers will annually be eligible to save up to $7,500 in PTT when they buy their first home.   Every bit helps especially with the outrageous cost of living in the lower mainland and the ridiculous amount of tax we pay here!

Apparently government estimates this measure will cost $8 million in lost tax revenue each year.  And we are supposed to feel sorry for the government for lost revenue?   Despite the fact that B.C. has the highest home prices in Canada, the province perversely imposes one of the most onerous such taxes in Canada.  The Real Estate Board of Greater Vancouver points out that B.C.’s tax, introduced in 1987, “is structured to reflect home prices in the 1980s, not the prices home buyers pay today.”

We would all like to see  more changes to the Property Transfer Tax, but this is definitely a step in the right direction.

 

Canada housing market bear up against doom sayers – Trends to chase

Screen Shot 2013-04-29 at 10.28.00 AMThe banking regulator of Canada is mulling another tightening of the mortgage rules. An eminent spokesman of the Office of the Superintendent of Financial Institutions has reportedly said that they’re considering some tough rules that would restrain the banks from issuing any mortgages that carry amortization period of more than 25 years. Presently, the lenders in Canada offer mortgages for as long as 35 years when the borrower boasts of a stellar credit rating and a substantial down payment. OSFI told Canadian Mortgage Trends that they’re doing some initial consultation with the financial institutions and some other mortgage lenders on this issue. Given the current condition of the Canadian housing market, there is a need of some changes so as to reduce the total amount of household indebtedness and the number of foreclosures.

2012 was a year in review – Some noteworthy changes to the mortgage financing rules

In the month of June, the Finance Minister of Canada happened to announce the 4th cycle of alteration to the mortgage financing rules and they’re continuing to squeeze the investors, the borrowers, the lenders and the entire industry alike. As per the CAAMP or the Canadian Association of Accredited Mortgage Professionals, such changes are probably going to affect the entire economy. The key change, as mentioned above is related to the cap of the amortization period at 25 years. For all those real estate investors who are looking forward to invest their dollars will also be subject to certain changes in 2013. The lenders will demand the self-employed borrowers to pay down an amount of 35% of the total loan balance and this trend will continue throughout 2013.

Mortgage market trends to chase in 2013 – A guide for the investors

  • Market correction in the Canadian market: There’s a word about a possible bust in the real estate market and the news headlines point at the sudden rise in the level of household debt in Canada, that are adding to the level of concerns. According to reports, the Canadian real estate market isn’t going to have a severe crash as the quality of debt carried by people is much different here. The Canadian Association of Mortgage Professionals report that about 70-80% of the Americans invested in variable rate mortgages and this will rather indicate a stable housing market.
  • Strategic mortgage changes: The investors will experience greater challenges while qualifying    for a mortgage loan in 2013 as there will be a noticeable change in the down payment required to snag a mortgage deal and the qualifying terms will also become more stringent. The equity programs will require 35% of the loan amount as the down payment. Securing a mortgage deal will therefore become difficult with the new mortgage trends.
  • Lease agreement for investment properties: In 2013, lease agreements will be required while financing the investment properties as more an more lenders are demanding lease agreements before the completion of financing. For investors, you can ask your realtor to obtain copies of the present tenancy agreements as this will reduce the complications throughout the track.

Securing financing for your homes in Canada will continue to be more stringent and tough after the new financing rules coming into effect. Get in touch with a myself to take the best decisions in the market.

This article is a contribution from  http://www.mortgagecases.com/

Housing market in Canada is unexpectedly rock strong

Couple in new homeIn the last couple of years, the analysts are unnecessarily predicting dwindling real estate market. However, the numerical figures in relation to consumer debt and home prices that need to be worried about is low. But the situation can take a negative turn if the consumers fail to understand the housing market.

The economists in Canada are skeptical because of the colossal collapse of the US housing market. Its effect is predicted to influence the Canadian real estate market. Well, it’s really difficult for the analysts to believe that Canada being closer in terms of geographical proximity can be so different.

In Canada, the housing market seems to have a firm grip as the condition is stable after a mild tremor followed with the tight mortgage lending standard. In the meantime, the condition of the consumer debt has reduced. Previously the scenario changed as the consumers in the Canada incurred overwhelming debt. The situation was quite similar to that of the US before it crashed. However, in last two quarters, the number of indebted consumers is dropping. In fact, the figure is not that high as it has been reported. The debt to income ratio is diminishing and reaching a sustainable level.

Canada can be in a similar condition like that of the US market if the housing prices rise with an increase in consumer indebtedness.

According to OECD report, Canada is considered as one of the overvalued housing markets in the world. Well, it is required to accept that both the price as well as debt are at undesirable level. However, the consumer debt is stably reducing, but housing prices needed to be stagnant for a few years to improve the housing affordability as income increases.

In reality, the OECD analysis is based on the high ratio of home prices to home rental costs. The economist, Adrienne Warren at the Bank of Nova Scotia opined that the rental properties have poor quality in comparison to the purchased ones. Therefore, comparing the monthly rent with one time purchase price can be a wrong calculation.
In fact, comparison should be drawn between rent and monthly payment as the interest rate is at record low. Well, this type of market condition may not stay low forever. It is expected to rise but in a snail’s pace in the next few years.

In the US, housing crash was ignored for years as only warning signs. But this type of alert signal is not identified yet in Canada. Well, the fraudulent mortgage lending was widespread while it is very rare in Canadian market. In America, people defaulted on their mortgage payment U.S. saw rising numbers of delinquent mortgage-holders. Fortunately, this number seems to be less as well as stable in Canada.
But Canada needs to be cautious of two thing that can bring economic downturn– a very big rise in unemployment and increase in the interest rate.

This article is a contribution from  http://www.mortgagecases.com/