The King of Pop made the best-selling album of all time, Thriller (which came out 34 years and two days ago!), with sales of around 65 million copies. Yet in spite of the huge revenues he continued to receive from such recordings, Michael Jackson died broke. How could this be? The answer to this question reveals some important lessons for anyone who wants to achieve long-term financial freedom.

Michael’s main problem was that as his income dwindled in recent years, he never changed his spending habits. In 2005, a forensic accountant testified that Michael was spending $20-30 million more per year than he earned and was in debt by as much as $285 million. In 2001, he borrowed $200 million from Bank of America just to stay afloat. His 2,600 acre private estate, Neverland, cost $5 million a year to maintain and faced repossession twice.

Unfortunately, Michael didn’t understand the difference between good debt and bad debt. Borrowing money to pay for living expenses and possessions that never pay a return is bad debt. It may give you short-term pleasure, but it offers no long-term value.

Instead of buying the latest big screen TV and taking exotic cruises, set more money aside so you can eventually start investing in assets that will increase in value over the long term. Good debt is things that will generate income for you over time. Some examples are borrowing to pay for post-secondary education, seminars, books, retirement investments, strategic renovations to your home, or the purchase of a revenue property.

It’s true that Michael did choose some good debt, like buying the rights to 259 Beatles’ tracks. Today, his estate has an estimated value of over $2 billion.

Here’s the key lesson you want to implement. Live within your means and set aside at least 10% of your income to invest in cash flow producing assets. Do this, and you will never have to lose any precious sleep worrying about how you will make ends meet.

If you would like some tips on using the equity in your home to start investing in return-producing assets—so you can enjoy financial security, talk to your Dominion Lending Centres mortgage professional. We can offer objective advice and give you access to innovative, affordable financing so you can position yourself for an abundant future.

ALISA ARAGON

Dominion Lending Centres – Accredited Mortgage Professional
Alisa is part of DLC Canadian Mountain View based in Maple Ridge, BC

This morning, the Canadian Real Estate Association (CREA) released its national real estate statistics for November showing the largest monthly decline in activity since August 2012. The number of home resales now stands at its lowest level since September 2015. Activity was down on a month-over-month basis in about two-thirds of all local markets, including Vancouver and Toronto. This suggests that recent efforts by the federal government to cool the nation’s housing market is having an impact.

“November was the first full month in which the expanded stress-test was in effect for home buyers with less than a twenty percent down payment,” said CREA President Cliff Iverson. “The government’s newly tightened mortgage regulations have dampened a wide swath of housing markets, including places not targeted directly by the government’s latest regulatory measures. The extent to which they pushed first-time home buyers to the sidelines varies among housing markets. All real estate is local, and REALTORS® remain your best source for information about sales and listings where you live or might like to in the future.”

“Canadian housing market results for November suggest that Canada’s housing sector is unlikely to be as strong a source for economic growth as compared to before mortgage regulations were recently tightened,” said Gregory Klump, CREA’s Chief Economist. “Housing activity generates a lot of spin-off spending, which makes its weakened prospects an additional source of uncertainty as regards the outlooks for Canadian economic and job growth.”

Finance Minister Morneau announced measures to tighten qualifications for fixed rate mortgage loans and to restrict the insurability of these loans in early October. In addition, foreign exemption from capital gains taxes on Canadian real estate were limited to primary residences.

Another bit of uncertainty has been injected into the Canadian housing market by the surge in long-term interest rates around the world since the Trump election. This has put modest upward pressure on Canadian mortgage rates. As well, the US Federal Reserve hiked overnight rates by 25 basis points yesterday and has suggested that the pace of rate increases next year could be a bit more rapid than earlier expected. Even though the Bank of Canada will not follow the Fed in hiking interest rates anytime soon, mortgage rates here are tied to five-year government bond yields, which have increased sharply in the past month or so since the US election, and will continue to be impacted by US bond market movements.

The decline in activity was driven by a sharp fall in British Columbia, falling 3.4% in Vancouver. Sales in Toronto were down 2.4%.

Number of Months of Inventory

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.
There were 4.8 months of inventory on a national basis at the end of November 2016–up from a six-year low of 4.5 months in October, and the highest level of inventory since March 2016.

The number of months of inventory is at a record low in the Greater Golden Horseshoe region of Ontario, ranging between one and two months in Hamilton-Burlington, Oakville-Milton, Kitchener-Waterloo, Brantford, the Niagara Region, Barrie and nearby cottage country. It has slipped to below one month in the Durham Region, Orangeville, Oakville-Milton, Kitchener-Waterloo and Cambridge. It stands at about one month in Toronto.

According to Jason Mercer, the Toronto Real Estate Board’s Director of Market Analysis, “Seller’s market conditions continued to prevail as buyers of all home types experienced intense competition in the marketplace. Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments.”

Prices Continue to Rise

The Aggregate Composite MLS House Price Index (HPI) rose 14.4% y-o-y last month, down a bit from 14.6% in October reflecting a slowdown in single-family home price appreciation.

This price index, unlike those provided by local real estate boards and other data sources, provides the best gauge of price trends because it corrects for changes in the mix of sales activity (between types and sizes of housing) from one month to the next.

The Fraser Valley (+29.7%) posted the largest y-o-y gain in November, while gains of around 20% were recorded in Greater Vancouver (+20.5%), Victoria (+20.6%) and Greater Toronto (+20.3%). Vancouver Island also registered a double-digit increase in home prices (+16.8% y-o-y).

By contrast, home prices were down 4% y-o-y in Calgary, and edged lower by 1.2% y-o-y in Saskatoon. As a result, home prices are off their 2015 peaks in these markets by 5.5% and 3.9% respectively.
Meanwhile, home prices posted y-o-y gains in Regina (+5.4%), Ottawa (+3.4%), Greater Montreal (+3.1%) and Greater Moncton (+3.5%).

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

 

Starting the journey to home ownership can be overwhelming and stressful. But with a little planning, you’ll get the home that’s right for you. A home that strikes a balance between your “wish list” items and the practical realities of the property, location and the housing market. Before you know it, you’ll have a place to call your very own. A place to entertain. A place to decorate. A place to raise a family. It really is an exciting time!

To help keep you on track; below is a step-by-step guide to buying your first home.

STEP 1 – Build a Budget

An effective budget will map out your plan to set aside money for your down payment and additional costs. It will also help determine the price of property you can afford.

STEP 2 – Investigate Mortgage Options

There are many different types of mortgages. If you don’t have the 20% down payment for a conventional mortgage, you can get a high ratio mortgage, combined with mortgage default insurance, that allows for a smaller down payment. You should be pre-approved for a mortgage before you start house hunting.

Consult with a Dominion Lending Centres mortgage professional to discuss what options are available to you and learn more about how to get started.

STEP 3 – Choose a Realtor

Your realtor will play a vital role in your home buying experience. The best realtor will be a combination of a Personal Advisor, Consultant, and Negotiator. He/she will show you homes that match your criteria, guide you through the homebuying process, negotiate the best possible price for your home and deliver your closing documentation.

STEP 4 – Get a Lawyer

It’s important to hire a lawyer who specializes in real estate. You could find yourself in a bidding war for the home you want, and it doesn’t hurt to have a lawyer look over any offer to purchase before you submit it. A real estate lawyer will also conduct a title search and check for outstanding taxes and liens on the property.

STEP 5 – House Hunting

* Create a wish list

House hunting can be a lengthy process. To save yourself time, know exactly what you want in a home beforehand. Think about your immediate needs, future plans and lifestyle. When you look at homes, you may be tempted to concentrate on the home, but don’t forget to ook at the whole property: the lot, the neighbourhood, the surroundings. How close is the home to facilities and services important to you?

* Bring your checksheet

When you’re ready to begin shopping for a home – often called “house hunting” – bring along this House Hunting Checksheet. You may end up seeing multiple homes in one day. This checksheet will help you compare and keep track of the homes you visit. And help you remember the features you did or didn’t like.

STEP 6 – Make the Offer

Your agent presents the offer to the seller. This document includes the price, conditions, deposit and closing date. The seller either accepts, rejects or counters the offer (also called “signing back” the offer).

STEP 7 – Home Inspection or New Home Warranty

Hiring an inspector is voluntary, but it’s a smart idea for resale homes. You can choose to make your offer to purchase the home conditional on the outcome of your inspection. If your inspection reveals major problems, you can negotiate those repairs with the seller before your deal closes, or legally withdraw your offer.

What is a New Home Warranty?

New Home Warranties are typically used when you buy a brand new home. The builder provides a New Home Warranty to cover things like deposits and completion dates, along with labour and materials for at least one year after the home was built. It also protects you against structural problems for a minimum of five years.

STEP 8 – Finalizing the Deal

Finalizing the deal will include the final approval of your mortgage, a meeting with your lawyer to finalize details like insurance and conditions, and the results of a title search.

STEP 9 – Moving Preparations

There’s a lot to do before you move. Line up utilities and other services like phone, cable and internet. If you rent, you must give your landlord notice. Also, forward your mail to your new address and hire a moving company. Preparing these things well in advance will help you make a smooth transition to your new home.

STEP 10 – Closing Day

This is the day you legally get possession of the house. Your lawyer completes the paperwork (so the home is in your name), payments are finalized and you receive the deed and the keys. Congratulations on your new home!

MARC SHENDALE

Genworth Canada – Vice President Business Development