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CMHC: Economic Outlook

Positive for Housing

 The current trends fueling BC’s economy will keep the housing market robust, according to the experts at Canada Mortgage and Housing corporation’s (CMHC) tenth annual Housing Outlook Conference. 

In her presentation, CMHC BC Regional Economist Carol Frketich said the BC housing market will remain strong. She predicted that, in 2005, housing demand will be fueled by the employment growth in 2004.

“Housing demand typically lags employment growth,” she explained. “So, if you look at 2003, it was a good year in terms of employment gains, and there was very strong housing demand the following year.” CMHC forecasts 2004 job growth to be 2.2 per cent, only slightly lower than 2.5 per cent in 2003. Average price gains for the province will exceed inflation, but 2005 will see more of a balance between supply and

demand, she said. Interest rates will continue to stimulate housing, but not as much as the past two years. BC will be the only province in Canada to see continued growth in housing starts in 2005, estimating 32,400 units will be built, a 2.2 per cent increase over the 2004 forecast.

 “The BC housing sector continues to be a key driver of economic growth in 2004, but will play a smaller role in 2005,” according to Frketich’s forecast summary. “Resale activity will set a record in 2004 before moderating slightly in 2005. New listings are increasing and, as a result, most markets are moving towards balance, relieving some of the upward price pressure in existing home markets. This combination of low interest rates, an improving overall economy, employment growth and high levels of resale activity point to further growth in the housing sector in 2005.”

 In Greater Vancouver, CMHC senior market analyst Cameron Muir said resales will wane slightly, as pent-up demand is slowing, but migration, jobs and demographics will drive market sustainability. Average price growth in 2005 will be half of what we see in 2004. “The investor and first-time buyer groups will not be as strong going into the future,” Muir said, encouraging developers to focus on the fundamentals of migration, and a demographic shift in buyers from first-timers to baby boomers, who have benefited from a large equity build up in the last several years.  =Nearly 400 attended the conference, held on November 4 in Vancouver.

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Automatic and Programmable Thermostats

In our modern, high-tech society, we don't think much about some of the electronic gadgets in our homes. Take, for example, the ever-present thermostat--a staple of North American households for decades. It usually takes the shape of an unassuming box on the wall, but that modest device controls the comfort of your family on the coldest day in January and the hottest day in July.

What Is a Thermostat?

It is a temperature-sensitive switch that controls a space conditioning unit or system, such as a furnace, air conditioner, or both. When the indoor temperature drops below or rises above the thermostat setting, the switch moves to the "on" position, and your furnace or air conditioner runs to warm or cool the house air to the setting you selected for your family's comfort. A thermostat, in its simplest form, must be manually adjusted to change the indoor air temperature.

General Thermostat Operation

You can easily save energy in the winter by setting the thermostat to 68°F (20°C) when you're at home and awake, and lowering it when you're asleep or away. This strategy is effective and inexpensive if you are willing to adjust the thermostat by hand and wake up in a chilly house. In the summer, you can follow the same strategy with central air conditioning, too, by keeping your house warmer than normal when you are away, and lowering the thermostat setting to 78°F (26°C) only when you are at home and need cooling.

A common misconception associated with thermostats is that a furnace works harder than normal to warm the space back to a comfortable temperature after the thermostat has been set back, resulting in little or no savings. This misconception has been dispelled by years of research and numerous studies. The fuel required to reheat a building to a comfortable temperature is roughly equal to the fuel saved as the building drops to the lower temperature. You save fuel between the time that the temperature stabilizes at the lower level and the next time heat is needed. So, the longer your house remains at the lower temperature, the more energy you save.

Another misconception is that the higher you raise a thermostat, the more heat the furnace will put out, or that the house will warm up faster if the thermostat is raised higher. Furnaces put out the same amount of heat no matter how high the thermostat is set--the variable is how long it must stay on to reach the set temperature.

In the winter, significant savings can be obtained by manually or automatically reducing your thermostat's temperature setting for as little as four hours per day. These savings can be attributed to a building's heat loss in the winter, which depends greatly on the difference between the inside and outside temperatures. For example, if you set the temperature back on your thermostat for an entire night, your energy savings will be substantial. By turning your thermostat back 10° to 15° for 8 hours, you can save about 5% to 15% a year on your heating bill--a savings of as much as 1% for each degree if the setback period is eight hours long. The percentage of savings from setback is greater for buildings in milder climates than for those in more severe climates. In the summer, you can achieve similar savings by keeping the indoor temperature a bit higher when you're away than you do when you're at home.

But there is a certain amount of inconvenience that results from manually controlling the temperature on your thermostat. This includes waking up in a cooler than normal house in the winter and possibly forgetting to adjust the thermostat (during any season) when you leave the house or go to bed.

Thermostats with Automatic Temperature Adjustment

To maximize your energy savings without sacrificing comfort, you can install an automatic setback or programmable thermostat. They adjust the temperature setting for you. While you might forget to turn down the heat before you leave for work in the morning, a programmable thermostat won't! By maintaining the highest or lowest required temperatures for four or five hours a day instead of 24 hours, a programmable thermostat can pay for itself in energy saved within four years.

Programmable thermostats have features with which you may be unfamiliar. The newest generation of residential thermostat technologies is based on microprocessors and thermostat sensors. Most of these programmable thermostats perform one or more of the following energy control functions:

• They store and repeat multiple daily settings, which you can manually override without affecting the rest of the daily or weekly program.
• They store six or more temperature settings a day.
• They adjust heating or air conditioning turn-on times as the outside temperature changes.

A Note for Heat Pump Owners

When a heat pump is in its heating mode, setting back a conventional heat pump thermostat can cause the unit to operate inefficiently, thereby cancelling out any savings achieved by lowering the temperature setting. Maintaining a moderate setting is the most cost-effective practice. Recently, however, some companies have begun selling specially designed setback thermostats for heat pumps, which make setting back the thermostat cost effective. In its cooling mode, the heat pump operates like an air conditioner; therefore, manually turning up the thermostat will save you money.

Types of Automatic and Programmable Thermostats

There are five basic types of automatic and programmable thermostats:

• electromechanical
• digital
• hybrid
• occupancy
• light sensing

Most range in price from $30 to $100, except for occupancy and light sensing thermostats, which cost around $200.

Electromechanical (EM) thermostats, usually the easiest devices to operate, typically have manual controls such as movable tabs to set a rotary timer and sliding levers for night and day temperature settings. These thermostats work with most conventional heating and cooling systems, except heat pumps. EM controls have limited flexibility and can store only the same settings for each day, although at least one manufacturer has a model with separate settings for each day of the week. EM thermostats are best suited for people with regular schedules.

Digital thermostats are identified by their LED or LCD digital readout and data entry pads or buttons. They offer the widest range of features and flexibility, and digital thermostats can be used with most heating and cooling systems. They provide precise temperature control, and they permit custom scheduling. Programming some models can be fairly complicated; make sure you are comfortable with the functions and operation of the thermostat you choose. Remember-- you won't save energy if you don't set the controls or you set them incorrectly. Hybrid systems combine the technology of digital controls with manual slides and knobs to simplify use and maintain flexibility. Hybrid models are available for most systems, including heat pumps.

Occupancy thermostats maintain the setback temperature until someone presses a button to call for heating or cooling. They do not rely on the time of day. The ensuing preset "comfort period" lasts from 30 minutes to 12 hours, depending on how you've set the thermostat. Then, the temperature returns to the setback level. These units offer the ultimate in simplicity, but lack flexibility. Occupancy thermostats are best suited for spaces that remain unoccupied for long periods of time.

Light sensing heat thermostats rely on the lighting level preset by the owner to activate heating systems. When lighting is reduced, a photocell inside the thermostat senses unoccupied conditions and allows space temperatures to fall 10° below the occupied temperature setting. When lighting levels increase to normal, temperatures automatically adjust to comfort conditions. These units do not require batteries or programming and reset themselves after power failures. Light sensing thermostats are designed primarily for stores and offices where occupancy determines lighting requirements, and therefore heating requirements.

Choosing a Programmable Thermostat

Because programmable thermostats are a relatively new technology, you should learn as much as you can before selecting a unit. When shopping for a thermostat, bring information with you about your current unit, including the brand and model number. Also, ask these questions before buying a thermostat:

1. Does the unit's clock draw its power from the heating system's low-voltage electrical control circuit instead of a battery? If so, is the clock disrupted when the furnace cycles on and off? Battery-operated back-up thermostats are preferred by many homeowners. Is the thermostat compatible with the electrical wiring found in your current unit?
2. Are you able to install it yourself, or should you hire an electrician or a heating, ventilation, and air conditioning (HVAC) contractor?
3. How precise is the thermostat?
4. Are the programming instructions easy to understand and remember? Some thermostats have the instructions printed on the cover or inside the housing box. Otherwise, will you have to consult the instruction booklet every time you want to change the setback times?

Most automatic and programmable thermostats completely replace existing units. These are preferred by many homeowners. However, some devices can be placed over existing thermostats and are mechanically controlled to permit automatic setbacks. These units are usually powered by batteries, which eliminates the need for electrical wiring. They tend to be easy to program, and because they run on batteries, the clocks do not lose time during power outages.

Before you buy a programmable thermostat, chart your weekly habits including wake up and departure times, return home times, and bedtimes, and the temperatures that are comfortable during those times. This will help you decide what type of thermostat will best serve your needs.

Other Considerations

The location of your thermostat can affect its performance and efficiency. Read the manufacturer's installation instructions to prevent "ghost readings" or unnecessary furnace or air conditioner cycling. Place thermostats away from direct sunlight, drafts, doorways, skylights, and windows. Also make sure your thermostat is conveniently located for programming.

Some modern heating and cooling systems require special controls. Heat pumps are the most common and usually require special setback thermostats. These thermostats typically use special algorithms to minimize the use of backup electric resistance heat systems. Electric resistance systems, such as electric baseboard heating, also require thermostats capable of directly controlling 120 volt or 240 volt line-voltage circuits. Only a few companies manufacture line-voltage setback thermostats.

A Simpler Way to Control Your Environment

The best thermostat for you will depend on your life style and comfort level in varying house temperatures. While automatic and programmable thermostats save energy, a manual unit can be equally effective if you diligently regulate its setting--and if you don't mind a chilly house on winter mornings. If you decide to choose an automatic thermostat, you can set it to raise the temperature before you wake up and spare you some discomfort. It will also perform consistently and dependably to keep your house at comfortable temperatures during the summer heat, as well.

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11 Things You Must Know When Finding a Home

Once you've decided to buy a home, there's a number of issues that need to be considered.  Because buying a home will be one of the biggest purchases you make in your life, learning the "11 Things You Must Know When Finding a Home" can make the process easier.

In this report, we outline 11 Questions and Answers to help you make informed choices when purchasing a home.

1. What Should I Look For When Deciding On A Community?

Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable in.

2. How Can I Find Out About Local Schools?

You can get information about school systems by contacting the city or local school board or the local schools. Your real estate agent may also be knowledgeable about schools in the area.

3. How Can I Find Out About Community Resources?

Contact the local chamber of commerce for promotional literature or talk to your real estate agent about welcome kits, maps, and other information. You may also want to visit the local library. It can be an excellent source for information on local events and resources, and the librarians will probably be able to answer many of the questions you have.

4. How Can I Find Out How Much Homes Are Selling For In Certain Communities and Neighborhoods?

Your real estate agent can give you a ballpark figure by showing you comparable listings. If you are working with a REALTOR®, they may have access to comparable sales maintained on a database.

5. How Can I Find Information On The Property Tax Liability?

The total amount of the previous year's property taxes is usually included in the listing information. If it's not, ask the seller for a tax receipt or contact the local assessor's office. Tax rates can change from year to year, so these figures maybe approximate.

6. What Other Tax Issues Should I Take Into Consideration?

Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.

7. Is An Older Home A Better Value Than A New One?

There isn't a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.

8. What Should I Look For When Walking Through A Home?

In addition to comparing the home to your minimum requirement and wish lists, consider the following:

• Is there enough room for both the present and the future?
• Are there enough bedrooms and bathrooms?
• Is the house structurally sound?
• Do the mechanical systems and appliances work?
• Is the yard big enough?
• Do you like the floor plan?
• Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure to better answer these qusetions)
• Does anything need to be repaired or replaced? Will the seller repair or replace the items?
• Imagine the house in good weather and bad, and in each season. Will you be happy with it year 'round?

Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.

9. What Questions Should I Ask When Looking At Homes?

Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller's or real estate agent's answers are clear and complete. Ask questions until you understand all of the information they've given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.

10. How Can I Keep Track Of All The Homes I See?

If possible, take photographs of each house: the outside, the major rooms, the yard, and extra features that you like or ones you see as potential problems. And don't hesitate to return for a second look. You may also wish to find out if the home is available online. Photos of the property may already be up on a website for you to review.

11. How Many Homes Should I Consider Before Choosing One?

There isn't a set number of houses you should see before you decide. Visit as many as it takes to find the one you want. On average, homebuyers see 15 houses before choosing one. Just be sure to communicate often with your real estate agent about everything you're looking for. It will help avoid wasting your time.
 

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What You Should Know About Home Equity Lines Of Credit

More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit available for use when and how you please, at an interest rate that is relatively low.

If you are in the market for credit, a home equity plan may be right for you. Or perhaps another form of credit would be better. Before making a decision, you should weigh carefully the costs of a home equity line against the benefits. Shop for the credit terms that best meet your borrowing needs without posing undue financial risk. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.

What is a home equity line of credit?

A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.

With a home equity line, you will be approved for a specific amount of credit--your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home's appraised value and subtracting from that the balance owed on the existing mortgage.

In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other financial obligations as well as your credit history.

Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period (the "repayment period"), for example, 10 years.

Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.

There may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up.
 

What should you look for when shopping for a plan?

If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs of establishing the plan. The APR for a home equity line is based on the interest rate alone and will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.
 

Interest rate charges and related plan features

Home equity lines of credit typically involve variable rather than fixed interest rates. The variable rate must be based on a publicly available index. Most lenders cite the interest rate you will pay as the value of the index at a particular time plus a "margin," such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past as well as the amount of the margin.

Lenders sometimes offer a temporarily discounted interest rate for home equity lines--a rate that is unusually low and may last for only an introductory period, such as 6 months.

Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if interest rates drop.

Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or to convert all or a portion of your line to a fixed-term instalment loan.

Plans generally permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate plans may not allow you to draw additional funds during a period in which the interest rate reaches the cap.
 

Costs of establishing and maintaining a home equity line

Many of the costs of setting up a home equity line of credit are similar to those you pay when you buy a home. For example,

A fee for a property appraisal to estimate the value of your home
An application fee, which may not be refunded if you are turned down for credit
Up-front charges, such as one or more points (one point equals 1 percent of the credit limit)
Closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and title insurance; and taxes.

In addition, you may be subject to certain fees during the plan period, such as annual membership or maintenance fees and a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those initial charges would substantially increase the cost of the funds borrowed. On the other hand, because the lender's risk is lower than for other forms of credit, as your home serves as collateral, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining the line. Moreover, some lenders waive some or all of the closing costs.
 

How will you repay your home equity plan?

Before entering into a plan, consider how you will pay back the money you borrow. Some plans set minimum payments that cover a portion of the principal (the amount you borrow) plus accrued interest. But (unlike with the typical instalment loan) the portion that goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that amount when the plan ends.

Regardless of the minimum required payment, you may choose to pay more, and many lenders offer a choice of payment options. Many consumers choose to pay down the principal regularly as they do with other loans. For example, if you use your line to buy a boat, you may want to pay it off as you would a typical boat loan.

Whatever your payment arrangements during the life of the plan--whether you pay some, a little, or none of the principal amount of the loan--when the plan ends you may have to pay the entire balance owed, all at once. You must be prepared to make this "balloon payment" by refinancing it with the lender, by obtaining a loan from another lender, or by some other means. If you are unable to make the balloon payment, you could lose your home.

If your plan has a variable interest rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan that calls for interest-only payments. At a 10 percent interest rate, your monthly payments would be $83. If the rate rises over time to 15 percent, your monthly payments will increase to $125. Similarly, if you are making payments that cover interest plus some portion of the principal, your monthly payments may increase, unless your agreement calls for keeping payments the same throughout the plan period.

If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your home in the near future, consider whether it makes sense to pay the up-front costs of setting up a line of credit. Also keep in mind that renting your home may be prohibited under the terms of your agreement.
 

Lines of credit vs. traditional second mortgage loans

If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan. A second mortgage provides you with a fixed amount of money repayable over a fixed period. In most cases the payment schedule calls for equal payments that will pay off the entire loan within the loan period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at both the APR and other charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:

The APR for a traditional second mortgage loan takes into account the interest rate charged plus other finance charges.
The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include other charges.
 

Disclosures from lenders

Lenders must disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term (other than a variable-rate feature) changes before the plan is opened, the lender must return all fees if you decide not enter into the plan because of the change.
 

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