Interestingly, the phenomenon of increasing grey divorces is more characteristic of the United States, where, from 1990 to 2010, the divorce rate among those aged 65 and older actually doubled! This situation shows how easy it is to assume that trends in the U.S. apply to Canada as well.

I wonder if this is why in a recent presentation, reverse mortgage solutions for grey divorces were discussed. It presented a 72 year old couple with a detached home worth $1,000,000. Upon divorce each was able to purchase something worth $800,000 or one of the spouses stayed in the 1M home and the other got a new home for $800,000. While reverse mortgages do not require monthly payments and have very little requirements in terms of qualification outside of the equity you have on the property, they have higher rates. This does not make sense for everyone. In fact, it doesn’t make sense for a lot of people. Individual circumstances and goals must be reviewed. However, it does provide the option to stay in your own home while you age. And you don’t have to worry about renovictions and rising rents.

For more information you can click the following image. If you know of anyone interested in looking into a reverse mortgage, please pass this newsletter along. It is important to get proper counselling before committing to a reverse mortgage!

The post Grey Divorces and Reverse Mortgages first appeared on John Chan Mortgages.

Currently the market is anticipating the Bank of Canada to lower their rate by 0.25% in their June meeting. This means for people with variable rate mortgages will see their rate drop by 0.25% but this doesn’t mean fixed mortgage rates will drop at the banks. Variable rates are tied to the Bank of Canada overnight rate while fixed mortgage rates are tied to bond yields. Bonds are traded daily based on the market’s anticipation of what the future rates will be. If you look at the chart below you see the step-like movements of the overnight rate. That is because the Bank of Canada lowers and raises rates in increments at a limited number of times during the year. The blue line represents the 5-year bond yield. That represents the cost of borrowing for the bank. And as a rough guide, you can estimate the 5 year fixed mortgage rate by adding 1.5% to this yield. You can see how much more it fluctuates.

This means if the rate expectations do not change, the 5 year fixed rate will not change. So don’t expect the fixed rate to change when the Bank of Canada lowers the rate in June.  

Have a great month!

The post March 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

The change to BC’s Property Transfer Tax (PTT) exemption will make more of an impact. Property transfer tax has to be paid on most transaction where the name on the title changes. 1.0% is paid on the first 200K. Then the amount up to 2M is taxed at 2%. From 2M to 3M, it is 3%. And for any amount above 3M, it is taxed at 5%. First time home buyers are eligible for a rebate on the PTT. Previously, the fair market value of the property must be $500,000 or less to get the full exemption. That is, no PTT has to be paid. Now it is $835,000. Past $835,000 you will get a partial rebate. And by $860,000 the rebate will be reduced to zero. The $500,000 was a little low for the Lower Mainland. Now at $835,000, more people can take advantage of this. And the savings is substantial. The PTT for a $835,000 property would be $14,700 otherwise! Also previously the first time home buyers are exempt from PPT for the purchase of brand new construction of up to $750,000. Now it will be 1.1M and at 1.15M the exemption will be completely phased out. This is a savings of $20,000!

And finally starting 2025, there will be a BC Home Flipping Tax (HFT) applied to the profit of properties sold within the first two years of purchase. The tax rate for the first year is 20% and slowly decreases till it is zero at the end of year two. This also applies to the assignment of contracts. The intent is to discourage flipping. Note in 2022 the Federal Government introduced a set of rules that require the profits of the sale of a property sold within 12 months be treated as income. You cannot claim principal residence capital gain exemption or capital gain exemption for a rental property. The table below aims to clarify the impact through an example where a property was sold within 12 months for a profit of $200,000. A simplification of a 50% tax bracket is used. However, it is conceivable to get to this tax bracket if you are fully employed and flip houses on the side.

The landscape of housing incentives and taxes is ever changing. It is important to consult with a real estate professional when you want to start your journey into the real estate market.

The post Three Recent Changes to Housing Incentives first appeared on John Chan Mortgages.

When you buy a house, you should make sure that there is a declaration made that the EHT are paid if owed. However, the City of Vancouver can do an audit 1 to 2 years later. At that point, if it was found that the previous owner owes EHT from previous years, it will be added to the property tax account of your property. Considering that the tax is now 3% of the value of the home, that can be tens of thousands of dollars.

This is an evolving area that the legal and real estate community has not fully worked out. Doesn’t seem fair to me that an innocent party ends up responsible for a tax the government fails to collect.

Currently, buying a homeowner title insurance policy will cover your liabilities should an audit find the previous owner owes EHT. Discuss this with your solicitor when it is time for you to buy your home as there may be new better solutions.

The post Buyers Beware: The Empty Home Tax first appeared on John Chan Mortgages.

As I wrote last month, the tide does seem to be turning. The inventory numbers are returning to normal levels. The number of newly listed properties for February is 0.2% below the 10-year average while the total number of listings are 3% above the 10-year average. From the chart below, you can see the trend in the sales-to-active listings ratio reverse. Sales-to-active listings ratio is a measure of the supply and demand. We know the listings have been increasing but the sales have increased faster. This is putting upward pressure in prices, resulting in price increases in all 3 property types.

Predictions are currently leaning towards the Bank of Canada reducing interest rates in June. Most predict the rate to fall for the rest of the year, but it varies in regards to how much. Scotia Bank has made projections for real estate prices under different economic scenarios, predicting a decline in Canadian real estate prices this year ranging between 3.2% to 8.6%, depending on the economy’s performance. Not sure how it will play out in Vancouver. There are factors that will increase supply this year which may put downward pressure on price such as the restrictions of AirBnB starting May, people not being able to afford the new mortgage payments at renewal, and people who realize they do not qualify for the pre-sale they bought years ago. However, there are slowing economic signs that may force the Bank of Canada to lower rates and support prices. Our GDP per capita growth has been negative for 5 quarters in a row. We crammed in so many new immigrants and students, it makes the GDP look better but on a per capita basis it is actually worse. The number of active businesses are falling and insolvencies are hitting a 19-year high.

And mortgage delinquency is increasing but it is not as dramatic as the headlines would want you to believe. A 135.2% increase and 62% increase in mortgage delinquency rates in Ontario and BC respectively, does sound catastrophic but Canada historically has very low mortgage defaults. So it is an increase from a very low base. See the two charts below for a better perspective. And as a reference, the US current mortgage delinquency rate is 1.69%. But the economic conditions are getting worse.

The interplay between the economy and the mortgage rate will impact real estate prices this year, but longer term I see real estate prices continue to go up. At the end of the day, it comes down to supply and demand. With the population growing quicker than houses are being built, it is a formula for higher prices. Add in the investors, foreign and domestic, rising labour costs and government red tape, this is a real estate dumpster fire. And it saddens me to believe that no one will be able to put it out.

Note that Canada has one of the highest growth in population and real home prices over the last couple of decades. You can really see the strong correlation between population growth and house prices in the chart above. If you take the growth rate of the last quarter of 2023, Canada is actually the 3^rd fastest growing country in the world. Kind’a crazy. If you need more convincing that prices will stay high look no further than the 2022 CMHC report: Restoring affordability by 2030. It basically stated that to get to housing affordability by 2030, we would need to double our pace of construction. This does not seem physically possible. Even if it was, wouldn’t the demand on labour and materials basically push the prices up until it wasn’t affordable?

We built about 240,000 units in 2023. How many new people came to Canada last year? About 1.25M. I think you get my point.

The post February 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

The sales-to-active listings ratio have stopped falling after 7 months of declines. This ratio is a key market indicator, where falling values typically signal decreasing demand, and rising figures suggest the opposite. As you can see from the tables below that while demand has increased a little bit, the price direction is still generally down. But it is likely that the price trend lags that of the sales-to-active listings ratio. So prices may stabilize in the months ahead.

Recent economic data show a moderately strong performance. This has pushed out the predictions of rate cuts by the bank of Canada to June from March. The general view is for the rate to drop 0.75% to 1.00% in the last half of the year. This will spur real estate sales but prices overall will still drop this year. Hoping to keep housing price down, the government has just extended the ban on foreign purchases of real estate to January of 2027.

The post January 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

According to BC Assessment, in the Lower Mainland, the average home values have varied from the previous assessment by -5% to +5%. According to the MLS Home Price Index, the composite price for all residential properties in Metro Vancouver has seen a 5% increase over the past 12 months. This increase is somewhat unexpected given the market’s weakness in the latter part of the year. The sales volume for 2023 was 23.4% lower than the 10-year average. The number of properties listed was 10.5% less than the 10-year average. So with the low demand, there was also low supply. This discrepancy contributed to a price surge earlier in the year when rates were lower that accounts for this 12 month price gain.

But in December, the sales were even slower than November, dropping to 36.4% below the 10-year average. New listings also remained low, at 22.7% below the 10-year average. However, this did not halt the decline in prices. The sales-to-active listings ratio for all property categories has stayed below 20% and has been on a downward trend for seven consecutive months, indicating a decrease in demand. Consequently, prices have continued to drop month over month.

A significant number of experts and forecasters are predicting that central banks will implement rate cuts in 2024, most likely in the second half of the year. If this occurs, it might attract buyers who have been waiting on the sidelines. However, this will largely depend on the inflation data as the year unfolds and the subsequent announcements made. The schedule for central bank announcements in Canada and the US is provided below, ensuring you don’t miss any important updates.

Have a great month!

The post December 2023 Vancouver Real Estate Review first appeared on John Chan Mortgages.

The sales-to-active listings ratio has fallen across all categories. This ratio is a measure of supply and demand. A value between 12 and 20 is considered a balanced market, while below 12 is considered weak. Moreover, the trend of the ratio is a good indicator of price direction. When it drops, price momentum also falls. As evident from the table below, in the last six months, the sales-to-active listings ratio has been trending downward. Townhomes and apartments have been dropping in value, even before reaching the 20% mark.

December may be an opportune time for house hunting, as sellers listing their properties now are likely highly motivated. However, next year might present even more opportunities. First, there are Airbnb owners who must decide whether to continue their business, as all levels of government are targeting them to increase residential housing stock. Second, pre-sale buyers face challenges, with news of buyers unable to secure financing under current rates. They may be forced to assign their contracts at the original prices from years ago!

The busyness of the market will largely hinge on interest rate trends. With recent data, many believe a recession is likely in 2024. The timing of rate cuts is hard to pin down. In the United States, the majority view is that rate cuts could start as early as the middle of next year, with reductions of up to 1% for the year. For Canada, rate cuts might occur three months earlier and be 0.50% more than in the U.S. These views are based primarily on recession predictions and expectations that central bankers will respond by lowering rates. However, few analysts are considering the central bankers’ determination to eliminate inflation, which could delay rate cuts.

The fact that bond rates are falling sharply implies the market believes rates will drop soon. Looking at the 5-year government bond rate, it has almost fallen 1% in the last two months. The 5-year mortgage rate hasn’t dropped as much yet, but there is always a lag. I do hope rates come down soon to help all those variable rate mortgage holders.

The post November 2023 Vancouver Real Estate Review first appeared on John Chan Mortgages.

This product that banks promote is technically creditor’s insurance. Rather than a safety net for your family, it’s actually designed to repay the bank should you meet an untimely end. It’s a stark contrast to the peace of mind that comes with knowing your family will directly benefit from the policy. Furthermore, creditor’s insurance is evaluated at the time of claim, which means the certainty of coverage remains unknown until a claim is made – a risky prospect when your family’s welfare is on the line.

In contrast, a standard life insurance policy acquired through an insurance agent is underwritten at the outset. Coverage is confirmed, and no premiums are collected until this assurance is in place.

Bank-provided policies also come with strings attached: they’re only valid as long as your mortgage is with that institution. Should you transfer your mortgage to another bank, you must endure the application process again, likely facing increasing premiums with each move. A personal life insurance policy, however, is portable and independent of your mortgage provider, offering uninterrupted coverage without the need to reapply.

Despite these advantages, personal life insurance policies often come with lower premiums than those offered by banks. If you’ve already opted for creditor’s insurance, don’t despair – it’s not too late. Provided you’re in good health, you can switch to a more beneficial policy. I’m here to help. Reach out, and I’ll provide you with a competitive quote that can offer you and your family true financial security.

The post A Smarter Way to Insure Your Mortgage first appeared on John Chan Mortgages.

Kickstart your account with any amount, as the FHSA’s rollover perk lets you transfer up to $8,000 of unused contribution room to the following year. That’s right, open it now and you could funnel a substantial $16,000 next year if you contribute less this year.

Every dollar you contribute slashes your taxable income, potentially pocketing you hefty savings at your tax rate. And here’s the kicker: unlike RRSP withdrawals, the funds for your first home are not only tax-free, but they don’t need to be repaid. And if plans change and you don’t buy a home, you can always transfer the amount to your RRSP without affecting your RRSP contribution room.

Not everyone can open one. You must be a Canadian resident, at least 18, and a first-time buyer by the program’s definition, which means you or your spouse did not own a home where you lived during the current or previous four years.
 
Navigating the FHSA waters? I’m here to help. Let’s connect and make your future home a reality.

Click here for a summary of FHSA benefits.

Click here for a comparison between the FHSA and RRSP

The post Maximize Your FHSA’s Potential first appeared on John Chan Mortgages.