When looking to see exactly how stable a hedge Canadian real estate is against inflation, it is best to establish the exact market/region, type of property one wants to invest in and to look for statistics on the actual calculated inflation rates in Canada over the past few years, all of which can help predict the rate for the next few years.

For instance if you are looking to purchase a property in Vancouver as your principal residence, you might want to look at the statistics over recent years to see the trend of the average selling price and to find out if prices will increase or decrease over the years to come. For example, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 7.2%, from $580,080 in November 2010 to $622,087 in November 2011. The forecast for 2012 interest rates are speculated to stay low, limited supply of land and continued immigration from Asia will keep Vancouver housing market healthy through 2012.

Canada's annual rate of inflation reached an all time high of 21.60% in June of 1920. The highest it’s been since the 20’s was in 1981 when it reached 12.5%. The rate doesn’t play as much of a role as it did before 1991’s development of Inflation-Control Target, a joint inflation control agreement between the Government and the Bank of Canada to reduce inflation as measured by the Consumer Price Index. This new agreement was developed to control inflation from a rate of about 5% in late 1990 to 2% by the end of 1995 when the agreement shifted towards keeping inflation somewhere between 1 to 3%.  As of November 2011 we are at 2.2% and it is predicted to continue.

Overall real estate is often known for being a reliable hedge to inflation because rent generally rises with inflation. But not all real estate property and not all real estate investments, are good at hedging inflation. According to a 2007 report in the Journal of Portfolio Management by Haibo Huang and Susan Hudson-Wilson, “office buildings and multi-family apartments are the strongest hedges against inflation, whereas retail properties have less muscle.”

Your home can provide a real hedge against inflation no matter what happens to the price of your house in the future.  By buying a home that you can live in, you eliminate the need to pay rent. That protects you from possible rental-rate increases. You also get some tax benefits when you buy residential real estate, so your out-of-pocket cost--or after-tax cost--may be less than your down payment and total monthly payments.  Also by getting fixed-rate mortgage, you have stopped the progress of inflation on housing which is the biggest monthly expense. If you stay in the home after it has been paid off, your personal rate of inflation will drop since mortgage payments will no longer be an expense.

To keep up with market trends, you can join groups such as, the Real Estate Investment Network (REIN). There are sites for statistics such as, The Bank of Canada.ca, Trading Economics.com and your local real estate board or realtor.

Your credit score shows how likely you are to pay a loan on time. Today more than ever it’s crucial to keep your credit rating in excellent standing health. Especially for the estimated one out of four Canadians that are self employed, mortgage lenders directly correlate the maximum loan amount you can borrow on a property based on your current credit score and habits.  

I would like to give you some healthy hints on how to prepare yourself to qualify for and obtain loans and receive the best possible products, rates and terms available in the market place.

 Simply how it works is, the lower a person’s credit the higher the interest rate and the higher the persons credit score the lower the interest rate. Thus having a good credit score could save a borrower thousands in interest payments.

  How credit works is, when money is borrowed in the form of a loan or on a credit card the lender sends information to a credit bureau informing them on how well the borrower handles debt. From this information as a borrower applies for and uses credit the credit bureau determines what makes up his or her credit score.

The factors used to calculate an individuals credit score are:

1) Previous credit performance. 2) Current level of debt.  3) Time credit has been in use.  4) Types of credit available  5) Your pursuit of new credit.

The major credit scoring companies in Canada use all these factors but sometimes differ in the weight they use on each area.  This is why a credit score may not be the same from all companies.

Tips on creating and keeping a healthy credit score.

1) Credit history: This is the area which boosts your rating the most. Make a consistent effort to make sure all bills are paid well within the 30 day grace period.

2) Current level of debt:  Always keep the cards outstanding balance owed less than 65% of the limit. For example if your limit is $1000.00 never owe more than $650.00 in a given month. This shows you are credit responsible due to having access to credit, but not spending even close to the limited amount.  

3) Time credit has been in use: The longer your credit has been in use, the more it has been used and paid back, shows a likeliness these good habits will be consistent in the future.

4) Types of credit available:  Having at least two or three credit sources such as credit card, Line of Credit and car loan shows you are balanced in responsibilities, although too many cards can be trouble due to too many payment responsibilities per month.  I suggest getting loans and cards on automatic payment thus minimizing the risk of forgetting payments.

5) Pursuit of credit: Refrain from applying for every card that comes through the mail, every time you apply your credit score is checked which is not a bad thing say twice a year but many times a year will bring your score down. I suggest going with major credit cards such as, VISA, MasterCard or American Express. I would also spend some time and do some research to determine which cards best suit your needs. There are many variables including, interest rate, yearly fees, reward points, etc.

6) Credit is best built and maintained: follow good habits of paying bills and applying for credit over a few years time, as opposed to a great credit history but only over 6 months time. ) If at all possible use your cards every month and pay off the balance before you are charged interest. Some people even put there groceries on credit cards and pay it to zero every month. This is a great way to gain air miles and other card promotions without paying interest, making you win in the long and short run.

As I have mentioned, getting and keeping a healthy credit score will help you for the rest of your life get the best loans, amount you can borrow, interest rates and terms, thus potentially saving you thousands of dollars.

In December the unemploment rate in Canada stood at 5.8 per cent, a 33-year-low. While consumer bankruptcies have held steady over the last eight years.  Credit card debt has been higher than years in the past. We are hoping most are using them for the rewards then paying them off fast.

There is a common challenge today that most home buyers are faced with when looking to purchase a home. It seems that everything they like is just over the price range they are told they can afford.

“As home prices continue to escalate, there is the need for more flexible payment options to make the dream of home ownership a reality for more Canadians,” said Peter Vukanovich, president of Genworth Financial Canada.

As I wrote in “Buying Power: Choosing the Mortgage that is Right for You” (Vancouver View, May 2006), because of demand, mortgage insurers in this country announced that they were extending the standard of twenty-five-year mortgage amortization in Canada to thirty and thirty-five years. This change was embraced with open arms; in fact, six months later, one-fourth of all new mortgages have been based on these longer available amortization options. This fall, another milestone in mortgage lending has occurred. Genworth, an industry leader that supplies mortgage insurance to homeowners in Canada and twenty-three other countries around the world, has again redefined the standards. As of October 10, Genworth is now offering a forty-year amortized mortgage. This extended amortization further reduces a borrower’s monthly payment. This of course allows more buyers to afford homes of their own and increase their choice of properties by extending their price ranges. A quick example: a $200,000 mortgage with twenty-five-year amortization at six percent monthly payments would be $1,280. The same mortgage over a forty-year amortization would be $1,090, which is a savings of $190 a month. Since this announcement of the forty-year amortization, I have adjusted several clients’ maximum mortgage preapproval amount to new highs. Along with the longer amortization, there are a couple of mortgage lenders that will also allow a higher percentage of a client’s overall debt to go toward monthly mortgage payments. By using these two methods to help fine-tune the numbers, I have substantially helped to increase several clients’ home-buying power. For example, a client who was previously preapproved to a maximum purchase price of $200,000 was struggling to find a suitable place. We readjusted the numbers, and the client was able to requalify and purchase a property he was really happy with for $234,000.

By Grant Powell

Going through bankruptcy has been a topic of confusion and concern for people who are thinking of purchasing or already own a home. There are two overstated facts concerning bankruptcy and home ownership. The first is that once you’ve claimed bankruptcy, it’s almost impossible to get another chance to purchase a mortgage for at least seven years after the completetion of the bankruptcy process. The second is that if you currently own your own home, once you have filed bankruptcy you will have to give up procession of that asset. Both these myths are false.

The truth is that within two years of being discharged from bankruptcy, you can indeed get 100 percent financing for an approved mortgage. The best way to start in this rebuilding process is to get back to building your credit as soon as you have been discharged from the bankruptcy. I have worked with many clients who have gone through bankruptcy and cut up all their cards, and now only pay in cash. However, that philosophy doesn’t work in today’s society if you are looking to move toward owning your own home and building your net worth.

There are mortgage lenders who will give you another chance, provided that you are building credit with very few flaws this time around. The best way is to start small by getting a loan or credit card and diligently working away at increasing your credit limit. For example, use the credit cards every month and pay them off on time. By paying your credit card on time for a few months, the financial institution will likely offer to raise your credit limit. The trick is to keep doing this until you get a credit limit of at least $1,500. The reason for this is that the minimum credit any mortgage lender will want to see is at least twelve months of reestablished credit, with one loan or credit card with a minimum of $1,500 credit in good standing for a few months. The simple reason for this is that mortgage lenders want to make sure you are now able to keep regular spending habits before they lend you hundreds of thousands of dollars. The best advice is to realize your own particular present situation and work away at bringing about the result you wish to accomplish.

For more information on building credit, see my January 2006 Vancouver View article at www.grantpowell.ca/Articles.php.