What a roller coaster ride the last two years have been. In the spring of 2009, Canadian house prices fell across the board and transactions slowed as fears of a global economic downturn spread. But then, as if only pausing for breath, Canada’s real estate market revved up once again and the spring dip looked like nothing more than a good buying opportunity. So why is everyone so nervous? When I talk to Realtors, fears of rising interest rates are among the first concerns raised. There is a widespread assumption that rates can only go up, and a related belief that higher rates will hammer the real estate market. In fact, I don’t think either fear is warranted. Here’s why:
Short-term (variable) rates aren’t going anywhere fast because
* The central bank’s primary reason for raising rates is to control inflation. Our inflation rate (as measured by the consumer price index) was at one per cent as of July 23, well below the central bank’s upper limit of two per cent.
* The effects of higher rates are felt only over time, so raising short-term interest rates gradually allows the central bank time to measure the impact of previous increases before tightening further.
* The real estate market is cooling off. One of the central bank’s main concerns with leaving its overnight rate at emergency low levels was that it would fuel a housing bubble. Today’s more balanced housing market has rendered that concern moot for the time being.
* While the Canadian economic recovery is in full swing, most of the rest of the world is not faring as well. In its recent commentary, our central bank acknowledged that aggressive interest-rate hikes could stifle our momentum, especially against today’s backdrop of global economic uncertainty.
* The U.S. Fed is not expected to increase its short-term policy rate until 2012 at the earliest. If our central bank keeps raising rates independently of the Fed, our dollar will continue to appreciate and this will slow our economy further. Most experts do not believe that Canadian short-term rates can be sustained at much more than one per cent above comparable U.S. rates (and we’re already .75 per cent higher today).
Moderately higher rates won’t hammer the real estate market because
* Contrary to popular belief, there is no strong correlation between rising interest rates and lower house prices. In fact, historical data show that rates and house prices rise together more often than not. Before you say I’m out to lunch, let me elaborate. I readily accept that, all being equal, higher rates hurt affordability and are bad for the housing market. But all is not equal. Rising rates generally occur in an improving economy, and the positive economic momentum that accompanies higher rates creates a net effect that has historically proven more positive than negative.
* Job creation has far outpaced any forecasts and is considered one of the key factors in our rapid economic recovery (it’s dropping a little recently but after a very good run). If you’re looking for indicators that foretell the health of our real estate markets, historical data shows that job creation (and rising incomes) is far more indicative than the direction of interest rates.
* Canadians can afford higher rates. In a 2009 CAAMP survey based on 40,000 loans totalling more than $10 billion to purchase houses across the country, the data showed that we borrowed far less than the maximum we could afford. For example, the highest acceptable GDS ratio that lenders are generally comfortable with is 35 per cent, and in the survey, borrowers averaged only 21.8 per cent. Lenders normally set the highest acceptable TDS ratio at 44 per cent, while in the survey borrowers averaged a TDS of 32.3 per cent. Results like this don’t usually correlate with people lining up at the banks to hand in their keys.
While no one can say with certainty what the future will hold, especially with the world in the midst of a massive credit deleveraging cycle, I think the alarmist rhetoric about dramatically higher rates in the near future is overblown (and I’ve been saying this since April when most of the bank’s economists were sounding the alarm bells). Make no mistake, the central bank would like to continue to raise interest rates to provide some additional breathing room for future monetary stimulus, probably from today’s .75 per cent to about two per cent. But Mr. Carney and his governors at the central bank won’t do this if it risks smothering the green shoots of our economic recovery. Instead of fast, knee-jerk rate hikes, my money is on gradual rate increases over time, which the data shows Canada’s borrowers can comfortably afford. On balance, even with higher rates, the sky should stay more or less where it belongs – comfortably over our heads.
David Larock MBA, AMP, PFPC, CSC is a Toronto-based independent mortgage planner and long-time industry insider who specializes in helping clients purchase, refinance or renew their mortgages. He is an active blogger on mortgage related topics and his posts have been distributed in national media and by Realtors and financial planners. www.integratedmortgageplanners.com
Monday, September 6, 2010
Friday, September 3, 2010
Thursday, September 2, 2010
The truth buried beneath the stats: Buyers are looking for a bargain
How come new low-rise home sales in the GTA in July dropped almost to mid-recession levels?
How come the volume of resale home sales in July fell 34 per cent from the same month last year and new listings dropped to the lowest level for the month of July since 2002?
How come the biggest chunk of new high-rise sales moved from the City of Toronto to the 905 communities in July?
And finally, how come, despite all this disturbing news, prices for the average new and resale home – both high- and low-rise – kept ticking solidly upwards?
George Carras, president of RealNet Canada Inc., which tracks the GTA’s housing market, says he doubts if anyone can yet unravel all the factors at play in today’s housing market. There is no easy-to-identify single or multiple factors that can be directly linked to such dramatic swings.
We had a late winter and spring full of bright hope as thousands of people flocked to high-rise and low-rise sites and snapped up product. We had a double-digit jump in resales.
Now just three months later it is all change at Charing Cross.
“The three biggest factors I can see affecting the market are lack of consumer confidence, a continuing lack of understanding about the HST and rising prices,” he says. “But each of those catch-all categories has its own set of factors at play that could keep you talking for weeks,” he says.
Down to the numbers. Low-rise sales in July stood at 678 units, which is just about 100 more than in January when everyone was blaming the recession for poor sales. And yet the average price rose 9.2 per cent from last July to $489,088.
In the resale market the Toronto Real Estate Board says 6,564 homes changed hands in July, 34 per cent fewer than the same month last year. At the same time new listings dropped to 10,825, the lowest level for July since 2002.
The average price for July transactions was $420,482 or 6 per cent higher than the same month last year. Tucked away in the July statistics, however, is an interesting number. July’s average resale price is almost $12,000 down from the average selling price for the first seven months of this year ($432,253).
Finally high-rise sales for the month stood at 1,900 units making July the second worst month for sales after January. But just like low rise, prices were up. RealNet says the average high-rise condo price stood at $430,782 that month, up 10 per cent from the previous month.
Again, however, there is a statistic buried among the facts and figures that is worth noting. While traditionally sales of condos in the 416 area have far outstripped high-rise condo sales in the 905 area, July saw a dramatic turnaround.
That month 905 sales were 63 per cent of the month’s total with those outside major urban concentrations like Mississauga City Centre playing a big role.
So, to finally make a point, what do all these statistics suggest? Kind of a no-brainer really. Affordable homes – new high-rise, new low-rise and resale – are what buyers are looking for.
That is likely why the average resale price in July is well below the seven-month average. That is why 905 condos outside major urban areas are selling. Cheaper land means cheaper condos. That is why builders are able to move their lower-priced detached homes but not their higher-priced ones.
If you need a few examples, Mr. Carras suggests taking a look at Daniels Corp.’s First Home Brampton project north of Sandalwood Parkway, west of Bramalea Road. This is a 150-unit, stacked townhouse project, which went on sale for $251 a square foot and sold out within days.
Park 570, a four-storey midrise by Vandyk Properties north of Dundas Street and west of Mississauga Road had 180 units for sale at the start of July, priced at $328 a square foot. By the end of the month it had sold 137 of them.
In low rise, he cites Upper Village Wismer Commons by Greenpark Homes north of 16th Avenue and west of Markham Road. The company offered detached homes from $466,990 and townhouses from $355,990. Of the 22 sales in July, 17 were the much cheaper townhouses.
“The funny thing is all builders are reporting strong traffic through presentation centres. It is just that people are looking but not buying,” he says.
And if they do buy it is a home well down on the price ladder even if they have to live in an area well away from an urban centre.
Mr. Carras also raises an interesting point. He wonders if builders would have been better off showing prices without HST.
“That way people could clearly see the impact it has on prices and focus any anger where it belongs – on the province and not on the builder,” he says.
Terrence Belford
Globe and Mail ,Sep. 02, 2010
How come the volume of resale home sales in July fell 34 per cent from the same month last year and new listings dropped to the lowest level for the month of July since 2002?
How come the biggest chunk of new high-rise sales moved from the City of Toronto to the 905 communities in July?
And finally, how come, despite all this disturbing news, prices for the average new and resale home – both high- and low-rise – kept ticking solidly upwards?
George Carras, president of RealNet Canada Inc., which tracks the GTA’s housing market, says he doubts if anyone can yet unravel all the factors at play in today’s housing market. There is no easy-to-identify single or multiple factors that can be directly linked to such dramatic swings.
We had a late winter and spring full of bright hope as thousands of people flocked to high-rise and low-rise sites and snapped up product. We had a double-digit jump in resales.
Now just three months later it is all change at Charing Cross.
“The three biggest factors I can see affecting the market are lack of consumer confidence, a continuing lack of understanding about the HST and rising prices,” he says. “But each of those catch-all categories has its own set of factors at play that could keep you talking for weeks,” he says.
Down to the numbers. Low-rise sales in July stood at 678 units, which is just about 100 more than in January when everyone was blaming the recession for poor sales. And yet the average price rose 9.2 per cent from last July to $489,088.
In the resale market the Toronto Real Estate Board says 6,564 homes changed hands in July, 34 per cent fewer than the same month last year. At the same time new listings dropped to 10,825, the lowest level for July since 2002.
The average price for July transactions was $420,482 or 6 per cent higher than the same month last year. Tucked away in the July statistics, however, is an interesting number. July’s average resale price is almost $12,000 down from the average selling price for the first seven months of this year ($432,253).
Finally high-rise sales for the month stood at 1,900 units making July the second worst month for sales after January. But just like low rise, prices were up. RealNet says the average high-rise condo price stood at $430,782 that month, up 10 per cent from the previous month.
Again, however, there is a statistic buried among the facts and figures that is worth noting. While traditionally sales of condos in the 416 area have far outstripped high-rise condo sales in the 905 area, July saw a dramatic turnaround.
That month 905 sales were 63 per cent of the month’s total with those outside major urban concentrations like Mississauga City Centre playing a big role.
So, to finally make a point, what do all these statistics suggest? Kind of a no-brainer really. Affordable homes – new high-rise, new low-rise and resale – are what buyers are looking for.
That is likely why the average resale price in July is well below the seven-month average. That is why 905 condos outside major urban areas are selling. Cheaper land means cheaper condos. That is why builders are able to move their lower-priced detached homes but not their higher-priced ones.
If you need a few examples, Mr. Carras suggests taking a look at Daniels Corp.’s First Home Brampton project north of Sandalwood Parkway, west of Bramalea Road. This is a 150-unit, stacked townhouse project, which went on sale for $251 a square foot and sold out within days.
Park 570, a four-storey midrise by Vandyk Properties north of Dundas Street and west of Mississauga Road had 180 units for sale at the start of July, priced at $328 a square foot. By the end of the month it had sold 137 of them.
In low rise, he cites Upper Village Wismer Commons by Greenpark Homes north of 16th Avenue and west of Markham Road. The company offered detached homes from $466,990 and townhouses from $355,990. Of the 22 sales in July, 17 were the much cheaper townhouses.
“The funny thing is all builders are reporting strong traffic through presentation centres. It is just that people are looking but not buying,” he says.
And if they do buy it is a home well down on the price ladder even if they have to live in an area well away from an urban centre.
Mr. Carras also raises an interesting point. He wonders if builders would have been better off showing prices without HST.
“That way people could clearly see the impact it has on prices and focus any anger where it belongs – on the province and not on the builder,” he says.
Terrence Belford
Globe and Mail ,Sep. 02, 2010
Wednesday, September 1, 2010
Housing bust unlikely, says think-tank
A U.S.-style housing crash is unlikely in Canada, says a study by the C.D. Howe Institute.
A decline in underwriting standards played an essential role in the American housing boom and subsequent bust. That has not been the case in Canada, says the study released Tuesday.
Canadian housing policies, which avoided the sharp declines in underwriting standards seen in the U.S. “worked well in reducing the possibility of a housing bust in Canada,” said the report.
The C.D. Howe report comes on the heels of one from the Canadian Centre for Policy Alternatives, which said the Canadian housing market is a bubble ready to burst. It also shows the debate that economists are having over the direction of the market.
Virtually all major economists have already said that a U.S.-style meltdown will not happen in Canada. And the Canadian Centre for Policy Alternatives report also says a U.S.-style housing bust is the most extreme scenario, and the unlikeliest to happen.
However, they agree that some kind of correction is overdue. The TD Bank has estimated that average prices are 10 to 15 per cent too high while CIBC has said 14 per cent. The Canadian Centre for Policy Alternatives says it could be anywhere from 9 to 21 per cent.
“Many of the concerns about the Canadian housing market are motivated by recent U.S. experiences,” says economist Jim MacGee, author of the report and an associate professor of economics at the University of Western Ontario.
“A comparison of housing market policies in Canada verses the U.S. suggests that there is a little likelihood of a U.S.-style surge in foreclosures or a collapse of house prices in Canada.”
From 2000 to 2006 U.S. house prices climbed twice as much as in Canada. Prices then declined by 30 per cent over the next three years from 2006 to 2009, according to C.D. Howe.
The decline in Canadian house prices lagged the U.S. and was more muted, as prices continued to appreciate until 2008, then declined by 9 per cent between August 2008 and April 2009. The decline was followed by a sharp bounce upward, with house prices returning to their pre-recession high.
“After another surge of pricing this year, buyers and sellers remain on tenterhooks about the future path of prices,” says MacGee.
The key to Canada’s relative strength to the U.S. is that federal government policy meant that banks north of the border did not engage in the same volume of risky loans. Low documentation, interest only and adjustable rate mortgages were driving sales in many markets.
“During the U.S. housing boom, both private insurers and government sponsored enterprises facilitated looser underwriting standards” said the report.
“It will be in the interest of all Canadians if policy makers recall the lessons of the 2008 to 2009 experience should pressures to relax underwriting standards reoccur in the future.”
August 31, 2010 Tony Wong
A decline in underwriting standards played an essential role in the American housing boom and subsequent bust. That has not been the case in Canada, says the study released Tuesday.
Canadian housing policies, which avoided the sharp declines in underwriting standards seen in the U.S. “worked well in reducing the possibility of a housing bust in Canada,” said the report.
The C.D. Howe report comes on the heels of one from the Canadian Centre for Policy Alternatives, which said the Canadian housing market is a bubble ready to burst. It also shows the debate that economists are having over the direction of the market.
Virtually all major economists have already said that a U.S.-style meltdown will not happen in Canada. And the Canadian Centre for Policy Alternatives report also says a U.S.-style housing bust is the most extreme scenario, and the unlikeliest to happen.
However, they agree that some kind of correction is overdue. The TD Bank has estimated that average prices are 10 to 15 per cent too high while CIBC has said 14 per cent. The Canadian Centre for Policy Alternatives says it could be anywhere from 9 to 21 per cent.
“Many of the concerns about the Canadian housing market are motivated by recent U.S. experiences,” says economist Jim MacGee, author of the report and an associate professor of economics at the University of Western Ontario.
“A comparison of housing market policies in Canada verses the U.S. suggests that there is a little likelihood of a U.S.-style surge in foreclosures or a collapse of house prices in Canada.”
From 2000 to 2006 U.S. house prices climbed twice as much as in Canada. Prices then declined by 30 per cent over the next three years from 2006 to 2009, according to C.D. Howe.
The decline in Canadian house prices lagged the U.S. and was more muted, as prices continued to appreciate until 2008, then declined by 9 per cent between August 2008 and April 2009. The decline was followed by a sharp bounce upward, with house prices returning to their pre-recession high.
“After another surge of pricing this year, buyers and sellers remain on tenterhooks about the future path of prices,” says MacGee.
The key to Canada’s relative strength to the U.S. is that federal government policy meant that banks north of the border did not engage in the same volume of risky loans. Low documentation, interest only and adjustable rate mortgages were driving sales in many markets.
“During the U.S. housing boom, both private insurers and government sponsored enterprises facilitated looser underwriting standards” said the report.
“It will be in the interest of all Canadians if policy makers recall the lessons of the 2008 to 2009 experience should pressures to relax underwriting standards reoccur in the future.”
August 31, 2010 Tony Wong
Tuesday, August 31, 2010
Housing prices due to fall, says think-tank
Canada’s major metropolitan housing markets are looking awfully bubbly and are due to burst, says a report released Tuesday.
The report, entitled Canada’s Housing Bubble: An Accident Waiting to Happen, by the Canadian Centre for Policy Alternatives, looks at prices in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa.
It concludes that housing price appreciation is frothy in comparison to historic values.
“I think at best you will see stagnation in housing prices or some kind of correction, and at worst you will see the bubble bursting,” said David Macdonald, an economist and research associate at the centre.
Housing bubbles emerge when prices increase more rapidly than inflation, household incomes and economic growth. That has been the case for Canada over the last run-up in prices, according to the report.
Macdonald said this bubble is different than others, because for the first time it is spreading beyond Toronto and Vancouver.
“Canada is experiencing for the first time in 30 years a synchronized housing bubble across the six largest residential markets,” he said.
Major banks have reached conclusions similar to those of the left-of-centre think tank. The Toronto Dominion Bank has estimated that average prices are 10 to 15 per cent too high, while the CIBC has said prices are 14 per cent overvalued.
Canada has only had three bubbles. Toronto experienced a large bubble in 1989, while Vancouver had two burst in 1981 and 1994.
Macdonald said a full-blown crash can still be avoided if mortgage rates do not ratchet up quickly and if government puts more stringent requirements on lending.
He said legislation could be introduced to return mortgage lending to 2006 criteria, where purchasers had to put 10 per cent down for a 25-year amortization. Although the federal government already put tighter restrictions in place earlier this year, buyers still have the option of putting 5 per cent down and can take a 35-year amortization on homes.
“Consumers should also play a part by not buying more house than they can afford,” says Macdonald.
The report says the last bubbles were triggered by interest rates moving up by just one per cent above the two-year rolling average.
“It doesn’t take much for consumers to take pause, especially those who are used to seeing such low rates,” said Macdonald. “You also have a lot of consumers, particularly outside Toronto and Vancouver, who have no memory of what a bubble is like or the aftermath.”
Low mortgage rates, access to easy credit and net immigration have also contributed to price pressures, said Macdonald.
Between 1980 to 2000, the historical price range for housing stood at between $50,000 and $80,000 in inflation-adjusted 1980 dollars. But within a brief five-year period from 2001 to 2006, major housing markets shot to well above that $80,000 average, according to the report.
“The comfort level isn’t there as affordability erodes,” said Macdonald.
Housing prices have stayed in a narrow range of 3 to 4 times income in the 20 years before 2000. The problem is, says Macdonald, is that housing prices adjusted for income today are anywhere from 4.7 to 11.3 times annual income in the six major areas.
Not everyone agrees with the findings of the report.
Toronto economist Will Dunning says that the market cycle is in a cyclical downturn – not a bubble.
“It is quite possible that the next phase of the cycle will be a partial reversal of the price gains of maybe 5 to 10 per cent, but this is not a post bubble collapse,” says Dunning.
“It is the operation of a functioning market in which the vast majority of buyers are making decisions based on their real needs, not the mindset normally associated with bubbles.”
Despite their differences, all analysts seem to agree that prices could fall.
Macdonald gives three scenarios in which prices might drop. The first is similar to what happened in Vancouver in 1994, a market correction through price deflation.
In that scenario, Toronto prices would decline by 9 per cent from an average of $420,000 to $382,000.
In the second scenario, the bubble would burst more slowly, similar to the 1989 Toronto bubble. In that case, prices would decline by 21 per cent from $420,000 to $330,000 over a five-year period.
In the worst scenario, a bubble would form similar to the United States and prices would fall rapidly. In that case Toronto prices would drop 20 per cent over three years to $335,000. The price drop would be slightly less than in scenario two, but happen more rapidly.
“Bringing house prices down just enough to moderate expectations but not so much as to cause a panic is a delicate balance,” says the report.
“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market to a soft landing. The alternative is not acceptable.”
August 31, 2010
Tony Wong
The report, entitled Canada’s Housing Bubble: An Accident Waiting to Happen, by the Canadian Centre for Policy Alternatives, looks at prices in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa.
It concludes that housing price appreciation is frothy in comparison to historic values.
“I think at best you will see stagnation in housing prices or some kind of correction, and at worst you will see the bubble bursting,” said David Macdonald, an economist and research associate at the centre.
Housing bubbles emerge when prices increase more rapidly than inflation, household incomes and economic growth. That has been the case for Canada over the last run-up in prices, according to the report.
Macdonald said this bubble is different than others, because for the first time it is spreading beyond Toronto and Vancouver.
“Canada is experiencing for the first time in 30 years a synchronized housing bubble across the six largest residential markets,” he said.
Major banks have reached conclusions similar to those of the left-of-centre think tank. The Toronto Dominion Bank has estimated that average prices are 10 to 15 per cent too high, while the CIBC has said prices are 14 per cent overvalued.
Canada has only had three bubbles. Toronto experienced a large bubble in 1989, while Vancouver had two burst in 1981 and 1994.
Macdonald said a full-blown crash can still be avoided if mortgage rates do not ratchet up quickly and if government puts more stringent requirements on lending.
He said legislation could be introduced to return mortgage lending to 2006 criteria, where purchasers had to put 10 per cent down for a 25-year amortization. Although the federal government already put tighter restrictions in place earlier this year, buyers still have the option of putting 5 per cent down and can take a 35-year amortization on homes.
“Consumers should also play a part by not buying more house than they can afford,” says Macdonald.
The report says the last bubbles were triggered by interest rates moving up by just one per cent above the two-year rolling average.
“It doesn’t take much for consumers to take pause, especially those who are used to seeing such low rates,” said Macdonald. “You also have a lot of consumers, particularly outside Toronto and Vancouver, who have no memory of what a bubble is like or the aftermath.”
Low mortgage rates, access to easy credit and net immigration have also contributed to price pressures, said Macdonald.
Between 1980 to 2000, the historical price range for housing stood at between $50,000 and $80,000 in inflation-adjusted 1980 dollars. But within a brief five-year period from 2001 to 2006, major housing markets shot to well above that $80,000 average, according to the report.
“The comfort level isn’t there as affordability erodes,” said Macdonald.
Housing prices have stayed in a narrow range of 3 to 4 times income in the 20 years before 2000. The problem is, says Macdonald, is that housing prices adjusted for income today are anywhere from 4.7 to 11.3 times annual income in the six major areas.
Not everyone agrees with the findings of the report.
Toronto economist Will Dunning says that the market cycle is in a cyclical downturn – not a bubble.
“It is quite possible that the next phase of the cycle will be a partial reversal of the price gains of maybe 5 to 10 per cent, but this is not a post bubble collapse,” says Dunning.
“It is the operation of a functioning market in which the vast majority of buyers are making decisions based on their real needs, not the mindset normally associated with bubbles.”
Despite their differences, all analysts seem to agree that prices could fall.
Macdonald gives three scenarios in which prices might drop. The first is similar to what happened in Vancouver in 1994, a market correction through price deflation.
In that scenario, Toronto prices would decline by 9 per cent from an average of $420,000 to $382,000.
In the second scenario, the bubble would burst more slowly, similar to the 1989 Toronto bubble. In that case, prices would decline by 21 per cent from $420,000 to $330,000 over a five-year period.
In the worst scenario, a bubble would form similar to the United States and prices would fall rapidly. In that case Toronto prices would drop 20 per cent over three years to $335,000. The price drop would be slightly less than in scenario two, but happen more rapidly.
“Bringing house prices down just enough to moderate expectations but not so much as to cause a panic is a delicate balance,” says the report.
“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market to a soft landing. The alternative is not acceptable.”
August 31, 2010
Tony Wong
Saturday, August 28, 2010
The buyer: In the driver's seat
Bianca and Mike Raso purchased a home in Vaughan, just north of the city of Toronto, about 12 years ago. Over the years they’ve steadily seen their net worth increase as the housing market sailed upward.
But after having two children, the couple found they had outgrown their 2,000-square-foot home. Last winter they started searching for a bigger house with a larger backyard.
“We started looking just when the market was really active, so I kind of freaked out a bit over the prices,” said Raso, who works in the payroll department for the city of Toronto.
The market continued a frenzied march over the winter and into the spring, where prices and sales started to accelerate.
Raso thought she would be priced out of the market.
“We weren’t looking for a mansion, just some more room for our children, but anything that seemed reasonable just seemed so far out of range,” said Raso.
But timing can be everything. After a heated first half of the year when sales in the Greater Toronto Area broke records, the second half is shaping up to be a bust.
Analysts say many sales were pulled forward in the first half of the year as buyers tried to avoid the HST and more onerous restrictions on mortgages.
Existing home sales are down by 29 per cent in the first two weeks of August compared with the same time last year, while new home sales are down 42 per cent in July.
“Ontario’s housing market continued to slow in July with activity now well below the long term historical trend,” said a report by economist David Hobden for Central 1 this week. “The main sales negative is higher mortgage rates and other less stimulative financing terms which will squeeze our the lowest equity buyers.”
When Raso first entered the market last year, bidding wars were the norm for many properties. Not so in today’s market.
“You can really see there is a bit of a shift. Homes out there are sitting longer,” said Raso.
Realtor Steven Belitsky said buyers are also being much more picky, not just on price, but on conditions.
“They will ask for every little detail to be done after the home inspection report, it could be caulking a wall or replacing a showerhead, and the vendors are complying,” said Belitsky.
The TD Bank said this month that they expected to see a correction of about 10 per cent in average housing prices. Other analysts have said housing prices are as much as 25 per cent overvalued.
In the meantime, there seems to be a stand off between buyers and vendors. Vendors want yesterday’s prices. Buyers want to pay prices that reflect the new reality.
Transitional markets are tricky, say realtors, because not everyone is reading from the same page. Some vendors have already realized that they must lower pricing if their homes are going to move. Others are stubbornly holding on to what they feel their home is worth.
“Some people aren’t getting the message that prices are going lower,” says Raso. “But we can afford to wait.”
The couple bid on a home in Vaughan last week. The vendor was asking $709,000, and they bid under $700,000. the vendor refused to come down in price. The home also needed another $100,000 in work.
“If they’re not willing to deal, then I’m not willing to look,” said John Lee, an optician who is looking for a home in Mississauga.
Lee said he called off his search for a home last year when prices started going up and he didn’t want to be involved in bidding wars.
“I think the sellers have had a pretty good run. It’s been frustrating for over the last few years, so I think it’s time for buyer’s to get some love.”
It’s not hard to see why vendors are so spoiled. They’ve had a 14 year string of unbroken price increases since values started rising in 1996 when the average price of a home was $198,150. Today average prices are more than double that at $412,000 as many buyers have been priced out of the market.
“You’re still seeing some vendors out there holding on to what they think the value of their home is worth,” said Angie Foggia, a lawyer who is looking for an investment condominium property.
“But as a buyer my attitude has shifted toward expecting lower pricing, people are much more conservative with their money.”
Foggia said she looked at one condominium in Yorkville last week listing for $499,000, but decided it was overpriced. She is also looking at pre-construction units, particularly in the trendy King West area.
Analysts have said the condo sector is the most vulnerable part of the housing market because of potential overbuilding. There are more than 35,000 new units under completion in the GTA, with the bulk of occupancies taking place this year and next, giving buyers far more choice.
But with time on her side, Foggia has decided to sit back and take her time as the market ratchets down before pulling the trigger.
In May, she managed to time the market perfectly by selling her two year old condo at Yonge and Eglinton during the peak of the market. At the time it fetched the highest selling price for that particular floor plan, selling in three days with multiple offers.
As a result, she is in the catbird seat: Sold high, and now buying low.
“I wasn’t intentionally trying to sell before the market went down, it just worked out that way for me,” said Foggia. “I’m fortunate that at this point it’s certainly a much better time to be a buyer.”
August 27, 2010 Tony Wong
But after having two children, the couple found they had outgrown their 2,000-square-foot home. Last winter they started searching for a bigger house with a larger backyard.
“We started looking just when the market was really active, so I kind of freaked out a bit over the prices,” said Raso, who works in the payroll department for the city of Toronto.
The market continued a frenzied march over the winter and into the spring, where prices and sales started to accelerate.
Raso thought she would be priced out of the market.
“We weren’t looking for a mansion, just some more room for our children, but anything that seemed reasonable just seemed so far out of range,” said Raso.
But timing can be everything. After a heated first half of the year when sales in the Greater Toronto Area broke records, the second half is shaping up to be a bust.
Analysts say many sales were pulled forward in the first half of the year as buyers tried to avoid the HST and more onerous restrictions on mortgages.
Existing home sales are down by 29 per cent in the first two weeks of August compared with the same time last year, while new home sales are down 42 per cent in July.
“Ontario’s housing market continued to slow in July with activity now well below the long term historical trend,” said a report by economist David Hobden for Central 1 this week. “The main sales negative is higher mortgage rates and other less stimulative financing terms which will squeeze our the lowest equity buyers.”
When Raso first entered the market last year, bidding wars were the norm for many properties. Not so in today’s market.
“You can really see there is a bit of a shift. Homes out there are sitting longer,” said Raso.
Realtor Steven Belitsky said buyers are also being much more picky, not just on price, but on conditions.
“They will ask for every little detail to be done after the home inspection report, it could be caulking a wall or replacing a showerhead, and the vendors are complying,” said Belitsky.
The TD Bank said this month that they expected to see a correction of about 10 per cent in average housing prices. Other analysts have said housing prices are as much as 25 per cent overvalued.
In the meantime, there seems to be a stand off between buyers and vendors. Vendors want yesterday’s prices. Buyers want to pay prices that reflect the new reality.
Transitional markets are tricky, say realtors, because not everyone is reading from the same page. Some vendors have already realized that they must lower pricing if their homes are going to move. Others are stubbornly holding on to what they feel their home is worth.
“Some people aren’t getting the message that prices are going lower,” says Raso. “But we can afford to wait.”
The couple bid on a home in Vaughan last week. The vendor was asking $709,000, and they bid under $700,000. the vendor refused to come down in price. The home also needed another $100,000 in work.
“If they’re not willing to deal, then I’m not willing to look,” said John Lee, an optician who is looking for a home in Mississauga.
Lee said he called off his search for a home last year when prices started going up and he didn’t want to be involved in bidding wars.
“I think the sellers have had a pretty good run. It’s been frustrating for over the last few years, so I think it’s time for buyer’s to get some love.”
It’s not hard to see why vendors are so spoiled. They’ve had a 14 year string of unbroken price increases since values started rising in 1996 when the average price of a home was $198,150. Today average prices are more than double that at $412,000 as many buyers have been priced out of the market.
“You’re still seeing some vendors out there holding on to what they think the value of their home is worth,” said Angie Foggia, a lawyer who is looking for an investment condominium property.
“But as a buyer my attitude has shifted toward expecting lower pricing, people are much more conservative with their money.”
Foggia said she looked at one condominium in Yorkville last week listing for $499,000, but decided it was overpriced. She is also looking at pre-construction units, particularly in the trendy King West area.
Analysts have said the condo sector is the most vulnerable part of the housing market because of potential overbuilding. There are more than 35,000 new units under completion in the GTA, with the bulk of occupancies taking place this year and next, giving buyers far more choice.
But with time on her side, Foggia has decided to sit back and take her time as the market ratchets down before pulling the trigger.
In May, she managed to time the market perfectly by selling her two year old condo at Yonge and Eglinton during the peak of the market. At the time it fetched the highest selling price for that particular floor plan, selling in three days with multiple offers.
As a result, she is in the catbird seat: Sold high, and now buying low.
“I wasn’t intentionally trying to sell before the market went down, it just worked out that way for me,” said Foggia. “I’m fortunate that at this point it’s certainly a much better time to be a buyer.”
August 27, 2010 Tony Wong
Friday, August 27, 2010
Aaron: Lawyer not obligated to negotiate better purchase agreement
When a lawyer is presented with an unconditional but obviously defective agreement of purchase and sale by a client, does he or she have an obligation to try to negotiate an improvement to its terms?
That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.
In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.
There was no condition for either an environmental assessment or a home inspection.
After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.
Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.
Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.
Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.
In response to the law suit, counsel for Kaufman brought an application in the Superior Court of Justice in Belleville in May asking the court to dismiss the action against him on the basis that there was no genuine issue for trial.
Kaufman’s position in court was that he accepted the retainer from the Grahams after all the conditions in the agreement had been waived by them, that he completed all the standard title and other searches and had certified title in accordance with standard solicitor’s practice.
On June 4, Justice Michael Quigley released his decision dismissing the claim against Kaufman without the need to have a trial.
“There is no law,” wrote the judge, “to suggest that the Grahams were entitled to either a home inspection or environmental assessment unless there was a condition in the agreement to that effect.”
“Even if (Kaufman) had been alerted to such potential problems, I am not convinced that Kaufmann’s retainer to close the transaction could be extended to include an obligation on his part to examine the possibility of the existence of such problems. Once Kaufmann had completed the title search and found the property free and clear of any encumbrances and/or title problems . . . the Grahams were then obligated to close.”
In his decision, the judge asked, “Did Kaufmann have any obligation to negotiate a ‘better’ deal than the one negotiated by the Grahams themselves?”
Answering his own question, the judge wrote, “Firstly, he was never instructed to do so, and secondly, had he been so instructed, the Grahams were not entitled to a ‘better’ deal by virtue of their signed agreement of purchase and sale. In effect, the Grahams are asking the court to find that Mr. Kaufmann should have closed the barn door some days after the horse had bolted the stable.”
Several lessons emerge from the case of Graham v. Diamond:
• Lawyers should be consulted before an offer is signed, or at the very least, during the conditional period. Getting legal advice after the conditions have been waived is very risky.
• Buyers who sign agreements that are not conditional on home inspections are risking years of aggravation and huge expenses to remediate a defective house.
• Trying to renegotiate any part of a firm transaction is frequently a waste of time and effort.
• And finally, there is no such thing as a “simple” real estate deal which doesn’t require legal advice in advance. Even the most straightforward transaction can blow up, resulting in years of expensive litigation.
Bob Aaron is a Toronto real estate lawyer and board member of the Tarion Warranty Corp.
That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.
In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.
There was no condition for either an environmental assessment or a home inspection.
After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.
Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.
Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.
Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.
In response to the law suit, counsel for Kaufman brought an application in the Superior Court of Justice in Belleville in May asking the court to dismiss the action against him on the basis that there was no genuine issue for trial.
Kaufman’s position in court was that he accepted the retainer from the Grahams after all the conditions in the agreement had been waived by them, that he completed all the standard title and other searches and had certified title in accordance with standard solicitor’s practice.
On June 4, Justice Michael Quigley released his decision dismissing the claim against Kaufman without the need to have a trial.
“There is no law,” wrote the judge, “to suggest that the Grahams were entitled to either a home inspection or environmental assessment unless there was a condition in the agreement to that effect.”
“Even if (Kaufman) had been alerted to such potential problems, I am not convinced that Kaufmann’s retainer to close the transaction could be extended to include an obligation on his part to examine the possibility of the existence of such problems. Once Kaufmann had completed the title search and found the property free and clear of any encumbrances and/or title problems . . . the Grahams were then obligated to close.”
In his decision, the judge asked, “Did Kaufmann have any obligation to negotiate a ‘better’ deal than the one negotiated by the Grahams themselves?”
Answering his own question, the judge wrote, “Firstly, he was never instructed to do so, and secondly, had he been so instructed, the Grahams were not entitled to a ‘better’ deal by virtue of their signed agreement of purchase and sale. In effect, the Grahams are asking the court to find that Mr. Kaufmann should have closed the barn door some days after the horse had bolted the stable.”
Several lessons emerge from the case of Graham v. Diamond:
• Lawyers should be consulted before an offer is signed, or at the very least, during the conditional period. Getting legal advice after the conditions have been waived is very risky.
• Buyers who sign agreements that are not conditional on home inspections are risking years of aggravation and huge expenses to remediate a defective house.
• Trying to renegotiate any part of a firm transaction is frequently a waste of time and effort.
• And finally, there is no such thing as a “simple” real estate deal which doesn’t require legal advice in advance. Even the most straightforward transaction can blow up, resulting in years of expensive litigation.
Bob Aaron is a Toronto real estate lawyer and board member of the Tarion Warranty Corp.
Fixed vs.Variable Rate Mortgages: How to choose
The good news in the housing market these days isn’t just low interest rates.
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-Ã -vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.
It’s also important to consider your stage of life. If you’re counting on having your mortgage paid off in five years because you want to retire, then the possibility of your amortization period being extended probably isn’t for you.
Don’t forget to take your other debt obligations and savings goals into account.
“For some people locking into a payment actually gives them flexibility to working to other savings goals or paying other debts,” Delaney said.
“It’s very tempting to look at low rates today but we encourage people to look beyond where rates are today and consider what mortgage is right for them in the medium and long term.”
MADHAVI ACHARYA-TOM YEW
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-Ã -vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.
It’s also important to consider your stage of life. If you’re counting on having your mortgage paid off in five years because you want to retire, then the possibility of your amortization period being extended probably isn’t for you.
Don’t forget to take your other debt obligations and savings goals into account.
“For some people locking into a payment actually gives them flexibility to working to other savings goals or paying other debts,” Delaney said.
“It’s very tempting to look at low rates today but we encourage people to look beyond where rates are today and consider what mortgage is right for them in the medium and long term.”
MADHAVI ACHARYA-TOM YEW
Thursday, August 26, 2010
Home prices continue to rise and ownership becomes less affordable
TORONTO - Canadian home prices are still on the rise even as sales fall as demand peters out, one factor that is making homes less and less affordable, according to a study by the Conference Board of Canada.
Home sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. That hasn't stopped houses from becoming more expensive, a trend that is likely to continue, said conference board associate director Michael Burt.
"Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth," said Burt, who studies industrial economic trends.
"As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years."
Canadian home prices were up 13.6 per cent in June from a year ago, according to the Teranet–National Bank composite house price index, released Wednesday. Month over month, June prices were up 1.5 per cent — the largest monthly increase since last August and the 14th straight monthly increase.
Price increases in June were driven by the bustling housing markets of Vancouver and Toronto, where many buyers entered the market in advance of the new harmonized sales tax that took effect July 1 in Ontario and British Columbia.
Recent figures from the real estate brokerage industry show July sales fell 30 per cent and prices were essentially flat.
As more resale houses come onto the market and fewer buyers compete for homes, the housing market is at a crossroads between a balanced market and one that favours buyers.
Many economists predict the sector could move further toward a buyers market, which could be accompanied by a deceleration of price increases, if not outright price drops as seen in the United States.
Marc Pinsonneault of National Bank (TSX: NA.TO) says home prices could soon fall, especially since the introduction of the HST in the hot housing markets of B.C. and Ontario have raised the price of many home purchases
His report on the index — a compilation of average home price changes in six metropolitan areas — suggests that it may be too early to conclude that vigorous price rises in April, May and June represent a trend.
"The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months," the report said.
Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009, according to the Canadian Real Estate Association.
However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.
Sales activity peaked in December 2009 and hovered near record levels during the first quarter of this year as buyers rushed into the housing market ahead of changes to mortgage rules, interest rate hikes and the HST.
Activity so far this year is up 5.6 per cent compared to the first seven months of last year, but the gap is expected to shrink as the year progresses because sales ramped up heavily during the latter part of 2009.
The strong pace of spending at the beginning of the year indicates the Canadian industry has fully recovered from the recession, and although new home construction activity is expected to slow, housing starts will remain at a healthy level, the Conference Board said in its report.
Housing starts slowed to 192,800 units in June, the slowest monthly pace this year. And home building is expected to slow during the second half of the year.
"The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand," said the Conference Board.
Many economists predict an accompanying deceleration of price increases, with some saying prices could begin to fall modestly by the end of the year.
While performance in the Canadian housing market is weakening, it is faring much better than the U.S. market, where the past three months have been the worst on record for new home sales.
Sales of new U.S. homes dropped sharply last month to the slowest pace on records going back nearly half a century, the latest sign that the economic recovery is fading.
The U.S. Commerce Department said Wednesday that new home sales fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600.
Wed Aug 25, 5:20 PM
Sunny Freeman, The Canadian Press
Home sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. That hasn't stopped houses from becoming more expensive, a trend that is likely to continue, said conference board associate director Michael Burt.
"Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth," said Burt, who studies industrial economic trends.
"As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years."
Canadian home prices were up 13.6 per cent in June from a year ago, according to the Teranet–National Bank composite house price index, released Wednesday. Month over month, June prices were up 1.5 per cent — the largest monthly increase since last August and the 14th straight monthly increase.
Price increases in June were driven by the bustling housing markets of Vancouver and Toronto, where many buyers entered the market in advance of the new harmonized sales tax that took effect July 1 in Ontario and British Columbia.
Recent figures from the real estate brokerage industry show July sales fell 30 per cent and prices were essentially flat.
As more resale houses come onto the market and fewer buyers compete for homes, the housing market is at a crossroads between a balanced market and one that favours buyers.
Many economists predict the sector could move further toward a buyers market, which could be accompanied by a deceleration of price increases, if not outright price drops as seen in the United States.
Marc Pinsonneault of National Bank (TSX: NA.TO) says home prices could soon fall, especially since the introduction of the HST in the hot housing markets of B.C. and Ontario have raised the price of many home purchases
His report on the index — a compilation of average home price changes in six metropolitan areas — suggests that it may be too early to conclude that vigorous price rises in April, May and June represent a trend.
"The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months," the report said.
Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009, according to the Canadian Real Estate Association.
However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.
Sales activity peaked in December 2009 and hovered near record levels during the first quarter of this year as buyers rushed into the housing market ahead of changes to mortgage rules, interest rate hikes and the HST.
Activity so far this year is up 5.6 per cent compared to the first seven months of last year, but the gap is expected to shrink as the year progresses because sales ramped up heavily during the latter part of 2009.
The strong pace of spending at the beginning of the year indicates the Canadian industry has fully recovered from the recession, and although new home construction activity is expected to slow, housing starts will remain at a healthy level, the Conference Board said in its report.
Housing starts slowed to 192,800 units in June, the slowest monthly pace this year. And home building is expected to slow during the second half of the year.
"The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand," said the Conference Board.
Many economists predict an accompanying deceleration of price increases, with some saying prices could begin to fall modestly by the end of the year.
While performance in the Canadian housing market is weakening, it is faring much better than the U.S. market, where the past three months have been the worst on record for new home sales.
Sales of new U.S. homes dropped sharply last month to the slowest pace on records going back nearly half a century, the latest sign that the economic recovery is fading.
The U.S. Commerce Department said Wednesday that new home sales fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600.
Wed Aug 25, 5:20 PM
Sunny Freeman, The Canadian Press
Wednesday, August 25, 2010
How to lower your property taxes. Save thousands by cutting your property tax bill.
Einstein’s general theory of relativity. Lady Gaga’s popularity. Your home’s assessed value. Some things just seem utterly incomprehensible. But solving the property tax assessment mystery is worthwhile: appealing an incorrect valuation could save you thousands of dollars.
Here’s how to do it:
Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.
Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.
Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.
Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.
Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.
What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners who submitted evidence of over-assessment last year got their valuations reduced.
By Peter Shawn Taylor 17/08/10
Here’s how to do it:
Check for fairness
Property taxes, which pay for most municipal services, are the product of your home’s assessed value multiplied by the local tax rate. You can’t change the tax rate, but you can argue that you have been over-assessed. Begin by checking your home’s assessment report. This is typically a computerized estimate of your home’s selling price, based on sales information from a particular assessment date. Is it fair? If a similar house on your block sold for much less than your valuation around the time of the assessment date, you may have evidence of over-assessment.
Fix factual errors
Assessments are carried out by provincial agencies or municipalities. If you’ve spotted a factual error on your assessment—it claims you have a two-car garage when you don’t—you can often get this fixed by simply calling the assessor. If there are no clear-cut mistakes, but you still think you’ve been over-assessed, you will need to officially appeal your assessment.
Prepare your case
The more unique your house, the harder it is to value—and the better your chances of winning an appeal. “If you live in a cookie-cutter neighbourhood, assessments are usually pretty accurate,” says William Howse, a Toronto tax lawyer. “But as soon as you get anything unusual in features or lots, or get into pricier neighbourhoods, then the computer can have big problems.” An older or smaller house in an expensive area or proximity to a busy road, railway or school can provide a strong case for appeal.
Compare, compare, compare
Find comparable local homes that sold around your assessment date for less than your home’s assessed value. This will be evidence that your assessment is too high. You’ll need to show a minimum 5% difference between your assessed price and the selling price on three comparable houses to have a good chance of winning.
Chose wisely
Selecting the right comparison houses is the true art behind a successful appeal, says Howse. Pick comparables that are within 100 interior sq ft of your own house (30 sq ft for condos), and ensure the houses are the same quality as yours. For a formal appeal hearing, Howse strongly recommends hiring a certified appraiser.
What are your odds?
Few homeowners challenge assessments, but of those who do, many are successful. Roughly 45% of Ontario property owners who submitted evidence of over-assessment last year got their valuations reduced.
By Peter Shawn Taylor 17/08/10
Tuesday, August 24, 2010
High-rise condo market shifts to 905
Greater Toronto, August 23, 2010 - The high-rise condo market in the Greater Toronto Area continues to rise high while the low-rise suburban (905) housing market remains constrained by the acute lack of product available for sale, the Building Industry & Land Development Association revealed today.
While high-rise sales in July slipped a modest 10 per cent from July 2009, sales in the January-July period were up 104 per cent with the 11,327 units sold representing the second highest total (behind only 2007 at an astounding 13,365 units) in the last 11 years.
In what may be the first signal of an emerging trend, nearly half (46 per cent) of high-rise unit sales in July were recorded in the 905 Regions of the GTA. "Toronto has consistently commanded an 80 per cent share of all high-rise sales while 80 per cent of low-rise sales have been in the suburbs. However, that balance is expected to shift as municipalities start to conform with the Greater Golden Horseshoe Growth Plan," said BILD President and CEO Stephen Dupuis.
With continued strong sales, the high-rise price index rose exactly 10 per cent year over year, and currently sits at $430,782 compared with $391,673 last July.
Meanwhile, on the low-rise side of the equation, sales dropped 65 per cent from last July although they still remain up 8 per cent over 2009 on a January-July basis. As noted, the inventory of low-rise homes available for sale in the GTA remains near all-time lows.
"The shortage of supply of new, low-rise housing product is reflected in the fact that nearly two-thirds (64 per cent) of all new home sales in July were high-rise condos compared with the new norm of around 50 per cent," Dupuis said, adding that the low-rise price index jumped 9.2 per cent year/year, rising from $447,950 to $489,088.
With more than 1,300 members, BILD, formed through the merger of the Greater Toronto Home Builders' Association and Urban Development Institute/Ontario, is the voice of the land development, home building and professional renovation industry in the Greater Toronto Area. BILD is proudly affiliated with the Ontario and Canadian Home Builders' Associations
Source: RealNet Canada Inc
While high-rise sales in July slipped a modest 10 per cent from July 2009, sales in the January-July period were up 104 per cent with the 11,327 units sold representing the second highest total (behind only 2007 at an astounding 13,365 units) in the last 11 years.
In what may be the first signal of an emerging trend, nearly half (46 per cent) of high-rise unit sales in July were recorded in the 905 Regions of the GTA. "Toronto has consistently commanded an 80 per cent share of all high-rise sales while 80 per cent of low-rise sales have been in the suburbs. However, that balance is expected to shift as municipalities start to conform with the Greater Golden Horseshoe Growth Plan," said BILD President and CEO Stephen Dupuis.
With continued strong sales, the high-rise price index rose exactly 10 per cent year over year, and currently sits at $430,782 compared with $391,673 last July.
Meanwhile, on the low-rise side of the equation, sales dropped 65 per cent from last July although they still remain up 8 per cent over 2009 on a January-July basis. As noted, the inventory of low-rise homes available for sale in the GTA remains near all-time lows.
"The shortage of supply of new, low-rise housing product is reflected in the fact that nearly two-thirds (64 per cent) of all new home sales in July were high-rise condos compared with the new norm of around 50 per cent," Dupuis said, adding that the low-rise price index jumped 9.2 per cent year/year, rising from $447,950 to $489,088.
With more than 1,300 members, BILD, formed through the merger of the Greater Toronto Home Builders' Association and Urban Development Institute/Ontario, is the voice of the land development, home building and professional renovation industry in the Greater Toronto Area. BILD is proudly affiliated with the Ontario and Canadian Home Builders' Associations
Source: RealNet Canada Inc
HST has greater impact than interest rates, says survey
A survey conducted by Royal LePage Real Estate Services says that people in Ontario and B. C. have misconceptions about how the Harmonized Sales Tax (HST) affects real estate transactions. When respondents were asked to provide examples of comments heard from buyers and sellers regarding the HST and its effect on the housing market, almost half of the comments indicated that confusion about HST remains more than one month after its introduction. Among the most common responses to the survey’s open-ended questions were that many home buyers incorrectly believe HST applies to the sale price of resale properties.
Nearly half of the 765 Royal LePage sales reps and brokers polled in Ontario and B.C. said the HST that took effect in both provinces July 1 is having the greatest effect on the cooling residential real estate market, compared to just 28.4 per cent who cited rising interest rates as having the greatest effect. In all, more than 86 per cent of respondents said the HST is affecting their business somewhat.
The HST applies to the purchase price of a newly built home and fees for services and commissions associated with any real estate transaction, but it does not apply to the purchase price of resale homes. The majority of agents surveyed indicated that new home sales account for less than 10 per cent of their business.
“We wanted to understand the impact HST has had since it was introduced and what we found is that there is a need to better educate home buyers and sellers to ensure they understand when the HST is applicable,” says Phil Soper, president and chief executive of Royal LePage. “According to our Realtors who work in B.C. and Ontario communities every day, misconceptions about the HST are having an effect on the market in both provinces.”
Nearly one-quarter of respondents in the survey said home buyers and sellers have a low level of awareness about how the HST applies to a home sale transaction, while 44 per cent said buyers and sellers are only somewhat aware.
“While we predicted that the prospect of rising interest rates would put a damper on the housing market, our agents are finding that the HST is actually having the greater impact on buyer behaviour, at least in the short-term,” says Soper. “Realtors are there to help guide buyers and sellers through the often complex negotiation and closing process, so our take-away from this survey is that we need to do more as an industry to educate consumers about the HST.”
Survey questions:
What impact has the introduction of the HST had on the real estate market in your region?
Significant impact: 36.5 per cent (279 responses)
Some impact: 49.7 per cent (380 responses)
No impact: 5.2 per cent (40 responses)
Don’t know: 8.6 per cent (66 responses)
In your opinion, what factor has had a greater impact on the housing market’s recent activity?
HST: 43.9 per cent (336 responses)
Rising interest rates: 28.4 per cent (217 responses)
Other: 27.7 per cent (212 responses)
Based on your recent interactions with home buyers/sellers, please describe the level of awareness about the impact of HST on real estate transactions.
High level of awareness: 31.4 per cent (240 responses)
Some awareness: 43.9 per cent (336 responses)
Low awareness: 24.1 per cent (184 responses)
Don’t know: 0.7 per cent (5 responses)
In the past three months, how often have new or prospective clients (home buyers or sellers) asked you questions about the HST and how it applies to a real estate transaction?
Many questions – I am asked frequently: 57.1 per cent (437 responses)
Some questions – I am asked occasionally: 28.8 per cent (220 responses)
Few questions – I have been asked only a few times: 11.9 per cent (91 responses)
No questions: 2.2 per cent (17 responses)
What percentage of your business is new home sales (as opposed to resale)?
None: 30.7 per cent (235 responses)
Less than 10 per cent of business: 53.9 per cent (412 responses)
11 – 25 per cent of business: 10.5 per cent (80 responses)
26 – 50 per cent of business: 2.9 per cent (22 responses)
11 – 75 per cent of business: 0.9 per cent (7 responses)
76 – 100 per cent of business: 1.2 per cent (9 responses)
Nearly half of the 765 Royal LePage sales reps and brokers polled in Ontario and B.C. said the HST that took effect in both provinces July 1 is having the greatest effect on the cooling residential real estate market, compared to just 28.4 per cent who cited rising interest rates as having the greatest effect. In all, more than 86 per cent of respondents said the HST is affecting their business somewhat.
The HST applies to the purchase price of a newly built home and fees for services and commissions associated with any real estate transaction, but it does not apply to the purchase price of resale homes. The majority of agents surveyed indicated that new home sales account for less than 10 per cent of their business.
“We wanted to understand the impact HST has had since it was introduced and what we found is that there is a need to better educate home buyers and sellers to ensure they understand when the HST is applicable,” says Phil Soper, president and chief executive of Royal LePage. “According to our Realtors who work in B.C. and Ontario communities every day, misconceptions about the HST are having an effect on the market in both provinces.”
Nearly one-quarter of respondents in the survey said home buyers and sellers have a low level of awareness about how the HST applies to a home sale transaction, while 44 per cent said buyers and sellers are only somewhat aware.
“While we predicted that the prospect of rising interest rates would put a damper on the housing market, our agents are finding that the HST is actually having the greater impact on buyer behaviour, at least in the short-term,” says Soper. “Realtors are there to help guide buyers and sellers through the often complex negotiation and closing process, so our take-away from this survey is that we need to do more as an industry to educate consumers about the HST.”
Survey questions:
What impact has the introduction of the HST had on the real estate market in your region?
Significant impact: 36.5 per cent (279 responses)
Some impact: 49.7 per cent (380 responses)
No impact: 5.2 per cent (40 responses)
Don’t know: 8.6 per cent (66 responses)
In your opinion, what factor has had a greater impact on the housing market’s recent activity?
HST: 43.9 per cent (336 responses)
Rising interest rates: 28.4 per cent (217 responses)
Other: 27.7 per cent (212 responses)
Based on your recent interactions with home buyers/sellers, please describe the level of awareness about the impact of HST on real estate transactions.
High level of awareness: 31.4 per cent (240 responses)
Some awareness: 43.9 per cent (336 responses)
Low awareness: 24.1 per cent (184 responses)
Don’t know: 0.7 per cent (5 responses)
In the past three months, how often have new or prospective clients (home buyers or sellers) asked you questions about the HST and how it applies to a real estate transaction?
Many questions – I am asked frequently: 57.1 per cent (437 responses)
Some questions – I am asked occasionally: 28.8 per cent (220 responses)
Few questions – I have been asked only a few times: 11.9 per cent (91 responses)
No questions: 2.2 per cent (17 responses)
What percentage of your business is new home sales (as opposed to resale)?
None: 30.7 per cent (235 responses)
Less than 10 per cent of business: 53.9 per cent (412 responses)
11 – 25 per cent of business: 10.5 per cent (80 responses)
26 – 50 per cent of business: 2.9 per cent (22 responses)
11 – 75 per cent of business: 0.9 per cent (7 responses)
76 – 100 per cent of business: 1.2 per cent (9 responses)
The Hidden Costs of Popular Mortgages
For most people, shopping for a mortgage entails reading a few articles, scanning the Internet for good deals, and then putting one's faith in a banker or broker. That's often enough to get the job done, assuming you're working with a good mortgage professional.
If, on the other hand, you're more of a do-it-yourselfer, or you're not sure how competent your advisor actually is, then knowing a few key numbers can come in handy.
At a minimum, do your best to:
•Understand how interest rates have performed in the past
•Know how rates are expected to perform in the future
•Understand how rate hikes affect the total interest you pay
•Realize that rates are generally random (And therefore, planning for potential interest rate scenarios works better than predicting interest rates) Knowing the above helps you do two things:
•assess your ability to cope with different mortgage rate increases; and
•pick the mortgage term with the highest probability of saving the most money.
To illustrate how the numbers come into play, we'll look at four popular mortgage terms: the venerable five-year fixed, the conservative 10-year fixed, the open mortgage, and the full-featured mortgage with big pre-payment privileges. We'll examine why people pick these terms and how statistics impact each term's total cost of ownership.
The Five-Year Fixed Mortgage
Why People Choose It: 65% of Canadians choose fixed rate mortgages. Most do it because they fear big increases in variable payments. Others choose fixed rates because salespeople push them, or because they don't understand the alternatives.
The Numbers:
•The most prominent research suggests that variable rates save more interest than five-year fixed rates 77% to 90% of the time.
•Variable rates have averaged over one percentage point less than five-year fixed rates for the last 10 years.
•Discounted variables are currently over 2.5 percentage points below five-year fixed rates. That's the biggest fixed-variable spread in over 30 years!
•Looking at past rate cycles back to 1991, prime rate has risen an average of 3.16% from trough to its peak. (1991 is a good reference point because that's when the Bank of Canada started inflation targeting. In turn, 1991 was the start of a major drop in long-term interest rates.)
•Prime rate has averaged 4.81% in the last 10 years, and 5.85% since 1991. Prime rate would have to increase 2.56%-3.60% in order to return to its long-term average. As of writing, prime rate currently stands at 2.25%.
•The big banks predict a 2.92 percentage point increase in prime rate by year-end 2011.
•As you can see above, 3% (give or take) seems to be a reoccurring number when it comes to rate hike estimates.
Suppose for a moment that prime rate did, in fact, jump three percentage points in the next 24 months (0.25 per Bank of Canada meeting). And suppose that it remained that high for three more years. In that scenario, taking a variable rate of prime - .50% today would still cost you less over five years than choosing a five-year fixed mortgage.
Of course, if inflation exceeds expectations, the Bank of Canada could raise rates more than 3%. The most extreme rate forecasts we've seen is a four percentage point increase (i.e. a 6.25% prime rate). A four point hike would cause variable payments to leap up 50%. In other words, for every $100,000 of mortgage, payments would jump about $214 a month.
Best Bet: History and economist projections are far from infallible, but mortgages are an odds game. The odds suggest variables are still a solid play for the right type of borrower. If you have steady income, reasonable debts, over 10% home equity, liquid savings to cover 3-6 months of living expenses, and you can handle a potential 50% payment increase, then a variable rate is a good bet. For most well-qualified borrowers, it pays to at least consider a hybrid mortgage (part fixed and part variable).
The 10-year Fixed Mortgage
Why People Choose It: 22% of Canadians choose terms over five years, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). People generally take 10-year terms when they fear abnormal increases in long-term interest rates.
The Numbers:
•10-year terms cost about one percentage point more than five-year terms, as of this writing.
•Our own in-house research has found 10-year terms to be cheaper in only one out of 10 rolling 10-year periods, dating back to 1967 (the earliest that five-year data is readily available).
•For a 10-year term to be cheaper, five-year fixed rates would have to be over three percentage points higher at renewal in five years (assuming equal monthly payments for the first five years). Keep one thing in mind. If, for example, rates soar in year four or six, that means nothing. When comparing a five-year to a 10-year, all that matters is what the rate is when you come up for renewal in five years.
•For five-year fixed rates to rise three percentage points, five-year bond yields (which guide fixed pricing) would likely have to rise three percentage points as well. That kind of jump far exceeds any major economist forecast.
•Since 1991, five year posted rates have never risen more than 1.35 percentage points at renewal.
Best bet: Go with the odds and stick with five-year terms or less, except if: 1) You cannot afford payments at rates above today's 10-year terms; or, 2) Your tea leaves are calling for a dramatic and unforecasted explosion in long-term interest rates (just be sure you have reliable tea leaves).
The Open Mortgage
Why People Choose It: A relatively small number of Canadians choose open mortgages. The number would be greater if it weren't for open mortgage rates being so darned high. People usually take open terms when they expect to renegotiate or pay off more than 20-25% of their principal within a year.
The Numbers:
•Open variable rates are currently one percentage point higher than closed variables. (Open fixed mortgages are too expensive so we'll ignore them.)
•Based on current rates, open variables become more costly than closed variables after a nine month holding period. In other words, staying in an open variable more than nine months would cost more than if you took a closed variable and paid the standard three-month interest penalty to ?break? it early.
Best Bet: People love that open mortgages have no penalties, but this privilege comes at a price. Unless you plan to break your mortgage within nine months, take a closed variable instead of an open.
A Mortgage with Big Pre-Payment Privileges
Why People Choose It: People relish the thought of pre-paying their mortgage in large chucks without penalty. Even if they don't need them, people often ask for the biggest pre-payment privileges possible.
The Numbers:
•Only 13% of Canadians make lump-sum pre-payments according to CAAMP.
•Those who made lump-sum pre-payments in the last 12 months pre-paid just 1% of their mortgage principal on average. (In dollar terms, that's $1,380 of lump sum pre-payments based on the average mortgage balance.)
•You can often save at least 2/10ths of a percent by choosing a ?no-frills? mortgage. The best no-frills mortgages have just 5% pre-payment privileges (instead of the 10-20% found in most full-featured mortgages).
•A 2/10% interest savings on a $200,000 mortgage can save you over $1,900 in 60 months. Plus, you can still make lump-sum pre-payments of $10,000 (5%) per year.
Best bet: Unless you plan to break your mortgage early or pre-pay more than five percent a year (e.g. $10,000 on a $200,000 mortgage), a no-frills mortgage can be a money saver. Just make sure you understand all the limitations of a no-frills mortgage (many are fully closed for five years or have higher penalties).
The old saying goes: ?The best rate will save you hundreds, but the wrong term can cost you thousands.? With rates near zero and about to rise, proper term selection has never been more important.
Note: The above scenarios and results are approximate and based on various assumptions. All calculations assume a 25-year amortization and deeply discounted interest rates. Variable rate scenarios assume the Bank of Canada will increase rates roughly 3.00% by year-end 2011 (as roughly predicted by the Big 5 Canadian banks). The borrower is assumed to make the same payments for each term being compared, with the payments based on the higher rate mortgage. All results are hypothetical. Actual results may be more or less favourable then indicated here. As always, get professional advice specific to your personal circumstances before making any mortgage decision.
Robert McLister is Editor of CanadianMortgageTrends.com and one of Canada's foremost mortgage authorities. Robert can be reached at robert@canadianmortgagetrends.com.
If, on the other hand, you're more of a do-it-yourselfer, or you're not sure how competent your advisor actually is, then knowing a few key numbers can come in handy.
At a minimum, do your best to:
•Understand how interest rates have performed in the past
•Know how rates are expected to perform in the future
•Understand how rate hikes affect the total interest you pay
•Realize that rates are generally random (And therefore, planning for potential interest rate scenarios works better than predicting interest rates) Knowing the above helps you do two things:
•assess your ability to cope with different mortgage rate increases; and
•pick the mortgage term with the highest probability of saving the most money.
To illustrate how the numbers come into play, we'll look at four popular mortgage terms: the venerable five-year fixed, the conservative 10-year fixed, the open mortgage, and the full-featured mortgage with big pre-payment privileges. We'll examine why people pick these terms and how statistics impact each term's total cost of ownership.
The Five-Year Fixed Mortgage
Why People Choose It: 65% of Canadians choose fixed rate mortgages. Most do it because they fear big increases in variable payments. Others choose fixed rates because salespeople push them, or because they don't understand the alternatives.
The Numbers:
•The most prominent research suggests that variable rates save more interest than five-year fixed rates 77% to 90% of the time.
•Variable rates have averaged over one percentage point less than five-year fixed rates for the last 10 years.
•Discounted variables are currently over 2.5 percentage points below five-year fixed rates. That's the biggest fixed-variable spread in over 30 years!
•Looking at past rate cycles back to 1991, prime rate has risen an average of 3.16% from trough to its peak. (1991 is a good reference point because that's when the Bank of Canada started inflation targeting. In turn, 1991 was the start of a major drop in long-term interest rates.)
•Prime rate has averaged 4.81% in the last 10 years, and 5.85% since 1991. Prime rate would have to increase 2.56%-3.60% in order to return to its long-term average. As of writing, prime rate currently stands at 2.25%.
•The big banks predict a 2.92 percentage point increase in prime rate by year-end 2011.
•As you can see above, 3% (give or take) seems to be a reoccurring number when it comes to rate hike estimates.
Suppose for a moment that prime rate did, in fact, jump three percentage points in the next 24 months (0.25 per Bank of Canada meeting). And suppose that it remained that high for three more years. In that scenario, taking a variable rate of prime - .50% today would still cost you less over five years than choosing a five-year fixed mortgage.
Of course, if inflation exceeds expectations, the Bank of Canada could raise rates more than 3%. The most extreme rate forecasts we've seen is a four percentage point increase (i.e. a 6.25% prime rate). A four point hike would cause variable payments to leap up 50%. In other words, for every $100,000 of mortgage, payments would jump about $214 a month.
Best Bet: History and economist projections are far from infallible, but mortgages are an odds game. The odds suggest variables are still a solid play for the right type of borrower. If you have steady income, reasonable debts, over 10% home equity, liquid savings to cover 3-6 months of living expenses, and you can handle a potential 50% payment increase, then a variable rate is a good bet. For most well-qualified borrowers, it pays to at least consider a hybrid mortgage (part fixed and part variable).
The 10-year Fixed Mortgage
Why People Choose It: 22% of Canadians choose terms over five years, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP). People generally take 10-year terms when they fear abnormal increases in long-term interest rates.
The Numbers:
•10-year terms cost about one percentage point more than five-year terms, as of this writing.
•Our own in-house research has found 10-year terms to be cheaper in only one out of 10 rolling 10-year periods, dating back to 1967 (the earliest that five-year data is readily available).
•For a 10-year term to be cheaper, five-year fixed rates would have to be over three percentage points higher at renewal in five years (assuming equal monthly payments for the first five years). Keep one thing in mind. If, for example, rates soar in year four or six, that means nothing. When comparing a five-year to a 10-year, all that matters is what the rate is when you come up for renewal in five years.
•For five-year fixed rates to rise three percentage points, five-year bond yields (which guide fixed pricing) would likely have to rise three percentage points as well. That kind of jump far exceeds any major economist forecast.
•Since 1991, five year posted rates have never risen more than 1.35 percentage points at renewal.
Best bet: Go with the odds and stick with five-year terms or less, except if: 1) You cannot afford payments at rates above today's 10-year terms; or, 2) Your tea leaves are calling for a dramatic and unforecasted explosion in long-term interest rates (just be sure you have reliable tea leaves).
The Open Mortgage
Why People Choose It: A relatively small number of Canadians choose open mortgages. The number would be greater if it weren't for open mortgage rates being so darned high. People usually take open terms when they expect to renegotiate or pay off more than 20-25% of their principal within a year.
The Numbers:
•Open variable rates are currently one percentage point higher than closed variables. (Open fixed mortgages are too expensive so we'll ignore them.)
•Based on current rates, open variables become more costly than closed variables after a nine month holding period. In other words, staying in an open variable more than nine months would cost more than if you took a closed variable and paid the standard three-month interest penalty to ?break? it early.
Best Bet: People love that open mortgages have no penalties, but this privilege comes at a price. Unless you plan to break your mortgage within nine months, take a closed variable instead of an open.
A Mortgage with Big Pre-Payment Privileges
Why People Choose It: People relish the thought of pre-paying their mortgage in large chucks without penalty. Even if they don't need them, people often ask for the biggest pre-payment privileges possible.
The Numbers:
•Only 13% of Canadians make lump-sum pre-payments according to CAAMP.
•Those who made lump-sum pre-payments in the last 12 months pre-paid just 1% of their mortgage principal on average. (In dollar terms, that's $1,380 of lump sum pre-payments based on the average mortgage balance.)
•You can often save at least 2/10ths of a percent by choosing a ?no-frills? mortgage. The best no-frills mortgages have just 5% pre-payment privileges (instead of the 10-20% found in most full-featured mortgages).
•A 2/10% interest savings on a $200,000 mortgage can save you over $1,900 in 60 months. Plus, you can still make lump-sum pre-payments of $10,000 (5%) per year.
Best bet: Unless you plan to break your mortgage early or pre-pay more than five percent a year (e.g. $10,000 on a $200,000 mortgage), a no-frills mortgage can be a money saver. Just make sure you understand all the limitations of a no-frills mortgage (many are fully closed for five years or have higher penalties).
The old saying goes: ?The best rate will save you hundreds, but the wrong term can cost you thousands.? With rates near zero and about to rise, proper term selection has never been more important.
Note: The above scenarios and results are approximate and based on various assumptions. All calculations assume a 25-year amortization and deeply discounted interest rates. Variable rate scenarios assume the Bank of Canada will increase rates roughly 3.00% by year-end 2011 (as roughly predicted by the Big 5 Canadian banks). The borrower is assumed to make the same payments for each term being compared, with the payments based on the higher rate mortgage. All results are hypothetical. Actual results may be more or less favourable then indicated here. As always, get professional advice specific to your personal circumstances before making any mortgage decision.
Robert McLister is Editor of CanadianMortgageTrends.com and one of Canada's foremost mortgage authorities. Robert can be reached at robert@canadianmortgagetrends.com.
Monday, August 23, 2010
Signing real estate deals requires careful attention
There are many technical issues and requirements that buyers and sellers must be aware of when signing real estate agreements.
Under the Ontario Statute of Frauds, real estate agreements are only valid if they are in writing and signed by all parties, therefore a handshake agreement to sell your property will not be enforceable.
The standard resale agreement provides a spot for the buyer and seller to sign as well as a witness. What happens if the witness does not sign the agreement? Can the seller or buyer cancel the agreement?
There is no requirement in the statute for a witness to sign beside the signature of the buyer or the seller. The main reason for the witness is to prevent either of the parties from later denying that it was their signature. But if the witness saw the party sign, they could also give evidence later as to what they saw, even if there was no witness signature.
As a result of the increase in mortgage fraud, many lending institutions now require that all real estate agreements be witnessed in writing or else they will not advance the mortgage loan. As a result, buyers and sellers are cautioned to always have a witness available. This can become problematic when agreements are signed by fax late at night and witnesses may not be available.
Some of the questions that buyers and sellers may have include:
• If two spouses are signing the agreement, can they witness each other’s signature? While technically they can, this may also offend a lender’s policy and so care should be taken to have an independent third party available, over eighteen years of age, to witness the signature.
• Can someone witness a signature if you fax the document to them after you sign it? The answer is no. The witness must be physically present to see you sign the document in order to sign as a witness.
• How is an offer or acceptance communicated? Under most standard agreements, the offer must be delivered or faxed to the other party to prove communication. Therefore, if an offer is delivered to the seller and it is open for acceptance until 11 p.m., then not only must the seller accept the offer before 11 p.m., but the accepted offer must be either delivered or faxed to the buyer before 11 p.m.
• Can you communicate offers and acceptances via email? Most agreement of purchase and sale forms in use today do not provide for communication via email. One of the main reasons is that there is a fear that you may send the email today, only to be notified tomorrow that there was a server error and the email was not delivered. Or perhaps you referred to the agreement as an attachment to your email but then forgot to include the attachment. In order to avoid problems, a clause should be inserted into your agreement to permit communication by electronic systems such as email. In addition, when you send the email, always ask for a reply communication from the other party to confirm that they have received the email. Then print the reply and keep it for your records.
The real estate agreement of purchase and sale is a serious contract, and may be the largest financial investment that you might ever make. Make sure to have it properly witnessed and that every clause is properly explained to you before you sign it. This is what a professional real estate salesperson or lawyer will do whenever they prepare and witness your signature to an agreement of purchase and sale.
Mark Weisleder
July 16, 2010
Mark Weisleder is a lawyer, author, course developer and public speaker for the real estate industry.
Under the Ontario Statute of Frauds, real estate agreements are only valid if they are in writing and signed by all parties, therefore a handshake agreement to sell your property will not be enforceable.
The standard resale agreement provides a spot for the buyer and seller to sign as well as a witness. What happens if the witness does not sign the agreement? Can the seller or buyer cancel the agreement?
There is no requirement in the statute for a witness to sign beside the signature of the buyer or the seller. The main reason for the witness is to prevent either of the parties from later denying that it was their signature. But if the witness saw the party sign, they could also give evidence later as to what they saw, even if there was no witness signature.
As a result of the increase in mortgage fraud, many lending institutions now require that all real estate agreements be witnessed in writing or else they will not advance the mortgage loan. As a result, buyers and sellers are cautioned to always have a witness available. This can become problematic when agreements are signed by fax late at night and witnesses may not be available.
Some of the questions that buyers and sellers may have include:
• If two spouses are signing the agreement, can they witness each other’s signature? While technically they can, this may also offend a lender’s policy and so care should be taken to have an independent third party available, over eighteen years of age, to witness the signature.
• Can someone witness a signature if you fax the document to them after you sign it? The answer is no. The witness must be physically present to see you sign the document in order to sign as a witness.
• How is an offer or acceptance communicated? Under most standard agreements, the offer must be delivered or faxed to the other party to prove communication. Therefore, if an offer is delivered to the seller and it is open for acceptance until 11 p.m., then not only must the seller accept the offer before 11 p.m., but the accepted offer must be either delivered or faxed to the buyer before 11 p.m.
• Can you communicate offers and acceptances via email? Most agreement of purchase and sale forms in use today do not provide for communication via email. One of the main reasons is that there is a fear that you may send the email today, only to be notified tomorrow that there was a server error and the email was not delivered. Or perhaps you referred to the agreement as an attachment to your email but then forgot to include the attachment. In order to avoid problems, a clause should be inserted into your agreement to permit communication by electronic systems such as email. In addition, when you send the email, always ask for a reply communication from the other party to confirm that they have received the email. Then print the reply and keep it for your records.
The real estate agreement of purchase and sale is a serious contract, and may be the largest financial investment that you might ever make. Make sure to have it properly witnessed and that every clause is properly explained to you before you sign it. This is what a professional real estate salesperson or lawyer will do whenever they prepare and witness your signature to an agreement of purchase and sale.
Mark Weisleder
July 16, 2010
Mark Weisleder is a lawyer, author, course developer and public speaker for the real estate industry.
RECO Decision Heralds New Rules About Basement Apartments
A discipline decision by the Real Estate Council of Ontario (RECO) earlier this year has established what may be a new disclosure standard for real estate agents dealing with basement apartments and land surveys.
Back in 2006, Richmond Hill real estate agent Sean Marandi listed a property for sale. In the published listing, it was described as a "magnificent house . . . elegant design with two apartments in the basement ($1,150 income) . . . three fridges, three stoves . . . Seller and agent do not warrant the retrofit status of basement apartment."
Two days after the listing was published, Marandi drafted an offer on behalf of a buyer. He had advised the buyer that the property would be an excellent purchase for investment purposes because the previous owner had built a separate entrance to the basement. The buyer signed a dual representation acknowledgement confirming that Marandi and his brokerage represented both buyer and seller.
In preparing the offer, Marandi did not insert a clause to ensure that the buyer was fully informed of the legality and suitability of the basement units for his intended use.
The offer did, however, contain a clause requiring the seller to provide an existing land survey of the property. That was never done.
Shortly after closing, the municipality informed the new owner that the basement entrance and basement apartment did not comply with the building code, and it issued a violation order against the property.
The cost of remedying the faulty construction of the basement door came to about $50,000. On top of that, the tenants took the buyer to what was then known as the Ontario Rental Housing Tribunal due to problems with the door.
Eventually the owner was forced into bankruptcy when the tenants stopped paying rent. RECO filed discipline charges against Marandi for breach of its code of ethics. At a hearing in March, Marandi admitted to unprofessional conduct when he failed to verify the status of the basement apartment and failed to follow through with delivering a land survey to the purchaser.
The RECO discipline panel ruled that Marandi acted unprofessionally by not inserting a condition in the offer to ensure that the buyer received information or assurances about the legality of the basement apartment before the offer became binding. Marandi was ordered to pay a penalty of $7,500 and take a course in ethics and business practices. Based on my reading of the case, it seems that in similar circumstances, potential purchasers have a right to expect very high disclosure standards from their real estate agents:
Agents are now required to verify the legality and/or intended use of basement apartments with the municipality before offers are submitted.
Agents can no longer insert clauses into offers stating that they and the seller "do not warrant the retrofit status" of basement apartments (a common practice at present).
Agents are now required to "follow through" and ensure that buyers will promptly receive a land survey if the offer provides for it.
In a 2004 Ontario court decision in a civil case for damages, the judge ruled that agents have a positive duty to tell purchasers whether a basement living unit might not comply with the municipal bylaw. He wrote in his judgment that an agent must fully and fairly disclose to his clients all material information regarding the property.
The Marandi discipline decision echoes that high standard of full disclosure in offers to purchase. In future, disclosures should avoid words indicating that there is no verification of retrofit status, in favour of a blunt statement, such as "The purchaser acknowledges that the basement apartment is illegal."
My colleague Merv Burgard, a London, Ont. lawyer who lectures extensively to real estate agents, tells me of a careful Brampton real estate agent whose advertisements often read "illegal in-law suite." Hopefully, this degree of honesty and disclosure may soon become common practice in Toronto.
"When in doubt," Burgard tells his students, "tell the whole truth, and warn (buyers) of the risks."
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law.
Back in 2006, Richmond Hill real estate agent Sean Marandi listed a property for sale. In the published listing, it was described as a "magnificent house . . . elegant design with two apartments in the basement ($1,150 income) . . . three fridges, three stoves . . . Seller and agent do not warrant the retrofit status of basement apartment."
Two days after the listing was published, Marandi drafted an offer on behalf of a buyer. He had advised the buyer that the property would be an excellent purchase for investment purposes because the previous owner had built a separate entrance to the basement. The buyer signed a dual representation acknowledgement confirming that Marandi and his brokerage represented both buyer and seller.
In preparing the offer, Marandi did not insert a clause to ensure that the buyer was fully informed of the legality and suitability of the basement units for his intended use.
The offer did, however, contain a clause requiring the seller to provide an existing land survey of the property. That was never done.
Shortly after closing, the municipality informed the new owner that the basement entrance and basement apartment did not comply with the building code, and it issued a violation order against the property.
The cost of remedying the faulty construction of the basement door came to about $50,000. On top of that, the tenants took the buyer to what was then known as the Ontario Rental Housing Tribunal due to problems with the door.
Eventually the owner was forced into bankruptcy when the tenants stopped paying rent. RECO filed discipline charges against Marandi for breach of its code of ethics. At a hearing in March, Marandi admitted to unprofessional conduct when he failed to verify the status of the basement apartment and failed to follow through with delivering a land survey to the purchaser.
The RECO discipline panel ruled that Marandi acted unprofessionally by not inserting a condition in the offer to ensure that the buyer received information or assurances about the legality of the basement apartment before the offer became binding. Marandi was ordered to pay a penalty of $7,500 and take a course in ethics and business practices. Based on my reading of the case, it seems that in similar circumstances, potential purchasers have a right to expect very high disclosure standards from their real estate agents:
Agents are now required to verify the legality and/or intended use of basement apartments with the municipality before offers are submitted.
Agents can no longer insert clauses into offers stating that they and the seller "do not warrant the retrofit status" of basement apartments (a common practice at present).
Agents are now required to "follow through" and ensure that buyers will promptly receive a land survey if the offer provides for it.
In a 2004 Ontario court decision in a civil case for damages, the judge ruled that agents have a positive duty to tell purchasers whether a basement living unit might not comply with the municipal bylaw. He wrote in his judgment that an agent must fully and fairly disclose to his clients all material information regarding the property.
The Marandi discipline decision echoes that high standard of full disclosure in offers to purchase. In future, disclosures should avoid words indicating that there is no verification of retrofit status, in favour of a blunt statement, such as "The purchaser acknowledges that the basement apartment is illegal."
My colleague Merv Burgard, a London, Ont. lawyer who lectures extensively to real estate agents, tells me of a careful Brampton real estate agent whose advertisements often read "illegal in-law suite." Hopefully, this degree of honesty and disclosure may soon become common practice in Toronto.
"When in doubt," Burgard tells his students, "tell the whole truth, and warn (buyers) of the risks."
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law.
Ontario housing markets feel effects of HST in July
OTTAWA (August 16, 2010) – The Canadian Real Estate Association (CREA) says national home sales activity continued to trend down in July 2010. The decline was almost entirely the result of fewer sales in British Columbia and Ontario. A slowdown in demand in these two provinces had been widely expected in July, as many purchases were brought forward into the first half of the year in advance of the introduction of the HST.
Seasonally adjusted national home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards was down 6.8 per cent on a month-over-month basis in July. The national decline was smaller than the previous two months, as July sales in the Prairies and Quebec came in on par with June levels. Declines in British Columbia (-14.1 per cent) and Ontario (-8 per cent) accounted for 85 per cent of the change in national activity in July.
Actual (not seasonally adjusted) national sales activity was 30 per cent lower in July 2010 compared to last year’s record July. Year-to-date transactions are still up 5.6 per cent compared to the first seven months of last year, although this gap is expected to continue to shrink as the year progresses, since activity rose sharply over the second half of last year, reaching levels that are unlikely to be matched in the final five months of 2010.
New supply continues to adjust to lower demand. The seasonally adjusted number of new residential listings on Canadian MLS® Systems declined by 7.2 per cent in July 2010 compared to the previous month. This is the third consecutive month-over-month decrease, and the steepest in more than a decade. Since reaching their most recent peak in April, new listings have fallen 17.5 per cent.
The declining trend in new listings will help maintain the balance between supply and demand, and temper home price volatility. The national sales-to-new listings ratio, a measure of market balance, has held steady between 48 and 49 per cent for the past three months, which is characteristic of a balanced market.
The average price of homes sold via Canadian MLS® Systems in July was $330,351, edging up one per cent from the same month last year. While year-over-year comparisons have been shrinking as prices stabilize, the national average home price is likely somewhat understated this month, since the majority of activity declines occurred in British Columbia and Ontario, which include many of Canada’s most expensive markets.
The same phenomenon is widely known to have caused much of the downward skewing in the national average price during the recession. This is most evident when looking at a breakdown of average prices by province. Average home prices eased slightly in Nova Scotia and Prince Edward Island in July, but gains in every other province exceeded the national increase.
The national weighted average price compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. It climbed four per cent on a year-over-year basis in July 2010. Similarly, the residential average price in Canada’s major markets was up 2.9 per cent year-over-year in July, while the weighted major market average price rose 7.4 per cent.
The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and measures the balance between housing supply and demand. It stood at seven months at the end of July 2010 on a national basis. This is up from 4.4 months one year ago, which was one of the lowest levels in the past three years.
The seasonally adjusted number of months of inventory stood at 7.3 months at the end of July on a national basis. This is the highest level since March 2009, but the pace of monthly gains is slowing as new listings continue to adjust to lower demand.
“The soft sales figures we’re seeing right now can be attributed in part to accelerated home purchases earlier in the year,” said CREA President Georges Pahud.
“Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals.”
“While the outlook for economic and job growth remains generally positive nationally and in all provinces, the pace of the recovery will vary by region,” he added. “Buyers and sellers should consult with a REALTOR® to find out about conditions in their local market.”
PLEASE NOTE: The information contained in this news release combines both major market and national MLS® sales information from the previous month.
CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighborhoods or account for price differential between geographic areas. Statistical information contained in this report includes all housing types.
MLS® is a co-operative marketing system used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.
The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 99,000 REALTORS® working through more than 100 real estate Boards and Associations.
Seasonally adjusted national home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards was down 6.8 per cent on a month-over-month basis in July. The national decline was smaller than the previous two months, as July sales in the Prairies and Quebec came in on par with June levels. Declines in British Columbia (-14.1 per cent) and Ontario (-8 per cent) accounted for 85 per cent of the change in national activity in July.
Actual (not seasonally adjusted) national sales activity was 30 per cent lower in July 2010 compared to last year’s record July. Year-to-date transactions are still up 5.6 per cent compared to the first seven months of last year, although this gap is expected to continue to shrink as the year progresses, since activity rose sharply over the second half of last year, reaching levels that are unlikely to be matched in the final five months of 2010.
New supply continues to adjust to lower demand. The seasonally adjusted number of new residential listings on Canadian MLS® Systems declined by 7.2 per cent in July 2010 compared to the previous month. This is the third consecutive month-over-month decrease, and the steepest in more than a decade. Since reaching their most recent peak in April, new listings have fallen 17.5 per cent.
The declining trend in new listings will help maintain the balance between supply and demand, and temper home price volatility. The national sales-to-new listings ratio, a measure of market balance, has held steady between 48 and 49 per cent for the past three months, which is characteristic of a balanced market.
The average price of homes sold via Canadian MLS® Systems in July was $330,351, edging up one per cent from the same month last year. While year-over-year comparisons have been shrinking as prices stabilize, the national average home price is likely somewhat understated this month, since the majority of activity declines occurred in British Columbia and Ontario, which include many of Canada’s most expensive markets.
The same phenomenon is widely known to have caused much of the downward skewing in the national average price during the recession. This is most evident when looking at a breakdown of average prices by province. Average home prices eased slightly in Nova Scotia and Prince Edward Island in July, but gains in every other province exceeded the national increase.
The national weighted average price compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. It climbed four per cent on a year-over-year basis in July 2010. Similarly, the residential average price in Canada’s major markets was up 2.9 per cent year-over-year in July, while the weighted major market average price rose 7.4 per cent.
The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and measures the balance between housing supply and demand. It stood at seven months at the end of July 2010 on a national basis. This is up from 4.4 months one year ago, which was one of the lowest levels in the past three years.
The seasonally adjusted number of months of inventory stood at 7.3 months at the end of July on a national basis. This is the highest level since March 2009, but the pace of monthly gains is slowing as new listings continue to adjust to lower demand.
“The soft sales figures we’re seeing right now can be attributed in part to accelerated home purchases earlier in the year,” said CREA President Georges Pahud.
“Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals.”
“While the outlook for economic and job growth remains generally positive nationally and in all provinces, the pace of the recovery will vary by region,” he added. “Buyers and sellers should consult with a REALTOR® to find out about conditions in their local market.”
PLEASE NOTE: The information contained in this news release combines both major market and national MLS® sales information from the previous month.
CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighborhoods or account for price differential between geographic areas. Statistical information contained in this report includes all housing types.
MLS® is a co-operative marketing system used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.
The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 99,000 REALTORS® working through more than 100 real estate Boards and Associations.
Toronto market down 29% in August
GTA Realtors Report Mid-Month Resale Housing Figures
Greater Toronto Realtors reported 2,732 sales through the Multiple Listing Service® (MLS®) during the first two weeks of August 2010. This represented a 29 per cent decrease compared to the 3,832 sales recorded during the same period in 2009. New listings, at 4,770 were down eight per cent compared to the first two weeks of August 2009.
"Throughout the better part of the last year, the number of monthly sales was well above the expected long-term trend. Accordingly, it makes sense that the number of transactions has dipped over the past few months in comparison to last year's record results," said Toronto Real Estate Board President Bill Johnston.
The average price for August mid-month transactions was $412,934 . up eight per cent compared to the average of $383,796 recorded during the first 14 days of August 2009.
"We have seen a sufficient number of buyers relative to sellers over the summer months to support continued year-over-year price growth in the GTA," said Jason Mercer, TREB's Senior Manager of Market Analysis.
August 18, 2010 in Toronto Real Estate Market
Greater Toronto Realtors reported 2,732 sales through the Multiple Listing Service® (MLS®) during the first two weeks of August 2010. This represented a 29 per cent decrease compared to the 3,832 sales recorded during the same period in 2009. New listings, at 4,770 were down eight per cent compared to the first two weeks of August 2009.
"Throughout the better part of the last year, the number of monthly sales was well above the expected long-term trend. Accordingly, it makes sense that the number of transactions has dipped over the past few months in comparison to last year's record results," said Toronto Real Estate Board President Bill Johnston.
The average price for August mid-month transactions was $412,934 . up eight per cent compared to the average of $383,796 recorded during the first 14 days of August 2009.
"We have seen a sufficient number of buyers relative to sellers over the summer months to support continued year-over-year price growth in the GTA," said Jason Mercer, TREB's Senior Manager of Market Analysis.
August 18, 2010 in Toronto Real Estate Market
Here's an important little excerpt from a Forbes article:
In these recessionary times, financial tips are flowing fast and furious about how to save money and stick to a budget. Facing a sea of information, many people are asking, “Where do I start?” For most of us, five areas of spending will consume over 50% of the money we earn during our lifetime, so that’s the best place to begin.
* Don’t bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It’s also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interest rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.
From "Five expenses that will consume 50 per cent of your lifetime earnings"
by Manisha Thakor, Forbes.com
Thursday, August 5, 2010
* Don’t bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It’s also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interest rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.
From "Five expenses that will consume 50 per cent of your lifetime earnings"
by Manisha Thakor, Forbes.com
Thursday, August 5, 2010
Survey identifies trend to multi-generational homes
An increasing number of homebuyers are looking for a property to accommodate more than one generation of their family, says a recent survey by Coldwell Banker Real Estate of its network of real estate professionals across Canada and the U.S.
Thirty-seven per cent of survey respondents saw an increased demand for multi-generational homes, while in Canada the number was even higher at 45 per cent.
In Canada, 52 per cent of all Coldwell Banker survey respondents cited health care issues as the No. 1 reason why home buyers or sellers would move into a house with other generations of their family. Financial drivers followed closely behind (45 per cent), while less than one per cent cited a strong family bond as the main factor. In the U.S., where the real estate market has experienced tougher times after the recent mortgage meltdown, financial drivers (39 per cent) edged out health care issues (29 per cent) as the No. 1 reason buyers were looking for multi-generational homes.
“While saving money is certainly an incentive for buying a home that accommodates multiple generations, the benefits go beyond just financial reasons,” says John Geha, president of Coldwell Banker Canada. “With two or three generations living under one roof, families often experience more flexible schedules, more quality time with one another and can better juggle caretaking responsibilities as healthcare issues arise.”
Communicating with family is key to a successful transition. “Talk to everyone involved and determine how comfortable people are with sharing bathrooms, office space or common areas, and let that guide your search,” Geha says. “All of these topics are incredibly important in finding the right kind of home to fit the family – like one that has four bathrooms or one that has three.”
The company says extended families purchasing a home together should consider signing a written contract outlining everything from finances to chores and childcare. Each family should assess their situation individually and find a plan that works best for them.
Coldwell Banker conducted the online real estate survey on trends regarding multi-generational home buyers and sellers in January, and a written version of the same survey of Canadian real estate brokers representing 40 markets in April.
Thirty-seven per cent of survey respondents saw an increased demand for multi-generational homes, while in Canada the number was even higher at 45 per cent.
In Canada, 52 per cent of all Coldwell Banker survey respondents cited health care issues as the No. 1 reason why home buyers or sellers would move into a house with other generations of their family. Financial drivers followed closely behind (45 per cent), while less than one per cent cited a strong family bond as the main factor. In the U.S., where the real estate market has experienced tougher times after the recent mortgage meltdown, financial drivers (39 per cent) edged out health care issues (29 per cent) as the No. 1 reason buyers were looking for multi-generational homes.
“While saving money is certainly an incentive for buying a home that accommodates multiple generations, the benefits go beyond just financial reasons,” says John Geha, president of Coldwell Banker Canada. “With two or three generations living under one roof, families often experience more flexible schedules, more quality time with one another and can better juggle caretaking responsibilities as healthcare issues arise.”
Communicating with family is key to a successful transition. “Talk to everyone involved and determine how comfortable people are with sharing bathrooms, office space or common areas, and let that guide your search,” Geha says. “All of these topics are incredibly important in finding the right kind of home to fit the family – like one that has four bathrooms or one that has three.”
The company says extended families purchasing a home together should consider signing a written contract outlining everything from finances to chores and childcare. Each family should assess their situation individually and find a plan that works best for them.
Coldwell Banker conducted the online real estate survey on trends regarding multi-generational home buyers and sellers in January, and a written version of the same survey of Canadian real estate brokers representing 40 markets in April.
Ontario electricity users should prepare for a price shock
A price hike for Ontario's electricity users, set into effect earlier this spring, will hit most consumers with the next round of billing. Some local electricity companies are warning their customers to 'be prepared.'
Energy price hikes have hit Canadians across the nation this year. The federal Consumer Price Index noted that electricity prices increased 5.8% in June - that's on top of a 4% increase applied in May.
The high cost of living has been hitting Canadians, notably with food and shelter costs. Stats Canada said Ontario's "... consumer prices rose 1.6%..." in June, with Ontarians paying " ... more for electricity and telephone services." Stats Canada characterized the June cost of living increase as the "fastest rate of change" in Canada.
And now, reports the Toronto Star, many hydro users in Ontario are being warned that their next bill could be a whopping 16% higher than the last bill they paid.
The increase for any given household will differ, depending on how much electricity a household uses. The location of that household also plays a role because, according to Your Ottawa Region, some municipalities have implemented time of use billing. That means people with smart meters are paying more for their electricity.
The basic rule of thumb is that those who use more electricity will pay more. The real cause of the increase, said the Toronto Star, is the HST, which came into effect in Ontario on July 1st.
After the announcements earlier this year, some consumers forgot about the increases, getting a shock with their latest hydro bill. This is a result of the practice of issuing hydro bills once every two months. The billing practice has meant a lag between when the price increases took effect and when customers will feel the pinch. But other items on hydro bills have been increased besides the rates and taxes. Distribution costs were increased, and a special purpose charge has been added, reported the Exeter Times Advocate.
The price increases are part of a plan Ontario set in place in 2006, according to the Electricity Distributor's Association. The rate increases are supposed to encourage distribution efficiency.
Many consumers will be switched over to time of use billing by next spring, which means they will face another price increase.
Price increases for essential services are the most difficult for people on fixed incomes, such as retirees and those relying on social assistance. As Canoe reported, London's Manager of Community Services, Ross Fair said "The costs are going to impact on everybody, irrespective of their income levels. But lower-income residents, especially those relying on electrical heat in winter, will get hit even harder."
It is anticipated that business owners will pass along their increases to their customers, according to the Guelph Mercury, meaning a double whammy for consumers.
The hot and humid summer conditions experienced throughout Ontario has had people turning up their air conditioning, and this is anticipated to make upcoming hydro bills higher than most people would expect.
Consumers who signed up for fixed rate plans will not be affected by the increases.
The C.D. Howe Institute recently released a paper calling for "Made in Canada" electricity policies that would increase Canada's competitiveness.
Tips on reducing electrical use:
Consumers are not completely helpless in the face of increases in electricity costs. There are steps that can be taken to reduce electricity bills.
The first rule is to turn it off. This tip is easy to implement and incredibly effective.
If you must have air conditioning, turn it off when you are not home. When using it, set the thermostat so that the temperature is in the 70's.
Reduce your reliance on appliances such as clothes driers. If you must use a drier, consider going to a laundromat, where you pay a fixed price for the drier.
Wherever possible, replace older fridges, stoves and other appliances with energy efficient appliances.
If one has the means, solar-generated electricity is an option.
The Ontario Power Authority has a website called Every Kilowatt Counts, gives more tips on conserving electricity use.
Energy price hikes have hit Canadians across the nation this year. The federal Consumer Price Index noted that electricity prices increased 5.8% in June - that's on top of a 4% increase applied in May.
The high cost of living has been hitting Canadians, notably with food and shelter costs. Stats Canada said Ontario's "... consumer prices rose 1.6%..." in June, with Ontarians paying " ... more for electricity and telephone services." Stats Canada characterized the June cost of living increase as the "fastest rate of change" in Canada.
And now, reports the Toronto Star, many hydro users in Ontario are being warned that their next bill could be a whopping 16% higher than the last bill they paid.
The increase for any given household will differ, depending on how much electricity a household uses. The location of that household also plays a role because, according to Your Ottawa Region, some municipalities have implemented time of use billing. That means people with smart meters are paying more for their electricity.
The basic rule of thumb is that those who use more electricity will pay more. The real cause of the increase, said the Toronto Star, is the HST, which came into effect in Ontario on July 1st.
After the announcements earlier this year, some consumers forgot about the increases, getting a shock with their latest hydro bill. This is a result of the practice of issuing hydro bills once every two months. The billing practice has meant a lag between when the price increases took effect and when customers will feel the pinch. But other items on hydro bills have been increased besides the rates and taxes. Distribution costs were increased, and a special purpose charge has been added, reported the Exeter Times Advocate.
The price increases are part of a plan Ontario set in place in 2006, according to the Electricity Distributor's Association. The rate increases are supposed to encourage distribution efficiency.
Many consumers will be switched over to time of use billing by next spring, which means they will face another price increase.
Price increases for essential services are the most difficult for people on fixed incomes, such as retirees and those relying on social assistance. As Canoe reported, London's Manager of Community Services, Ross Fair said "The costs are going to impact on everybody, irrespective of their income levels. But lower-income residents, especially those relying on electrical heat in winter, will get hit even harder."
It is anticipated that business owners will pass along their increases to their customers, according to the Guelph Mercury, meaning a double whammy for consumers.
The hot and humid summer conditions experienced throughout Ontario has had people turning up their air conditioning, and this is anticipated to make upcoming hydro bills higher than most people would expect.
Consumers who signed up for fixed rate plans will not be affected by the increases.
The C.D. Howe Institute recently released a paper calling for "Made in Canada" electricity policies that would increase Canada's competitiveness.
Tips on reducing electrical use:
Consumers are not completely helpless in the face of increases in electricity costs. There are steps that can be taken to reduce electricity bills.
The first rule is to turn it off. This tip is easy to implement and incredibly effective.
If you must have air conditioning, turn it off when you are not home. When using it, set the thermostat so that the temperature is in the 70's.
Reduce your reliance on appliances such as clothes driers. If you must use a drier, consider going to a laundromat, where you pay a fixed price for the drier.
Wherever possible, replace older fridges, stoves and other appliances with energy efficient appliances.
If one has the means, solar-generated electricity is an option.
The Ontario Power Authority has a website called Every Kilowatt Counts, gives more tips on conserving electricity use.
Emerging Trends in Real Estate 2010 : Canadian Summary
Canadian respondents to the Emerging Trends in Real Estate 2010® survey exhibited little smugness despite a relative lack of distress in Canada’s real estate regions from US overleveraging. While Canada’s conservative approach to the markets may have helped the sector elude a direct impact from the US credit market collapse, the report’s interviewees suffered big losses from their south-of-the-border real estate investments. In fact, according to Emerging Trends, a joint undertaking by PricewaterhouseCoopers and the Urban Land Institute, 2010 will be the worst time for investors to sell properties in the report’s 30-year history.
However, Canadian respondents are taking comfort from their predictable local markets. In 2010, Canada will face a mild recovery with “flat to modestly improved” operating performance. Softened markets will avoid potential distress except for small pockets of undercapitalized condo developers.
Domestic and overseas real estate investors may see less opportunity in Canada next year
Canada’s relative market stability comes with a drawback for those looking to take advantage of a cyclical upswing that will hit just before 2011. Canadian investors who seek real estate’s old-fashioned returns will develop projects or head into foreign markets. Big Canadian institutions are also preparing to increase foreign allocations. During recovery, interviewees reported that they would likely find better returns elsewhere and cited Brazil and India as current favourites.
Emerging Trends respondents are worried that disappointed foreign investors may shy away from Canada as well. According to interviewees, “They don’t see enough big gains,”— a five percent return with low risk isn’t compelling enough compared to what’s coming in the US and UK.
Canadian real estate leaders dread more economic shocks from the US
Canadians also fear the state of the US economy. Interviews revealed that it was too soon to venture back in the US. The country’s auto industry negatively impacts Ontario’s integral manufacturing sector and their lower energy product demand cuts at western Canada’s oil and gas energy hubs. In addition, potential for rising interest rates spurred by US fiscal problems could inhibit Canada’s recovery. “We can catch US pneumonia very easily,” said one interviewee.
Curbed construction activity in Canada thanks to cautious real estate lenders
Developers in major city centres faced less demand as banks hamper construction loans. Condo projects in Toronto and Vancouver are put on hold while concern increases about overbuilding office buildings and condos in Calgary’s downtown core. However, refinancing isn’t an issue for bigger real estate players that have established relationships with bankers.
Emerging Trends in Real Estate 2010 reflects the views of more than 900 influential real estate leaders who represent a wide range of industry professionals: investors, developers, property companies, lenders, brokers, and consultants. PricewaterhouseCoopers and ULI researchers personally interviewed over 275 individuals and survey responses were received from 710 individuals
However, Canadian respondents are taking comfort from their predictable local markets. In 2010, Canada will face a mild recovery with “flat to modestly improved” operating performance. Softened markets will avoid potential distress except for small pockets of undercapitalized condo developers.
Domestic and overseas real estate investors may see less opportunity in Canada next year
Canada’s relative market stability comes with a drawback for those looking to take advantage of a cyclical upswing that will hit just before 2011. Canadian investors who seek real estate’s old-fashioned returns will develop projects or head into foreign markets. Big Canadian institutions are also preparing to increase foreign allocations. During recovery, interviewees reported that they would likely find better returns elsewhere and cited Brazil and India as current favourites.
Emerging Trends respondents are worried that disappointed foreign investors may shy away from Canada as well. According to interviewees, “They don’t see enough big gains,”— a five percent return with low risk isn’t compelling enough compared to what’s coming in the US and UK.
Canadian real estate leaders dread more economic shocks from the US
Canadians also fear the state of the US economy. Interviews revealed that it was too soon to venture back in the US. The country’s auto industry negatively impacts Ontario’s integral manufacturing sector and their lower energy product demand cuts at western Canada’s oil and gas energy hubs. In addition, potential for rising interest rates spurred by US fiscal problems could inhibit Canada’s recovery. “We can catch US pneumonia very easily,” said one interviewee.
Curbed construction activity in Canada thanks to cautious real estate lenders
Developers in major city centres faced less demand as banks hamper construction loans. Condo projects in Toronto and Vancouver are put on hold while concern increases about overbuilding office buildings and condos in Calgary’s downtown core. However, refinancing isn’t an issue for bigger real estate players that have established relationships with bankers.
Emerging Trends in Real Estate 2010 reflects the views of more than 900 influential real estate leaders who represent a wide range of industry professionals: investors, developers, property companies, lenders, brokers, and consultants. PricewaterhouseCoopers and ULI researchers personally interviewed over 275 individuals and survey responses were received from 710 individuals
HST – How it affects You and Your Real Estate Transactions
The provincial government has provided rules/guidance on how it will transition to the implementation of the upcoming Harmonized Sales Tax.
The provincial government has passed legislation to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
The HST will come into effect beginning on July 1, 2010; however, note transition rules below.
HST will not apply on the purchase price of re-sale homes.
HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
Transitional Rules for New Housing
Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.
Additional Transitional Rules
Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,
Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.
With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.
Additional detail on the transition rules is available at the provincial government web site or by calling the provincial government enquiry line at 1-800-337-7222.
March 1st, 2010 Toronto Real Estate News
The provincial government has passed legislation to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
The HST will come into effect beginning on July 1, 2010; however, note transition rules below.
HST will not apply on the purchase price of re-sale homes.
HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
Transitional Rules for New Housing
Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.
Additional Transitional Rules
Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,
Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.
With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.
Additional detail on the transition rules is available at the provincial government web site or by calling the provincial government enquiry line at 1-800-337-7222.
March 1st, 2010 Toronto Real Estate News
How to protect against caveat emptor
What happens if a seller deliberately covers up damages to the floor by strategically placing rugs when a buyer conducts a home inspection? This issue was explored in the recent case of Reiss v. Grigoire, released on June 30, 2010.
The Reisses, the buyers, alleged that the sellers, the Grigoires, concealed defects in the home by placing dishes in the sink to cover a stain at the bottom, strategically placed rugs in the bathroom to cover cracked tiles and placed the bed in the master bedroom over a large stain, all of which was only noticed after the buyers moved in.
The judge accepted the evidence of the sellers that there was no intent to deceive anyone, in that as they had no dishwasher, it would not be unusual for dishes to be in the sink and that as the family dog sometimes slept under the bed, it was quite possible that accidents were not noticed until after the bed was removed.
There were other defects that were discovered after closing, including problems with the sump pump, water in the basement and mould, yet in all cases, the buyers could not prove that the sellers knew anything about these problems when the house was sold.
The judge thus found that the principle of caveat emptor, or buyer beware applied and the buyers lost the case. In order to understand how a buyer can possibly protect themselves, it is first important to review the law about defects. Defects are divided into two distinct categories: patent defects and latent defects.
A patent defect is one that you could see in a normal tour of a home, such as a broken window or chipped tiles. A buyer must accept these kinds of defects after closing.
A latent defect is by its nature hidden. The law states that if a seller knows of any hidden defect that makes a property uninhabitable by the buyer, unfit for the buyer’s purpose, or dangerous, then they must disclose this to the buyer. This would include a problem with the foundation, a major leak in the roof or basement or a serious mould problem.
A seller cannot actively conceal an otherwise patent defect such as putting up drywall to hide an obvious stain.
In addition, a seller must be truthful when responding to any direct inquiries of a buyer. In the Reiss case, the judge accepted the sellers’ evidence that they did not know about any of the water or mould problems and did not actively conceal any other defect.
This case demonstrates a number of tactics that buyers should use in order to protect themselves from the legal principle of caveat emptor.
• Make sure you use a reputable home inspection company to conduct a thorough inspection of the home before you are bound to the purchase.
• When you conduct your inspection, try each appliance, light switch, electrical outlet, window opening, and all toilets, showers and home systems.
• Do not be shy to move carpets, furniture and paintings out of the way so that you can check the condition of any tiles, carpets or walls.
• Ask the seller or the seller’s agent directly if they have ever had water problems in the basement or roof, when they occurred, proof of repair and whether the home was ever tested for mould. This is especially necessary when the seller is either unable or refuses to supply a property disclosure statement.
• Make a note of all answers that are given to you by the sellers and make it clear that these answers are important to you in making your decision to buy the home.
• Ask the neighbours if they remember any major water problems or sewage backups ever occurring in the past.
You do not want to get into a situation in a court after the fact, trying to prove to a judge that the sellers were trying to deceive you. Litigation is expensive and will also usually require expert witnesses to come and look at the damages to determine whether the sellers ought to have known that the problems existed.
By being properly prepared in carrying out your own home inspection and asking the right questions in advance, buyers should not have to face expensive litigation over the words caveat emptor.
Mark Weisleder is a lawyer, author, course developer and public speaker for the real estate industry. Visit him online at www.markweisleder.com.
The Reisses, the buyers, alleged that the sellers, the Grigoires, concealed defects in the home by placing dishes in the sink to cover a stain at the bottom, strategically placed rugs in the bathroom to cover cracked tiles and placed the bed in the master bedroom over a large stain, all of which was only noticed after the buyers moved in.
The judge accepted the evidence of the sellers that there was no intent to deceive anyone, in that as they had no dishwasher, it would not be unusual for dishes to be in the sink and that as the family dog sometimes slept under the bed, it was quite possible that accidents were not noticed until after the bed was removed.
There were other defects that were discovered after closing, including problems with the sump pump, water in the basement and mould, yet in all cases, the buyers could not prove that the sellers knew anything about these problems when the house was sold.
The judge thus found that the principle of caveat emptor, or buyer beware applied and the buyers lost the case. In order to understand how a buyer can possibly protect themselves, it is first important to review the law about defects. Defects are divided into two distinct categories: patent defects and latent defects.
A patent defect is one that you could see in a normal tour of a home, such as a broken window or chipped tiles. A buyer must accept these kinds of defects after closing.
A latent defect is by its nature hidden. The law states that if a seller knows of any hidden defect that makes a property uninhabitable by the buyer, unfit for the buyer’s purpose, or dangerous, then they must disclose this to the buyer. This would include a problem with the foundation, a major leak in the roof or basement or a serious mould problem.
A seller cannot actively conceal an otherwise patent defect such as putting up drywall to hide an obvious stain.
In addition, a seller must be truthful when responding to any direct inquiries of a buyer. In the Reiss case, the judge accepted the sellers’ evidence that they did not know about any of the water or mould problems and did not actively conceal any other defect.
This case demonstrates a number of tactics that buyers should use in order to protect themselves from the legal principle of caveat emptor.
• Make sure you use a reputable home inspection company to conduct a thorough inspection of the home before you are bound to the purchase.
• When you conduct your inspection, try each appliance, light switch, electrical outlet, window opening, and all toilets, showers and home systems.
• Do not be shy to move carpets, furniture and paintings out of the way so that you can check the condition of any tiles, carpets or walls.
• Ask the seller or the seller’s agent directly if they have ever had water problems in the basement or roof, when they occurred, proof of repair and whether the home was ever tested for mould. This is especially necessary when the seller is either unable or refuses to supply a property disclosure statement.
• Make a note of all answers that are given to you by the sellers and make it clear that these answers are important to you in making your decision to buy the home.
• Ask the neighbours if they remember any major water problems or sewage backups ever occurring in the past.
You do not want to get into a situation in a court after the fact, trying to prove to a judge that the sellers were trying to deceive you. Litigation is expensive and will also usually require expert witnesses to come and look at the damages to determine whether the sellers ought to have known that the problems existed.
By being properly prepared in carrying out your own home inspection and asking the right questions in advance, buyers should not have to face expensive litigation over the words caveat emptor.
Mark Weisleder is a lawyer, author, course developer and public speaker for the real estate industry. Visit him online at www.markweisleder.com.
Defining the ‘affordable’ home
“Affordability” is one of those familiar buzzwords in the world of real estate. But the affordability index is a fantastic metric.
The affordability index is the home purchase price divided by the gross household income. The result is the one number that gives us a look into the real estate health of a household and even an entire city. I have used this tool for years to identify great communities to invest in.
On a city level, a low index indicates that jobs are paying very well in comparison to the price of housing. There’s potential for increased value, since residents have the disposable income to invest in their home and community. People moving into the neighbourhood have high incomes and are able to spend more on a home, driving home prices up. I often see home values increase faster than the national average in cities with a low index.
On the other hand, a high index tells me that people are overextended. Housing costs account for a percentage of their income which is much too high. Households find it difficult to save and invest in their homes. Maintenance becomes neglected as there is no money to pay for it. We may see homes, and even entire neighbourhoods, begin to appear rundown. High index cities can be held afloat by low interest rates in the short term, but home values tend to be corrected down eventually.
What makes the affordability index such a great indicator is that it accounts for local income. Home prices then become relative to income levels, creating an “apples to apples” comparison.
So what is an acceptable affordability index level? Everyone has their rules; these are mine:
• I never buy an investment property in an area where the index is above the provincial or national average.
• I wouldn’t advise anyone to buy their home with an index above 4. This means that if you are looking at a $400,000 home, your gross household income should be at least $100,000.
The affordability index has proven to be a good indicator of a possible “bubble.” Using the U.S. example, it appears that a real estate bubble begins to grow around an affordability index of 6. As the affordability index increases, so do the chances of the bubble bursting. Of course, there are many other factors unique to each city, but the index provides market watchers with an early warning system.
It is clear that some Canadian cities are now in such a bubble, as affordability has rocketed way out of control: In Vancouver, the index is at 9.46; in Burnaby, B.C., 7.6. Toronto logs in at 4.93. The national average is about 5.35.
I wanted to investigate whether Canadians overextended themselves. I calculated the average affordability across five cities; a city is considered “affordable” if the affordability index is under my acceptable cutoff of 4.
I also profiled two homes from each of these cities to compare what we are buying to what we can actually afford.
We seem to be holding things together – for now. While our national average is approaching bubble territory, we seem to have learned from the sad example of the United States.
A few markets are due for a correction soon, some experts say as much as 20 per cent or more in markets like Toronto and Vancouver. These and the other inflated cities are only sustainable in the short term, because interest rates are so low. As interest rates rise over the next 24 months, we’re in for some major changes.
Toronto
Average household income: $89,519
Average home price: $441,607
Affordability index: 4.93
By Scott McGillivray
From Friday's Globe and Mail
Published on Thursday, Jul. 22, 2010 3:04PM EDT
Last updated on Thursday, Jul. 22, 2010 6:20PM EDT
The affordability index is the home purchase price divided by the gross household income. The result is the one number that gives us a look into the real estate health of a household and even an entire city. I have used this tool for years to identify great communities to invest in.
On a city level, a low index indicates that jobs are paying very well in comparison to the price of housing. There’s potential for increased value, since residents have the disposable income to invest in their home and community. People moving into the neighbourhood have high incomes and are able to spend more on a home, driving home prices up. I often see home values increase faster than the national average in cities with a low index.
On the other hand, a high index tells me that people are overextended. Housing costs account for a percentage of their income which is much too high. Households find it difficult to save and invest in their homes. Maintenance becomes neglected as there is no money to pay for it. We may see homes, and even entire neighbourhoods, begin to appear rundown. High index cities can be held afloat by low interest rates in the short term, but home values tend to be corrected down eventually.
What makes the affordability index such a great indicator is that it accounts for local income. Home prices then become relative to income levels, creating an “apples to apples” comparison.
So what is an acceptable affordability index level? Everyone has their rules; these are mine:
• I never buy an investment property in an area where the index is above the provincial or national average.
• I wouldn’t advise anyone to buy their home with an index above 4. This means that if you are looking at a $400,000 home, your gross household income should be at least $100,000.
The affordability index has proven to be a good indicator of a possible “bubble.” Using the U.S. example, it appears that a real estate bubble begins to grow around an affordability index of 6. As the affordability index increases, so do the chances of the bubble bursting. Of course, there are many other factors unique to each city, but the index provides market watchers with an early warning system.
It is clear that some Canadian cities are now in such a bubble, as affordability has rocketed way out of control: In Vancouver, the index is at 9.46; in Burnaby, B.C., 7.6. Toronto logs in at 4.93. The national average is about 5.35.
I wanted to investigate whether Canadians overextended themselves. I calculated the average affordability across five cities; a city is considered “affordable” if the affordability index is under my acceptable cutoff of 4.
I also profiled two homes from each of these cities to compare what we are buying to what we can actually afford.
We seem to be holding things together – for now. While our national average is approaching bubble territory, we seem to have learned from the sad example of the United States.
A few markets are due for a correction soon, some experts say as much as 20 per cent or more in markets like Toronto and Vancouver. These and the other inflated cities are only sustainable in the short term, because interest rates are so low. As interest rates rise over the next 24 months, we’re in for some major changes.
Toronto
Average household income: $89,519
Average home price: $441,607
Affordability index: 4.93
By Scott McGillivray
From Friday's Globe and Mail
Published on Thursday, Jul. 22, 2010 3:04PM EDT
Last updated on Thursday, Jul. 22, 2010 6:20PM EDT
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