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More than any other province, first time home buyers in Alberta are expecting to pay less than the asking price for their home (71% vs. 65% nationally). One-quarter (26%) expect to pay asking price and only 3% expect to pay more than asking price.
These are the findings of the first TD Canada Trust Home Buyers Report, which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Albertans also report putting down as much as they can afford for a down payment (95% vs. 88% nationally). 65% say they saved or plan on saving for two years or less for their home purchase. Despite the majority putting down as much as they can afford, only 25% plan to have more than a 20% down payment. The remaining 75% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Two-thirds (65%) are worried about being able to afford their home if interest rates rise.
“It’s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time,” says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. “I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save.”
73% of those surveyed in Alberta have or plan to have a fixed-rate mortgage.
“Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations then a fixed-rate is best,” says Haque.
Albertans are doing their homework:
Nearly all home buyers are making informed financial decisions before buying their home. Top activities before buying a home include getting pre-approved for a mortgage (94%), learning about mortgage options (93%), calculating closing costs (89%) and speaking to a mortgage lender before shopping for a home (89%). However, land transfer tax, closing costs and property taxes were the top costs that buyers felt unprepared for (53%, 51% and 48% respectively).
What type of home do Albertans want?
59% of Albertans prefer fully detached homes, followed by condominiums (17%) and semi-detached homes (14%). If two homes were at the same price point, 68% would prefer a newer home over an older home. Albertans are split about the preferred location for their home; for the same price, 55% would prefer a smaller home closer to work and 45% would prefer a larger home that requires a longer commute to work.
Home shopping process:
People in Alberta do their due diligence when searching for a home, spending almost 9 months looking for a home and viewing on average 13 homes. They spend a lot of time shopping in Alberta because they plan to live in their first home for longer than people in other provinces. In fact, only 5% of people plan to spend less than 3 years in their first home (compared to 11% nationally). 39% plan to spend more than 10 years in their home or to never sell.
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010, including 100 from Alberta. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. TD Bank Financial Group is the sixth largest bank in North America by branches and serves more than 18 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust and TD Insurance; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking, including TD Bank, America’s Most Convenient Bank; and Wholesale Banking, including TD Securities. TD Bank Financial Group also ranks among the world’s leading online financial services firms, with more than 6 million online customers. TD Bank Financial Group had CDN$574 billion in assets on April 30, 2010. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.
Gross Domestic Product stalled on April
Gross Domestic Product stalled unexpectedly in April after seven consecutive monthly increases as retail and manufacturing dropped, Statistics Canada reported this week.*
At the same time, retail trade fell 1.7% during the same month, following a 1.9% gain in March. Together with smaller declines in manufacturing and utilities were offset by increases in mining, wholesale trade and, to a lesser extent, the public sector and construction.
Nonetheless, it is widely believed that the Bank of Canada will probably raise rates for a second straight time at its July 20 meeting.
Mark Carney had already warned in April that the economy’s rebound from the crisis would slow significantly starting in the second quarter as the housing market was beginning to cool, the dollar was trading near parity with its U.S. counterpart and the impact of government spending was fading.
Those factors, and the arguably more dominant headwinds from Europe and the United States as the these fragile advanced economies walk the tightrope from stimulus spending to deficit-cutting, have kept the central bank insisting that nothing about its path to a more normal monetary policy is “pre-ordained from here forward.”
“The Bank of Canada will take all of this into consideration, including what’s happening in global financial markets, before making its decision,” Krishen Rangasamy, an economist with CIBC World Markets in Toronto, said in an interview. “If you see the stock market plunge 500 points the day before the decision, that may change things. But if we don’t see something like that, if financial markets stabilize, then there’s no reason for the bank to pause in its tightening.”
* The monthly gross domestic product (GDP) by industry data at basic prices are chained volume estimates with 2002 as their reference year. This means that the data for each industry and aggregate are obtained from a chained volume index multiplied by the industry’s value added in 2002. For the 1997 to 2006 period, the monthly data are benchmarked to annually chained Fisher volume indexes of GDP obtained from the constant-price input-output tables.
For the period starting with January 2007, the data are derived by chaining a fixed-weight Laspeyres volume index to the prior period. The fixed weights are the industry output and input prices of 2006. This makes the monthly GDP by industry data more comparable with the expenditure-based GDP data, chained quarterly.
Patricia Lovett-Reid, senior vice-president at TD Waterhouse, has recently posted an article at the Financial post aptly titled “It may burst your bubble, but buy within your means“, in which she elaborates on the “importance of putting things into perspective” when assessing the “housing bubble”, using as an example her own daughter’s financial dilemmas.
The perspective she refers to comes from some statistical data, such as:
- Home prices across the country have grown at an average annual pace of 4.7% over the past 22 years, or just 2.4% per year above inflation.
- Residential home prices in places like the Greater Vancouver Area have appreciated by 54% over the past five years, over 9% a year compounded.
- In comparison, the average selling price in the Greater Toronto Area has risen at a compound rate of 5.2% per year over the same period.
Plus some added forecasts such as:
- After a 9% appreciation in average existing home prices in Canada in 2010, we could see a dip of 2.7% in 2011.
- Expect the Bank of Canada to raise rates from the current 0.5% to 1.5% by the end of 2010 and to 3% by 2011.
- An increase of variable mortgage rates along the way.
As she points out, today you can get a five-year fixed rate mortgage for approximately 4.6% (4.19% with the Mortgage Girl), and the closed five-year variable rate mortgage is approximately 2.35%.
Which leads us to the omnipresent question fixed or variable?
Her conclusions are as follows:
- The more stable your job, the higher the amount of equity in your home, the greater your financial liquidity and risk tolerance, the more suitable a variable mortgage may be for you.
- On the other hand, fixed rate mortgages offer you the peace of mind of a set rate and a predetermined amortization schedule. If you don’t like risk, then a fixed rate mortgage is for you.
Her final advice to her daughter: “Buy within your means because it is not worth the sleepless nights.”
But wait, there’s a third way that allows you to have the best of both worlds!.
Because you can actually take both! Look at the Mortgage Girl’s 50/50 Wise Mortgage product!
With this kind of Mortgage you are allowed to split your loan amount between fixed interest and variable interest rates. This means that regardless of the economic situation your loan will be partially suited to the economic circumstances.
Call now 1-866-932-8412 or e-mail: info@mortgagegirl.ca for more information.
Forecasting Interest Rates
Boyd Erman
Globe and Mail Update
After a year of making it easy by telling the market exactly what the Bank of Canada would do with borrowing costs by giving a commitment to keep them at emergency lows, Governor Mark Carney has rapidly switched tacks. The country’s top central banker is now confounding those who would try to predict exactly how fast interest rates will rise by refusing to give explicit guidance.
Yesterday’s quarter-point increase in the benchmark central bank rate and the accompanying statement show that the kind of transparency markets get from Mr. Carney as borrowing costs go up in coming months is going to be very different than what they have become used to over the first part of his tenure, when rates dropped to record lows and stayed there.
In this statement, Mr. Carney is being open but not predictable. He is laying out the parameters he is watching and leaving it to markets to try to figure out what that will mean for rates. It’s an education for investors and analysts, because this is the first time they have seen Mr. Carney raising borrowing costs.
“It’s going to be more fun being the central banker in this environment than being a forecaster,” said Mark Chandler, a rates strategist at RBC Dominion Securities who predicts “a whole bunch of angst” before every Bank of Canada rate announcement in coming months.
Just as the explicit commitment to keep rates low served a purpose by giving an uncertain economy some certainty, the new move to the other end of the predictability spectrum gives Mr. Carney the flexibility he needs to deal with a stop-and-go rebound in growth.
The economy posts a couple of hot quarters and inflation ticks up? Fine, a quarter point tighter it is. But then we wait and see.
This isn’t a normal recovery, so there’s no sign of the central bank’s normal language in a tightening cycle. Usually, there is wording foreshadowing a steady move higher, along the lines of “some further reduction of monetary stimulus will be required,” to quote a 2005 rate hike announcement. This time, the guidance is that “any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”
With that, Mr. Carney has established himself as neither hawk nor dove, just a pragmatist who watches the data and the markets and reacts.
Already, there are signs that the new strategy is a success. The market is re-evaluating its belief that more rate cuts are a sure thing.
Read more at:
www.theglobeandmail.com
More about forecasting interest rates:
Economists use a variety of techniques to forecast interest rates. The most basic is to use economics and history as a guide and to make a judgement about what an appropriate level of interest rates and their future course given the state of the economy and important economic variables. Since most economists disagree on how the economy works or what economic history means, this is more difficult than it seems.
See Schools of Economic Thought.
Quantitative economic statistical techniques called “econometrics” attempts to model the economy using mathematical and statistical relationships. A comprehensive model of the economy might have hundreds of equations and many variables. The problem with these techniques is that while they might have a “high explanatory power” or be “robust” historically against “back-tested” data after the fact, they are very poor at explaining the future before the fact.
See Econometric Techniques.
The reason for this inaccuracy is simple. Interest rates reflect human behaviour which is highly complex. This complexity has been compounded by the internationalization of economies and the financial markets. The direction of Canadian and U.S. interest rates is partially set by those of other countries, particularly Germany and Japan. Even governments miss their interest rate forecasts and they have control over their countries’ monetary and fiscal policy.