Real Estate Information Archive

Not a day goes by that I'm not asked a variation of this question, "How much HST do I have to pay if I Sell (or Buy) a house.

The answer is, "It depends".  

Firstly, it depends whether you are buying or selling. If you are selling, you only have to pay HST on the commission you pay to your Realtor.  So, if your home sells for $250,000 and your commission is 6% the government's piece of your pie will be 13% of $15,000, which is $1,950.  This $1,200 more than you would have paid prior to July 1st, 2010. (Commission has always been subject to GST)

Now, if you are a Buyer of real estate, you don't need to worry, unless you're planning to purchase a new home.  Just like the GST, the HST applies to new construction only, not resale homes.  

The good news for New Home Buyers is, just like the GST you get a rebate on the HST.  

Here's how it works:  We all know that HST is a combination of the GST (5%) and the PST (8%).  The rebate on New Home Construction is divided into the two parts and calculated separately.  The GST portion, has not changed, you still get the rebate, which you assign back to the builder, whom in turn, burys it into the price of the home.  The PST portion is calculated in a similar fashion. The Government will rebate back to you, 75% of this portion of the HST - not bad!  

So, to keep it simple, PST was 8% and 75% of that is 6%, which means that you will only be paying an extra 2% on that new home.  Not only that, but your builder will calculate the tax and the rebate, and build it into the sticker price on your new home - just like the builders have always done with the GST.

Here's the rub:  There is a cap on the amount of that new rebate - it's $24,000 and since that rebate represents 6% of the total cost of the home, the maximum home value for which you can claim the rebate is $400,000.  Every dollar above $400,000 that you spend for your new home will be taxed at 13% - ouch!

My Name is Rob Thompson and I'd like to be your REALTOR.

Thanks for listening.

North American & International Economic Highlights

by Benjamin Tal

Things have changed very quickly in the past three months. In March of this year the stock market thinking was dominated by despair. Earnings were in a clear downward trajectory, the US financial system was in disarray—with rising concerns about Alt A mortgages, commercial real-estate and credit cards losses, the TED spread was hovering around 100 basis points, the auto sector was begging for bailout money, the housing market did not show any signs of bottoming out and consumer and business confidence were at record lows. And yet, this environment has generated a 40% breakout in the stock market that caught almost everybody by surprise.

Of course, during the course of this rally there was no shortage of commentary dismissing the swing in stock prices as insignificant, short-lived or a bear market rally. Those gloom merchants missed not only the big picture, but also the strongest pre-recession-end stock market rally in the post war era.

But the stock market was not the only surprise. As recently as March the commodity market was viewed by many as a dead market. The CRB is now up 28% from its recent bottom, and oil prices at $70 are a full $35 above their long term average—not bad considering that we are still in the midst of one of the worst recessions since 1945.

The bond market has been also busy during this remarkable second quarter of the year. Despite heroic affords by the Fed to put a cap on the long end of the curve, the 10- year rate is now 1.27% higher than its level in mid-March, with the 3-month to 10-year yield curve steepening by roughly 150 bps. As illustrated in the chart, a steepening in the yield curve is basically a precondition for an economic recovery.

Yes, there are many reasons to believe that things are a bit different now. The stock market is probably ahead of itself, while the yield curve is too steep for the current stage of the economic cycle. All indicators and common sense suggest that this recovery will be muted. After all, the US housing market is yet to find its footing, consumers are in a bad mood and deleveraging is king. Savings, not consumption, will be the new “in”. Add to this mix a new wave of regulation, protectionism, higher energy prices and more expensive borrowing costs, not to mention potential fiscal tightening, and you have a recipe for a sub par recovery.

But the signals from stocks, commodities and bond markets suggest that while the next several quarters will be lacklustre, the medium-term outlook could be brighter than many currently suspect. Just a thought

Benjamin Tal

Senior Economist

Economics

I have a question for YOU!  Why are you not investing in Real Estate?  Why do you not own a piece of dirt other than the one you live on? 

You know what amazes me?  Year after year, we shovel wheel-barrel loads of money into that, intangible monster we call the stock market.  Most of us do this with, what mutual fund propaganda, refers to as, "The Long-Term Thinking Approach". We take our hard earned cash that has been earmarked for retirement and we hand it over to a banker or other financial advisor who gives it to some dude in an ivory tower, whom you'll never meet, to invest in a volatile, risky market that is based purely on emotion.  Sounds risky to me.

Now let's take that "Long-Term" approach and apply it to Real Estate.  If I can be so bold as to say, "Real Estate is twice as good an investment than its intangable competition".

Allow me to explain:  Let's say you buy a duplex for $300k and you put $45K (15%)down.  That leaves you with a mortgage of $255k and a payment of $1675/month based on a 20yr amortization and a 5% interest rate.  Let's assume you rent your two units for $1100 each (plus utilities) which will give you enough to pay your mortgage and the taxes.

At the end of the 20 years your mortgage will be paid off and assuming the market has risen by a modest 100%, over the 20 years, you will have an asset worth $600k.

Here's the exciting part:  How much did we originally invest?  $45k right.  Now lets take our future value and subtract it from our investment ($600k-$45k=$555k) divide our total increase by the number of years of investment ($555k/20years = $27,750)  and divide our per year profit into our total investment ($27,750/$45,000 = 61.66%)  Remember that's 61.66% per year, return on investment (ROI).

Now, let's go back to our mutual fund propaganda; what is it they say, to hope for over the long haul?  That's right - an average of 10% ROI is considered good.  So let's use 10%, compounded annually as our prescription to a wealthy retirement, over the same 20 years.  Now, let's do the math - $45,000 at 10% compounded for 20 years is $303,000. For the sake of comparing apples to apples, we must subtract our original investment of $45,000, which leaves us, a total profit of $258,000.  Divide our profit by 20 years and that's gives us a $12,900 yearly profit on our original $45,000.  That's 28.67% per year ROI. 

Given our scenario, Real Estate provides twice the return of the Mutual Fund. This is not rocket science.

Now, in fairness I have not allowed for repairs and maintenance or vacancy on the Real Estate Investment.  Nor have I allowed for the tax advantages of a mutual fund's growth inside an RSP, but I also did not allow for potential changes to the official plans of Municipalities, that can cause dramatic increases in real estate values, above and beyond normal yearly increases.  All variables aside, when you consider Real Estate provided double the return; the numbers are hard to dispute.

You know what I really like about investing in Real Estate?  It's tangible;

I can stand on it,

I can build on it 

I can change it's use

I can subdivide it and unlike stocks, it can't vanish into thin air.

The key to what I'm saying is the word "I".  When "I" invest in Real Estate, "I" am in control and "I" can easily understand it.  Doesn't that make more sense than blindly giving your money to a company that, in turn, invests your hard earned cash, into something you know little about?  After all, the word "Investment" begins with "I".

This is Rob Thompson saying, "Good Luck and Good Investing".  

What the rate cut means for mortgages

Garry Marr, Financial Post 

The latest rate cut means consumers buying a house can borrow for as little as 3% interest on their loan if they are willing to buy into the Bank of Canada's statement Tuesday that it won't be changing rates until June, 2010.

If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis -- the lowest rate in Canadian history.

But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago.

"What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin."

Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low.

The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in.

"You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist.

John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market.

"There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further."

He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner.

Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit.

"If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history."

Quantitative easing Q&A with the BoC

FP Posted: April 21, 2009, 10:16 PM by Alia McMullen

With interest rates now at a record low 0.25%, the Bank of Canada has provided definitions of quantitative easing and credit easing on its website. 

What happens when the policy interest rate approaches zero?
"The traditional monetary policy instrument used by central banks to stabilize the economy and maintain price stability is the policy interest rate. When the policy rate moves towards zero, a central bank may consider using other tools to provide stimulus to the economy and achieve its inflation objective. This can include consideration of so-called 'unconventional' monetary measures such as quantitative easing and credit easing."

What is quantitative easing?
"Quantitative easing is the purchase by a central bank of financial assets through creation of central bank reserves. As a result, the price of the purchased assets (which can include government securities or private assets) rises and the yield on the assets falls. The expansion of reserves available to commercial banks also encourages them to increase the supply of credit to households and businesses.
In economic terminology, quantitative easing uses 'unsterilized' funding; in other words, the reserves of the central bank are increased to finance asset purchases."

What is credit easing?
"Credit easing is the targeted purchase by a central bank of private sector assets in certain credit markets which are important to the functioning of the financial system. The goal of credit easing is to reduce risk premiums and improve liquidity and trading activity in specific markets so that credit will flow and demand in the economy will expand.
Credit easing can be done on a 'sterilized' basis; in other words, there is no need to increase central bank reserves in order to undertake credit easing. If undertaken on an unsterilized basis, this amounts to combining credit easing with quantitative easing."

Renovating can be a great way to add value to your home. It can make your house a more comfortable environment for you and your family, and even reduce your energy bills. And now, with the introduction of the new Home Renovation Tax Credit (HRTC), this might be the best time to begin the renovations you’ve been planning.

As part of Canada’s Economic Action Plan, the Home Renovation Tax Credit will provide a one-year, temporary 15% income tax credit on eligible home renovation expenditures for work performed, or goods acquired between January 27, 2009 and February 1, 2010. The credit may be claimed on eligible expenses exceeding $1,000, but no more than $10,000, for a total credit of up to $1,350.

Eligible renovation expenditures include: renovating your kitchen, bathroom or basement; installing new carpet or hardwood floors; building an addition, deck, fence or retaining wall; installing a new furnace, central air conditioner or water heater; painting the interior or exterior of your house; resurfacing a driveway and laying new sod.

Renovations which are not eligible for the credit include: purchase of furniture, appliances and tools, carpet cleaning, and maintenance contracts.

To obtain more information on the Home Renovation Tax Credit, call 1-800-O-Canada or visit the Canada Revenue Agency Web site.

Thanks For Listening

Rob

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.