Don’t buy that house… yet

You’d think the U.S. mortgage crisis would have put to rest the idea that real estate is a safe harbour for money, but no such luck, says Moshe A. Milevsky, associate professor of finance at York University.

In an interview with The Globe and Mail’s Rob Carrick, Milevsky punctures two commonly held wisdoms about home ownership. A) That a house is an investment, and B) that renting is tantamount to throwing your money away.

“One of the major milestones in people’s life is the purchase of a house,” says Milevsky. “But it may not be appropriate for everyone… it may appreciate, it may not, but you don’t buy it for that reason.”

Not only could a downturn in the housing market put your “investment” at risk, but as Milevsky has said elsewhere, you can only really determine whether a house has been a positive or negative investment after totalling property taxes, repairs, landscaping, maintenance, and sundry other costs. (His own home, he admits, has cost him more money than it’s gained in sticker price.)

Renting gets a bad rap, he concludes, and for many young people. and even not-so young people, may be the more financially sound option. Determining when you’re ready to buy a house, Milevsky believes, is not just about biological age. “It’s a stage of your personal balance sheet. How stable is your job and family life?”

In the end, when buying a home, “a portion is investment, the vast majority is consumption.”

Switching banks not all cracked up to be

Toronto-Dominion Bank’s TD Canada Trust division is offering $250 in cash to new customers who sign up for a chequing account and are approved for a TD Visa card by July 23. The Royal Bank of Canada is offering a similar promotion. By opening an RBC bank account — monthly fee $14 — customers get points that can be redeemed for things like a $75 Future Shop gift card. RBC offers discounts for people who do all their banking at RBC, and for adding an RBC Visa card — annual fee $120 — you’ll be awarded with enough points for a short-haul flight, says finance writer Rob Carrick.

“There’s a lot more to switching banks than meets the eye,” Carrick says. The more money you give to a bank, the more money the bank has to lend out to other people at high interest rates. “You expose yourself to a whack of fee-laden fine print,” Carrick says. For example, to qualify for TD’s $250 gift, you have to sign on for one of two premium accounts. One costs $13 per month and the other costs $25 per month.  These fees are waived if you keep $3,000 or more in your account, but if that’s the case, you might want to sign up for overdraft protection, which costs $3 per month. Neither of these premium accounts earns you any interest whatsoever. As for TD’s Visa card, the annual fee is a minimum of $100. “With fees like this, TD can easily make back the $250 it’s giving you in 12 months or less,” Carrick says.

Some of the other promotions at banks include Bank of Montreal’s free banking for a year for new Canadians program, Bank of Nova Scotia’s contributions matching program (of up to $150), and Canadian Imperial Bank of Commerce’s promotion of mortgages and lines of credit by giving customers cash and fee waivers.

Solutions for cash-strapped retirees

We’ve been posting a lot of news lately about about retirement savings that don’t go as far as expected, about investments that fall through, etc. We haven’t been writing as much about what can be done when you find yourself in just that kind of situation — but of course there are options, and they don’t necessarily involve trying to find full-time work, or even a traditional part-time job.

Investopedia has written a brief-but-useful piece on work that retirees can do from home (or as they put, “from the beach.”) None are going to generate enough income to pull you back from the brink of insolvency, but there are promising options here for those who just need a bit more cash flow.

Online tutoring is an option for former teachers or anyone with expertise in a certain field. For the bilingual, translation services are often looking for help. Those with customer service experience might be able to do call-centre rep work from home. And freelance writing, though a high competitive field, may be an option for those with writing or journalistic experience.

Canada’s real estate market will slow down

After a strong first and second quarter, Canada’s real estate market will likely cool off in the last half of 2010, say results from the Royal LePage Market Survey Forecast, which was released earlier today. Prices of homes are expected to decrease in the third and fourth quarters because more homes are being put onto the market for sale. “We have seen an unusual pattern of activity in the housing market over the past 12 months,” Royal LePage CEO  Phil Soper says.  “This should not be interpreted as a severe correction but rather a natural reaction to the market having peaked quite early this year.”

At the end of 2010’s second quarter, the average price of a standard two-storey home rose to $367,835, which is 8.7% higher than the average price at the end of 2009’s second quarter. The average price of a detached bungalow at the end of 2010’s second quarter was $331,868, which is 9% higher than one year prior. Over the same period, standard condominiums rose 7.3% to $230,014.

The surge of activity in the first half of 2010 is attributable to various regulatory and financial industry changes, such as the increase in interest rates in the spring, tightening of mortgage lending rules for first time homebuyers and investors, and the leadup to the introduction of the HST in Ontario and B.C. By the end of 2010, Royal LePage forecasts that the appreciation of homes from 2009 to 2010 will average 6.8%. The survey also predicts that the increase of home sales between 2009 and 2010 will increase by just over 1%.

Dream home or bust?

With all the bad news floating around about Canadian consumers’ bad habits (bad retirement planning, ruinous debt accumulation, etc.) it’s nice to hear some good news for a change. A TD Canada Trust survey of recent homebuyers, and those who plan to buy a home soon, found that Canadians are savvier than ever when it comes to researching what they want in a home — and how to finance it.

But despite all that research and preparation, a lot of us still want our dream home, and we want it now, regardless of the uneasy state of the housing market. The survey found that first-timers overwhelmingly want new and detached houses, and expect to pay less than asking price. Atlantic Canadians are most committed to detached houses, while Albertans are the most determined to buy below asking price. B.C. residents buck the trend as the most condo-friendly in the country.

Most of us also prefer the security of a fixed-rate mortgage, despite that in most cases a variable-rate mortgage will result in lower overall payments.