By Julian Beltrame, The Canadian Press

OTTAWA – Canada’s real estate bonanza of the past decade has come to end and the long-term trend as one of the most profitable places to invest is also not encouraging, a new research paper from the TD Bank argues.

The “special report” from one of Canada’s largest banks makes the case that gains in housing prices have been exceptionally strong over the last 10 years, even when accounting for a sharp drop during the 2008-09 recession. But now is the time for a bit of a payback.

The report does not predict a collapse in house prices as some analysts have suggested. In fact, it sees prices rebounding after a few years of a correction to as high as eight per cent.

However, the longer term trend is for home price gains to average about two per cent over the next 10 years — flat once inflation is taken into account, says TD chief economist Craig Alexander.

“I do not think we have a housing bubble in Canada,” said Alexander. “We have had abnormal strength in the market during a period of low interest rates and when rates go up over the next three years, you will get a cooling and weaker prices, but not a permanent shock and not a sharp correction.”

The bank said tighter rules for borrowers and lenders are only part of the reason to expect prices to moderate. Other contributing factors include the aging population, modest growth in both the population and the economy and, eventually, higher interest rates.

The bank thinks the market could correct by as much as eight per cent over the next three years, but Alexander said it is possible that prices won’t fall as much as that.

Some forecasters, including Capital Economists, have predicted a bigger correction is in the offing, arguing that houses in Canada may be overpriced by as much as 25 per cent.

But Alexander says that exaggerates the problem, believing the overvaluation is closer to 10 per cent.

The problem with the housing collapse scenario, says Alexander, is that typically a sharp price correction needs a trigger in terms of a steep increase in interest rates or unemployment, both of which appear unlikely at this point.

While sales, starts and building permits issued have come off the boil in the past half year, particularly since tighter mortgage rules went into effect in July, home prices in Canada have remained relatively resilient with the exception of perhaps the condo market in Vancouver and Toronto. The Canadian Real Estate Association calculation for January found the average home sold for $354,754, about two per cent more than a year earlier.

Still, the report makes clear that the next decade for housing will be significantly weaker than the previous three.

Since 1980, home prices have climbed on average by 5.4 per cent annually, including a spike of seven per cent a year in the last 10 years. By contrast, TD expects prices to fall in the next two or three years, rising to average annual increases of 3.5 per cent after 2015 for an average annual gain of two per cent overall in the upcoming decade.

In terms of return on investment, real estate will not reap the bonanza of the past decade, but remains relatively attractive because profits on a primary residence are tax free, the report points out. It estimates the annual pre-tax return to be about 4.4 per cent over the next 20 years, which is higher than expected yields on bonds.

Somewhat surprisingly, the report predicts Vancouver and Toronto, along with Victoria, Edmonton and Calgary will continue to outpace the national average in terms of home prices over the next 10 years.

Vancouver and Toronto are regarded as the cities with the most inflated prices — despite recent corrections — but TD argues that the two cities will realize the biggest influx of immigrants, so demand will remain higher. The Alberta cities will do well because of both population growth and higher than average income growth.

A poll done for Royal Bank of Canada found 59 per cent of those asked said now is the time to get into the housing market, as opposed to waiting until next year. That was up four percentage points from when the same question was asked in a survey a year earlier.

However, 73 per cent said they are unlikely to buy a home within the next two years, up two points from the previous year.

“There’s a mix of opinions on the housing market as Canadians still feel confident about real estate but are a little uncertain about where the market is heading and when it makes sense to buy,” Marcia Moffat, RBC’s head of home equity financing, said in a statement.

**When it came to property values, Quebecers were the most confident homeowners in the country, with 78 per saying they could withstand a potential downturn in house prices, compared to 74 per cent nationally. Yet 57 per cent of Quebecers – slightly below the national average – said now is a good time to get into the housing marking.

Not surprisingly, 69 per cent of Albertans said now was a good time to buy a home, with commodities-fueled growth driving a housing boom in that province.

Nationally, 88 per cent considered housing a good investment – including nine out of 10 Ontarians, despite concerns of a condo bubble in Toronto – while 68 per cent said the value of their homes had increased over the last two years. Just 47 per cent of Canadians said housing prices would be higher a year from now.**

The survey was done with 2,006 adult Canadians in an online panel by Ipsos Reid between Jan. 24 and 30. A random sample this size would have accurately represented the population within two percentage points, 19 times out of 20, RBC said.

Meanwhile, real estate firm Royal LePage released a report Thursday saying housing prices in Canada were up in the early part of this year after an “unusually high” number of sales resulted in tight inventories. Record-low mortgage rates at less than thee per cent, on five-year fixed plans, were part of reason why activity was so high, Royal LePage said.

It said the average price of a standard two-storey home in the first quarter was $398,282, up five per cent from a year earlier. The average bungalow price was up 4.4 per cent to $356,306, while the going rate for a condominium rose 2.2 per cent to $243,153.

If you’re thinking of purchasing an investment property to rent out to tenants, you will need to do some serious research. There’s much more to being a landlord than putting up an ad on Craigslist — it’s like taking on a second job. You will need to factor in realistic financial projections, and carefully weigh the pros and cons of your decision.

Here are a few things to consider before purchasing a rental property.

1. Do you have enough saved for the down payment?
Under Canada’s new mortgage rules, you must come up with a down payment of at least 20 per cent for a small rental property holding from one to four units. This rule does not apply to borrowers whose principal residence also includes rental units.

2. How much income will the property generate?

You will need to do some research into the neighbourhood. What does rent typically cost, and what is the vacancy rate in that area? Don’t assume that you will always have a tenant — according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada’s 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don’t forget to calculate potential costs, such as repairs and maintenance.

3. Can you be a successful landlord?

Being a landlord is a second job. It’s not just about finding a tenant and letting the money come in every month. Not only do you have to be available to field emergency calls and keep up with maintenance such as routine fixes, yard work and even shovelling snow, but if you rent to the wrong tenant, you might have even bigger problems to deal with, such as non-payment of rent. Hiring a property manager can help, but that will greatly reduce your monthly profit from the property — and you never want to be in a negative cash-flow situation.

4. How will deductions affect your profits?

By deducting certain expenses from your income, you can reduce the taxes that you owe. Applicable expenses include mortgage interest, property tax, insurance, property management, maintenance and utility bills. You can also deduct any losses from your rental property. If your expenses exceed your rental income, you can subtract your losses from any other source of income you have coming in.

Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.

Want to learn more? Check out the Canada Revenue Agency’s Rental Income Guide, where you can get more information on deductible expenses, and most other issues regarding rental property.

If you’re thinking of purchasing an investment property to rent out to tenants, you will need to do some serious research. There’s much more to being a landlord than putting up an ad on Craigslist — it’s like taking on a second job. You will need to factor in realistic financial projections, and carefully weigh the pros and cons of your decision.

Here are a few things to consider before purchasing a rental property.

1. Do you have enough saved for the down payment?
Under Canada’s new mortgage rules, you must come up with a down payment of at least 20 per cent for a small rental property holding from one to four units. This rule does not apply to borrowers whose principal residence also includes rental units.

2. How much income will the property generate?

You will need to do some research into the neighbourhood. What does rent typically cost, and what is the vacancy rate in that area? Don’t assume that you will always have a tenant — according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada’s 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don’t forget to calculate potential costs, such as repairs and maintenance.

3. Can you be a successful landlord?

Being a landlord is a second job. It’s not just about finding a tenant and letting the money come in every month. Not only do you have to be available to field emergency calls and keep up with maintenance such as routine fixes, yard work and even shovelling snow, but if you rent to the wrong tenant, you might have even bigger problems to deal with, such as non-payment of rent. Hiring a property manager can help, but that will greatly reduce your monthly profit from the property — and you never want to be in a negative cash-flow situation.

4. How will deductions affect your profits?

By deducting certain expenses from your income, you can reduce the taxes that you owe. Applicable expenses include mortgage interest, property tax, insurance, property management, maintenance and utility bills. You can also deduct any losses from your rental property. If your expenses exceed your rental income, you can subtract your losses from any other source of income you have coming in.

Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.

Want to learn more? Check out the Canada Revenue Agency’s Rental Income Guide, where you can get more information on deductible expenses, and most other issues regarding rental property.

But homeowners should be more discriminating, say experts. A lot can change between the time you purchased your house and your first renewal — everything from interest rates to your job and family situation can change dramatically. Therefore, it’s good advice to re-evaluate your needs thoughtfully rather than blindly signing the renewal.

“It’s not simply about the best rate,” says Gerry Orr, a mortgage agent with Alberta’s Best Mortgage in Calgary. “Most mortgage brokers look at your mortgage as part of your overall plan.”

If it’s your first time renewing your mortgage, you should be aware of the options available to you. You may find that negotiating different terms or changing lenders not only saves you money but could shorten the life of your mortgage substantially.

Plan ahead
Your renewal notice will arrive a few months before the actual renewal date, but some experts suggest thinking about renewing your mortgage about four months before then. While homeowners have the option of renewing online, by mail or by phone, a face-to-face visit with your lender can offer invaluable feedback.

“It’s wise to come into the bank and discuss what your options are with a person,” says Joan Bidner, manager of residential mortgages for TD Canada Trust in London, Ont. “They should reassess their needs and which term is best for them. People get to different stages of their lives, and they should re-evaluate and see what works for them.”

For example, if the homeowner is making more money, she may want to shorten the term of her mortgage, making larger payments and paying it off more quickly. On the other hand, if she is on a tighter budget than when she initially purchased her home, choosing a long-term mortgage with a lower, fixed interest rate may be a better option.

As always, it’s wise to compare your current situation against the terms and conditions of other mortgage terms to get the best deal.

Become a negotiating machine
When your notice arrives in the mail, it will include the most current interest rates. But don’t assume that’s the only way to go. And don’t be intimidated to negotiate with your lender for a better rate — after all, it’s in the lender’s best interest to keep your business.

In addition to looking for a lower interest rate, you can also bargain for more prepayment privileges. Remember, a few hundred dollars extra every month added up over the life of your mortgage can save you a bundle.

But don’t expect miracles when negotiating. In one expert’s experience, there is no rhyme or reason why banks will negotiate with one homeowner while letting another go without a fight. “(Banks) have room to negotiate but only with certain terms and products, so they only have so much room to negotiate,” says Anthony De Almeida, president of CanEquity Mortgage based in Calgary.

Broker it out
If you don’t have the wherewithal to haggle or shop for a better deal on your own, consider hiring a mortgage broker or specialist to do the work for you. “We have no allegiance to any one lender, so we will offer you unbiased information and we have access to everyone,” says De Almeida.

And whereas many lending institutions don’t post their lowest rates, mortgage brokers and specialists deal directly with the mortgage underwriting department of all financial institutions, which takes the profit margin out of the price, says Orr. It’s like comparing the price of a dress for a customer versus a store buyer, who buys it cheaper at wholesale.

And remember, if your current lender doesn’t offer better terms, you can pack up and change lenders.

Change teams
A common myth about mortgage renewal is that once you sign on with one bank, you’re stuck with it to the end. But that is not the case. Still, it seems that Canadians are wary of changing lenders. Among homeowners who renewed or refinanced mortgages, 13 per cent changed lenders while 87 per cent stayed with the same according to a study prepared by the Canadian Institute of Mortgage Brokers and Lenders published in October 2005.

Younger people (ages 18 to 34) are more apt to switch than older people (older than 55), at a rate of about 19 per cent compared to five per cent.

Orr says he often must remind customers that changing lenders does not affect their credit ratings. “If you move your mortgage to a new instruction, it’s not going to affect your credit or your (financial) standing in general in any way.” He also adds that it’s not complicated to change, nor is it expensive. Lenders charge a flat rate of about $200 to switch institutions, but in many cases, that fee is waived or covered by your new lender.

Timing is everything
Homeowners can also renew early. This is advantageous if you find a low rate that you want to lock in. Some lenders will hold an interest rate as long as 120 days prior to the actual renew date, so it’s something to consider.

And if you forget to sign your mortgage renewal entirely, some mortgage contracts will simply keep the same rate until the next renewal period, so it pays to stay on top of it.

So you’ve decided to buy a house but it’s not perfect to your standards. Luckily our lenders offer a solution to bring it up to par. Welcome to the ‘Purchase plus Improvements’ mortgage.

This program is designed for people who wish to purchase a home that may require some immediate upgrades. For example, a new electrical service, a new roof, central air, a new furnace, new siding, eaves, fascia, doors, windows, a new kitchen, carpeting… or any other renovation that would increase the value of the home.

If a buyer wants to use the purchase with improvement program they must obtain a quote from a contractor for the repair work and or the improvements to be done to the home. Note: The lender will “hold-back” on closing the “improvement” portion of the mortgage until the work has been completed. Once the work has been completed, the lender will advance the balance of the funds and the contractor can be paid back.
Purchase With Improvement Mortgage Example:

Purchase Price: $300,000.00 x 95% = $285,000.00
Cost of Improvements: $10,000.00 x 95% = $9,500.00
Total Mortgage: $310,000 x 95% = $294,500.00

In this example, the client is putting down 5%. The mortgage application is made for the amount of $294,500.00, which represents 95% of the purchase price and improvement cost. After the improvements are complete the lender advances the holdback of $10,000.

I am the proud owner of my first home (condo) thanks to the outstanding work of Capital Mortgages team. From start to finish Capital had done an excellent job through out the entire process. Given the relatively the short closing i.e. approx. 15 business days, Capital’s prompt and timely service enabled the purchase to take off without a hitch. I was very pleased with the service, as such; I would definitely go through your services for future financing commitments. I would also be confident referring my personal friends and family of your business because of the quality of service they could expect to receive.

Many Thanks and Best Regards,
Vineeth Stephen

I write today to express my heartfelt gratitude and extreme satisfaction towards the courteous, professional and truly personalized service that my wife and I have received from your team member.
When my wife and I considered purchasing our first home over 1 year ago, we were overwhelmed with the process involved. Fortunately, we crossed paths with your company, and since then the process of buying a home has been much less taxing. Thanks to the Capital’s regular, unprompted updates, we have never had to keep detailed notes on the bank’s interest rate and cuts interpret how they affected our mortgage rate. Capital has also taken the initiative of informing our lawyer of changes to our mortgage rate, and she has arranged with our lawyer to be advised of the closing date of our home purchase, thus saving us the time and effort. In short, we have recommended and will continue to recommend Capital Mortgages to out friends, family and colleagues. Andrea and I would like to thank you immensely for your help in making out first home a reality.

Sincerest regards,
Marco Di Buono, Ph.D.