The rivalry between the Oilers and the Flames hasn’t even started for the season, but Alberta’s two cities are already battling it out—and this time, new home buyers in Edmonton are gaining the advantage. According to the latest information released this morning from Statistics Canada, the index of new home prices in Calgary reached 109.9 in July, an increase of 6.7 per cent over July of last year. Edmonton, however, continued to show no increase—its index was unchanged at 91.1. (The index sets prices in 2007 equal to 100. That means new residential prices in Calgary are higher by nearly ten per cent compared to seven years ago, while Edmonton new home buyers are seeing prices about nine per cent lower.) This ongoing split is odd given that new data show Edmonton’s population growth is outpacing Calgary’s. More people moving into the capital region should, in theory, boost housing demand and drive prices higher. The gap between the two cities can be attributed to higher land and building costs in Calgary. Statistics Canada states “builders (in Calgary) continued to report higher material and labour costs, good market conditions and higher costs for developed land as the reasons for the gain.” Land for residential development in and around Calgary has been somewhat restricted. This has limited the supply for home builders and boosted price. *Article courtesy of Todd Hirsch, Chief Economist with ATB Financial. Thanks Todd!!
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The cranes, bulldozers and cement trucks working on construction sites around the province aren’t going away any time soon, according to data released this morning from Statistics Canada. Municipalities throughout Alberta issued a total of $1.71 billion in building permits in July, essentially unchanged from June. The figure is adjusted for seasonality. The all-time record for the province was set in May 2007 with $1.84 billion in building permits issued. Since then, the total has exceeded $1.7 billion only three times—two of those times being in June and July of this summer. Building permits are a good sign of future activity—what economists call “leading indicators”—because permits must be secured in advance of any construction activity taking place. Residential permits were up 9 per cent from June to $933 million. Over the last twelve months, residential permits are 15 per cent compared to the previous twelve month period. That reflects solid income and labour markets, a growing population and plenty of demand for new houses and condos. Non-residential permits slipped to $780 million in July, essentially offsetting the increase in residential permits. However even with this dip, non-residential building activity is certain to remain a strong driver of the economy in 2015. Institutional and government building projects—largely made up of transportation infrastructure, schools, and hospitals—more than doubled in July to $143 million. Commercial projects fell a bit while industrial projects were unchanged. **Article courtesy of Todd Hirsch, Chief Economist at ATB Financial. Thanks Todd!!
After a shaky start to the year, the Canadian economy roared to life in the second quarter of 2014. The latest figures of total economic output from Statistics Canada showed that the economy grew by 3.1 per cent during the months of April, May and June. The percentage growth measures the real gross domestic product (that is, the value of total output of good and services, removing the effects of inflation). It is also the quarterly change at annualized rates—meaning the percentage change that would be experienced in a complete year if the quarterly change was to be maintained for four quarters. The second quarter expansion is the strongest rate of growth the economy has seen since 2011. “The quarterly growth was a result of increased economic activity in all sectors of the economy except non-profit institutions serving households,” says Statistics Canada in its press release. Today’s report should cheer markets and policy makers, many of whom have become concerned about the Canadian economy stalling out in 2014. Two areas of greatest concern were exports and the slow growth in business investment (i.e., companies spending money on new plants, equipment and buildings). Fortunately, total business investment expanded smartly in the second quarter following two quarters of contraction. Exports also did well. Exports of goods and services increased 4.2 per cent (quarter-over-quarter) following a 0.2 per cent decline during the first quarter of the year. **Information provided by Todd Hirsch, Chief Economist with ATB Financial. Thanks Todd!!
Consumers in Alberta saw prices rise, on average, at a faster pace in July than they did in June, according to this morning’s Consumer Price Index report from Statistics Canada. The all-items year-over-year increase in July was 2.5 per cent, up from a 1.9 per cent increase in June. Over the last twelve months, Alberta’s inflation rate has averaged 2.2 per cent, very close the Bank of Canada’s 2.0 per cent target for the entire Canadian economy. Canada’s inflation rate moved in the opposite direction, falling from an annual increase of 2.4 per cent in June to 2.1 per cent last month. The core inflation rate—which strips out the most volatile components of the index to get a better read on where true price pressures are—rose 1.7 per cent in the 12 months leading up to July, after increasing 1.8 per cent in June. Alberta’s inflation was led by significant gains in natural gas home heating costs, which jumped 41.8 per cent year-over-year. Natural gas prices have been particularly volatile for Alberta consumers over the last year. Other increases were noted in the price of home and mortgage insurance (+14.8 per cent) and fresh fruit (+11.5 per cent). Prices were lower compared to last year for electricity (-17.6 per cent) and public transportation (-1.0 per cent). Today’s inflation report will do little to change the Bank of Canada’s belief that there is still plenty of slack in the Canadian economy and that price pressures at the consumer level are not strong. **Article and research provided by Todd Hirsch of ATB Financial. Thanks Todd!!
Alberta’s population continues to grow at a rate far faster than the national average. According to new estimates released this morning by Statistics Canada, the province’s population on the first day of April this year was 4,111,509. Canada’s total population was 35,427,524. Over the last year, Alberta’s population increased by 3.25 per cent—nearly triple the national average (+1.1 per cent) and almost double that of the second-fastest growing province, Saskatchewan. British Columbia and Manitoba come in third and fourth, respectively, making the western provinces the four fastest growing populations in the country. Three of the Atlantic provinces lost population, and Ontario and Quebec continue to grow at less than 1.0 per cent annually. The east-west split in population trends—and particularly the strong growth in Alberta—is being driven entirely by economics. Western Canada has a much better labour market which is luring interprovincial migrants who want work. With the lowest unemployment rates in the country, Saskatchewan (3.7 per cent) and Alberta (4.6 per cent) are the places to be if you’re looking for work. In the first quarter of 2014 alone, Alberta gained over 24,000 people from other provinces (while about 15,000 moved out of Alberta). The net gain was 9,581, which puts the province on track for a total net gain of close to 40,000 interprovincial migrants this year. **Article provided by Todd Hirsch of ATB Financial. Thanks Todd!!
It continues to be a tale of two cities in Alberta when it comes to the price of a new home—and the tales in Edmonton and Calgary couldn’t be more different. According to the latest information released by Statistics Canada, the index of new homes in Calgary reached 109.7 in June (with the index of prices in 2007 set equal to 100). That’s 7.3 per cent higher than June of last year. Up the highway, Alberta’s capital city reported virtually no change in the price of a new home. Edmonton’s index in June stood at 91.1. Over the last four years, new home prices have been stuck essentially unchanged at close to an index of 90 (see chart). That means prices are nearly 10 per cent lower than they were in 2007. Both cities continue to do well economically and attract growing populations from interprovincial migration. The difference can be attributed to higher building costs in Calgary. Statistics Canada reports: “New home prices in Calgary rose ... as builders continued to report higher material and labour costs, good market conditions and higher costs for developed land as the reasons for the gain.” Over the last three years, the price of a new house in Calgary has risen by 14 per cent. The cost of the land itself has risen by 7.3 per cent. But the cost of building the house—which includes material and labour—has risen by a much steeper 19.3 per cent. **Article courtesy of Todd Hirsch, Chief Economist with ATB Financial. Thanks Todd!!
After an unusual spike in June, Alberta’s new housing starts are settling down to a level much more consistent with the long term trend. According to statistics complied by Canada Mortgage and Housing Corporation, there were 34,475 housing starts in the province last month. Since August of last year, housing starts have averaged just under 38,000 (annualized rate), about 8.2 per cent more than the 35,130 over the previous twelve-month period. (The figure is seasonally adjusted to smooth out the predictable fluctuations in activity. It’s also reported at an annual rate: that is to say it represents the number of homes that would be started in one year if the pace of building was maintained for twelve months.) The graph below shows the last three complete years of home building activity in Alberta. Generally speaking, housing starts have displayed a gradual but steady increase. The exception is June of 2014, a month in which starts jumped to an astonishing 53,853 (annualized rate). It is difficult to explain this anomaly in the data. It could be an error in the survey or perhaps starts spiked this high due to a combination of random events. Whatever the case, June’s sudden and steep jump is a great example of why one month of data should never be considered in isolation. The return to normal building levels in July is a reassurance that housing construction in Alberta is increasing steadily but at a more sustainable pace than in June. **Article courtesy of Todd Hirsch of ATB Financial. Thanks Todd!!
What happens after the seller has accepted your first, second or third offer? Often a buyer wants to relax and celebrate after their offer is accepted, especially if there were rounds of counter offers and acceptances. But some things need to happen pretty quickly after the contract is signed by all parties. This is a fairly good example of what actually happens most times. Not all contracts are the same. This is just a rough example of what usually happens in my transactions when I represent the buyer of a home, unless the contract requires us to do things differently than “the norm”.
SCHEDULE THE HOME INSPECTION Usually the very first thing I have my buyer clients do once the contract is “signed around” by all parties, is schedule the home inspection. Often people read the contract to mean that they have 5 to 10 days (every contract is different) to DO the inspection. That is not the case. During that very limited time frame: a) You have to “DO” The Inspection b) You have to review the results of The Inspection c) You have to think about what you may or may not want to ask of the seller as a result of that Inspection d) You have to cancel the contract, or accept the inspection, or submit any conditions of accepting the Inspection, in writing, so that it is RECEIVED by the seller or seller’s representative by the end of the time frame. You don’t want to wait until the last minute to “DO” the inspection. Call the inspector ASAP after the purchase contract is finalized and DO the inspection at the first available opportunity after the contract is signed around. By scheduling the inspection ASAP for the first available time, you should have sufficient time to digest what the inspector said at the inspection, and also to subsequently review the written inspection report after the inspector has left the property. You should allow about 3 to 4 hours for the actual inspection in most cases for an average sized single family home. THE HOME INSPECTION PROCESS The inspection is paid for by the buyer, usually before the inspection begins. The buyer usually attends the Home Inspection because it is not a PASS/FAIL kind of thing in most cases. It is also not ONLY about what is wrong with the house. A good home inspection gives the buyer a lot of information that is not all about what the buyer may want the seller to do to correct defects. Generally a Home Inspector will: a) Inspect the outside of the home first. Roof, siding, gutters, etc. VERY IMPORTANT: Most inspectors are inspecting “the home” and not the fence or the shed and sometimes not even decks, especially if they are not connected to the house. b) The inspector is usually not looking at cosmetic things that can be readily seen by the buyer prior to making the offer, such as a stain in the carpet. c) An inspector cannot see through walls, so having an experienced inspector who likely knows what is behind those walls based on the age of the house is very important. d) Since an inspector is not looking at cosmetic items, he will usually spend more time in bathrooms and kitchens, the attic and under the house, at the heater and electrical panel and hot water tank, than in a dining room or bedroom. In a bedroom he may check the outlets and the windows and make sure the door latches properly. In a kitchen or bathroom he will be checking appliances, looking for leaks under sinks, making sure the outlets in the rooms with water have appropriate and functioning GFCI (ground fault circuit interrupters) at the outlets. Often one GFCI will operate more than one outlet. e) Generally you do not need to take notes at an inspection, as the inspector will be providing you with a written report. Hopefully the report will have a summary of major problems and a separate summary of minor problems. Today Inspection Reports can be 85 pages long with lots of tips on home maintenance and other topics. So a one page summary of actual defects is helpful. IMPORTANT: If something is wrong with the property, you usually know it before you get the written report. If something comes up that causes you to not want the house at all, you may not want to complete the full inspection. In fact if you suspect that to be the case, you may ask the inspector to break from his normal routine and look at that item first. HOUSES ALMOST NEVER “FAIL” ON INSPECTION. Contracts often fail “on inspection” due to other issues, BUT “HOUSES” RARELY “FAIL” ON INSPECTION. Most often when a contract “fails on inspection” and “falls out of escrow” it is because of an erroneous or not reasonable expectation. The buyer isn’t doing what the seller expected the buyer to do, or the seller is not doing what the buyer expected the seller to do. Rarely does a real “deal-breaker” issue come up with the house, that the buyer and seller could not have known about in advance of the offer being made. Most often the contract fails because the buyer or the seller is not responding “appropriately” to an issue. That is usually an emotional problem, vs an actual “problem” with the house that can’t be rectified. Good “Rule of Thumb” is no seller should expect the buyer to want absolutely nothing at inspection, and no buyer should expect a seller to address everything the inspector talks about as needing to be done to the house. Instead of taking general notes during a home inspection, I find using a chart like this to be helpful during the inspection. The inspector says SO many things over a 3 to 4 hour period, so organizing them a bit while the inspector is there can help you raise questions at the end before the inspector leaves the premises. OWNER SHOULD – There are no hard and fast rules here. Many items the Inspector notes as “needing to be done” are things any owner needs to do periodically. Is “The Owner” the Buyer of the Home? Or is “The Owner” the Seller of the home? While contracts often fail over these issues, they should not as they are things the buyer will need to do during their ownership of the home. These are not “once and done” items. If the gutters are so clogged and dirty because the owner never had them cleaned during their ownership, the buyer may ask the seller to have those professionally cleaned prior to closing. The buyer may put this in the “Seller SHOULD” column. Often this has to do with the number of trees dropping debris into the gutters. Generally a buyer should not decide they do not want the house after all because the gutters are dirty and the seller won’t have them cleaned prior to closing, or because the seller won’t trim a small branch on a tree. Just because the Inspector tells the buyer “the gutters need to be cleaned” does not mean the seller needs to DO something. The Inspector may simply be saying that at EVERY inspection so the buyer knows that this is a normal owner maintenance item. That statement alone does not mean there is something currently “wrong” with the gutters. OWNER MUST – These are usually things the seller would have fixed had he known they were not functioning properly. They are usually things that have no aesthetic selection element, so that it doesn’t matter if the buyer does them or the seller does them. They are usually things that can cause a problem or additional damage between inspection and closing. As example, a leaking sink creates damage every day between the time you discover it and the time it is fixed, so having it fixed without delay is recommended. It is very rare that a seller would not want to fix that leak ASAP. SELLER SHOULD – Many items fall in here and are basically not major things. Often whether or not the seller “should” fix them has to do with the price of the home. If the buyer is paying a good and somewhat high “fair market value” then the buyer often expects these things to be done and the seller, happy with the price he got for the home, often does them. If the buyer is getting a screaming deal and the seller is walking away with nothing or less than nothing, the seller usually expects the buyer to accept the home with these issues not being addressed. Often these are things the seller did not deem important enough to fix while he lived there, and not something the seller did not know about. A small crack in a window. A broken window seal (this is cosmetic in most cases). A bedroom door doesn’t “latch” properly, which is often fixed by tightening knob or hinge screws or adjusting the latch plate. Basically things that can be fixed with little or no cost and a screw driver. WHICH ITEMS ARE CLOSE TO THEIR LIFE EXPECTANCY? These are usually large items that are “in working order” and not currently defective, but near or past their “life expectancy”. Roof is not leaking but 23 years old. Hot water tank is working just fine, but is 18 years old. Heater is working just fine, but is 30 years old. Again these items usually hinge on the price negotiated. If the Seller got the better end of the deal at initial price negotiation, the buyer’s expectations may be different than if the buyer is getting the home at a “below market” price. Often the seller and the buyer do not agree on THAT, on whether the price was at, above, or below market price and THAT is why the sale fails over one of these items. Not because of the item itself, but because the parties think one or the other is not being reasonable given the home price. Does a house need a new roof because it is “old” but is not leaking? Does a hot water tank need to be replaced because of it’s age when it is functioning well? Often these things are viewed differently in a Seller’s Market vs a Buyer’s Market. An income property, or investment property is one that is purchased with the intent to rent or to earn income. Of course there are several advantages to owing an investment property, however it does hike up the risk factor too.
Here are some great reasons why investment properties can be profitable and successful ventures. 1. You are the Boss, Manager, Owner of your New Income Property. That means that you decide what you will buy, who you will rent to, how much you'll charge and how you will manage the property. It's all up to you! You will essentially be the boss of your small business. In this case, you can manage your affairs at any time you choose. Of course there will be some calls that you will have to act on regardless of what you happen to be doing, but for regular administration you can feel free to start working at 11am and wear your pyjamas all day. As opposed to an investment given to a third party to manage on your behalf, like a stock or investment fund, you will have 100% control over your investment. 2. Potentially Significant Return on your Highly Leveraged Investment. Since you may borrow more than it is possible to immediately put down on your new property, you may be entering a 'highly leveraged' situation. The greater the borrowing part of the equation is, the more highly leveraged you will be. None-the-less, with property values increasing at an incredible rate year after year, there is a very good chance that this property will make you some money when it comes time to sell down the road. Here's a great example of how this can benefit you. The scenario is, you buy a property that costs you $100,000. You have $10,000 to put down and thus have to borrow $90,000 to afford the purchase. If the annual appreciation of the property is 5% (and we are certainly seeing much higher in Calgary), then after the first year your property would be worth $105,000. Since the appreciation affects the entire purchase price, you are leveraging your investment to work for you. After the second year your investment might be worth $110,250 given a 5% increase. Following this logic, after the 10th year your investment will be worth $162,889. That means for your initial investment of $10,000 you have made $63,000 on the investment. Of course you will be paying interest on your loan which will offset your profit, however the return in this case is not too bad considering someone else will be paying the mortgage for you. *A very viable option for owners of investment properties is to pay the allowable additional mortgage payments throughout the year to chop down that mortgage faster. Some lenders will allow their clients to pay an extra 20% per month (goes straight to the principle) and an additional 20% of the entire year! Taking advantage of this will save you thousands. 3. Rental Income is Profit For You! As long as you fill your rental property with tenants, you will begin collecting rent. A portion of that payment will go towards the mortgage, utilities, taxes and fees, however the rest will be profit. Every month, your tenant will be paying not only you but your mortgage provider as well. Now, considering that there will be maintenance costs and vacancy costs (should you have to go without a tenant for a period of time), you will want to set aside 5% for each of these potential incursions, 10% in total. So if you are charging $1000 for rent and your mortgage including fees, bills and taxes total $800, you have $200 left over. Take $100 of that and put it away in a safe place just in case you have to deal with unexpected maintenance costs or untimely vacancies. Take that extra $100 and throw it in your bank account! 4. Your Tenants Will Pay Your Mortgage for You Basically throughout the first 15 years of your mortgage, you (your tenants) will be paying more interest than principle. By year 15, that ratio might balance out to a 50/50 split. So, the longer you hold the loan, the more of the principle your tenants are going to pay for you. By year twenty, your tenants are paying off most of your mortgage. Twenty or thirty years down the line when it is time to refinance or sell the investment property, your tenants will have substantially paid down the mortgage for you so you can make more from the sale. 5. Tax Write-offs are a Bonus As a rental income property owner, you are entitled to major tax deductions. You can write off interest on your mortgage or any interest on credit cards that you've used to make purchases for the property. You can write off your insurance, maintenance repairs, travel expenses, legal fees, and even your property taxes! If you would like to see a list of these write-offs visit, nolo.com. An extra bonus, especially for folks in Calgary, is that the government allows you to depreciate the price of your investment property based on a set depreciation schedule - even if your house is appreciating in value. So using the prior example, if your tenants pay $800/month they pay $9600/year. If you were to make this money working, you would be significantly taxed, however as rental income you can substantially offset the taxes with the depreciation of your property and various tax write-offs. As you can see there are more than just a few benefits to owing an investment property. Something that we didn't really touch on here is how being a landlord can be very time consuming and a huge commitment in the case where major or immediate repairs need to be completed. Also, in a climate where there are fewer renters willing to pay top dollar every month, you may have to consider reducing your rental charge. Although this kind of venture is not risk free, few things in life really are. In this case you have to know your duties, obligations and of course your rights as a new landlord. It's almost time for our favourite annual SHARP Foundation charity event - Lawn Bowls for Beswick House!! On August 9th, 2014 starting at 11am at the Bow Valley Lawn Bowling Club in West Hillhurst we will throw those awkwardly weighted balls as straight we can to support this incredibly important foundation. Established in 1990, the SHARP Foundation is a Calgary-based non-profit organization. They are committed to providing a continuum of care including housing, healthcare, and support to those individuals infected and affected by HIV. The SHARP Foundation works in effort to prevent homelessness and fulfil the need for more acute health care facilities in Calgary for those with HIV. SHARP currently operates five programs located in Calgary residential neighbourhoods. Residents are provided with affordable housing and individualized support to meet their housing, medical, and psycho-social needs. After stabilizing an individual’s medication regimen we provide programs to improve her/his quality of life and to value life. 100% of the proceeds from this absolutely fantastic event will go directly to the facility to keep it ship shape and running smoothly. This will be our 7th year at the event and every single year we laugh, play and have a couple of cocktails for the cause. There will be prizes for winning teams as well as 50/50 draws, door prizes, burgers and more!! Check out the Facebook fan page for more details and to join the group! - 8th ANNUAL BOWLS FOR BESWICK HOUSE We really hope that you can come out to play with us!!! Feel free to leave comments with questions and we'll get them for you. |
AuthorSheri-Lee Presenger Archives
January 2016
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