GOOD THINGS COME IN 3s

Can I quote you on that? Renovating a home requires an endless process of decisions. And the first one-choosing who will do the work-is often the most daunting.
By Ruth Myles, Calgary Herald
February 26, 2010


The most well-known adage in real estate is "Location, location, location." The second-most famous, which applies to renovation, also features a trio: "If you're going to have work done, get three estimates." Easier said than done. What exactly should be in those estimates? Is there a fee involved? Should floor plans and finishes be nailed down before approaching these fabled three companies? Often, the sheer scope of what's involved can overwhelm homeowners interested in a reno, relegating the dream project to the back burner for yet another year. But take a deep breath--even better, take three--and we'll take that first step together.

Ask family, friends, co-workers and neighbours for recommendations. (Basically, everyone you know.) And don't be afraid to knock on a stranger's door if you know that a house down the street had a new kitchen put in. Most people are only too happy to share their experiences. Check out Calgary-based publications, such as the Herald's Life at Home or New Homes sections, for renovation features and profiles of award-winning companies.

Once you've compiled a list of contenders, start calling around. Have footage, features and finances on hand. Many companies employ a multistage approach to estimates. The process starts off with a ballpark figure, then moves into more detailed accounting the further into the process you get. "From ballpark to budget to final, we're going to be plus or minus 10 percent. If 10 percent is going to make or break the project, then we shouldn't be in the running to begin with," says Steve Perlette, project manager at Litwiller Renovations and Custom Homes. (Hence, the wisdom of budgeting an extra 10 to 15 percent of the total cost of the renovation. There's nothing like scrambling to come up with an extra 15K.)

Ultimate Renovations also begins with an educated estimate; then, if both parties agree, they draw up a plan and create a spec document that details anything and everything in the job, from framing to the number of electrical outlets to the kitchen sink and its faucet. "Pay for a proper drawing and then, if you want, go shopping," says Danny Ritchie, president of Ultimate Renovations. "This way, you're comparing the same apples to the same apples."

His company charges two percent of the job cost for these plans, but that fee is waived if Ultimate gets the job.

In addition to checking references, Ritchie recommends that potential renovatees request a visit to the business's office, as well as current job sites, to get a real feel for the kind of work they do. "Sure, they may have been in business for 40 years, but under 40 different names." And, as different companies have different levels of spec, it's important to ask what their level of finish is. "You can do very inexpensive casings, carpet at two bucks a square foot, stuff like that, so there can be a fairly substantial spread in specifications," Perlette adds. Once homeowners have a range of quotes from three companies in hand, Perlette recommends choosing between the ones that are consistent in pricing, throwing out the high and the low. "You'll usually have two or three that are fairly realistic and have valuable numbers in them."

Of course, people need to look at more than just dollars and cents when it comes to choosing a renovator. The potential to establish a real connection should be the final dealmaker. (That has certainly proved true for me. Five people have keys to our home and the only one not related by blood is John, our handyman since we bought the house in 2006.) "Pick the people that you like, that you enjoy talking with, that you think you can communicate with because it's a long process," Perlette says. "It's very invasive. You have to live with these people for a very long time."

TAX TIME SHOULD MEAN MONEY IN YOUR POCKET

How your mortgage can lower your tax bill
You can deduct mortgage interest without getting in trouble with the taxman
James Pasternak, Financial Post
Published: Monday, February 22, 2010

When Toronto resident Celia Bernath files her annual income tax return, she includes a long list of deductions from her home-office income. After all, as a chartered accountant, she knows that travel, bank, postage, courier, utility and other charges and expenses are fair game for the micro-entrepreneur. But the item that sometimes has the most impact is deducting a proportion of her residential mortgage interest.

"The mortgage-interest deduction - like other deductions - is based on the square footage of my office divided by the total square footage of the house. Keeping track of all your household expenses is very important," says Ms. Bernath, who has about 15 corporate and 100 personal clients.

Ms. Bernath is one of the more than 700,000 home-based business owners who might be eligible to deduct a portion of their mortgage interest on their principal residence as an expense.

Generally speaking, in Canada, interest on residential mortgages is not tax deductible.

However, Ms. Bernath can do so because there is a direct link between the borrowed money and earning income.

"The long and short of it is if you want to be able to deduct interest on your mortgage, the loan has to be incurred for business purposes," says Yens Pederson, a partner with the Regina law firm of Balfour Moss LLP.

Canadians like to talk about mortgage-interest deductibility because the mortgage on a principal residence is the biggest debt Canadians have. They also like to talk about it because tax laws in the United States have provisions for residential mortgage-interest deductibility. Far fewer realize that Americans must pay a capital gains tax when they sell their home.

But beyond the fairly straightforward deductions of mortgage interest, the political machinations and bookkeeping shenanigans have made the mortgage-interest debate a colourful one in Canada.

Many say that the promise of mortgage-interest deductibility put the Conservatives in power and made Joe Clark prime minister in 1979. The Clark government was gone within nine months and the legislation was never enacted.

In 2003, the Conservative Party of Ontario announced that if re-elected it would pass legislation allowing homeowners to deduct $5,000 of their mortgage-interest payments from their taxable income, resulting in up to $500 in savings for homeowners. The party was defeated in the next provincial election.

Between these political attempts to liberalize mortgage-interest deductibility, the federal government moved to restrict tax avoidance strategies. In 1988, Parliament enacted the general anti-avoidance rule (GARR) to curb so-called "abusive" tax avoidance.

Under its most common allowances and interpretations, mortgage-interest deductions can still work as an effective strategy for reducing taxes. In addition to the case of a home business, one can deduct mortgage interest when investing in a residential rental property.

"If you are purchasing a property and you take a mortgage to purchase that property and then you rent out that property, then you are getting rental income from it," said Todd Trowbridge, a partner of Toronto-based accounting firm Trowbridge Professional Corp. "That interest would be deductible. There always has to be an earning income use of the funds."

Take the case of Toronto resident Howard Frank who invested just more than $400,000 in a 2,400-square-foot residential rental building with three units in May 2007. Mr. Frank took out a $300,000 mortgage, paying 5% interest. So in addition to a wide range of other deductible expenses such as property tax, maintenance, any utilities, insurance, administrative and legal fees, Mr. Frank deducts $15,000 in interest payments against the $33,600 in rental income.

A similar mortgage-interest deduction opportunity exists when one is renting out a room in one's principal residence or is earning income from a vacation property for all or part of the year. In both cases, the arrangement must be a legitimate commercial agreement.

"If you rented [the vacation property] out below value to family it would probably be offside. If you rented it out to third parties at a reasonable rate [the Canadian Revenue Agency might] look to see whether there was any commercial reality. At the very least you could deduct it off the rental income for the portion of time it was actually rented," says Mr. Trowbridge.

Some deduct mortgage interest through "the Smith manoeuvre" as promoted by Victoria, B.C.-based former financial strategist Fraser Smith. In its simplest terms, the homeowner pays down the mortgage as quickly as possible, creating small amounts of equity each month.

The equity is simultaneously filled with a line of credit to be used for investment purposes. The interest on the growing investment loan is deductible.

"Instead of giving it to the bank for making mortgage payments we can then invest it in ourselves and build our investment portfolio," says Mr. Smith, 71, who has sold 53,000 copies of his book Is Your Mortgage Tax Deductible?

"You deduct the interest on the investment loan. In the end, if you started with a $300,000 mortgage, you will end up with a $300,000 investment loan. So you'll be deducting the interest on the $300,000 for the rest of your life."

One way to deduct mortgage interest without actually paying the interest is through a reverse mortgage. The reverse mortgage allows a homeowner to tap into the equity of his or her home without having to pay interest or principal on the loan. The loan is satisfied on the death of the home owner or the selling of the home. Therefore, when the proceeds are invested, the homeowner can deduct interest charges against investment income, without actually paying the interest.

"CHIP Home Income Plan interest expenses may be used as a deduction to offset, in part or entirely, income tax liability generated by investments - as long as those investments were purchased with CHIP proceeds," says Arthur Krzycki, director or marketing and public relations at reverse mortgage specialist HomEquity Bank.

Mr. Krzycki says that if one invests a $100,000 reverse mortgage at current rates, the interest expense will be about $3,750. If one has an investment that earns a 3.75% return in the same time period, the two amounts will offset. So, the 3.75% investment income appears to be "tax free" for cashflow purposes, while the interest expense is added to the outstanding balance of the reverse mortgage.

An even more creative application of mortgage-interest deductibility came in the late 1980s. John Singleton, a partner in a law firm, tested current mortgage-interest deductibility rules by withdrawing $300,000 from his partnership capital account to purchase a house. Mr. Singleton then mortgaged the house by borrowing $298,750 from the bank and depositing the money into his partnership account, along with $1,250 of his own money.

When the time came to do his tax return, Mr. Singleton deducted $3,688 of interest on his 1988 tax return and $27,415 on his 1989 return. Mr. Singleton argued the borrowed funds, not the withdrawn funds, were used for investment purposes.

The deduction was originally challenged by Revenue Canada, as the taxman was then called, and after the case wound its way through the courts Mr. Singleton finally won the day.

"The court effectively looks at the direct use - the form of the transaction - and does not consider economic substance," says Daniel Sandler of Toronto-based law firm Couzin Taylor LLP. "So, by the same token, if a taxpayer cannot demonstrate that the direct use of the borrowed money was an income-earning purpose, the interest will not likely be deductible."

By January 2009, the Supreme Court of Canada sent a signal that it was open to creative applications of mortgage-interest deductibility, but not financial shenanigans. The case in question dates back to 1994, when the Lipsons, a husband-and-wife team, entered into an agreement to buy a home. Ms. Lipson borrowed $562,500 from a bank to buy shares from Mr. Lipson in a family investment company. The couple then obtained a mortgage from a bank for $562,500, using the funds to repay the share loan in full. In his 1994, 1995 and 1996 tax returns, Mr. Lipson deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income where it was applicable.

"In essence, the majority of the court allowed the interest expense, but in the hands of Mrs. Lipson not Mr. Lipson. According to the majority, the interest-expense rule was not the rule that was abused in the case; it was the attribution rule," says Mr. Sandler.

Recently, a more liberal interpretation of mortgage-interest deductibility has emerged. In November, 2009, the Tax Court of Canada ruled in the case Henkels vs. The Queen, that expenses deducted from rental income in a private residence do not have to be directly tied to the square footage used by the tenant. The Henkels rented 700 square feet of space to a tenant, which is only 35% of the square footage of their home, but deducted 50% of the acceptable household expenses because the tenant had access to the entire house.

"This case reinforces the position that you could measure expense deductibility on a reasonable basis other than square footage," says Marc Weisman, a tax lawyer at the Toronto-based firm of Torkin Manes LLP.

As for Mrs. Bernath, she takes the more cautious approach, sticking with existing standards. "[The ruling] does allow you the opportunity to deduct more," she says. "It is good to be aggressive but being too aggressive gets you a nasty invitation from CRA."

"Yes," says Mrs. Bernath, "walk on the grey line [but] ensure that your expenses can be justified."

TIME TO SELL!

Remax warns not enough homes for buyersJulie Fortier, Canwest News Service
Published: Wednesday, February 24, 2010
OTTAWA - With new mortgage rules, a new harmonized sales tax in some provinces and the possibility of higher interest rates all set to kick in this summer, Canadian home buyers are on a tear and it is only going to get busier leading up to this summer, according to the Re/Max Market Trends Report 2010 released Wednesday.

The report, which examined real estate trends in 16 markets across the country, found that unusually strong activity in January -- traditionally one of the quietest months of the year -- has led to a sharp decline in active listings in 81% of markets surveyed. Too many buyers and not enough homes will probably be the main problem in coming months, according to the report.

Markets experiencing the tightest inventory levels include Toronto (-41 per cent), Kitchener-Waterloo (-33 per cent), Ottawa (-30 per cent), Victoria (-30 per cent) and Greater Vancouver (-27 per cent), which also had some of the highest year-over-year sales gains.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent), the report said.

Western Canada dominated the list of centres with the greatest increases in price, with Victoria home prices jumping 25.5 per cent in January compared with the same month a year before. Kelowna jumped 22 per cent and Greater Vancouver rose 19.5 per cent. St. John's saw an increase of 23 per cent and Toronto rose 19 per cent.

"While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now," Elton Ash, regional executive vice-president at Re/Max of Western Canada said in a release.

With the Harmonized Sales Tax, which will add more tax to home buying in two of the biggest and most squeezed markets - Ontario and B.C. - set to start July 1, and the Bank of Canada's record-low interest rates expected to rise around the same time, that pace of growth could slow dramatically in the second half of 2010. Last week, Finance Minister Jim Flaherty also said starting April 19 all borrowers must meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage, among other mortgage rule changes.

"There have never been so many motivating factors in play at once," Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada said in a release. "We're in for a heated spring market that will, in all probability, spill over into the summer months, as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies."


Active listings by market for January:

Market/ 2009/ 2010/ percentage change

St. John's/ 951/ 999/ 5%

Halifax-Dartmouth/ 3311/ 2695/ -19%

Hamilton-Burlington (xx)/ 1028/ 1261/ 17%

Ottawa/ 3988/ 2840/ -30%

Kitchener-Waterloo/ 1323/ 884/ -33%

London-St. Thomas/ 2538/ 2071/ -18%*

Greater Toronto/ 20450/ 12052/ -41%

Winnipeg/ 2222/ 1938/ -13%

Regina/ 456/ 381/ -16%

Saskatoon/ 1156/ 729/ -37%

Calgary/ 9225/ 6838/ -26% (xxx)

Edmonton/ 6573/ 4864/ -26%

Kelowna/ 4648/ 4120/ -11%

Victoria/ 2930/ 2061/ -30%

Greater Vancouver/ 13996/ 10218/ -27%

* - detached homes

xx - Freehold homes

xxx - Total MLS

Source: RE/MAX

FYI - BUYER BEWARE - CRA

Please release me
Withholding tax: Non-residents selling their Canadian home be warned
Helen Morris, National Post
Published: Saturday, February 20, 2010
Moving house can be pretty stressful, when you have to line up all the finances, paperwork, packing up, getting a moving truck and so on. However, if it is a move out of the country, there are still more things to consider.

In a standard Agreement of Purchase and Sale, a person selling their home in Canada must be able to declare that, for the purposes of Canadian taxation, they are a resident of Canada. If he cannot, he must provide the purchaser with a certificate of compliance from the Canada Revenue Agency (CRA). While most of us think that proceeds from the sale of a principle residence are not taxed, that doesn't hold for non-residents. Profit from the sale of a property may be subject to capital gains tax unless an exemption is obtained from the CRA.

(To determine whether you are a non-resident for income tax purposes, visit the CRA's website at cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html.)"When a non-resident taxpayer sells taxable Canadian property -- which includes real estate-- they are required to file for a 116 Tax Certificate (Form T2062) with CRA within 10 days of the sale," says Tannis Dawson, a tax and financial planning expert with Investors Group.

The certificate can take two to three months to obtain; in the absence of the certificate, the buyer becomes liable for any tax owed by the non-resident seller.

"If the seller leaves and doesn't pay the tax, the government has decided it has the right to collect against the buyer," says Ray Leclair, real estate lawyer and vice-president at TitlePLUS. "So, to protect the buyer, it put in a provision that says if the seller is a non-resident, the buyer has the right to withhold up to 25% of the purchase price" until the seller produces a certificate of compliance from the CRA. That withheld amount is put in a trust account by the buyer's solicitor.

Caroline Blake, a British citizen who was a Canadian resident, moved to a new job in the U.K. and then sold her Toronto home. She says her solicitor first told her about the need to obtain this tax certificate a couple of weeks before closing. At the time the deal closed, the buyer of her Toronto property had the right to withhold 25% of the purchase price until Ms. Blake was able to provide the certificate. However, Ms. Blake's solicitor had assured her that even with the 25% withholding tax, there was enough equity in the home to cover closing costs and pay off the mortgage. Ms. Blake returned to Canada last month to finalize the sale of her home.

"The night before I flew back, the solicitor sent me an email, effectively saying, 'Whoops, sorry, I made a mistake. There isn't enough equity in the house. Could you please come with a $32,000 cheque,'" says Ms. Blake. "I sent her a very curt note saying, 'We've left the country --it's not as if we have a spare $32,000 in our Canadian bank accounts, so you'd better come up with an alternative.'"

Because Ms. Blake sold her home after she had left Canada, she was not allowed to sign the declaration saying she was a resident for tax purposes. But because she sold her house at a loss, she will not have any capital gains to be taxed. In order to close the sale, her real estate agent and the buyer's agent agreed to wait for their commissions until the compliance certificate is obtained and the 25% withholding tax is released. Advisors say this situation could have been avoided.

"They could have got this certificate before they started marketing, as soon as they knew they were selling the property," says Mr. Leclair. This would then have been given to the buyer so they would not be on the hook for any unpaid tax.

Ms. Dawson says the CRA will issue a certificate before a sale actually occurs, using the price you expect to get for the property. If there is tax payable, the seller pays the tax or provides security to the CRA that the tax will be paid ( just what this security could consist of, the CRA says "you or your representative should contact the Revenue Collections Division of the applicable Tax Services Office.")

The seller must file a tax return for the year the sale of the home took place. Any overpayment of the tax can be refunded. Other costs such as real estate fees, legal fees, and any other closing costs could be set off on your general taxes against any gain to reduce the tax you may have to pay.

For further details on selling property as a non-resident, including exemptions for a principal residence, see Canada Revenue Agency details at cra-arc.gc.ca/E/pub/tp/ic72-17r5/ic72-17r5-e. html

Photo By: Squirlaraptor

RESALE NUMBERS

Canadian resale housing market up 58% from year-ago levels
By Mario Toneguzzi
Calgary Herald
February 17, 2010

CALGARY - National activity in the resale housing market declined in January from the previous month but was up 58 per cent from year-ago levels, when national home sales activity reached the lowest level in a decade.

In releasing its January MLS data on Wednesday, the Canadian Real Estate Association said the average price of all homes sold through the MLS systems of Canadian real estate boards last month was $328,537, which was up 19.6 per cent from a year ago.

"In January 2009, the average residential sale price fell to the lowest level in almost three years," said the association which represents more than 96,000 realtors working through more than 100 real estate boards and associations.

"Year-over-year average price gains are being stretched by weakness one year ago, and are expected to shrink beginning next month."

In Calgary, MLS sales in January increased by 52.5 per cent from last year to 1,466 units for an average sale price of $397,518, up by 5.8 per cent. New listings fell by 6.7 per cent to 3,919 units and dollar volume jumped by 61.4 per cent to $582.8 million.

MLS sales in Alberta were up by 34.6 per cent from a year ago to 2,934 units. The average sale price increased by 6.4 per cent to $343,264. New listings dropped by 2.4 per cent to 8,162 units and the total dollar volume for the month of January was up by 43.2 per cent from a year ago to just over $1 billion.

Nationally, new listings were up by 3.4 per cent to 64,561 units and the total dollar volume increased by 89.3 per cent to $8.4 billion.

"January results suggest that the national resale housing market may be past the recent peak," said Gregory Klump, CREA's chief economist. "One car doesn't make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade.

"It could take until the second half of the year before a cooling trend becomes evident, since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases and by the introductioni of the HST in Ontario and British Columbia on Canada Day."

TIK TOK TO RATE HIKE

Clock ticking for interest rate hikes
Garry Marr, Financial Post
Published: Friday, February 12, 2010

It's probably time to start the countdown on interest rates going up.

The Bank of Canada only pledged -- conditionally -- to keep its record-low lending rate until the end of the second quarter, so that leaves us with slightly more than four months before the housing market falls apart. At least that's what some national magazines and economists predict will happen when rates start to rise.

"Some people say they could go up in April, but I don't buy that," says Benjamin Tal, senior economist with CIBC World Markets and one of the more sane voices out there. He predicts a pullback in housing, but not the collapse we've seen in the United States.

So, what do you do in the face of this inevitable march of interest-rate hikes coming our way, likely at the Bank of Canada's first meeting in July?

"I think people will start locking in their rates very soon and that's already happening," says Mr. Tal, referring to the variable-rate crowd that has mortgages tied to prime. "The five-year [fixed] rate [mortgage] will be moving [up] well ahead of the bank rate in anticipation of an increase."

While locking in is extremely tempting in this market -- given a five-year mortgage is as low as 3.8% -- a floating-rate mortgage can be had for almost half that. Vince Gaetano, a vice-president of Monster Mortgage, said he's seeing variable rates for as low 30 points off prime, or 1.95%.

The problem for many Canadians who negotiated variable-rate mortgages in the past year, and still don't want to lock in, is they are stuck in contracts that have them paying a rate as much as 100 basis points (one percentage point) above prime. The reason they call it a five-year term is because that's the length of the contract.

But Mr. Gaetano says just break that mortgage. If you are in a variable-rate contract, the penalty is three payments. To go from a contract that is 100 basis points above prime to one that is 30 points below, could have you recoup your money in less than a year.

"There is a large amount of people refinancing to take advantage of these variable rates. We've seen a full-point comeback in the borrower's favour. We'll never see 1.95% ever again," says Mr. Gaetano.

One option for consumers who can't make up their minds is to apply to the bank for a new mortgage and have the financial institution hold the rate for as much 120 days.

"There will be a credit bureau check on your name and it could lower your credit score if you don't use money," says Mr. Gaetano, referring to the potential pitfalls of looking elsewhere for a new rate.

The reality is most consumers, once they have their mortgage, stay put and wait for renewal. The banks have a loyalty record that would make any industry drool. According to the Canadian Association of Accredited Mortgage Professionals, 93% of borrowers who renew on schedule stay with the same lender. Even among those who renew early, 81% stay with same financial institution.

As you consider where to go next with your mortgage, you should remain open to switching financial institutions if it saves you money. Sometimes there are costs, but the potential savings from a better rate can offset those costs.

Martin Beaudry, vice-president of ING Direct Canada, says his company will now hold your rate for 120 days by just applying online. You don't even need to fill out a full mortgage application. ING holds the rate on any term, or even the spread between a variable-rate and prime, which is now 20 basis points.

"There is no downside, but less than half of people take advantage of rate guarantees. People deal with renewals less than 30 days before the maturity date," says Mr. Beaudry.

Most banks will guarantee you a rate 90 days in advance of your mortgage coming due. Why wait until the last minute and why stay with same institution if you are not getting best rate going?

Dusty wallet Having trouble making ends meets because of property taxes? If you are a senior citizen, some jurisdictions will allow you to forgo the payments with the amount owing attached as a lien on the house. Make sure to check the interest rate they charge on that money owed or your heirs could be left with a lot less house -- if you care about that.

Photo by: Magda.Indigo

MORTGAGE RESTRICTIONS

Ottawa toughens mortgage rules
Paul Vieira, Financial Post
Published: Tuesday, February 16, 2010

OTTAWA -- Amid warnings about "reckless" housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.

He said at a Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. This measure would apply to all first-time buyers. Homeowners with insured mortgages are not affected, unless they choose at a later date to extend the amortization or look to refinance.

Other rule changes unveiled would affect people looking to refinance their mortgages -- lowering the maximum amount that can be withdrawn to 90% from 95% -- and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would affect people looking to buy condo units or duplexes for rental income. Previously, only a 5% down payment was required.

But Mr. Flaherty said the changes, to take affect April 19, were not meant to stop a possible housing bubble, as some warned was upon us unless Ottawa was prepared to act.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one," Mr. Flaherty said.

The existing home sale market has been on a tear, largely powered by historic low rates. Last April, the Bank of Canada cut its benchmark policy rate to 0.25% and pledged to keep it there until this July in order to stoke economic growth.

Eric Lascelles, chief economist at TD Securities, said the Canadian housing market should continue on a "turbo-charge" ride until the April 19 implementation date, "then cool sharply, and then resume a more modest rate of ascent. In theory, home prices should take a mild hit immediately, as the number of Canadians capable of financing a home will dip slightly. The market's expectation for rate hikes should be scaled back modestly as housing slows and the need to address it via monetary policy fades."

Mr. Lascelles added the move will likely add to Canada's already sterling reputation among currency and bond traders that the country "gets it" in terms of financial regulation.

Mr. Flaherty said the measures would "have some stabilizing effect on the housing market. And stability is a good thing."

He said the changes should still make housing affordable for first-time homebuyers. His main concern, he added, was that Canadians were at risk of overextending themselves as interest rates are at historic lows and are bound to climb.

"This will help Canadians prepare for higher interest rates. One must always guard against the temptation take on more financial risk simply because interest rates are lower."

Further, he said data emerged indicating people were engaging in "reckless speculation" by buying multiple condo units and not choosing to live in them. As a result, the Minister decided to move before the March 4 budget, when many people speculated changes might be introduced.

"We are encouraging people to build equity [in their home] over time, using home ownership as an effective way to save – rather than as a vehicle for quick cash," he said.

The changes "will discourage the kind of reckless real estate speculation that could drive prices to unsustainable levels which does not serve Canadian homebuyers."

The decision to adopt new mortgage rules emerged after nearly a week of dire warnings from prominent Canadians -- such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge -- that the housing market was on the verge of possible trouble, as price increases were not sustainable and present mortgage rules were too lax.

Frank Techar, president of personal and commercial banking at Bank of Montreal, said the bank supports Ottawa's moves, although adding the lender does not believe the country faces a housing bubble.

"Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent," Mr. Techar said in a statement.

He said the bank "for several months now" has been encouraging Canadians to stress test their financial budget using a mortgage payment based on a higher interest rate.

The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95% of the loan value. The government's housing agency had offered mortgage insurance on loans worth as much as 100% of the home value and amortization periods of as many as 40 years since 2006.

Homebuyers with a down payment of less than 20% of the property's value are required to obtain government-backed insurance in exchange for financing.

Canadian home prices and resales will grow to records this year, boosted by low interest rates, the Canadian Real Estate Association said in a report last week. Canadian new home prices rose 0.4% in December from November, the sixth straight gain, according to government figures.

As recently as two weeks ago Mr. Flaherty said there was "no substantial concern" about the emergence of a housing bubble after meeting with private-sector economists. And in an interview with the Financial Post in late December, he said there was "no evidence" of asset bubble in real estate.

In an address last month on behalf of a deputy governor, Bank of Canada advisor David Wolf dismissed talk of a housing bubble in Canada as "premature," warning that calls for higher interest rates now in an effort to temper real-estate markets would be akin to "dousing" the economic recovery with cold water.

However, the Bank of Canada said addressing housing excesses was best left in the hands of the Minister of Finance, through regulatory changes such as the ones announced Tuesday.

HOW'S THAT LITTLE PROJECT COMING ALONG?

Spring is a time to start fresh. For most people, this is easier said than done. So this spring, take a cue from our design experts and home show spokesperson Ty Pennington as we ask:
How's that little project coming along?

Show Dates and Hours
Thursday, February 25
12 noon - 9:00 pm
Friday, February 26 12 noon - 9:00 pm
Saturday, February 27 10:00 am - 9:00 pm
Sunday, February 28 10:00 am - 6:00 pm
Where
BMO CENTRE, STAMPEDE PARK
Admission
Adults (18+): $14.00
Adults (18+): ONLINE $11.00
Seniors (60+): $11.00
Seniors (60+): ONLINE $8.00
Youth (13 - 17 years): $11.00
Youth (13 - 17 years): ONLINE $8.00
Children 12 and under: FREE


Not-To-Be-Missed
The Karovation Home by Karoleena Custom Homes This 1,700 sq. ft. 2-storey, systems built home, built by Karoleena Custom Homes, designed by Bloom Property Stylists, and furnished by Revolve Furnishings is the first time that the Calgary Home + Garden Show will be offering a full-size home on the show floor that is available for sale to the public!
Colin and Justin from HGTV's Home Heist Make sure to watch Colin and Justin and other celebrity speakers whose stage presentations will offer simple home improvement tips and inspiration for all.
aLounge Afraid to miss one of your favorite sporting events by attending the show? Learn more by visiting http://www.calgaryhomeshow.com/ about our authentic West Coast style chalet presented by Avenue magazine. Join us there or at the Main Stage for the Gold Medal Men's Hockey Game on Sunday, February 28th starting at 12:15pm!

TIME TO MOVE

Price, sales records expected this year
Could reignite calls for tighter lending rulesGarry Marr, Financial Post
Published: Tuesday, February 09, 2010

Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.

The Canadian Real Estate Association, which represents 100 boards across the country, said yesterday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.

The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.

Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.

"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.

There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.

Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act. Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.

That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.

"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.

Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.

"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"

Elton Ash, vice-president of Re/ Max of Western Canada, said he thinks the forecast put out yesterday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."

Mr. Ash is actually in favour of some measures to cool the market, such as reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.

"I think leaving it at 5% would be okay," Mr. Ash said.

Photo by: Janet Leadbeater

HOUSING STARTS SHY

Housing starts show rebound
Figure still shy of level seen in 2008
By Dan Healing, Calgary Herald
February 9, 2010

The home building industry in Calgary staged a strong rebound in January from last year's 18-year depths, but failed to recoup all the ground lost since the same month in 2008.

According to Canada Mortgage and Housing Corp., total housing starts in the city reached 514 units last month, more than double the 243 in January 2009 but 28 per cent lower than the 711 units started in January 2008.

Richard Cho, CMHC's senior market analyst for the city, said the general direction for new housing is stable.

"Housing activity is encouraging in January. It's a good start to the year," he said.

"We're still seeing a fair number of singles being started, if not the same level of activity we saw in the latter part of 2009. The momentum is still being carried over to this year."

He said fewer incentives are expected to be available for buyers this year due to the stronger market, but higher interest rates expected at midyear will tend to prevent the market from growing beyond a sustainable level.

Todd Hirsch, senior economist for ATB Financial, agreed 2010 will be stable, noting a cold January also likely slowed housing start statistics.

"It's coming off a bit of a surge we saw in fall of last year . . . (but) there's no sign that housing starts are collapsing at all," he said. "They're up from where they were a year ago, so that's positive, and overall I think we'll have a balanced year of housing starts."

He said there will be fewer construction jobs on commercial projects this year, but more in home building and institutional and infrastructure projects.

Both single-detached and multi-family housing starts were up in January, with builders starting work on 413 homes, versus 204 units a year earlier, and 101 multifamily units breaking ground, up from 39 units in the previous year.

Cho said there were no apartment units started, reflecting the oversupply of inventory in Calgary. He predicted the trend this year will be toward medium-density housing.

The peak January for single-family starts came during the overheated economy of 2006, when 838 houses contributed to 1,086 housing starts.

The more volatile multifamily sector posted its biggest January in 1978, when 1,718 units were started.

Provincially, housing starts in Alberta's seven largest centres totalled 1,271 units in January, up 52 per cent from January 2009.

Nationally, the seasonally adjusted annual rate of housing starts reached 186,300 units in January, up from an annual rate of 176,100 units in December.

According to final figures, housing starts for 2009 totalled 149,081 units, with activity improving as the year progressed.

In the Prairie region, the seasonally adjusted annual rate of urban starts decreased by 4.8 per cent in January from the previous month.

Also on Monday, the Canadian Real Estate Association revised its forecast for MLS home sales in 2010.

It forecasts national sales activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent an annual record -- 1.2 per cent above the previous peak in 2007.

Sales in Alberta are forecast to be 63,050, up 9.1 per cent from 2009.

THE BREAKDOWN

Breakdown of CREA's residential market forecasts
Posted: February 08, 2010, 2:36 PM

by Damien Lynch
The Canadian Real Estate Association on Monday revised its forecast for home sales via the MLS Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

Here is a breakdown on CREA's residential market forecast for unit sales and average prices:

BALANCE IN 2010

CREA forecasts record home sales in 2010
Garry Marr, Financial Post
Published: Monday, February 08, 2010

The Canadian Real Estate Association now says 2010 will be a record year for home sales.

The Ottawa-based group, which represents about 100 boards across the country, said sales this year will climb 13.3% from 2009. The market will also surpass the 2007 peak by 1.2%.

"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," said CREA in a release.

Part of the reason for the surge in activity in the first half of 2010 is being attributed to the harmonization sales tax that comes into effect in Ontario and British Columbia on July 1. Consumers are expected to try and beat that deadline.

However, by 2011, rising interest rates are forecast to put a dent in the housing market. CREA sales will drop by 7.1% in 2011.

"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand," said Dale Ripplinger, president of CREA.

Prices will rise by 5.4% in 2010, bringing the average price to $337,500. The national average price continues to be skewed by strong markets in B.C. and Ontario which has the two most expensive cities in the country to live in. By 2011, the national average price will drop by 1.5%.

"Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009," said Gregory Klump. chief economist at CREA. "A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S."

Photo by: 2composers

BOOM BOOM POW

Boomer effect could put pressure on deficit
Posted: February 04, 2010, 11:37 AM
by David Pett
Economy, Market Call, Ian McGugan
For years, policymakers have been warning that things will be different when boomers start retiring in large numbers. You’ve probably heard the phrase so often that it’s lost all impact. But guess what? It’s no longer a matter of “when.” It’s a matter of now that the boomers are retiring in large numbers.

Stephen Gordon, a professor of economics at Laval, has the numbers (as well as a scary chart) on Worthwhile Canadian Initiative, the excellent blog on Canadian economics which he co-authors. His post shows that the working-age population as a percentage of the total population is beginning a sharp decline. Since 2005, the data have been at the extreme bad end of the 13 scenarios imagined by Statistics Canada.

Gordon figures the decline in the size of the labor force is going to cut per-capita GDP growth rates by about 0.4% a year. While Gordon doesn’t go into all the ramifications, it seems safe to assume that an aging population and slower economic growth will put pressure on the government’s deficit projections—not to mention Canada’s booming real estate market.

COAXING BUYERS

Housing extends gradual recovery
Single-family home prices at $441,217
By Lisa Schmidt
Calgary Herald
February 2, 2010

Home sales and prices in Calgary continue to make gains, marking another rise in January.

But the housing market slowed slightly from December's pace, according to figures released Monday by the Calgary Real Estate Board.

The city's housing market is expected to continue a "gradual and modest" recovery, one official said, helped by low mortgage rates and more affordable prices coaxing buyers into the sector.

"Just one year ago, we were facing record low sales and more than 10 months of inventory," board president Diane Scott said in a release.

That makes for dramatic year-over-year increases in sales figures, she noted.

"But all in all, sales this month are moving closer to the range we would expect this time of year."

Analysts expect the Bank of Canada to start raising interest rates from historic lows this summer, once a still-tentative economic recovery takes a firmer hold.

"With a fully functioning credit creation process -- check the hot housing market if you have any doubts -- the clock is ticking . . . to lift policy rates and the general cost of credit from current extreme lows," BMO economists Michael Gregory and Benjamin Reitzes said in a commentary Monday.

That could put a damper on sales later in the year, analysts expect, but help prod cautious buyers hoping to lock in current low rates.

Recent forecasts show migration -- a key driver in housing markets -- will continue to rise in Calgary, as job seekers come to the city.

The Calgary Real Estate Board is forecasting a six per cent rise in home prices to $470,000, while condos are forecast to appreciate over four per cent to $296,000. According to January sales figures, the average price of a single family home was $441,217, a seven per cent increase from January 2009. It was, however, a two per cent decline from December.

Average condominium prices are up about four per cent from a year ago to $282,639. That was a two per cent decrease from December's average.

The number of single family homes sold last month was up 39 per cent from a year ago, while condo sales jumped 67 per cent.

There were 762 single family homes sold in Calgary in January, a five per cent decline from December.

For condominiums, there were 376 sales, up 10 per cent from December.

The number of new listings for single family homes rose to 1,822, more than double than in December. But it was below the 2,086 listings added to the market last January.

For condominiums, new listings also doubled in January from December, as fewer sellers opted to list in the lead-up to the holiday season.

CAUSE YOU LIKE TO MIX & MAKE A DIFFERENCE

Tonic, Mix it Up for a Cause is an opportunity for you and your friends to shake it up for a good cause. Sure to become one of your most memorable nights out in a long time, the event will showcase premium beverages and cocktail flair, a happening dj to keep the party pumping and an amazing selection of live and silent auction items. And the best part of all, 100% of proceeds will go to the Highbanks Society. There’s no better excuse for getting out and having a good time!

Saturday

February 6, 2010
Velvet at the Grand
608 - 1st Street SW

7:30pm

Tickets $75.00

THE APPROPRIATENESS OF THE APPROACH

Invest for long term
Diversify portfolio with equities and fixed income
By Don Promhouse, For Canwest News Service;
Regina Leader-Post
February 1, 2010

I often advise clients to use the Rip Van Winkle approach to investing, and the last two years have confirmed the appropriateness of this approach.

The children's fairy tale, Rip Van Winkle by Washington Irving, tells of a good-natured fellow who fell asleep under a tree for 20 years. Upon waking, everything had changed and most of his friends had moved or passed away, including his wife. For the rest of his life, Rip Van Winkle was respected as one of the patriarchs of the village.

The Rip Van Winkle approach to investing involves building a portfolio that will last a lifetime. This means setting an asset mix and sticking to this mix through good markets and bad, making strategic changes along the way.

So, if you set your asset mix at 25 per cent cash and fixed income and 75 per cent equities, and equities come to make up 80 per cent of your portfolio, you should sell off five per cent of your equities and add to your cash and fixed-income portion.

Also, your fixed income and equities should be diversified through each sector of the economy and globally.

If you had adhered to this philosophy and held more cash and fixed income than equities, the 2008 market decline would have affected you much less than the market decline. Similarly, your portfolio went up in 2009 much less than the market.

So how do you build a portfolio that can grow for 20 years? One method I have had success with is investing in fundamentally strong companies that pay above-average dividends.

Between 1926 and 2004, dividends represented 42 per cent of the S&P 500s total return. The S&P/TSX Total Return returned only 5.5 per cent annually in the last 10 years, but historically the returns have averaged closer to 10 per cent annually.

Currently, you can purchase fundamentally strong companies paying a dividend between four and six per cent, and that's all you need to compound your returns at 10 per cent. The problem is it takes time and patience to beat the fastest-rising stars.

One feature of the current investment climate, and one I expect to persist through 2010, is that short-term interest rates are extremely low, if not zero. Given the drag on economic growth and inflation from an overvalued Canadian dollar, the Bank of Canada could leave rates on hold right through next year.

Traditionally, dividend investors have looked to telecoms and utilities for healthy dividend yields, and those two sectors indeed top the pack in terms of TSX payout ratios and yields.

But today there are other groups where dividends now pay out close to four per cent or more of the share price, including media and real estate.

Photo by: Greg Westfall

COULD IT?

Signs of recovery starting to sway the skeptical
Looks like a V shaped recovery afterall
Paul Vieira, Financial Post
Published: Friday, January 29, 2010

OTTAWA -- Despite all the angst in financial markets over sovereign debt and the populist influence on banking reform proposals, the economies in the United States and Canada have chugged along the road to recovery at a pace that's surprising even the most skeptical of analysts.

Data released Friday indicate U.S. GDP grew in the fourth quarter, an estimated 5.7%, at its fastest pace in six years. Meanwhile in Canada, data show November growth was stronger than expected, at 0.4%, while revisions to September and October figures indicate the economy was much stronger than earlier thought.

"It couldn't have been that easy, could it?," asked Stewart Hall, economist at HSBC Securities Canada, who in previous notes had expressed caution about a slow, uneven recovery. "Yet charting out the month over month GDP looks an awful lot like a "V" shaped recovery."

Prior to the release of this data, markets had been consumed with worries in the aftermath of the financial crisis, be it the debt levels of industrialized countries; a slowdown in Chinese growth as Beijing looks to tighten credit conditions, and measures proposed by the U.S. White House that could scale back the size of U.S. banks, leading them in the meantime to restrict credit growth as given their uncertain future.

"One of the important lessons of the crisis was that it was often helpful to focus squarely on more comprehensible macro-cyclical dynamics than on the noise and complexity of these other areas," Dominic Wilson, director of global macro and markets research for Goldman Sachs, said in a note this week.

"The latest focus on the banks might inadvertently restrict credit or tighten financial conditions in ways that do alter the macro path. But we think it makes sense to stay more focused on the economic news rather than shifting views too much on the basis of handicapping the twists and turns of possible legislation and the inevitable news from Washington."

As for the nuts and bolts of the data, analysts had mixed views.

In the U.S., economists at Capital Economics argued the big estimated headline gain was largely due to inventory rebuilding – hence, there's some skepticism that will kickstart a self-sustaining recovery.

But Dawn Desjardins, assistant chief economist at Royal Bank of Canada, said the U.S. data suggest "the consumer, after being in hiding the previous-six quarters, re-emerged in the second-half of 2009. ... This was a reflection of rising confidence that the recession was ending, the effect of government programs and a very low interest rate environment. Going forward, we expect that consumer spending will remain positive but that increases will be moderate as the hangover from the buying binge in previous years constrains activity."

It is not just the consumer. Business investment also surprised on the strong side, with growth of 2.9% after a 5.9% drop in the previous quarter. Investment in equipment and software jumped 13.3%, well above the 1.5% expansion in the third quarter. Net exports also added to U.S. GDP, in a sign that the country is beginning capitalize on its weaker currency and stellar productivity when it comes to trade.

In Canada, the surprisingly strong November data – and upward revisions to September and October – have economists indicating that the recovery is for real, with some now penciling in growth of at least 4% for the fourth quarter, or above the Bank of Canada's own projections. And remember, the central bank's forecast is at the upper end of market projections.

"This is one of the most convincing signs so far that the Canadian recovery is for real, and neatly dovetails with the robust U.S. GDP result," said Douglas Porter, deputy chief economist at BMO Capital Markets.