Friday, June 18, 2010

Mid-Month Resale Housing Figures

Greater Toronto REALTORS® reported 4,139 sales through the Multiple Listing Service® (MLS®) during the first two weeks of June 2010.

This represented a 20 per cent decrease compared to the 5,185 sales recorded during the same period in 2009. New listings increased by 21 per cent annually to 7,985.

“The pace of existing home sales in the GTA has slowed to more normal levels following a record-setting start to 2010,” said Toronto Real Estate Board President Tom Lebour.

“Due to higher mortgage carrying costs, sales in the second half of 2010 will not be as high as what was experienced during the last six months of 2009.”

The average price for June mid-month transactions was $437,039 – up seven per cent compared to the average of $407,716 recorded during the first 14 days of June 2009.

“The seller’s market conditions experienced during the first few months of the year have given way to more balanced conditions. Home buyers are experiencing more choice,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “With more choice in the market place, price growth is starting to slow.”

Monday, June 7, 2010

Hybrid Mortgages Catching On

Investors like to avoid putting all their eggs in one basket. But this philosophy has been slow to catch on in the mortgage market. 94% of people still choose either fixed or variable rates. Very few choose a combination of both.

That may be changing. According to RBC, 40% of prospective homebuyers (people who plan to buy in the next two years) intend to take out a hybrid mortgage. That compares to 32% in last year’s survey.

These stats are a little hard to grasp given CAAMP’s recent mortgage survey. It suggests only 6% of Canadians have actually chosen a hybrid mortgage in the last year. However, Ipsos Reid’s Sean Simpson, says: “I would account for the difference by saying that one is an outlook while the other is retrospective.”

Simpson notes that, “Looking forward to the next two years, there is much more uncertainty in the direction of interest rates.” He says that Hybrids are therefore becoming more attractive since they let people capitalize on low rates while retaining an element of security.

Based on what an RBC spokesperson told us, hybrids may be catching on fast. In terms of the number of new buyers choosing hybrids, RBC says: "We have been trending similar to the survey results over the last quarter."

Marcia Moffat, head of Home Equity Financing at RBC, adds: "As consumers begin to learn about the benefits of mortgage diversification, we're seeing more homebuyers gain a better comfort level with adding floating rate mortgage options."

From our own anecdotal observations, that appears to be the case. We’re not seeing anywhere close to 32-40% of borrowers choose hybrids, but there’s been a noticeable increase in hybrid mortgage inquiries compared to last year.

The academic research supports hybrids as well. Dr. Moshe Milevsky, Canada’s most quoted mortgage researcher—says: “Nobody can truly predict how rates will move over a five-year period. It’s just that simple.”

He therefore believes hybrids are a good form of mortgage risk management. “People should strongly consider mortgages that are part fixed and part floating,” he told us last year. Interest rate diversification benefits borrowers just like it benefits investors who buy portfolios of stocks.

Of course, if history is a guide, well-qualified borrowers may save more money by simply choosing an ultra-low variable rate, or a 1-year fixed. But not all borrowers are in the same boat. Homeowners with only moderately strong personal “balance sheets,” can’t afford to dismiss the concept of risk management.

Many moderately-strong borrowers will in fact assume the risk of putting 100% of their mortgage in a variable rate. These folks will probably never realize the value of rate diversification/risk management unless the “worst case” materializes…and then it’s usually too late.

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A hybrid mortgage is a mortgage with multiple terms.

These terms may be part fixed and part variable, and/or part long-term and part short-term.


For example, a hybrid mortgage might be contain the following:

50% in a 5-year fixed rate
50% in a 5-year variable rate

As another example, a hybrid might contain:

20% in a 3-year fixed rate
30% in a 5-year variable rate
50% in a 1-year fixed rate

Thursday, June 3, 2010

Monthly Resale Housing Figures

Greater Toronto REALTORS® reported 9,470 sales through the Multiple Listing Service® (MLS®) in May, representing a one per cent dip from May 2009. In comparison to previous years, this was the third highest May sales result on record.

"The pace of transactions slowed in May following record‐setting sales in February, March and April,” said Toronto Real Estate Board President Tom Lebour. “Buyers who otherwise would have been purchasing a home in May moved more quickly this year, likely to get ahead of mortgage rate hikes.”

New listings were up 38 per cent annually to 18,940. The average price for May transactions was $446,593 – up 13 per cent compared to the average of $395,609 recorded in May 2009.

"The gap between listings and sales has widened, which means there is more choice for buyers," said Jason Mercer, TREB's Senior Manager of Market Analysis. “The annual rate of price growth will slow in the second half of 2010, from the current double digit pace into the single digits.”

Just Listed