Housing Bubble Talk Premature

Posted on 02/12/2010 by

So, if federal Finance Minister Jim Flaherty is set to potentially raise down payment requirements as a way to avoid a possible housing bubble, thereby making it harder for you to buy your first home, wouldn’t you expect he’d be reasonably sure that a bubble would actually be on the way?

Interestingly enough, he’s not. Nobody is.

Canadian Real Estate Association Chief Economist Gregory Klump recently stated very bluntly to 660 AM Radio News business reporter James Munroe that a housing bubble is not in store for Canada, even after receiving data showing December was the strongest month on record for Canadian real estate.

Klump also pointed out that a new supply of homes will help to stabilize currently surging prices due to high demand for housing. Figures from the Canada Mortgage and Housing Corporation suggest new supply is on its way into the market. That new supply is no small number. We’re talking about 174,500 new units nationally in December alone. That figure beat analyst estimates by about 10,000 units. Klump argues this is just more evidence of a normal stage in the housing cycle, not the bubble Minister Flaherty fears. So, why is Minister Flaherty still toying with the idea of barring so many potential first time homebuyers from entering the market by buying their first home?

Klump isn’t the only dissenting voice out there either. Benjamin Tal with CIBC World Markets has also told The Globe and Mail that he too, believes new housing units coming into the market will help stabilize prices. He also warned that the government could overshoot its goal, saying: “You do not kill a fly with a hammer.”

Interestingly enough, there’s even dissension from the Bank of Canada itself! Bank of Canada official David Wolf recently delivered an address in Edmonton on behalf of deputy governor Timothy Lane. In the address, he warned that any talk of a housing bubble at this point was “premature.”

We hope Minister Flaherty is listening to the counsel he’s getting and does away with this idea, before it affects the dreams of so many first time homebuyers and our valued clients. We’ll have even more on this topic in the next little while so keep checking!

Elke Babiuk and Michelle Larcher
MaxWell Canyon Creek Realtors

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Housing Bubble in Canada – we don’t think so!

Posted on 02/11/2010 by

It may soon be a lot harder to buy your first home, if federal Finance Minister Jim Flaherty has anything to say about it.

In an interview with CTV just before the Christmas holidays, Minister Flaherty mentioned that he’s considering raising minimum down payment requirements to “more than they are now.” He also said he was looking at decreasing amortization periods on mortgages to “something less.” In case we haven’t made ourselves clear enough, he wasn’t exactly forthcoming with specific numbers.

The Finance Minister is concerned about a possible real estate bubble burst. He worries that too many people could get into the market when interest rates are low, only to have the Bank of Canada raise interest rates later on this year, leaving many unable to pay their mortgages.

We understand why he’s worried. We can lay a great deal of blame for the 2009 financial crisis on a housing bubble in the United States. But there’s little evidence to suggest that could happen this year in Canada.

There’s a lot of experts who disagree with Minister Flaherty (more on that in later blog posts), but we want to devote this entry to explain why we think it’s a bad idea.

A significant number of our valued clients are first-time homebuyers who we want to support in purchasing their first home - a place where you can build your dreams and grow your family.  Getting in is not easy for most. We know many of our clients can take a while to save up enough money for their down payment, usually because they have to pay rent to stay in their current place while they build up what they need to move into that special first home. Raising down payment requirements only puts more strain on potential first time homebuyers, who are so crucial for a healthy housing market.  Here’s why:

First time homebuyers form the basis of a pyramid of sorts for the housing market. Eventually those who were first time homebuyers a few years ago need a bigger place to comfortably grow their family. Who are they going to sell to if those looking to buy their first home can’t get into the market anymore? Your guess is as good as ours. In this way, the effects of limiting first time homebuyers are felt all the way to the top of the market.

But it doesn’t stop there. Many businesses we work with, as well as our own, would take a serious hit as well. We work with many contractors, from those who renovate your kitchens to those who paint your house, who would feel the effects of Minister Flaherty’s proposed measures. Retailers would feel the pinch too, as fewer people would be buying the furniture and appliances that go into that first house.

We’ve got a lot more information to share with you on this topic, so bookmark us! In the meantime, we encourage you to write a letter to your MP if you want to speak out against these measures. Until next time!

 Elke Babiuk and Michelle Larcher
MaxWell Canyon Creek Realtors

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Buying Land in Calgary area

Posted on 11/01/2009 by

Thinking of escaping the hustle and bustle of a big city and buying a little piece of Alberta land you can call your own? You are not alone. Our Real Estate team receives plenty of requests from people looking to buy raw land.  However, for many people, it remains a remote dream due to the financial requirements of lenders.

One of the first questions we ask when people express an interest in purchasing land in the Municipal Districts of Rural Rockyview or Rural Foothills, is if they are pre-approved for a land mortgage and if they have a builder lined up to build. The reason the answer to those questions are important is because most people do not know that they usually need to have a  50% down-payment when buying land. The lender’s risk is higher for raw land so that’s why the 50% down is required by most lenders. Alberta Treasury Branches often make exceptions where you will need only 35% down but that depends on circumstances.

One of the exceptions that lenders make to the 50% down rule is if the piece of land is in an existing subdivision with services already there and/or if there is a building commitment deadline on the title. For example, subdivided acreage parcels like in the Springbank or Bearspaw areas, for example, may have builders that you are required to use when building. They usually also have a building time-line attached to the Title of the property in addition to architectural controls. Moreover, many of these parcels would have services already to the land. With an established subdivision with time-lines and services in place, Lenders will then advance mortgage funds in stages as the home is being built and buyers don’t require 50% down.

A caveat on the title for a building commitment could be that the home must be built within two years of the land purchase. If you can’t meet the building time-line, then you will lose the land. This is also something Lenders look at when granting mortgage approval, so the other questions we  ask are: do you need a property without building commitments on it, or do you need special zoning for the acreage (eg, commercial, agricultural, etc)?

If it’s strictly a raw land purchase not in an established subdivision, lenders know that it could cost buyers $100,000 or more to bring services to that parcel of land – septic, well water, power, heating, a road, etc – so they take that into consideration as well when lending for raw land purchases.

If you are still looking to purchase land around the Calgary area, while it’s important to get pre-approved for a mortgage, it’s also equally important to find a Realtor® who can help you achieve those land-ownership goals. Please don’t hesitate to contact your Calgary-area Realtor&reg, Elke Babiuk if you have any questions or if we can assist you in purchasing acreage properties – 403-278-SOLD (7653).

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