Mortgage Taps Tighten

For the second time in twelve months, Federal Finance Minister Jim Flaherty and the Department of Finance tightened rules on residential mortgages to help slow the pace of household debt accumulation. Changes include shortening the amortization period to 30 years (which had already been shortened from 40 to 35 years in 2008), withdrawing CMHC insurance on home equity lines of credit (HELOC), and a reduction in the maximum refinance percentage from 90% loan-to-value to 85%. Changes to the amortization period and the refinancing ratio will take effect March 18 and the HELOC change will take effect April 18, 2011.

Key Implications:

The change may alter the ‘quarterly profile’ of the housing market activity as some sales are pulled forward by households. Buyers who are on the fence will make their moves earlier to avoid the risk of not qualifying for a mortgage.

The impact is not expected to be large however, nor does it lead us to alter our annual forecast. Existing home sales were already forecast to weaken by about 8% compared to 2010 (this is also due to another pre-empt surge in 2010 that saw people buy before the HST kicked in on July 1st and those who took advantage of rock bottom interest rates).

The other two changes are more likely to impact consumer durables and housing-related spending. For instance, household usage of HELOCs is mostly directed towards renovations, vehicle purchases, and debt consolidation. Yet, on that front as well, the impact is not expected to be large.

Again these changes are not effective yet. They will most likely be in effect in the next few months and we will have an opportunity to better understand them and their implications before they come into effect. Saying that if you are looking or debating to get in the market now may be as good a time as any to buy or make a move, or refinance.

Feel free to comment or get in touch for more info.

Core Values

The Blok is my baby, it is a part of me and want it to succeed, and since it is a part of me it is only natural it will take on my drives and ambitions. I sat down this past holiday season and decided to set up my goals for 2011. While going through the process I realized that in order for me to see The Blok in the long run, 5, 10, 20 years down the road I first had to define its purpose, its “core ideology” if I may, for The Blok to exist and for people to relate to it. (Damn the cliché that holds true one is to understand them self first before venturing off to pursue their dreams).

After a period of “soul searching’ and since I was writing this stuff down I thought I might as well share it with you. The next few paragraphs might sound technical but I hope they give you a glimpse about what The Blok venture holds true and what it aspires to be. I believe much like a real person The Blok has a set of beliefs you can relate to, it may remind you of the way you carry yourself about or at the very least inspire you to set your own path and goals.

I believe everyone’s belief system has two parts: Values and Purpose.

Values are the set of guiding principles to which you navigate. They require no external justification. They are innate strengths you are aware of, proud of and motivate you every day to keep going. These values will keep you going as time changes and challenges arrive.

Here are The Blok’s strengths and values:

• I am not entitled to anything. Success is based on merit.
• Achieving high results.
• Honesty, integrity and social responsibility above all else.
• Encouraging and inspiring people.

Do you have a set of values you hold true? A way you carry yourself about maybe? A list of values you remember every day on your journey?

Every successful venture company also defines its purpose, and yes you would be surprised to know it goes beyond mere profit. Would Apple Inc. have succeeded if their main purpose was making money rather than “not to settle for anything less than excellence” and “have self-honesty to admit when we are wrong and the courage to change”?

In order for someone to prosper they have to have a purpose. A trick I found to discover one's purpose is to ask yourself ‘why?’ five times so that in the end you arrive at the BIG ‘why?’ For The Blok it went something like this:

Why? To share information with people.
Why? So they can make informed decisions.
Why? To make the moving process easier.
Why? Because people will need the help.
Why?.. And here it was, somewhere in all these answers were the bits and pieces of The Blok’s Big Purpose:

“Making life easier for people by sharing information to eliminate obstacles”.

Take a minute and ask yourself why five times. What is your purpose?

So now we have a Purpose and a set of Values that The Blok subscribes to, and ten years from now when I’m rocking the greys and I am writing about baby wipes and the need for nanny rooms and in-law suites they would still be the same. My strategies and marketing practices might change but my core ideology will not. This is The Blok’s timeless character and will be the glue that holds it together.

Happy 2011 everyone, be safe; now go rediscover your purpose and always keep true to your values.

GTA Home Prices and Market Outlook for 2011/2012

Lenders have a rule of thumb when giving out mortgages, that no more than 32% of your household income can go towards your mortgage (no more than 32% can be dedicated to cover principal+interest, property taxes and utilities). So looking at where the average GTA home prices stand now can people realistically move into the housing market, be it for the first time or move within it? Where is affordability going and are prices justified?

Take a coffee break and watch this excellent 20 minute presentation by Jason Mercer, TREB Senior Manager of Market Analysis given earlier this month. The first part tells of where we are in terms of justified home prices, the second of where we expect to go. See how factors such as interest rates (the Bank of Canada controlling inflation), the labour force recovery and the increases to living costs and utilities all work together to shape the outlook of home prices for 2011/2012. Are home prices on the rise or are we looking at a period of decline?

In (un)defence of 1% commission

The perfect home? Check. Motivated first time buyers with mortgage and down payment arranged? Check. Even a stickler for a Seller? Check. All we have to do is put the two parties together and work out a nice deal.

I have been working with this nice young couple for around 3 months now, first time buyers who saw the slow winter market as a perfect time to buy their first home. Prices dip a little in the winter (November to January) due to a lack of heavy demand, there is also less competition out there and it provides them with reasonable time to make an informed decision. After 2 months and 23 homes later, (a lot I know but hey why rush) we finally found it. I drew up the offer. We were excited.

I call the listing agent. In comes Cousin Bill who is a Realtor/Telus customer service rep/Gap sales rep on weekends. When it comes to phone etiquette Cousin Bill rocks but when it comes to negotiating …well, let us just say he’s a rock that sinks. Where do I start? First the listing agreement signed with the seller was on the table for all visitors to see when visiting the house; it indicated 1% commission payable to him. Nothing alarming at this point but right away this made my mind run, “tsk tsk” I thought, If this agent is not strong enough to negotiate his own self worth how is he going to protect, value and push the seller’s interests at the negotiating table?

The home we liked had been on the market for 4 months now and how Cousin Bill failed to sell the house in another record breaking year in Toronto real estate I do not know. The house was over priced of course and this sadly tells me he failed to come to an understanding with the seller on what reality looks like. Keep in mind some agents will take on an over priced listing, for them the objective is to get buyer LEADS and sell them OTHER homes, not yours. Would I personally want my sign out there for 4 months telling people I suck at my job? Not really my style.

It is only fair to mention that the house was ‘Sold Conditional’ before. Sold Conditional means that the seller had accepted an offer and the deal was 99% firm “if” one minor detail occurs. What is that one minor detail they took the risk on accepting? ‘Conditional on the sale on the buyer’s home’ - This is one of the riskiest conditions to accept in a deal, it basically means if the potential buyer’s house/condo does not sell within a specified time they have the right to walk away with no recourse, the deal would fall through, which it did. Genius advice giving Cousin Bill (did I mention that this dead deal’s papers were also lying there on the kitchen table? I basically found out what price and terms the seller was willing to accept and I used it to my buyer’s advantage. Way to keep your cards close to your chest Cousin Bill).

Shall I continue? Unfortunately for the seller it gets worse. We made an offer. I am in the office waiting on a sign-back from the seller. Been waiting since 7:00pm but its now 9:30pm. I call Cousin Bill “Okay Bill we are ready for you, where is the fax?” to which he replies “Oh I just left work (good old Telus again) and I have yet to send it to my seller” “Wait what? But I sent it to you 24 hours ago, we are waiting here!” You can see how important this is to Cousin Bill.

I will let you know how negotiations shape up but for now I want to close with some thoughts. Did the seller save or lose more money by getting a discount agent? And if the agent does a fantastic job and gets the seller more money than the original asking price would anyone still be grumbling about paying the going rate on realtor commission? If you need more convincing think of it this way, working for commission means you pay AFTER the successful sale of a house, if your house does not sell you do not pay! How many times did you go to a lawyer and paid him or her upfront whether you win or lose? How many times did you go to a mechanic and pay to solve a problem only to drive away with another? You felt robbed huh? Think about this next time the issue of commission stops you from hiring a great realtor.

Living Inside a Real Housing Bubble

Definition of a Housing Bubble: Rapid increases in real property valuation until unsustainable levels are reached relative to income and affordability. This is followed by decreases in home prices resulting in owners finding themselves in a position of negative equity. Bubbles can be measured only in hindsight, after a market correction.

"Dream your dreams with open eyes and make them come true."
~ T. E. Lawrence

I hear it all the time “home prices will peak and eventually decline” and “I will only purchase once prices hit rock bottom”. I could not agree more. It is true, housing markets do take full cycles no different than economic cycles. People should observe these cycles to know when to invest and when to hold on to their money; however they should not watch them only to be left out in the cold. There are wise investors who know how to pick their time and others for whom “the bottom” is never reached, and as pictured above, will sit there waiting forever. Why?

Who is the wiser in this real estate market? Depends on who you ask. Many invested and others decided to ignore the fiscal stimulus and rock-bottom interest rates and point to them as dangerous bubble creators. I do want to point out however that the effects from the hot housing sector did help solidify the Canada’s rebound from recession. Thanks to these same rock-bottom interest rates, sales of existing homes are surging. The buying spree is helping fuel broader domestic spending needed to power the economy until foreign demand picks up. This stimulus provides a reason for optimism...yet others will always look to the doom and gloom of things. Again why?

Fear plays a part and it’s only natural. In order to grow, move to a new level of success, make dreams come true and build confidence, one must overcome these apprehensions. Buying that first home is intimidating, but taking it one step at a time makes it less so. The pros outweigh the cons any day, keeping that focus is key in an agent’s agenda for his/her clients. The Alternative is the more dangerous housing bubble that is worth bursting.

First Time Home Buyer and Multiple Offers

‘Home is where one starts from’ T. S. Eliot

Finally it quieted down. The multiple offers of this past summer left me and Toronto home owners with a “whoa... what was that?” moment. Just when everybody expected doom on the Toronto real estate front, others saw an opportunity. Toronto buyers took advantage of historically low borrowing rate and low home prices; add to it the motivation of buying before the HST kicked and the market was bound to heat up. Multiple offers were sure to be on the horizon in this “buyer's market”.

That is where Andrew and I found ourselves this past summer. Each time Andrew saw a property he liked sure enough multiple offers seemed to jump out of the woodwork. Of course we expected this beforehand and were diligently prepared. First we focused on our price range and stuck to it. We also held true to our location of which there was no compromise and kept in mind lifestyle and flexible transportation alternatives (TTC access and a parking space a must).

Andrew and I got involved in three, yes three multiple offers this past summer. On the first condo we were up against 9 multiple offers of which crazies were willing to visit the twilight zone. We had to walk away. The second we were against an unbelievable 15 multiple offers on a fantastic condo on Yonge and Carlton (of which we came in 2nd! but second still leaves Andrew homeless and therefore we soldiered on).

Multiple offers are probably one of the most stressful situations for any potential home buyer. It is extremely important to keep focused and not let your emotions -- or natural competitiveness -- overshadow your good judgment. Saying that, I believe you have to treat first time buyers as bungee jumpers; they just need that little push to begin their new life. I do it gently while at the same time making sure they are well strapped in. I explained this to Andrew on our way to the next multiple offer bid.

Andrew won on his third condo bid (up against 4 multiples), a great condo on Yonge and Wellesley. Two months later I check in on Andrew to see if he made the right decision “I love it Wael, I’m so happy with it and the location is just a dream”. My judgement proved right. The nudge works. Andrew is now enjoying his condo which he’ll use as a stepping stone to his next adventure in real estate.

Hogg's Hollow and the Saudi Arabian Prince

Hold on to your hats here, this is going to be fun.

I'm in the office yesterday when I get a call. It’s from a long distance number that I have been paged with several times in the past week. The conversation started off quite well, a man introduces himself to me as Doctor John Doe, a Canadian citizen of Saudi Arabian background. His story went along the lines of him raising his family here in Toronto and 8 years ago he had to go back to Riyadh, Saudi Arabia for a job opportunity. So now with his children reaching university age he would like to bring them all back to Toronto and finally settle here for good.

Doctor John stated that he will be flying to Toronto this very evening, staying in town for the next 10 days during which he will be extensively searching for a property to purchase. He also went on to say that he would not need a mortgage loan because "Praise be to God" life has been good to him. All he needs is an apt realtor to show him around. I look over my shoulder, "no one? anyone? okay Dr. John, I'm your guy!"

At this point, I love where this conversation is heading, I have a motivated buyer on the phone willing to buy ASAP. The story gets even better when I ask him what area he’s considering. Hogg's Hollow (wiki http://is.gd/gW27p). Praise be to God indeed.

Before we hang up Dr. John says to expect a call from his brother, Dr. Mike Doe, who will also be moving to Toronto with his family. I thought nothing of it and sure enough 10 minutes later my phone rings with Dr. Mike on the phone. If Dr. John was nice, Dr. Mike was even nicer; went on to say how lucky they were to have found me and wished us both the best of luck in our endeavour. Something was said though in our discussion that I needed clarity on, something along the lines of, "I trust my brother's taste...he has my power of attorney and he is able to purchase on my behalf”, at first I thought nothing of it. Before we ended our conversation I assured Dr. Mike not to worry, "I will help your brother find the biggest house on the Blok, big enough for both your families" to which he replies "no no Wael you misunderstood, we are buying two houses!"
How do you spell cha-ching?!

So now by midday I'm walking around the office shoulders held high thinking finally the god's have smiled down on me, finally some positive energy is finding its way back to me, "Lunch on me folks!"

5pm, I get a call from Dr. John who I expect to have arrived in Toronto by now, however there is a hint of distress in his voice. Believe it or not according to his explanation, Homeland Security has held Dr. John back for further questioning. He had already checked his luggage and for security reasons they also made him check in his carry on, his laptop and everything on his person. They assured him not to worry, that he will make his flight, they only had a few questions left for him.

Well Dr. John missed his flight and is now stranded in Fort Lauderdale with no wallet nor phone to call home. No problem I thought he can simply catch the next flight "just call your brother and ask him to provide a credit card number to the counter", "They will not accept a number" he said "they say I have to swipe the actual card. They do however accept a wire transfer", "Perfect" I say "so what's the problem?" to which he replies "Well you see Wael, its 2 am in Saudi Arabia right now and Western Union is closed. I can't believe I'm asking you this brother, but could you please wire me $$$ to this number".

POP!

As you might’ve guessed by now I've been duped. They worked on me the whole day and I should’ve known this sounded too good to be true. I mean the whole thing reads like a Nigerian email scam "I am PRINCE Bob Loblaw, I have money ready to give to you, all you have to do is pay the interest". I was disappointed yes, but more, violated. I mean the audacity of somebody doing this over the phone and paging me and calling back and forth...I felt so...used.

I want to leave this on a positive note. This whole saga revealed itself on my way to meet with a young couple I previously met in the summer. This was our first time reconnecting after 6 months and they were ready to go see some homes that I had lined up for them. But my head was not in it. The phone rings. It’s Esther, the young lady I'm meeting in 30 minutes.

Me: Yes Esther, I'm just running home to get ready for our meeting
Esther: Wait a minute. You're not going home to put on a suit and tie are you?
Me: Actually yes I am
Esther: Wael, when we first met you 6 months back we liked you just the way you were, we don't care what you're wearing. We met several agents in those 6 months but we liked you because you were real. So please, don't change.

Thank you. For bringing me back to ground. I had a great evening with them. Real people. Real stories.