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Posted via email from Mathieu’s posterous

Minister of Finance, Jim Flaherty said “No,” point blank to a question from a CBC National viewer regarding whether or not the federal Tories would ever consider making mortgage interest tax deductible. He also spoke of the new savings plan that allows Canadians to put away 00 tax free towards the purchase of a new house (or car or vacation or … whatever), this is different than the RRSP allowance that must be paid back.

Last night our power went out in our bedroom and part of the downstairs. I checked the electrical panel but the breaker wasn’t tripped.

I had no clue what it could be but some google searching revealed that if a GFI outlet has tripped then it might throw everything on the same circuit off.

Well, I just installed one last year behind a couch downstairs and sure enough it was tripped. So if you have this same problem, check all your GFI outlets.

Recently, the Toronto Star published an article with the headline GTA house prices fall. The author made a fine point of letting everyone know housing prices are down 3 per cent in the Great Toronto Area (GTA) from the same time as last year and the average time a home is on the market went up five days (up from 31 to 36).

He allowed experts to spew gloom and doom and only spent the bottom 30 per cent of the article with some perspective. First of all, 2007 was a record year for real estate in Toronto, in fact, the past ten years have been banner year after banner year for the housing market. Read More

If you’ve spent time chatting with me or reading a few of the posts on this site regarding real estate then you’ll know I’m bullish on the housing market. Quite often I hear people talk about the housing bubble in Canada because we’ve had some exceptional growth in certain areas (you don’t hear people worrying about a housing bubble in Cape Breton or Winnipeg) and they think because the US’s housing market and even Britian’s is tanking we’ll be quick to follow.

The big difference is this: Canadian banks aren’t idiots like the ones in the USA or UK. Banks and lending companies south of the border and across the pond have made horrible lending decisions. They allowed people to over extend the amount of debt they could comfortably carry, they locked them into variable rate mortgages with great initial rates that skyrocketed after the initial period and the gave money to people who clearly weren’t responsible enough to pay it back.

Recently the Canadian government has made a rock solid move, in my opinion, by changing the down payment rules and amortization periods. The new rules officially come into effect October 15th, but many banks have already adopted them. The new rules are:

• No more 40 year (often called “two generation”) mortgages, the maximum amortization is 35 years (still a bad deal – always go 25 years, if you can’t afford it, don’t buy a house yet)
• No more no money down mortgages, Canadians must have 5% down (leave the no money thing to shady operations like the Brick)

Credit rating requirements have also been increased and income to debt ration has been increased meaning you can now qualify for more money.

The government is way ahead of the curve on this one and even the hard hits Canadian manufacturing is receiving won’t send us into a housing crisis.

The most important stat at all, I think, when people start fear mongering and comparing the looming real estate bubble they think is coming to that of the early 1990’s is the mortgage default rate – always an excellent indicator of a possible housing recession. In 1990 it was a whopping .65%, a monster compared to today’s .27%.

Now compared the United States 1% mortgage default rate … we’re looking pretty good.

I’m really excited about the new Canadian tax-free savings account introduced in the most recent federal budget. I see this as an awesome opportunity for Canadians to save up for bigger purchases. Hopefully it will lessen our reliance on credit cards and while some say it is just for the rich, I think the opposite is true.

The “rich” won’t see as big of an advantage to put their money in one of these accounts as us regular folk. If I’m a middle class income earner, a larger part of my savings will be able to go into one of these bad boys. The rich will have a far larger portfolio and therefore, $5,000/year will be a paltry sum compared to the rest of their portfolio.

CTV Consumer alerts had a great piece on this today. Usually I find mid-day and evening newscasts to be really light fare. But this pretty much gave you everything you need to know about it, how it can benefit you and what you might use it for. Special note: I really like the scene where they say you can save for a boat and they show a boat pulling something only to reveal it’s two kids tubing about to smash into each other.

If you like this segment, check out the CTV Toronto Web site. You can view clips there too but you need Windows Media Player (why aren’t they using Flash?).

Most people who tell me investing in real estate and being a landlord is a bad idea often site the possibility of a tenant calling you at 2 a.m. in the morning about a leaky toilet and you have to rush over there to fix it. Apparently if this happens even once in say … the 15 years you might be actively managing your property, it makes all the upside of real estate not worth it. Of course these people don’t think it will happen just once, they must think it’s happening every other weekend. Well if that was the case I would suggest you stop fixing that toilet on your own and cough up some dough for a plumber to do it right.

So here’s a dose of reality for you. We actually had a call this weekend about a malfunctioning toilet. But it wasn’t actually a call, it was an e-mail and it came at 2 p.m. on a Friday, not 2 a.m. on a Saturday. And instead of rushing over there and doing a poor repair job we made arrangements to have it repaired by Sunday afternoon.

The end result, happy tenants and my personal time did not go to waste.

Landlording is not easy and it’s no more a natural skill than quantum mechanics is. I’m not suggesting landlording is as hard to learn as quantum mechanics but you have to work at it just the same. Being a bad landlord is easy. It won’t make you successful and the time you spend trying to fill your units and at Tribunal defending tenant claims against you will soon add up but people do it.

Recently we worked with an investor who wanted to put some of his portfolio in real estate but didn’t even want to get that e-mail about the toilet, let alone make arrangements to have it repaired. We ended up being a good fit to partner with them on a real estate investment. He saw the value in the work we put into being good landlords and our knowledge of real estate.

Who knows – maybe one day you’ll want to be a landlord too, just without the e-mails about faulty toilets. If that day comes, give us a shout and we might be a good fit.

The federal budget was announced today in Canada and the minister of finance, Jim Flaherty appeared on the CBC’s The National tonight to respond to questions from Canadians. One very specific question caught my attention; an e-mailer asked if the federal government would ever consider making the interest paid on a mortgage tax deductible.

Flaherty said flat out, “No,” and I think it caught Peter Manbridge a little off guard because he thanked him at the end for Flaherty’s straight answer and even stumbled a bit like he was at a loss for words.

Here’s the clip:

I would love for mortgage interest to be tax deductible and many home owners would as well. My biggest concern surrounding that would be the income loss for the federal government and what it would mean against our health care or education. Flaherty points out that capital gains on your primary residence is tax free in Canada, unlike the United States that has very confusing laws surrounding capital gains and the sale of your house. That’s a conversation for another day. For now I want to highlight the new savings plan announced in today’s budget.The federal budget created the first government sponsored savings plan since the RRSP was created in the 1950s. Canadians will be able to save up to $5,000 a year in a tax-free account and will be able to withdraw whatever they have saved without having to pay capital gains for any expense.

This is a particular boon for first-time home buyers who up until now have had to rely on non-registered savings or money inside an RRSP. Non-registered savings obviously had their disadvantages in that any gains were taxable. Money inside an RRSP had the disadvantage that you could only withdraw $20,000 per person on title and it had to be paid back within 17 years or be counted as income.

The new savings account will allow Canadians to carry-forward any unused portion indefinitely and any withdrawls from the account and subsequent deposits will not effect their maximum yearly contribution. For example, Mr. Smith withdraws $20,000 to pay for a home renovation. In the first year he decides to recontribute $3,000 back into the account. He is still able to deposit the full $5,000 yearly maximum. This of course is if he ever decides to recontribute at all – there is no stipulation you must recontribute to the account.
Canadians 18 years and older are able to open one of these accounts and every Canadian should with the mind to use it first to buy a home.

A lot of news has been made lately about a housing crash in the United States. Coupled with New Century Financial’s bankruptcy filing, it’s made Canadian homeowners and real estate investors get a bit nervous about the same happening here.

With our economies so closely tied, on the surface it makes sense that what happens there will happen here. But the truth is the exact opposite when it comes to Canada’s real estate health.

Lending regulations in the United States are much more lax than here in Canada. Mortgage lenders were giving people with little or no credit sub-prime mortgages and worse yet, a high per centage of borrowers had incomes that could barely sustain mortgage payments.

A popular strategy amongst U.S. lenders was to offer Option ARM’s (adjustable rate mortgages). These Option ARM’s offered a fabulous teaser rate for a few months or years and then reset to the standard rate. As these Option ARM’s reset, many borrowers found themselves unable to pay their mortgage resulting in a higher than acceptable default rate.

In addition, interest rates in the United States had crept up to the point where the demand for housing had slowed leaving less new buyers to take over these defaulted mortgages.

Even people with great credit and incomes got caught in a bad place. Thanks to record-low interest rates and a hot real estate market, home owners were refinancing and taking equity out of their homes. Again, as interest rates crept up and the buyer market began to dry, these people were left with payments they couldn’t afford, thanks to higher interest rate and no one to buy their house.

Canada’s Bank Act requires lenders practice much more conservative lending habits. The per centage of high-ratio, sub-prime mortgages is much less north of the 49th parallel than in the United States and according to a CIBC world market report (PDF), Canadian mortgages in arrears is at a record-low.

The fact of the matter is, the Canadian real estate market is not artificially driven by an abundance of sub-prime mortgages and poor lending habits.

In fact, the U.S. mortgage crisis benefits the Canadian real estate market. If the U.S. does slip into a recession, we’ll feel the pinch here at home too and that’s encouraged the Bank of Canada to keep interest rates low. Combined with Canada’s growing population, strengthening economy and overall increase in household income, Canada’s real estate markets are primed to continue being solid investments.