I was in the process of posting about the Liberal budget stance yesterday when the phones and email took over and I found myself in the field until after dinner time last night, as did many others.  This is good news for our clients, and for the Victoria real estate market. 

I continue to hear similar stories from many of our colleagues and we are seeing several of our colleagues being in the field as well.  Somehow I managed to leave my computer without saving my work yesterday — I’m convinced that I saved a draft, but sometimes these things will just happen, so I’ll try again!

President Obama to visit Ottawa

The White House has announced that the 44th U.S. President will make his first official foreign visit to Ottawa on February 19th.

There has been word that Hillary Clinton will join Mr. Obama.  Having the Secretary of State along would appear to indicate that the U.S. considers this meeting more that just a pomp and ceremony visit and that they are eager to “get to work” at turning our economies around.  There are also rumours that the President will meet with Liberal Leader Michael Ignatieff and Governor General Michaëlle Jean at Rideau Hall.

The economy will top the agenda, but the President and Prime Minister will also discuss, amongst other things, Afghanistan, natural resources and trade.  Regardless of the topics covered, we are happy that it appears the President will arrive in Ottawa to find our heads of state acting more like adults than the junior high school spectacle that we saw during the coalition days back in November that ultimately led to the suspension of Parliament.

Playing nicely

While we would hope that sane people will always prevail in Ottawa, and not just during Presidential visits, we will take what we can get.  What we are seeing from both the Tories and the Liberals in the last week is encouraging.  The Liberals rubber stamped the Tory budget with the condition that the Conservatives report implementation and costs throughout the next year, to which the Harper government replied “we are happy to do that”.

While there is likely to be minor amounts of jawing back and forth between the Liberals and the Conservatives, we see a minority government with accountability as a very good thing for Canada, regardless of who is on the Government side of the floor in Parliament.

That said, the NDP and Bloc Quebecois were quick to shoot down the budget, asking the Liberals to do the same.  By accepting the Tory budget, the Liberals put a non-confidence vote to rest for the time being.  We also see this as very positive for the country and the economy, including the real estate market.  At this point, partisan considerations need to take a huge step back so the people in Ottawa can put the country first, plus, we would hate to imagine President Obama’s first official foreign visit to be to a coalition government with no clear leadership or mandate.  We need stability in these uncertain times; the Government and opposition appear to be ready to work together to move forward!

And the budget?

Highlights of the budget can be found here.  In the big picture, the Harper budget outlines deficit spending, via increased spending and decreased taxes, to stimulate the economy.  Tax payers and politicians alike have viewed “deficit” as a very dirty word over the past 13 years, yet at this juncture most people tend to see it as a necessary evil to get past the sudden downturn in the economy.  While the arguments will continue back and forth about the merits and pitfalls of deficit spending to stimulate the economy, what many people often lose sight of is that markets of all kinds, economies, any flow of capital, have historically always been subject to cycling between positive and negative growth.  As much as it would be nice to have the security of knowing that markets and economies will always be increasing, it simply has never happened.  We need address the global issues and for the time being, both tax payers and politicians appear willing to accept deficit spending as a large part of the solution, at least in the short term.

As it is currently outlined the budget will pump $40 billion into the economy in the next 2 years, and will see deficit spending until 2013, at which point the debt will be estimated to be approximately $660 billion.

The budget and real estate

The real estate industry will see quite a boost from the 2009 budget:

- More mortgage buybacks, in addition to what has already been announced and implemented, up to $50 billion.  This is one of many measures aimed at keeping the credit markets moving and ensuring that consumers and businesses alike have access to the credit they need for day to day business operations.

- A $750 tax credit for first-time home buyers to cover the costs of buying a home, such a land transfer taxes (also known as the Property Transfer Tax, PTT, in real estate transactions in British Columbia), legal fees and other closing costs.

- First-time home buyers will now be able to take up to $25,000 out of their RRSPs to use as down payments towards a home, tax and interest free.  This is an increase of $5,000 over the previous limit.

- A tax credit of 15% (to a maximum of $1,350) on home renovation expenses started prior to February 1, 2010.

- New measures to make sure that Canadian consumers are not charged more for mortgage insurance than the “actual cost” of obtaining said insurance.

Thanks for reading, please contact us if we can help you with any of your Victoria real estate needs.

Regards, Sean Farrell

Money is once again very cheap.

Further to my post earlier this week, the Bank of Canada (BoC) lowered its benchmark-lending rate to a 50 year low of 1%.  The major banks immediately matched the 50 basis point reduction and decreased their prime rates to 3%.

Our friends in the mortgage brokerage business advise us that variable mortgages (5 year term) are now available at 3.8% and fixed 5 year mortgages are available at 4.49%.

That’s cheap money and is one of the major factors behind the increased number of offers being written in 2009, as well as the increased activity we are seeing on the phones — they are ringing more than we’ve since in the last 3 months. 

Like many other businesses, the real estate market has a seasonal cycle, and so we would normally expect things to be busier in January than November and December.  That said, we are seeing buyers getting very enthused about the combination of lower interest rates and a larger inventory of listings to choose from.

Not just the entry level market.

During times of falling interest rates, the traditional wisdom generally says that the cheaper money most benefits the first time home buyer, helping them get out of renting and into the market.  That’s certainly true, however, the recent large decreases will also benefit many other buyers who will now be able to realize lower payments on their dream home, or qualify for larger mortgages as the rates drop.  Andrew Duffy’s article in yesterday’s Times Colonist talks about how the BoC rate drop could have very positive effects on the Victoria real estate market.

We are seeing increased interest in properties from entry level condominiums up to approximately the $2 million mark in the first few weeks of 2009.

Rates could go lower?

We feel it’s an excellent time to buy real estate in Victoria.  Many economists are predicting that interest rates may decrease again, most likely in March, which may make it tempting for buyers to hold off in an effort to realize the lowest possible interest rates and/or the lowest possible prices on real estate. 

The tricky thing about trying to time the real esate market, or any market for that matter, is that no one can identify the “right” time to buy real estate or take out loans until after the “right” time has already happened.  Perhaps the most compelling evidence of this is to research news and analysts reports back in the first half of 2008.  There were very few analysts with negative comments, much less anyone predicting the crisis the global markets found themselves in by the fall of 2008.

For those who may still have their doubts the direction and timing of interest rates, we would suggest considering a variable rate mortgage (3.8% !).  Buyers will benefit from lower rates should prime drop again, but have the option to lock into a fixed rate mortgage if rates start to move back up.

That’s great, can I actually get a loan?

While the low interest rates are great news, many are concerned that the banks just won’t have the money available to lend out given the very tight credit conditions prevalent in the global economies.  While we heard a few scary stories back in October, we are hearing from our colleagues in the banking and mortgage businesses that credit conditions are improving. 

The Canwest news service is reporting that while Canada has been feeling the effects of the global credit crunch, Canada is also avoiding the worst of the crunch and should continue to get better as the federal government continues to implement aggressive monetary and fiscal policies aimed at continued expansion of credit availability to households and businesses alike.  Next week’s federal budget, being delivered on Tuesday, should focus on keeping credit markets moving in Canada. 

If you are wondering what your mortgage and financing options may be, we would be very happy to put you in touch with some very nice people who work in the mortgage brokerage business, feel free to contact us via email (sean@lesleefarrell.com, leslee@lesleefarrell.com) or give us a shout (250) 385-2033.

Thanks for reading and please contact us we can help you or anyone you know with your Victoria real estate needs!

Sean Farrell