Forecasting 2015 Housing Market in Ottawa

As we all know predictions are not easy, especially for the future, but we can certainly go through some stats to find out how the market has been doing in the near past, to figure out how this year might turn out for Ottawa.

Mortgage and interest rate cut

Let’s look at the mortgage picture first, the average five-year mortgage rate in Canada is at a record-low 4.79%, according to central-bank data (Source: Financial Post ). Lower rates can be obtained from banks and other private lenders, such as Mortgage Brokers Ottawa, the mortgage rate on their site states 2.89 for a 5 year fixed (26 Jan 2015).
On 21 Jan 2015, Bank of Canada has lowered its interest rate to 0.75, it dropped the lending rate by a quarter of a percentage point. What that means is the cut will result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates. They have called that fixed rates would be lowered also, and Royal Bank offered a five-year fixed rate of 2.84% on Jan. 24. (Source: Financial Post)

Prices of Houses and Comparisons

If we compare 2013 to 2014 market prices, we see some increases.

Month Average Home Sale Price Result
January 2014 $346,744 increase of 1.0% over January 2013
February 2014 $353,407 ncrease of 2.0% over February 2013
March 2014 $359,051 increase of 0.3% over March 2013
April 2014 $374,015 increase of 0.8% over April 2013
May 2014 $381,172 increase of 3.2% over May 2013

Ottawa is a healthy market that prices don’t go up and down like they do in some other Canadian cities, where there could be a very large influx of price ups and downs such as in Alberta… Prices of houses are still slowly going up here in Ottawa, with some minor adjustments in various neighbourhoods. 2014 was a year that average days on the market for a property increased significantly from the previous years and that was certainly not usual. Properties considered as luxurious in remote areas and the ones far from Ottawa core got hit first when it came to price reductions, however many city properties still held their value and on average saw a price increase by around 1 % in 2014.

And last but not least, this chart is key for us to understand what the economy has been doing in the near past and what the expected figures are for the coming years.

2012 2013 2014 2015 2016
Total Employment (000s) 697.6 687.4 696.5 706.0 715.5
% change 2.4 -1.5 1.3 1.4 1.3
Unemployment Rate 6.4 6.3 6.5 6.0 5.9
MLS® Res. Sales 17,184 16,539 16,472 16,750 17,400
% change 0.2 -3.8 -0.4 1.7 3.9
MLS® Res. Avg. Price 327,656 334,320 339,785 344,000 350,000
% change 2.4 2.0 1.6 1.2 1.7
Residential Permits (Units) 8,211 6,643 8,950 7,800 8,000
% change 2.7 -19.1 34.7 -12.8 2.6

Source (Ontario Chamber Commerce)

Conclusion

As we can see the prediction of 2015 would be business might proceed as usual, some adjustments are in effect but there are still increases in price for some areas in Ottawa. If you are planning for your new purchase or selling your existing house, or investment contact me and I will be able to provide you a FREE CMA (Comparative Market Analysis) report of your house value, or for the area you are looking for.

Here are some stats you can tweet:

ottawa2015

Ottawa 2015 prediction

Disclaimer: As this article has been published by the author, mortgage rates might have been changed again in the last couple of days, therefore it is recommended to talk to a mortgage broker about the latest rates and mortgage rules and regulations.

Sources:
Financial Post
CBC News

Author: Nilay Ertemur

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To Buy or Rent in Ottawa?

Here is a common question that people may think of when deciding on purchasing a condo/house in Ottawa, whether it would be better to rent or to purchase a place since it is a big financial decision in either case.

I will tell ahead that the winner is TO BUY rather than TO RENT in Ottawa, it strongly depends on number of years one would stay in either property. Below is an example of a condo property that one would live for 5 years.

I will use an example of a rental property/condo here in Ottawa, somewhere close to Carleton University.
The rent for the place is Canadian: $1800 dollars + utilities
The purchase price for the condo around that area would be around $300, 000 to $400, 000, so lets take the median and say its $350,000 for the purchase.

Costs after 5 years

Buy Rent
Initial costs $20,518(5% down+CMHC+legal+inspection) $3600 (1 month rent as deposit. Some places charge 2 months rent as deposit.)
Recurring costs $136,680 (5 Year mortgage, tax and condo fees) $114,000 (5 year estimate cost of rent, with yearly increase)
Total Profit Estimate $100,000 $55,000

Detail Purchase Price

Purchase Price $350000
Monthly Condo Fee are around $350
For down payment minimum 5% $17500

As of today a low rate for 5 years closed is 2.96% mortgage offered.

Inspection, CMHC PST

Home Inspection with Tax $339
PST on CMHC Insurance $838

Legal Fees

Legal Lawyer Fees $1,225
Registrations $144
Disbursements $260
Tax (HST) $212
Total Legal Fees $1841

Total Cash & Spending

Your total mortgage borrowed $342,974

Total cash cost for purchase $20518
Your monthly payment to mortgage is estimate around $1618
Your estimated property tax per year $3,725
Total condo fees and property tax per month $2278
5 years, your mortgage amount left $292,986

The average increase of a property here in Ottawa can be around 4% per year over 5 years (depends on market value goes up and down but it averages out to be around 4%), thus over the 5 year period your property would have gained an estimated value of $70,000.

Assuming that you did not do any major renovations or maintenance, you lived at the place just like you were renting, and after 5 years you were selling, and just for simplicity you sold the condo for $420,000 at the 5 year mark.

Your amount after mortgage payout ($420000 – $292986) $127 014
Sum 5 Year mortgage, tax and condo fees $136 680

If you have rented for 5 years and with an increase of rent, the estimate cost is around $114, 000

Difference between rent and owning the condo/house in Ottawa is $22, 680
left over investment money for mutual funds at 6% per year $4568

Let’s say over 5 years you have around $25000 in investments, and adding your down payment that you did not have to pay since you were renting would have been estimated around $55,000.

As one can see the amount that you end up saving by investment isn’t as large as purchasing and selling of your place, where the payout is estimated close to $100,000.

Additional things to consider

There are certainly circumstances that one has to decide upon, like maintenance of the house, appliances if you own etc., market value going up and down. It is harder to predict the housing market, the amount of time you will be staying at one place also affects all the calculations. The taxes may increase over each year. Take those into consideration when you plan to rent or purchase, and if you get a roommate and rent out one of your rooms to a student while living in the property, then you would have more of a profit.

The New York Times has a great article on rent versus buy with a calculator to help you to find out which one suites better.

If you do plan to purchase, feel free to contact me and I will be able to find the right home and right price for you here in Ottawa.

Author: Nilay Ertemur

References: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

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CMHC has announced two changes that would  take effect on May 30, 2014

1. Cancel of the CMHC Second Home Program

Starting June 1st, 2014, investors/buyers would need a minimum of 20% down payment for their second home, they will not be able to take advantage of the 5%+ down payment that CMHC used to provide to purchase the second home for kids, parents, or yourself.  Officially after May 30, 2014 a 20% down payment will be required to purchase the cottage or  lake side condo second home and CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

What the limit means is if you currently have a property that is CMHC insured mortgage and wish to co-sign for a borrower that is planning on buying a new property and s/he requires mortgage insurance as well, you would not be allowed to co-sign as you already have a CMHC insured mortgage. Although this does not stop gifted downpayment from a potential co-signer (e.g parents), which would allow the mortgager to qualify for the mortgage on their own.

2. Cancel of Self-Employed Without 3rd Party Income Validation

Self-employed Individuals will still be able to access and quality for CMHC mortgage insurance loans when the loan is below 20% down payment, but they will need to validate and prove their past 2 year income, provided by copies of tax notice of assessment, audited or unaudited financial statements, which would still need to be approved by CMHC.

There are definitely alternatives for self-employed individuals, if they cannot provide 2 year income paper work. I would strongly advice to speak to a professional mortgage broker who will be able to help with finding subprime lenders. Contact me for some references.

If you wish to avoid CMHC product changes, you will need to have to accept offer of purchase on a specific property and your application must be submitted to CMHC for approval prior to May 30th 2014. Contact me and I will be able to help you find you the right property.

Author: Nilay Ertemur

Reference: http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-04-25-1600.cfm

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House and Condo in Ottawa

Here are some common steps you need to take when you are considering to purchase a house/condo in Ottawa.

1. Determine your needs

What type and style of house you are looking for…Condo, bungalow, single, split, semi, townhouse, investment, recreational, etc? Think about your future needs also, large or smaller lot size, more bedrooms, near, in the city or suburbs. The neighborhood characteristics you desire to have… Are you planning to have kids, or more kids, pets, what types of schools you are interested in? What amenities, hospitals, activities near by you want, are you handy or you want as little work as possible in a house?

2. Get your pre-approval from a bank or mortgage broker

Once you know the type of house/condo with area you would like then you will need at least 5% for down payment for a property and CMHC insurance if/when applicable. Visit your local bank or mortgage broker to find out how much you can afford with your salary, and savings. There are online calculators but I would strongly advise to get a pre-approval from a creditable bank or mortgage broker to avoid any future disappointments. I can refer you to some of the mortgage agents with confidence.

3. Find a Realtor

Call/Contact me or look for a good realtor, request for a meeting and tell the realtor your wants and needs for your new house/condo purchase. Using a realtor does not cost you, a buyer does not pay the realtor for their service typically. Also note you can use a realtor for new built homes. There are a lot of details of purchasing a new house and a realtor will help you with this process as well.

4. Find a lawyer

Your purchase of agreement goes through a lawyer, so having a lawyer to look over your purchase agreement would be beneficial, also a lawyer can find out if there are any outstanding liens or taxes on the property.

5. Find an inspector

For new or old home purchases, having an inspector to inspect your property does great benefits. Most inspectors would be able to give you recommendations of what to fix and she/he finds as any structural issues with the property. From carpenter ants to basement issues, condition of the roof to attic, all areas should be covered by a good inspector. The cost of inspector varies but it is usually around – + $400 dollars.

6. Finalize the deal

Send your papers to your lawyer and mortgage broker/bank. Waive any conditions you may have for purchase, your realtor would be able to help you in the process.

Note:

Have at least 2% of the property cost aside to cover for the closing cost fees. Eliminate any surprises of not being able to close by not making big purchases until the possession day. This is one area some people will fail to comply with and face unpleasant situations.

Things to consider

1. Cost of closing, there is land transfer tax.
2. Cost of inspector
3. Cost of lawyer Legal fees and disbursements
4. Property tax adjustments

Author: Nilay Ertemur

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