Canadian real estate in the “middle of the pack” globally: Report

Canadian real estate in the “middle of the pack” globally

Canada’s housing market is still chugging along steadily as sales activity nudged higher and prices continued to climb in November, data from the Canadian Real Estate Association said Thursday.
Canada’s housing market is still chugging along steadily as sales activity nudged higher and prices continued to climb in November, data from the Canadian Real Estate Association said Thursday.

Photograph by: Tyler Anderson, National Post

Canada’s housing market is maintaining a strong presence and in the 13th year of a housing boom, average prices for homes in many Canadian cities continue to rise, according to a new report on global real estate trends.

The report from Scotiabank Group says that Canada is “in the middle of the pack” at the international level, with the average price of homes jumping about 85 per cent over the 13-year period after adjusting for inflation.

By contrast, the report said Ireland “by far” experienced the largest housing boom, with a spike of nearly 330 per cent between 1992 and 2007, while U.S. homes were among the least overvalued properties, with prices dropping back to levels experienced in the mid-1990s.

The report said Canada was a little slower out of the gate in terms of its housing boom, which could be why it didn’t rank higher.

“The relatively smaller cumulative price increase compared with some of the frothiest markets reflects in part a later takeoff,” the report reads. “Canada’s residential real estate boom started several years later than many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and weak labour markets through mid-decade.”

The report also said Canada, along with Australia, France, Sweden and Switzerland, is still experiencing record-high real estate prices.

It said Vancouver still boasts the highest real estate prices in Canada — by a long shot — outpacing the No. 2 city, Toronto, by more than $320,000. Citing figures from the Canadian Real Estate Association, the report said the west coast city had a year-to-date average price of nearly $787,000 in 2011, which is up from about $675,000 in 2010. In 2006, the average price of a home in Vancouver was less than $510,000.

In Toronto, the average price was up roughly $33,000 to almost $466,000 in 2011; the average price was up about $17,000 in Ottawa to nearly $346,000; Montreal jumped $14,000 to $307,000; Halifax spiked nearly $8,000 to more than $261,000; while Calgary saw a more modest increase of less than $4,000 to about $402,000.

Of the major Canadian cities listed in the report, Edmonton was the only city to experience a real estate price drop between 2010 and 2011. The average real estate cost there is just shy of $325,000 so far in 2011. In 2010, the average cost was nearly $329,000.

 

 

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Toronto Home Sales Expected To Be Second Best Ever | Toronto Real Estate Blog

Toronto Home Sales Expected To Be Second Best Ever

November MLS sales totalled 7,092 houses and condominiums in all the districts.  This sales number was barely changed from October and came in as the 3rd best November in TREB history.

Sales for the first eleven months of this year totalled just over 87,000 homes… on track to have an annual sales result of over 91,000.  That would make 2011 clearly the 2nd best year for sales in the Toronto Real Estate Board’s history after 2007.

Take a look at the November Toronto real estate market report and see what’s happening in our local real estate market!


GTA REALTORS® Release Monthly Resale Housing Market Figures 
 

GTA_REALTORS®_November_2011_Resale_Housing_Market_Figures.pdf Download this file

 

When a detached home is not a detached home | Toronto Real Estate Blog

When a detached home is not a detached home

Bob Aaron in Legal, Home Selling

When you’re selling a house known as a link-semi, is it wrong to advertise it as a detached home?

The link house style was popular in Toronto in the 1970s and 1980s. The only physical attachment that joins two adjacent houses typically consists of one or two short rows of underground concrete block footings, at right angles to the foundation walls. They are entirely unnecessary for structural reasons.

Looking at the houses from the street, they are clearly detached, with a few feet separating them. It is impossible to tell that the houses are linked because the only physical attachment is the concrete blocks that are invisible above ground level. In fact, the only purpose of the attaching footings was to allow builders to construct what looked like detached houses on lots which were designated for semi-detached models.

One Toronto real estate agent found out the hard way that the Real Estate Council of Ontario (RECO), the industry regulator, takes a dim view of agents who advertise link houses as detached.

Back in May 2007, this selling agent listed a house for a client, describing it on the Multiple Listing Service (MLS) as “detached,” which from a street view, it was.
The property was listed at $320,000, sold for $329,000 through a buyer broker, and closed Aug. 31, 2007.

Prior to closing, neither the listing agent nor the buyer’s agent disclosed that the property was a link house, although it could easily have been verified by calling the city’s zoning department or reviewing the R-plan. Had the buyers seen the plan, they would have noticed the dotted lines indicating that the foundations were connected.

More than 18 months later, the buyers complained to RECO about the listing agent, saying that the house was misrepresented as being detached, and that had they known it was technically a link house, their purchase decision might have been affected. (Hindsight is always 20-20.)

The agent was charged with violating various sections of the RECO Code of Ethics, including failing to treat buyers with fairness, honesty and integrity, failing to demonstrate reasonable knowledge, skill and competence, failing to determine and disclose material facts, and making an inaccurate representation.

He was also charged with failing to use his best efforts to prevent error, misrepresentation, fraud or any unethical practice.

To me, it looks like RECO threw the book at the unfortunate agent. Ultimately he agreed to the buyers’ representation of the facts, and that he had breached the RECO code of ethics. He was assessed a rather stiff fine of $8,000, and required to take an ethics course.

Having had the experience of sitting on Law Society discipline panels over the last 16 years, it seems to me that a good argument can be made that the anonymous RECO panel reached the wrong conclusion and imposed an unduly severe penalty.

Although the property was technically known as a link, it was clearly and obviously detached to anyone standing at the curb looking at the property. Despite the fact that the agent involved admitted to a breach of the code of ethics, it seems to me that he was under no obligation to do so and should have been given the benefit of the doubt due to the ambiguous terminology.

Visually, the house was detached, even though it was technically classified as a link house. I’m not sure the agent did anything wrong, or if he did, it was a technicality only, resulting in no loss to the homebuyers. I doubt that it merited an $8,000 penalty.

The RECO panel’s decision fails to discuss the obligations of the selling agent and the buyers’ lawyer to show them the R-plan before closing. Had this been done, I doubt the case would ever have reached the RECO discipline panel.

I wonder whether the result would have been the same if one or both of the adjacent owners had dug up the connecting foundations or footings, which serve no physical purpose, and simply demolished a few inches so that the houses were no longer “connected.”

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. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail bob@aaron.ca

 

Monday Morning Interest Rate Update (December 12, 2011) | Toronto Real Estate Blog

Monday Morning Interest Rate Update (December 12, 2011)

David Larock in Mortgages and Finance, Home Buying

Friday’s much-anticipated meeting of European Union (EU) leaders in Brussels was the region’s latest attempt to reassure the markets that its financial crisis is being brought under control. Here are the highlights:

  • Twenty-six of the EU’s twenty-seven member countries agreed to limit their future structural deficits to .5% of GDP (the UK rejected this proposal).
  • Over-indebted member countries agreed to reduce their debt loads by one-twentieth each year.
  • Failure to comply with either commitment will, in most cases, trigger sanctions and penalties.
  • Participating countries agreed to submit their budgets to a pan-European body in charge of fiscal oversight to ensure compliance.
  • EU members also agreed to boost the IMF’s reserves by another 200 billion euros and to move up the launch date for a new bailout fund, called the European Stability Mechanism, to next summer.

Mortgage Rate Chart (Dec 12, 2011)But was it enough to reassure the markets? Based on their initial reaction, the answer appears to be “no”.

While monitoring EU sovereign budgets more closely should help prevent a future crisis, it will actually exacerbate the current one. Member countries must now hack and slash their budgets to bring them in line with new fiscal standards at the same time that the region is tipping into recession. These new austerity measures will hammer the EU’s fragile economies at the worst possible time, causing deficits to soar higher as growth slows sharply, and this is very likely to spook investors even more. Without economic growth, EU countries cannot get out in front of their spiraling interest-rate costs. The Germans got what they wanted, but the phrase “Be careful what you wish for” comes to mind.  

The experts I read believe that there are only two remedies that will ultimately save Europe: 1) the European Central Bank (ECB) announcing that it will provide unlimited support to the sovereign debt of member countries (to scare off speculators), and 2) the EU launching a new euro bond that is backed by all member countries (which will give struggling member countries access to German-level borrowing rates).

Neither remedy appears imminent – Germany has adamantly opposed any notion of a euro bond, and the ECB reiterated just last week that it had no plans to step up its sovereign bond-buying programs. (The ECB did cut its benchmark interest rate by .25% last week, citing “high uncertainty”, and “substantial downside risks”…so at least there’s that.)

Five-year Government of Canada bond yields dropped another 6 basis points this week, closing at 1.33% on Friday (ahh…stability). We were hoping for a round of five-year fixed-rate mortgage cuts last week but instead, lenders have launched new promotions based on shorter-than-normal rate-hold periods (called “Quick Closes”). Gross spreads on standard five-year fixed rate mortgages are still as plump as jolly old Saint Nick, so we’ll hold out hope for a discount in borrower’s stockings in the near future (after all, with minuscule default rates borrowers have certainly been good this year).

Variable-rate mortgage holders saw the Bank of Canada (BoC) maintain its 1% overnight rate last Tuesday. The BoC’s accompanying commentary reiterated concerns over the “weakening external outlook” and there was nothing in the report to suggest any material change in its overriding views.

The bottom line: The EU’s latest summit made the threat of more sovereign defaults in the region less likely, while making the threat of a long and protracted recession all but inevitable. From a Canadian mortgage perspective, this is the best we could hope for. Sovereign defaults can spook global financial markets and drive up borrowing rates everywhere, and this was our greatest contagion threat. An extended period of European economic malaise isn’t anything to celebrate, but from a systemic risk perspective, it’s far better than the alternative.

David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David’s posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave

 

Avoid top five home buying errors, Ontario Realtors advise | Toronto Real Estate Blog

Avoid top five home buying errors, Ontario Realtors advise

As housing market increases homebuyers need to be informed about costly oversights

TORONTO, Dec. 13, 2011 /CNW/ – According to a recent RBC report, the number of homes for sale in Ontario is on the rise and affordability province-wide is stable. The rush to buy with more available homes on the market could mean more mistakes made by consumers.

A panel of experts from the Ontario Real Estate Association (OREA) board of directors advises against making hasty or uninformed choices by avoiding five common errors:

1. Not knowing what you can afford

Barbara Sukkau, president of OREA and a Realtor based in St. Catharines, says that mistakes made in a competitive environment can be costly and restrict lifestyle choices.

“Many people don’t know that there’s an easy way to calculate how much house they can afford to determine, regardless of competing bids, what lifestyle they want to maintain within the market,” says Sukkau. “In addition to the cost of the home, potential buyers should consider the land transfer tax, closing costs, moving costs and leave room for any unforeseen extras.”

In fact, Realtors often use a calculation called the Gross Debt Service Ratio. Sukkau explains how to calculate what you can afford at http://bit.ly/OREAaffordabilty.

2. Not preparing your finances, or getting pre-approved

“Many sellers will require a potential buyer to get pre-approved. When there are competing bids on the house of your dreams, pre-approval could give you the edge,” says Patricia Verge, OREA board member working out of Ottawa.

“Pre-approval can take up to a few days after you provide your bank with things like verification of income and down payment,” Verge adds.

If a buyer meets the lender’s requirements, then written confirmation of pre-approval will be provided. According to the Canada Mortgage and Housing Corporation, this pre-approval is time sensitive and is not a guarantee of receiving a mortgage loan.

Verge also cautions buyers against using their pre-approval as a final budget. “Potential buyers should balance their debt load and other financial commitments with what the bank is willing to lend,” she says.

3. Not knowing your must-haves

Tom Lebour, OREA board member working out of Mississauga, notes that his clients aren’t always sure about what they’re looking for.

“Clients often fail to consider what amenities are in the neighbourhood they’re looking to buy in, especially when relocating from the city to the suburbs. How ‘walkable‘ is a neighbourhood to places like grocery stores, schools and banks? This feature is important to many homebuyers, but they can fail to think about it in the excitement about the number of bathrooms a house has. Create a list by thinking about a day in your life and the various things important to you and your family.”

4. Not getting a home inspection

“I always advise buyers to have their own home inspection done, even if the seller offers the results of a previous inspection and even if others are keen to put in an offer,” says Phil Dorner, OREA board member working out of Belle River.

“Ensure that you have a qualified and bonded home inspector perform a full inspection as part of your offer. An investment of a few hundred dollars could save you thousands down the road.”

5. Getting emotions involved in negotiations

Buyers and sellers will often let their emotions get the best of them, says Mike Douglas, OREA board member from Barrie.

“Emotions can get in the way of negotiations because sellers inadvertently assign real value to their memories, which don’t hold financial value for the buyer. We do our best to help our clients keep their emotions out of the equation,” Douglas says.

For more tips, visit orea.com and order your free books on home buying and selling. Or, check out Barb Sukkau’s video on what a Realtor can do for you.

 

About the Ontario Real Estate Association
The Ontario Real Estate Association represents 50,000 brokers and salespeople who are members of the 42 real estate boards throughout the province. OREA serves its REALTOR® members through a wide variety of professional publications, educational programs, advocacy, and other services.

The real estate panel members provided input on common home buying and selling mistakes over email from November 8 to November 22. The panel consisted of nine OREA board spokespeople including representation from St. Catharines, Timmins, King City, Barrie, Oakville, Belle River, Mississauga, London and Ottawa.

For further information:

or to book an interview with Barbara Sukkau or a local OREA spokesperson, contact:

Jennifer Fox
Thornley Fallis Communications
Office: (416) 515-7517, ext. 350, Mobile: 416-473-9565
fox@thornleyfallis.ca

 

Break the mortgage before debt breaks you – Toronto Real Estate Blog

Rob Carrick

Break the mortgage before debt breaks you

ROB CARRICK | Columnist profile | E-mail

From Tuesday’s Globe and Mail

Debt junkies, here’s how to break your borrowing habit by breaking your mortgage.

Warning: This will take discipline. If you follow this plan, you’ll commit yourself to a major debt paydown that will leave you little or no room to pay for new stuff on credit. But your mortgage will be paid off sooner, and you’ll get out from under that never-ending credit card or line of credit debt.

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Let’s start with the breaking the mortgage part. Mortgage broker John Cocomile says you need to have a fixed-rate mortgage at a rate of at least 4 to 4.5 per cent to make a refinancing worthwhile. Also, you want to have debts to roll into your new mortgage.

The rationale for this starts with the fact that a penalty applies when you break a mortgage contract. For fixed-rate mortgages, the penalty is the larger of three months’ interest or what’s known as the interest rate differential (IRD). That’s basically the difference between your existing rate and current mortgage rates.

Mr. Cocomile said today’s low mortgage rates mean IRDs can be steep. So much so, in fact, that he questions the value of breaking a mortgage unless you do it as part of a larger debt consolidation.

“If there’s no other debt, the argument for breaking a mortgage is not really that compelling,” he said.

Let’s look at a real-life example based on one of Mr. Cocomile’s clients. This person owed $30,000 on an unsecured line of credit with a rate of 6 per cent and $19,000 on a credit card with a very low introductory rate that expires next month. The mortgage to be refinanced was three years into a five-year term, it had a rate of 4.5 per cent and there was a balance of $240,000.

Breaking the existing mortgage cost about $4,500 in penalties, an amount that was thrown into the new mortgage along with the line of credit and credit card debts. The client ended up with a new $295,000 mortgage at 3.09 per cent for four years.

The easy option for Mr. Cocomile’s client would have been to keep the 22-year amortization of the old mortgage. That would have kept payments low, but it wouldn’t have helped get the mortgage paid off as efficiently as it could be.

So here’s what Mr. Cocomile did. He took the total amount of monthly payments the client was making on various debts before the refinancing and made that the new mortgage payment. The amount of the payment is $2,330, which breaks down as $1,430 for the mortgage, plus $900 for the line of credit (it required a minimum monthly payment of 3 per cent of the outstanding balance).

Now for the payoff from this refinancing strategy: The new and larger mortgage will be paid off in 13 years, compared to the original 22 years. A subsidiary benefit is that the client gets to lock in a new mortgage at today’s ultra-low levels. The question is, what mortgage rate is best right now?

Up until recently, the slam-dunk move was to use a variable rate. These mortgages are pegged to the prime rate, now at 3 per cent, and discounts of 0.75 per cent were common. Now, the best discount around on variable-rate mortgages is 0.2 of a percentage point, and no discount at all off the prime rate is reality at some lenders.

Mr. Cocomile said there’s good value in three- and four-year fixed rates today. Both terms actually carry the same rate at some lenders right now, which suggests there’s little reason not to take a four-year term.

As an aside, Mr. Cocomile pointed out that attractive three- and four-year rates actually work against people who want to refinance. The lower these rates are, the bigger the interest rate differential that someone breaking a mortgage must pay.

There’s more to breaking your borrowing habit than breaking your mortgage, of course. A large amount of your cash flow will be sucked up by debt repayment, but you could still, in theory, use credit cards or a credit line to buy more stuff and ratchet your debt higher again.

So consider a borrowing holiday while you’re paying off your refinanced mortgage. Forget about your line of credit and cut up your credit cards, freeze them in a block of ice or stick them in a drawer. Mr. Cocomile’s advice to debt junkies who can’t break the habit but plan to refinance their mortgage, anyway: “Don’t bother – it’s not worth it.”

MORTGAGE REFINANCING

Here’s a plan for refinancing your mortgage, adding in your other debts and paying everything off sooner and at lower cost. This is a real-life example based on a client of mortgage broker John Cocomile.

Client’s Debt Profile

Mortgage with $240,000 owing at 4.5 per cent

Unsecured line of credit with a $30,000 balance at 6 per cent

$19,000 owing on a credit card with a low introductory rate of 1.99 per cent that rises to normal levels next month

The Plan

Break the mortgage and fold the credit line and credit card debts into a new mortgage.

End Result

A $295,000 mortgage at 3.09 per cent for four years (includes a $4,500 mortgage breakage penalty)

Old mortgage payment: $1,430 a month

New mortgage payment: $2,330 a month

Old mortgage amortization: 22 years

New mortgage amortization: 13 years

Old mortgage renewal: November, 2013

New mortgage renewal: November, 2015

Estimated interest savings: $14,396 over two years (based on lowering the mortgage rate and saving on debt carrying costs for the credit card and credit line)

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Whats Behind Scotias Rental Changes | Toronto Real Estate Blog

What’s Behind Scotia’s Rental Changes

Scotia-Mortgage-AuthorityScotiabank has long been an investor-friendly lender. But recently, Scotia Mortgage Authority (SMA) made its rental financing program notably more restrictive.

SMA now:

  • Limits borrowers to five rental properties, including those financed elsewhere (there was no official limit previously)
  • Restricts rental mortgages to 5-year closed terms (fixed or variable)
  • Upcharges the rate for rental deals (whereas before it didn’t)

On a positive note, SMA says it has loosened its net worth requirement on rental applications (which is now 10% of each property’s value, up to $50,000 per property).

David Stafford, Managing Director, Real Estate Secured Lending, told us about Scotia’s logic in making these changes.

David-StaffordHe attributed the guidelines decision to five factors:

  1. “The additional work required to underwrite multiple investment properties, which grows with the number of properties and, in turn, may impede service levels on other deals in the queue;
  2. The fact that over a certain number (of units), the credit is no longer a typical retail underwriting exercise and becomes a cash flow assessment;
  3. As a multi-faceted full service FI, there are other arms of the bank that are better suited to larger property management business credits;
  4. A very small number of customers will be affected;
  5. The vast majority of these deals are booked into one of the 5-year products and it’s simply easier to manage the portfolio in a narrower range of products.”

David says that, other than the net worth policy, these changes have only been implemented at Scotia Mortgage Authority. That’s where “the scale and pace of the business is most affected by these more complex credits,” he said. We take that to mean Scotia’s retail sales force isn’t restricted by most of these new rules. (Brokers won’t be too excited by that.)

As a side note, brokers get concerned when lenders tighten policies out of the blue and no one knows why. Even if we don’t like our lending partners’ decisions, it’s nice when lenders care enough to be transparent and spell out their reasoning. As such, we appreciate David taking the time to explain these new guidelines.

Other Implications

calum-rossTo help digest this news further, we spoke with Toronto-based rental financing expert and top broker, Calum Ross, of Mortgage Professionals Inc.

Apart from the reasoning above, Calum says the changes may also be risk-driven.

“There is a growing concern that there is a potentially unhealthy demand for residential real estate investments,” he said.

“The changes signal a clear indication that Scotiabank has a decreased appetite for real estate investors who have significant exposure to the residential real estate investment market.”

“People will generally allow themselves to become delinquent on (default on) investment property mortgage payments before they will allow themselves to default on their principal residence mortgage payments—for the simple reason that people put priority on basic shelter needs.”

“Clearly having one of the biggest mortgage lenders in the country tightening up credit to this group is not good news for the segment in the short term.”

On the other hand, Calum doubts that SMA’s move will cause a “serious supply side shock” for those seeking brokered rental financing. He cites three reasons for that:

  1. As David suggested above, investors who have six or more investment properties are “few and far between,” says Calum.
  2. A number of banks, such as CIBC, National Bank, and many specialty mortgage lenders, are still happy to finance the deals that SMA will no longer formally entertain.
  3. If market demand for rental lending remains unmet, he says: “I firmly believe it will bring in new market entrants…or a revision (loosening) of other mortgage lenders’ credit policies.”

With respect to SMA limiting rental mortgages to 5-year terms, Calum suspects this will also “curb the tendency of some real estate investors to regularly refinance their property holdings.” He says active investors often refinance to gain access to built-up equity, and then leverage that equity further.

The Bigger Picture

Rental-Property-MortgageWhen rental options shrink, it sometimes takes a bit more creativity to get deals done. While this news is nowhere near as impactful to brokers as the elimination of insured high-ratio rental financing in April 2010, Scotia is nonetheless a key rental lender. These changes will therefore be felt by brokers who deal with large portfolio investors.

Ironically, Calum says the tightening of lending rules may actually increase business for the decreasing number of mortgage professionals who “competently understand the broader-based financial planning principals” of serving investors.

For the widest array of rental financing choices, Calum says it behooves investors to use mortgage professionals that are “intimately familiar with cash flow and lending principals specific to real estate investors.”

That’s decent advice because rental financing (especially large portfolio rental financing) is a specialized practice for brokers. It’s hard enough to stay on top of lenders’ owner-occupied rates and policies, let alone track and memorize the countless rental terms and guidelines.

For that reason, if you plan to finance more than a few rental properties, you owe it to yourself to seek out a rental financing specialist.


 Rob McLister, CMT