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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