Canada’s Mortgage Market is NOT Like the U.S.
A Report from Scotia Economics
(Reprinted courtesy of Cathie Davies, Mortgage development Manager, Scotiabank Woodstock / Ingersoll Areas - 519-421-5253, cell 519-533-7743)We're fielding client inquiries about risks facing Canadian housing and - more importantly - mortgage markets. The following points summarize some key thoughts that we’ve made over time. The bottom line is that we do believe there to be considerable downsides to the Canadian housing market, but that comparisons of Canadian mortgage market prospects to the U.S. experience are off-base. 1. Debt growth over the full cycleMuch is being made of the fact that Canadian debt growth relative to incomes over recent years has been on par with the U.S. experience. Ergo, one is led to conclude, Canada must face similar stresses to its own housing and mortgage markets. Nonsense. One must look at the full cycle and use the right measures. Recent Canadian debt growth reflects the unleashing of pent-up demand from the 1990s. Canada’s recession in the early 1990s was more severe, and the effects were longer lasting by way of how long it took housing markets and the consumer sector to get back on their feet. The U.S. recession of the early 1990s was comparatively mild, and the economy rebounded faster such that U.S. debt growth over the long-haul has exceeded debt growth in Canada. The effect has been for the U.S. to outpace Canada on growth in total household sector liabilities relative to incomes throughout the past two decades. 2. Leverage - night and day comparisons
Canada’s ratio of household debt-to-income is much lower than the U.S. Despite its popularity, however, this is the worst way to look at leverage since it compares total debt amortized over decades to a single year’s after-tax income which is a stock-to-flow comparison that most economists avoid. One doesn’t take out a mortgage on January 1st with the expectation of having to pay it all back out of the current year’s income by December 31st, so why make the comparison? The best way to judge the full cycle’s influences upon debt growth in Canada versus the U.S. is to look at where the two countries stand today on leverage on the household balance sheet (i.e., debt as a share of assets). This must be done by making adjustments to ensure comparability of Canadian and U.S. household sector balance sheet data. In Canada, total debt as a percentage of total assets sat at 20% as at the end of 2007. The U.S. ratio is about 26% (chart). By corollary, Americans have used nearly 30% more debt to purchase assets than Canadians. Clearly, Americans and Canadians have different debt tolerances.
3. Canadian mortgage markets are fundamentally healthier than the U.S. a. Canada’s subprime market is small (5-6% of outstanding mortgages) whereas the U.S. share peaked at about three times that. As a share of originations, 20-25% of new mortgages in the U.S. were subprime over the 2004-06 period. So Canada isn’t anywhere near as exposed to the products that caused most of the damage in U.S. housing markets.
b. Not only is Canada’s subprime market much smaller, but it isn’t even really subprime per se. Canada's subprime market is more like the U.S. near-prime market, whereas the U.S. subprime market often lent to borrowers with extremely impaired quality.
c. Adjustable rate mortgage (ARMs) resets also caused many of the problems stateside, but those resets occur much more suddenly in the U.S. By contrast, the closest Canadian product parallel is the variable rate mortgage, but they get constantly repriced so that people aren't caught off-guard years later. Furthermore, in Canada, some variable rate products adjust the principal, not the payment. On balance, the shock effect from payment resets in Canada is nowhere close to what has caused much of the problem in the U.S.
d. Canada’s mortgage equity withdrawal market isn't like the U.S. We've seen secured home equity lines of credit (Helocs) grow in Canada as a way of withdrawing equity, but nothing like the U.S. withdrawals picture. U.S. homeowners’ equity has been in free-fall with mortgage debt growth outpacing housing assets since the early 1990s. Canada, by contrast, retains much higher homeowner equity, and while it may have reached a plateau, the figure has risen in recent years while the U.S. position has deteriorated.
e. Mortgage interest is deductible against taxes in the U.S. It generally is not in Canada. That creates vastly different incentives to leverage oneself in the two markets.
f. The nature of the products has been very different in Canada versus the U.S. Examples of Canadian innovation like long-amortization mortgage products are absolutely nothing like Ninja mortgages. Mortgage innovation was needed in Canada, but has been relatively more conservative.
g. Further to this latter point, long-amortization mortgage products actually extend the Canadian credit quality cycle. Long amortization periods of over 25 years have been dominant as a share of new mortgage originations since the 40-year mortgage was introduced almost two years ago. However, there is still an overwhelming majority of Canadians who face the option of extending from the previously standard 25-year product into longer amortization products in a manner that lowers their payments in the face of shocks. Even though insured 40 year mortgages now banned in principle, 35 year mortgages still provide this flexibility.
h. Investor mortgages were among the first products to default in the U.S. where they account for about 9% of all outstanding mortgages, similar to the UK (9.5%) and Australia (10%). In Canada, however, they are about 2-3% of all outstanding mortgages. There are problems in the investor segment the world over, but the magnitude of the exposure in Canada is far less significant.
i. If there is an imminent problem brewing, then it’s not showing up in terms of industry-wide mortgage delinquency patterns. Mortgages 90+ days in arrears in Canada remain at 27 basis points which is the range around which they’ve been floating since mid-2004. By contrast, even when the country had double digit variable mortgage rates and double digit unemployment rates in the early 1990s, the peak rate of delinquency was about 65 basis points. We’re of the opinion that delinquencies will deteriorate going forward, but will be nowhere close to the U.S. experience.
j. The extent of runaway house price inflation was much more muted in Canada than in many other countries. Canada’s priciest market is Vancouver, and prices have gone up by about 80% since the mid-1990s start of the global housing cycle. London England, by contrast, went up by about 270% over this time period. Canada’s house price appreciation was, on average, significantly below the U.S. experience since then, and much below the experience of many European countries.
4. Canadian mortgages are funded, underwritten, and enforced in a totally different manner a. Canada’s funding model is completely different from the U.S. The majority of mortgages are held on balance sheet in Canada, with only 24% having been securitized. Thus, much more of Canada’s mortgage book is funded by on-book retail deposits than is the case in the U.S. That also makes the banks more conservative about the products they are originating since they are mostly stuck on balance sheet.
b. Further, the majority of the securitized totals have been done through the CMHC — a Crown corporation with explicit government backing — thus avoiding the problems in the U.S. caused by the ambiguity of GSE liabilities. Other insured securitizations have been done through private insurers that also receive explicit government backing for the underlying assets through the Canada Mortgage Bond program.
c. Furthermore, Canadian financial institutions are not as reliant upon short-term lines extended by other financial institutions. The degree of reliance upon such funding in the U.S. is what caused excessive exposure to short-term swings in market sentiments, not to mention adverse incentive effects.
d. Mortgage-Backed Securities (MBSs) were not placed in off-balance-sheet SIV and CDO structures as in the U.S. So, Canada MBS investors do not face the same heavily leveraged investor risks. This is perhaps the most important point, since origination mistakes in the U.S. were bad enough, but what really caused the problems were dollops of leveraging that occurred after the mortgages were originated.
e. Unlike many U.S. banks, Canadian banks continue to apply prudent underwriting standards. In other words, they have always checked, and continue to check, incomes, verify job status, ask for sales contracts, etc., such that all those questions your banker asks in Canada have a purpose that somehow got lost on many American bankers. The no-income-no-job-no-asset (“Ninja”) style, here-are-the-keys-to-your-brand-new-home lending just didn’t take hold in Canada.
f. Appraisal standards are generally higher in Canada, where appraisals are more likely to low-ball estimates of property value before making the final decision on how much to lend.
g. Finally, enforcement of Canadian mortgages is not as tilted in the borrowers’ favour as it is in the United States. In the U.S., lenders have little recourse — they can take the keys and settle relatively quickly, or sue and go through great expense for a potentially lengthy period. Alberta is similar to the U.S. treatment in this regard. But the rest of Canada provides greater recourse to lenders than in the U.S.
In conclusion, we do believe that the best days for Canadian housing markets are behind us and that lower volumes of new home construction and resales lie ahead alongside further fairly modest erosion of house prices. Calgary and Edmonton are the most exposed in this regard. But, arguing that consequences to the overall Canadian economy and to debt markets particularly in terms of mortgage-backed securities are as severe as they are in the U.S. is way off-base.Labels: Financial Crisis, Housing, Market, Mortgage, Ontario, Real Estate, Real Estate Market, Residential Sales, Woodstock ON Real Estate, Woodstock Ontario, Woodstock Ontario Real Estate
Beautiful Historic Victorian Queen Anne in Highly Sought after Neighbourhood
MLS # 60-324 - $385,000
DESCRIPTION
This absolutely gorgeous Victorian Queen Anne home has been lovingly maintained and meticulously updated. This circa 1885 executive home is located on the square overlooking Victoria Park in the extremely desirable, prestigious Old North area of Woodstock. You will be just minutes from many amenities, such as highways 401 & 403, Woodstock Collegiate Institute (public high school), Central Public School (kindergarten – grade 8), downtown shopping, Woodstock Art Gallery, Woodstock Museum square, restaurants, Lions Pool, Vansittart Park, the hospital and other emergency services.
HISTORIC SIGNIFICANCE
Originally built in 1885 by Helen and William VanIngen, the ownership lineage of 399 Drew street boasts an impressive collection of professional figures, including William Knowles, longstanding bank manager of CIBC, and E.P Hodgins, principal of Woodstock Collegiate Institute and is currently home to the former proprietors of Currah’s Farm Store, and Woodstock Home Hardware, and of Currah and Company Interior Design and Home Staging.
ARCHITECTURAL DISTINCTIONS
Described as the most elaborate and eccentric Victorian house styles, the Victorian Queen Anne utilizes technologies made less-expensive by the Industrial Revolution. Cut field stone foundation
Full 2-storey L shape, white brick with red brick accents above windows, horizontal parallel lines, dog tooth brick work under windows and along strung course. Gable roof with projecting eaves, decorative wooden vergeboard with center pendant post in gable end over 2 storey bay window, small floor under gable, Flat 1/1 flat double hung windows, A-symmetrical veranda, Original Stained glass window
THE CHARM OF YESTERDAY, WITH THE FUNCTIONALITY OF TODAY
You will be awestruck viewing the fourteen exceptionally large rooms, completed with pristine original trim work, unique ornate corner blocks, 10 foot ceilings, and flawless hardwood throughout. The original plaster walls have been restored and repainted in pleasant neutral tones. The building also boasts such modern amenities as copper wiring with 200 amp service, completed in 1996. Every bedroom, the kitchen, family room, and upstairs office has been wired with Telephone and Cable service. The supply plumbing has been updated with ¾" copper to most of the house. The structure is heated with a High Efficiency forced air gas furnace, and cooled with Central Air conditioning. The triple-brick design and original sash & pulley windows provide excellent insulation. You can live comfortably knowing that the entire roof, including the flat portion, was replaced in 2003. At that time, the chimney was rebuilt as well.
Forget lugging a vacuum cleaner upstairs, this house has a central vacuum system, equipped with two sets of attachments – one for each floor.
Step inside this wonderful home and be amazed!
For more information, to book a private tour, or to design a marketing plan for your own home, please contact:
Ben Sage, Sales Representative
Sutton Group – Right Way Real Estate (2007) Inc., Brokerage
Independently Owned and Operated
Brokerage: 519.539.6194
Agent Cell: 519.532.1295
Labels: Ben Sage, Listings, Moving, Ontario, Real Estate, Real Estate Advice, Residential Sales, Victorian, Woodstock, Woodstock Art, Woodstock ON Real Estate, Woodstock Ontario, Woodstock Ontario Real Estate
The Market Value Inflation formula
Can We Give You Some Advice for Pricing Your Home?
When pricing a house, our Real Estate Team definitely does not simply plug numbers in a calculator and spit out a price. There are a few methods that we generally use to determine a fair asking price for your property.
1. Market comparables are used; recently sold houses, expired listings and current market competition.
2. We then weigh the overall quality of the home, the demographic currently buying and their unique needs, and overall market volume in order to assess value.
3. The third method that we use is a Market Value Inflation formula to statistically determine a proper value of your home. This particular formula is fairly specific to our local market within Oxford County and does take the
Toyota impact into consideration.
The Market Value Inflation formula:
Normal market conditions dictate a 2-3% increase in value per year assuming proper renewal has been performed (such as furnace and roof replacement) and good general maintenance. It does not consider major upgrades or renovations. Additionally, we can statistically prove that the announcement of the Toyota plant construction in Woodstock did trigger a 23% increase in property values locally through 2005 and 2006.
For example A house purchased in Woodstock in 2004 for $150,000 could presently be worth $196,000 (as of Feb, 2008) according to the Market Value Inflation formula.
The value of the house increased 30-32%, that is:
23% (the Toyota factor) + 2.5% for the remaining 3 years (Inflationary pressure)
Therefore, $150,000 + $46,500 = $196,000, or, a very good investment!
It is important to note that this formula is not a hard-and-fast RULE for value assessment of property however, it can help you test your own reality and ensure you are prepared for the potential value of your home. It is also a key part of our three step process for market value assessment.
A word about Renovations and “Flipping houses”
A Seller who needs or wishes to sell within 1-2 years of buying will be challenged to recover the costs associated with buying and selling houses (such sales commission, legal fees, moving expenses, etc).
Also, in terms of renovations, you cannot expect to receive dollar for dollar what you have put in to the house. Some improvements are simply considered good maintenance: Ensuring the home is in as good of shape as it was when you bought it, and generally keeping up to date with popular likes and dislikes. Major improvements will of course be considered separately by your Realtor. For example, a seller who has recently invested $10,000 in windows cannot necessarily expect to add $10,000 to the value of their property however, some minor aesthetic repairs and a fresh coat of paint may help the property sell faster, and ideally closer to asking price.
‘Flipping’ a house as a business includes different variables. Normally this is only possible if the house can be obtained though an opportunity to purchase below market value. A flipper must have access to inexpensive products and labour for renovations. Profit is also realized through tax benefits to being in the business of flipping.
This article reprinted courtesy of my team member and close ally, Drew Symons
Labels: Drew Symons, Listings, Market, Ontario, Real Estate, Real Estate Advice, Woodstock, Woodstock ON Real Estate, Woodstock Ontario, Woodstock Ontario Real Estate
Breaking it Down 02 - How to buy a Bigscreen!
As Promised, here is my
Breakdown regarding Bigscreen TV's.
As a seasoned "nerd" I get a lot of questions about technology. Lately they seem to be focused around bigscreen TV's. There is some confusion about how to properly buy a bigscreen, so I'm going to try to demistify the process for you!
Big Screens, Big Questions!- Why do I want HDTV anyway? What IS HDTV?
- How Big should I buy?
- LCD vs. Plasma: Which is right for me?
Why do I want HDTV anyway?
I'm sure you've all heard of HDTV by now. The acronym stands for High Definition Television, and it is exactly that. Televisions have historically had very little innovation since the invention of colour tubes in 1940. Since then, the real advances in television have been on the supply side - Shifting from Antenna broadcasts, to Satellite, then to traditional cable systems, and new mini-dish satellites, and finally using the internet to distribute television programs.
Sure, companies such as Panasonic and Sony pushed small advances in their Picture Tube televisions (better filters for more colour display, and to cut down on "noise" generated in the transmission stage), but nothing MAJOR has changed in almost 70 years.
Televisions display information at a certain "resolution," much like a digital camera. The more "megapixels" your camera can capture, the higher the detail in the final product. The same is also true of Televisions. They display a certain number of "lines" of resolution. Traditional, old fashioned colour TV broadcasts (on antenna, satellite, or cable systems) consist of a display of 525 horizontal lines, therefore every second, your television draws 525 lines horizontally 30 times, to make up a moving picture. In the 50's, this sounded and looked EXTREMELY impressive. It was so advanced, in fact, that it lasted about 50 years, until the technology to make bigger screens exposed how poor the quality actually is at 525 lines. This is partially why all those "old" projection bigscreen TV's look fairly poor.
Then came High Definition TV. Pushed by the desire for a bigger screen, a format was invented that carries 1080 lines of resolution to your television. The HDTV format also introduces the ability to broadcast SOUND in the Dolby Digital 5.1 format (I will talk about sound in another blog entry!). This format (in its highest form - 1080p) also doubles the "frame rate" of your picture - instead of 30 images per second, it is up to 60 on HDTV - allowing for better display of sports and action packed materials, and equally important, less fatigue on the eyes. The result is a viewing experience that will literally blow you away, like the first time you heard Money for Nothin' on a compact disc, or the first time you talked on the phone in a shopping mall, or in your car. Amazing!
How Big should I buy?This is the second most popular question people ask. Most of my male friends want to get the BIGGEST set they can possibly afford. While I can identify with that position, size should be determined by the room the television will be placed in.
The general rule of thumb is as follows:
Your sitting position should be 2 - 3 times the size of your screen for maximum enjoyment.
Therefore, if your couch / chair is 10 feet from where your television will sit, you would be looking for a television of approximately 54"
8 ft. = approx 38 - 40"
12 ft. = approx 58"
15 ft. = 72"
You can sit closer (say 2x screen size) to your set if you will be watching mostly high definition content (as you will not notice the imperfections in the picture), but if you are going to be watching a lot of standard definition (many channels and programs are still only available in old-fashioned broadcast formats), you will want to sit a bit further back (3 times screen size). I've used a compromise to factor the optimum viewing distances above.
LCD vs. Plasma: Which is right for me?
This is easily the most popular question asked of me. On the surface, these two display types seem to look nearly identical - but there are several key differences that will influence your purchase.
Whats the difference?
Plasma screens use a layer of tiny gas plasma cells charged by electricity to create a picture. LCD (liquid crystal display) screens are liquid crystal sandwhiched between glass plates. The picture is created by varying electrical charges on the liquid, combined with a backlight for illumination. None of this really matters though, what matters is HOW IT LOOKS!!!
For general home theatre uses, Plasma has a distinct edge. Because LCD pictures are created partially by a BACKLIGHT (a light source shining through the sandwiched liquid crystal plates), there is always some light seepage around each pixel (individual element of colour - millions of these make up a single picture). Because of this, blacks and dark colours do not appear as dark as they could. This affects dark scenes in television shows and movies, as well as the shading of all colours on your screen, no matter what the content.
Plasma also tends to have a better wide viewing angle than its LCD counterpart. Because the LCD television uses layers of glass to create its image, you can experience a "parallax" effect if viewing it at wider angles.
Older LCD televisions had a problem with a blurring image during fast moving scenes, or sports broadcasts. This has been fixed up in most LCD models being sold today. A buying tip is to check the pixel response time on LCD televisions - the lower the number (measured in ms - milliseconds), the better the performance during fast scenes.
LCD screens are able to produce higher resolutions than similar sized Plasma televisions - That means that you can view a high definition broadcast on a smaller set if you buy an LCD television. LCD's also use up to 30% less power than similar sized plasma screens.
The lifespan of an LCD television MAY be longer than a plasma as well. LCD's are guaranteed to function for 60,000 hours, while some plasma displays only claim 30,000 - 50,000 hours. Still, either choice will most likely outlast the technology, as 60,000 hours would last you 20.5 years watching TV for 8 hours every single day.
ConclusionBuying a bigscreen should be a fun experience. By all means, shop around! Ask salespeople questions! You might find similar pricing from store to store, as most retailers of high end electronics don't make much margin on big-ticket items like Bigscreens and appliances. When it comes time to buy, make sure you get your products from a trusted retailer, with a good warranty or return program, in case something goes wrong, or you are not satisfied with your choice. If you're looking to buy a bigscreen in the Woodstock, Ontario area, send me an email, and I can let you know who MY favourite retailers are, and why!
Email me with any questions, comments, or feedback on this, or any other topic!
(sources, www.wikipedia.org)
Labels: Bigscreen, LCD, Moving, Ontario, Plasma, Real Estate, Theatre, Woodstock, Woodstock ON Real Estate, Woodstock Ontario, Woodstock Ontario Real Estate
"Breaking it Down" - 01 - Introduction
Hello Everyone!
I am starting a new feature on www.bensage.com in which I will review and explain different technological devices as "plainly" as I can. This feature will be known as "
Breaking it Down."
The idea for this Blog theme arose out of an experience I recently had with a client. This client had just bought a lovely older home and really wanted to invest some money into a proper home theatre system for her new place! Like many people, this client was uneducated about current technical advances in the area of flat panel televisions, and wary of retail salespeople (can't blame her for that!!). So I volunteered to help her shop around and find the right combination of picture and sound for her new home. (Stay tuned for my
Breakdown of Flat panel technology!)
As an aside, I am more than happy to research whatever needs to be explained, so if you are considering an upcoming technological purchase (digital camera, computer, media player, DVD or Blu Ray, or WHATEVER) shoot me an email and I'll gladly research it and include it in my blog!
As those who know me personally would tell you, I am somewhat of a "nerd", so I generally keep on top of technological advances, but in order to serve my client properly, I did some research at home in the week prior to our "shopping trip." After all, technology moves so fast, you HAVE to be prepared when entering a retail showroom, credit card in hand! (They can smell a sucker a mile away!).
In upcoming blog entries, I will discuss many different technology types - hopefully
breaking them down into easy-to-understand terms! As always, suggestions or comments are not only welcome, but appreciated!
B
Labels: Advice, Breakdown, Easy, Ontario, Real Estate, Simple, Technology, Woodstock
Real Estate Forms - Explained!
Here are simple, easy to understand explanations of the pre-printed OREA (Ontario Real Estate Association) Forms. Many people (agents and clients) simply do not understand what the pre-printed portions of these forms are actually saying. Courtesy of the
toronto real estate board, here are the simple explanations!
Agreement of Purchase and SaleBuyer Representation AgreementListing Agreement Authority to Offer for SaleSeller Customer Service AgreementBuyer Custoner Service Agreement
Confirmation of Co-operation and RepresentationLabels: Advice, Agreement, Explained, Explanation, Forms, Ontario, Real Estate, Woodstock, Woodstock ON Real Estate
