Rental Purchases in University Towns

Many clients have purchased property that they now rent out to students. I can understand why given they are pulling in big rents. (Some are getting $3200 per month per house.) So why don't more people get into this, and what concerns should you have if you are thinking of getting into this market? Read on...

Most people that buy rental properties don't want to rent to students because it is often the first house on the block to get worn out. Keg parties aside, most young adults don't take care of the house the way their parents took care of the house. There's also the issue of financing to overcome, as most lenders don't want to finance student rentals. If you do find one (and we know who they are in case you need help), they normally want to lend up to 65% of the value of the house, but not more than that.

Among the concerns to address is the amount of work needed to run a student rental. You are constantly looking for new tenants, as the average tenant stays just one year. In cities where there is a lot of space surrounding the university or college you will end up competing with large student residences for tenants. Guelph, for example, has seen some large complexes come on line in the last few years, with another 341 unit building being proposed right across the street. That building alone will pull about 100 "houses" worth of students out of the market, so if the school isn't adding at least that many kids to its student body you will see some landlords struggle.

With the risks can come the rewards. With these types of properties it just means that you must be that much more organized.

2011 Outlook - What will Happen with Rates?

2010 was a pretty good year for most people in real estate related industries (in Canada). While the year seemed to be front end loaded with clients trying to beat the HST and the new mortgage rules that were introduced in the first half of the year, the later half held its own and by most measures 2010 will be a year remembered for its small increases. Indeed, we saw small increases in the numbers of homes sold and a small increase in prices.

2011 will be interesting in that there is a lot of uncertainty around what is happening in the USA. With their high unemployment (7 million people out of work) and low dollar, it will be a tough go for our exporters who are used to selling south of 49. Manufacturers here had better get used to looking for new markets for their products and services. They must also do something that they haven’t done enough of in the past 20 years: spend money on capital improvements to increase efficiency.

Once the shine of the Holidays rubs off there will likely be less inflationary fears than have been circulating as of late. The uncertainty that has gripped markets has them running one way today and the other the next. The herd certainly isn’t looking long-term: If it was it would notice several fundamentals that indicate we are in for subdued inflation for a while.

For example, there’s a measure called the M1 Money Multiplier, which indicates what happens when the Government injects money into the economy. Right now, in the USA, when Obama puts a dollar into the economy it doesn’t turn into any more than that dollar. In the past the M1 Multiplier would be 3 times the amount invested. This means the US economy isn’t going anywhere fast, and the Fed won’t be raising rates much, if at all, in 2011. I wager they’d rather have some inflation before they put the breaks on their economy. Variable Rate Mortgage holders will welcome this news, as it means their mortgage rates will remain low for some time.

Another example is that inflation is running well below the Bank of Canada’s and Fed’s target rates. Minimal inflation means a number of things. One of the benefits of this is that over the next 12-18 months fixed mortgage rates should hover very close to where they are now. There will be some bumps along the way, but they’ll come back down almost as fast as they go up.

Real estate will be a little tougher sell in 2011 compared to 2010. With calls for tighter mortgage rules to head off a ballooning debt-to-income ratio, it is likely there will be fewer people who qualify to buy. CMHC predicts a flat market in most parts of Canada. I would have to concur. The cities that see a strong real estate sector will be the ones where factories and businesses are relocating or setting up shop. It is mostly about jobs. Where the jobs go so will real estate prices.

Guelph is in the fortunate position of having large amounts of industrial and commercial space coming on-line in 2011. With its proximity to the 401 it is an ideal location. Watch the papers report who’s moving to town and the jobs that they bring. With the Regional Innovation Centre being set up in Guelph, there’s a strong likelihood that Guelph will see strong job growth in 2011 and beyond.

When you look for a mortgage make sure you deal with someone who knows how the economy affects rates and prices. They’ll help you craft a mortgage strategy that will help ensure you pay the least amount of interest of the life of your mortgage.

All the best for 2011!
Chris
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Christopher Bisson
President and Mortgage Broker
The Mortgage Centre
519-763-3900 x1003

www.guelphmortgagecentre.com

Economists Looking for "Direction"

The Globe and Mail has a great article in their paper that touches on how certain economists are looking to The Bank of Canada's Mark Carney to elaborate on the its recent policy statement...which was a little ambiguous. Check out the following link for the full story:

Globe Article

What made me chuckle at this was the mere fact that these economists want someone else to do their work...or at least make their work easier. I guess we'd all like that. The mere fact that the Bank was a little more ambiguous than normal would suggest that it really isn't sure what's happening with any degree of certainty. This leads me to believe a couple of things are in store for us in the next 6 months:

1. Nothing will change much: The Bank will not hike its overnight lending rate until the USA does, and that likely won't happen until the end of 2011 or early 2012. Don't expect variable mortgage rates to move much in 2011;

2. Inflation will remain subdued: The US still has 7 million Americans out of work and a 9.8% unemployment rate. Don't look to the world's largest economy to drag inflation up. The government in China has told banks to stop lending, which will further reduce inflationary pressure. The result is that fixed mortgage rates will likely remain near their current levels over the course of 2011.

Here's the silver lining in all this: The low mortgage rates provide stability in housing prices because they help with demand. Anyone worried about seeing their home's value decrease should be able to take a sigh of relief: it's highly unlikely we will see large decreases in property values.

Warm regards,
Chris
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Christopher Bisson
The Mortgage Centre
President and Mortgage Broker
343 Waterloo Ave
Guelph, ON, N1H 3K1

866-838-4366 x003
www.mortgageconcierge.ca

The Scoop on Credit Scores

Did you know credit scores are calculated using 5 different factors? Here they are for your consideration:

1. 30% credit performance – It goes without saying that if you make your minimum payments on-time, all the time, that this has a large impact on your score. The more you pay on time, the better the score;

2. 35% level of indebtedness – your utilization rate (i.e. how much you owe vis-à-vis the credit limit) on your accounts greatly impacts your score. The higher the utilization rate the lower your score goes;

3. 15% amount of time credit has been in use – Have you ever get one of those great rate credit card offers? Don’t cancel your old card when you get the new one, as the length of time you have had each of your accounts impacts your score. The longer you’ve had an account the better your score;

4. 7-10% pursuit of new credit – The more credit inquiries made on your account the lower your score will go as you appear to be a credit seeker. This is where a broker truly helps you, as we pull one credit inquiry that is good for all the lenders we work with.

5. 10-13% derogatory comments – Notations on your report relating to negative repayment or dealings have an impact on your score. For example, you may have a judgment against you for an unpaid hydro bill. Get that account paid so your score stays as high as possible!

For tips on how to improve you score please contact me. I would be happy to help!

Cheers,
Chris
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Christopher Bisson
President and Mortgage Broker
The Mortgage Centre
519-763-3900 x1003

www.guelphmortgagecentre.com

Canadian Economy Slows - Leaves Room for Mortgage Rates to Drop

Many financial papers are headlining Canada lost its economic steam in the third quarter. The Bank of Canada expected GDP to come in at 1.6% above last year's figure, however GDP grew by 1.4% in Q3. Although the press makes this out to be a bad thing, one benefit of slowing growth is that it will take all the pressure of the Bank of Canada to raise rates anytime soon, and it will likely translate into lower fixed rates.

Real estate is thought to be one of the big drags on the economy at the present time. Ultimately the fewer people buying homes the fewer there are people buying durable goods for their homes. Perhaps it is our record debt levels that are slowing our spending habits.

I would suggest that we need to look at wages and jobs to find out if they will be a drag on real estate. If your city is seeing new companies open up you are likely seeing positive momentum in real estate prices. Where the jobs go, so do the real estate prices.

Warm regards,
Chris
--
Christopher Bisson
President and Mortgage Broker
The Mortgage Centre
866-838-4366 x1003

www.mortgageconcierge.ca

What's Quantitative Easing?

In the statement released after its November meeting, the Federal Reserve announced that it will purchase a further $600 Billion of longer-term Treasury securities by the end of the second quarter of 2011, in what is known as another round of Quantitative Easing (or QE2).

What is Quantitative Easing?

Quantitative Easing is the concept of the Fed becoming a heavy buyer of Treasuries and Bonds. This is done to artificially cause those security prices to move higher under the increased demand. That demand should, in turn, cause interest rates to move lower with the hope of stimulating the economy.

What other impacts might it have?

QE2 will almost assuredly hurt the US Dollar, which helps make US exports more affordable abroad as well as make imports appear relatively more expensive. Such a shift helps large multi-national companies, which have a large influence on the economy and the major Stock market indices.

How can QE2 impact mortgage rates?

While Stocks should benefit from another round of Quantitative Easing, Bonds may have a different reaction. And that brings us to the heart of what you need to know: What does QE2 mean to Bonds and home loan rates?

With another round of Quantitative Easing, Bond prices should initially improve because QE2 includes large Bond purchases.

But...the key word is "initially." That's because, even if Bonds show signs of initially improving, the eventual softening of the Dollar, rising commodity prices, and rise in Stock prices could become a drag on Bonds, which would negatively impact home loan rates.

The bottom line is, QE2 and a weaker US Dollar may make our exports more attractive to foreign buyers, but it may ultimately drive rates higher. That's an important point to consider if you're thinking about refinancing or purchasing a new home. The reality is, home loan rates are still near historic lows, but won't be forever. If I were a betting man I would say that we have about 18 months before rates start rising dramatically as these types of strategies to get the economy in gear take time to work through the system.

CMHC Fall 2010 Housing Outlook

CMHC just put out its Outlook for 2011, stating that we will likely experience a stable market. Below are the main points I have picked out:

• Mortgage rates will be flat in 2011, meaning they won’t rise much;
• Home prices will flatten, meaning we likely won’t see a 4-7% increase in prices next year;
• Employment will be up slightly in 2011 in the KW and Guelph CMAs;
• Immigration will fuel population growth in the area;
• Prices in Guelph and KW are attractive for people from the GTA, and will fuel more housing starts to keep up with demand in housing close to the 401.

All these points lead to strength in the housing market in 2011 and beyond. Don’t expect housing prices to drop 10% next year. KW and Guelph have already surpassed the number of total people employed pre-recession. The more people with jobs that there are, the more people there are looking to buy homes.

Warm regards,

Chris

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Christopher Bisson

The Mortgage Centre

866-838-4366 x1003

www.guelphmortgagecentre.com