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Home Capital shares sell off after Berkshire Hathaways discloses it’s sold most of its stake

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Shares in Canadian mortgage company Home Capital fell as much as 18 per cent on Wednesday after word came out that Warren Buffett’s company Berkshire Hathaway had sold most of its stake in the company.

Home Capital’s TSX-listed shares were changing hands at just over $14 on Wednesday, off by more than $2 from Tuesday’s close after a press release from the company early Tuesday morning revealed that Berkshire will soon own 10 per cent of the company.

Home Capital was rocked in 2017 by allegations from regulators that the company had misled investors about some of its mortgages, which led to a run on the bank as investors pulled out their money. 

Later that summer, Berkshire stepped up with a $2-billion credit line for the company, and a $400-million equity stake to solidify its finances. Those moves had the desired result, as the stock price recovered to almost $20 a share after plunging below $10 during the lowest point in the story.

Buffett’s involvement not only gave Home Capital the money it needed to keep going, but his name lended a degree of confidence to a company that needed it at the time.

The original deal saw Berkshire buy almost 20 per cent of the company for $153 million and Berkshire wanted to increase that to more than 38 per cent by buying even more stock later.

But Home Capital investors rejected that second purchase in a vote late last year largely because the urgency had passed and Berkshire would have been buying those shares at just over $10 each at a time when the company’s public shares were trading well higher than that.

Wednesday’s press release says that since Home Capital rejected that second stock purchase, Berkshire’s stake in the company “is now not of a size to justify our ongoing involvement.”

“Although we have decided to substantially exit from our investment, we will continue to cheer from the sidelines for our friends at Home,” Berkshire said in the release.

For its part, Home Capital’s management thanked Berkshire for their investment at the time but stressed that the company is now ready to stand on its own two feet.

“Home Capital is in an excellent position to continue providing industry-leading service with a strong focus on sustainable risk management,” CEO Yousry Bissada said. “Berkshire’s investment in Home Capital provided substantive assistance to the company and created stability and value for the company and its stakeholders at a critical time in 2017.”

“Since that time, Home Capital has returned to profitability, strengthened its business and made significant progress on its strategy for sustainable growth. Home Capital is grateful to Berkshire for their support while we positioned the Company for long-term success.”

Investors didn’t respond quite as warmly to the news, however, as Home Capital shares were off as much as 18 per cent on Wednesday. “The Berkshire announcement is likely to dominate the headlines this morning as it does mark the end of an era for HCG,” Industrial Alliance analyst Dylan Steuart said, adding that he estimates Berkshire probably still owns about 2.5 million shares in the company, something that could continue to weigh on the stock price as Berkshire slowly sells those shares off in the coming weeks and months.

Steuart has a target price of $22 on Home Capital’s shares, meaning he thinks the stock will be worth 33 per cent more a year from now than it is today.

Toronto-Dominion Bank analyst Graham Ryding is somewhat gloomier, with a target price of just $19 a share for the company.

“Losing Berkshire Hathaway as a cornerstone investor is a negative, in our view,” he said in a note to clients on Wednesday. “However, we understand Berkshire’s position in that the investment is too small currently to justify.”

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Real Estate

7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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10 Tips For First-Time Home Buyers

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Buying a home for the first time is exciting and a commitment to the future. It’s often challenging, too, and the process requires a lot of steps, many of which can be tricky to navigate as a first-time home buyer.

What are some things you should keep in mind as a first-time home buyer?

First-Time Home Buyer Tips

Here are 10 tips to keep in mind as you begin your journey toward homeownership.

1. Have Your Finances in Order

It’s wise to begin saving as early as possible once you’ve made the decision to purchase a house. You’ll need to consider the down payment, closing costs (which often range from 2% to 5% of the down payment), as well as move-in expenses.

You also need to understand the other costs of homeownership, such as mortgage insurance. property taxes, utilities, homeowner’s insurance, and more.

2. How Much Can You Afford?

Knowing how much you can realistically afford in a home is another important financial consideration. Look for the home of your dreams that fits your budget.

One way to avoid future financial stress is to set a price range for your home that fits your budget, and then staying within that range. Going through the preapproval process will help you understand what price range is realistic for your budget.

3. Make Sure Your Credit is Good

Another thing to keep in mind as a first-time home buyer is your credit score because it determines whether you qualify for a mortgage and affects the interest rate that lenders offer. 

You can check your credit score from the three credit bureaus – Experian, Equifax, and TransUnion.

This is another good reason for getting preapproved before you start your search. Learn more about the preapproval process and your credit score.

4. Choose The Right Real Estate Agent

A good real estate agent guides you through the process every step of the way. He or she will help you find a home that fits your needs, help you through the financial processes, and help ease any first-time buyer anxiety you may have.

Interview several agents and request references.

5. Research Mortgage Options

A variety of mortgages are available, including conventional mortgages – which are guaranteed by the government – FHA loans, USDA loans, and VA loans (for veterans).

You’ll also have options regarding the mortgage term. A 30-year fixed-rate mortgage is popular among many homebuyers and has an interest rate that doesn’t change over the course of the loan. A 15-year loan usually has a lower interest rate but monthly payments are larger.

6. Talk to Multiple Lenders

It’s worth your time to talk to several lenders and banks before you accept a mortgage offer. The more you shop around, the better deal you’re liable to get – and it may save you thousands of dollars.

7. Get Preapproved First

Getting a mortgage preapproval (in the form of a letter) before you begin hunting for homes is something else to put on your checklist. A lender’s preapproval letter states exactly how much loan money you can get.

Learn more about the preapproval process and how preapproval provides you with a significant competitive advantage in our article How Preapproval Gives You Home Buying Power.

8. Pick the Right House and Neighborhood

Make sure to weigh the pros and cons of the different types of homes based on your budget, lifestyle, etc. Would a condominium or townhome fit your needs better than a house? What type of neighborhood appeals to you?

9. List Your Needs and Must-Haves

The home you purchase should have as many of the features you prefer as possible. List your needs in order of priority; some things may be non-negotiable to you personally.

10. Hire an Inspector

Hiring an inspector is another crucial step in the home buying process. An inspector will tell you about existing or potential problems with the home, and also what’s in good order. You can learn more about home inspections and how to find a home inspector through the American Society of Home Inspectors website.

Buying a home for the first time is a challenge, but it’s one you can handle with the right planning and preparation.

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