OTTAWA—A combination of high household debt, overpriced housing and external economic problems are putting Canada’s recovery at risk, the International Monetary Fund is warning.
The IMF’s annual report on the Canadian economy gives a mostly passing grade on the recovery so far, but keys in on potential trip-wires that could derail the modest expansion track.
The most serious risk is the global environment, particularly the potential for Europe’s sovereign debt issues to spiral out of control. That view is shared by Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty.
The situation may be made worse because households are carrying high loads of debt — 153 per cent of disposable income in the latest data — and, the IMF says, Canadian homes are on average 10 per cent overpriced.
“Adverse macroeconomic shocks .... could result in significant job losses, tighter lending conditions, and declines in house prices, triggering a protracted period of weak private consumption as households reduce their debt,” the Washington-based financial organization says.
If that should happen, the IMF said it would be “appropriate” for federal and provincial governments to return to temporary stimulus spending to brake the fall.
The price of Canadian real-estate has been the subject of much debate, with some arguing that there’s a potential bust in the making and others countering that most local markets, with a few exceptions, home affordability has improved.
The report stresses that a U.S.-style bust in the housing market is unlikely, but a correction would still weigh on the economy by dampening consumer spending and construction activity and jobs.
“Staff estimates that a 15 per cent decline in house prices would reduce the ratio of household net worth to disposable income by 45 percentage points, and could trigger a decline in private consumption by over 1.5 per cent,” the report states. Consumer spending represents about half of Canada’s gross domestic product.
The IMF notes that Ottawa has attempted in the past to cool the housing market by tightening conditions on mortgages.
It said it was told by “authorities” they would consider additional measures should borrowing by households, which has been slowing of late, return to unsustainable levels. Options include increasing the downpayment from the current five per cent for new mortgages, and requiring lower monthly payments as a percentage of income.
It is not the first time the IMF has flagged Canada’s hot housing market, where average prices climbed by 41 per cent in British Columbia and 29 per cent in Ontario since the recession.
Nor is the IMF alone. The Bank of Canada has repeatedly cautioned prospective new home owners to guard against being lured by record-low interest rates, which makes homebuying more affordable. The central banks warns rates, and hence mortgage payments, will eventually increase.
The IMF also recommends that the Canadian Mortgage and Housing Corp., a key backstop to the housing market, undertake a review of its risks. The CMHC, a federal Crown corporation, is the country’s main insurer of residential mortgages.
The report stresses that it is not forecasting a severe correction in the housing market, or a significant downturn in Canada’s economic performance.
The IMF’s base case for Canada still sees it on path to be near or at the top of the class in the G7 group of large, industrial economies.
Canada’s economy is projected to grow by 2.2 per cent this year and a further 1.9 per cent next year, modest expectations that are in line with other forecasters, including the Bank of Canada.
Under this most likely scenario, the unemployment rate will average 7.2 per cent next year, and seven per cent in 2013, the report predicts.
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Friday, December 23, 2011
Friday, November 11, 2011
Home values have doubled since 2000
Many clients don't realise how much homes have increased over the last decade. I found this report and thought it was great to share.
Since 2000, the value of a Canadian home has doubled, rising from $163,951 to $339,030 in 2010, says a Canadian real estate organization.
According to a report released by Re/Max, billions spent in new construction, renovation, and infill over the past decade have contributed to a serious upswing in the calibre of Canada’s housing stock, propping up residential average price in the country’s major centres.
Nowhere has the upswing been better captured than in both the value of residential building permits issued nationally between 2000 and 2010—at $340 billion—and the estimated $450 billion spent in renovation. The impact of these two forces alone has fuelled the Canadian residential real estate market—as well as the construction industry—for more than 10 years.
As a result, investment in Canada’s housing stock is at an all-time high in the 16 Canadian residential real estate markets examined in the Re/Max Housing Evolution Report. Higher quality housing translated into extraordinary price appreciation across the country - with 62 per cent (10 markets) experiencing increases in excess of 100 per cent since 2000.
“While a number of external variables were also behind the exceptional gains, revitalization—amid an aging housing stock—and newer construction are largely underestimated factors supporting Canadian housing values,” said Michael Polzler, Executive Vice President, Re/Max Ontario-Atlantic Canada. “The trend is expected to continue for years to come as investment in residential real estate through renovation, infill, and redevelopment ramps up across the country. City planners, builders, developers, and homeowners have only just begun.”
The report found that the unprecedented sum funneled into housing has effectively changed the landscape of Canada’s major centres. New home construction has advanced suburban sprawl, giving rise to new sought-after pockets in virtually every centre across the board.
“Renovation has also had a tremendous impact on housing throughout the decade, so much so that it’s emerged as, arguably, Canada’s next national past time,” said Polzler. “Residential renovation spending has been gaining momentum year-over-year since the early part of the decade and now exceeds $60 billion annually.”
Since 2000, the value of a Canadian home has doubled, rising from $163,951 to $339,030 in 2010, says a Canadian real estate organization.
According to a report released by Re/Max, billions spent in new construction, renovation, and infill over the past decade have contributed to a serious upswing in the calibre of Canada’s housing stock, propping up residential average price in the country’s major centres.
Nowhere has the upswing been better captured than in both the value of residential building permits issued nationally between 2000 and 2010—at $340 billion—and the estimated $450 billion spent in renovation. The impact of these two forces alone has fuelled the Canadian residential real estate market—as well as the construction industry—for more than 10 years.
As a result, investment in Canada’s housing stock is at an all-time high in the 16 Canadian residential real estate markets examined in the Re/Max Housing Evolution Report. Higher quality housing translated into extraordinary price appreciation across the country - with 62 per cent (10 markets) experiencing increases in excess of 100 per cent since 2000.
“While a number of external variables were also behind the exceptional gains, revitalization—amid an aging housing stock—and newer construction are largely underestimated factors supporting Canadian housing values,” said Michael Polzler, Executive Vice President, Re/Max Ontario-Atlantic Canada. “The trend is expected to continue for years to come as investment in residential real estate through renovation, infill, and redevelopment ramps up across the country. City planners, builders, developers, and homeowners have only just begun.”
The report found that the unprecedented sum funneled into housing has effectively changed the landscape of Canada’s major centres. New home construction has advanced suburban sprawl, giving rise to new sought-after pockets in virtually every centre across the board.
“Renovation has also had a tremendous impact on housing throughout the decade, so much so that it’s emerged as, arguably, Canada’s next national past time,” said Polzler. “Residential renovation spending has been gaining momentum year-over-year since the early part of the decade and now exceeds $60 billion annually.”
Tuesday, November 8, 2011
The future of Canada's housing market
I came across this article and found it very interesting. Are Canadians really increasing their debt to a point where the housing market will no longer sustain us?
Click here to check it out.
Click here to check it out.
Wednesday, October 19, 2011
Average Toronto house price jumps to $465,369
By Susan Pigg
The average price of a house in Toronto hit $465,369 in September, up from $427,269 the same month last year. But when adjusted for seasonal fluctuations, the average price was actually down in September just slightly, 0.6 per cent, from August, according to figures released Monday by the Canadian Real Estate Association.
The numbers indicate that recent changes to mortgage regulations may also be helping ease some of the upward pressure on prices, says Gregory Klump, CREA’s chief economist.
Agents right across the city have been increasingly seeing bid dates come and go on homes with low or no offers at all.
Banks have also become more aggressive lately about trying to bring sense back to Toronto’s housing market which has been unusually heated since the spring because of low interest rates and a shortage of inventory, agents say.
In one recent case, a buyer emerged victorious from a bidding war for a loft condo on Carlaw Ave., only to be told by his bank — two days before closing — that the $335,000 property was only worth about $329,000.
The buyer had to scramble to come up with $6,000 to make up the difference between the sale price and what the bank was willing to finance. Otherwise, he would have had less a 20 per cent down payment and had to spend $6,500 just to insure the purchase through the Canada Mortgage and Housing Corp.
The average price of a house in Toronto hit $465,369 in September, up from $427,269 the same month last year. But when adjusted for seasonal fluctuations, the average price was actually down in September just slightly, 0.6 per cent, from August, according to figures released Monday by the Canadian Real Estate Association.
The numbers indicate that recent changes to mortgage regulations may also be helping ease some of the upward pressure on prices, says Gregory Klump, CREA’s chief economist.
Agents right across the city have been increasingly seeing bid dates come and go on homes with low or no offers at all.
Banks have also become more aggressive lately about trying to bring sense back to Toronto’s housing market which has been unusually heated since the spring because of low interest rates and a shortage of inventory, agents say.
In one recent case, a buyer emerged victorious from a bidding war for a loft condo on Carlaw Ave., only to be told by his bank — two days before closing — that the $335,000 property was only worth about $329,000.
The buyer had to scramble to come up with $6,000 to make up the difference between the sale price and what the bank was willing to finance. Otherwise, he would have had less a 20 per cent down payment and had to spend $6,500 just to insure the purchase through the Canada Mortgage and Housing Corp.
Friday, September 30, 2011
Condo investors making us a town of renters
Toronto Councillor Adam Vaughan can tell the minute he looks at a condo building in his downtown ward if it’s full of renters or home to owners.
“The bigger the building, the higher the rate of renters,” says Vaughan.
The optics can be even more obvious when he steps inside. Even newer buildings can have the feel of university dormitories with shabby lobbies and cheap carpeting meant to keep down maintenance costs for investors who own a unit or two but may live half a world away.
With Toronto’s condo market among the hottest in the world right now — almost 68,000 new units are now in the planning stages or under construction across the GTA — investors are cashing in big time on what looks like a sure bet compared to battered stock markets.
Some 45 to 60 per cent of all new condos planned for the GTA are being snapped up by investors, says market research group Urbanation. That number is believed to be closer to 80 per cent in the downtown core where 12 new highrises, with 5,707 new units, are creeping floor by floor into the Toronto skyline right now.
That frenzy of investor activity is now being seen — and felt — as developers try to keep condo prices down by building more, and smaller, units meant to maximize investments for people who will never have to live in studios smaller than hotel rooms.
The surge of investors is part of the reason new downtown units are now averaging just 749 square feet — about half the 1,440 square feet average being built in crowded Manhattan.
While there are growing concerns about where Toronto’s condo market is heading, the activity here comes as a shock to Jonathan Miller who monitors the U.S. as president and CEO of Manhattan-based Miller Samuel Real Estate Appraisers & Consultants.
“If this isn’t a bubble, I don’t know what is,” says Miller. “This is going to end badly.
“You can’t have such a rapid influx of supply without this going too far. One thing I’ve learned is that builders will build until they can’t build anymore.”
Ben Myers disagrees. The editor and executive vice president of Urbanation has recently started tracking rental demand for those condos.
“This (condo building spree) is providing the city’s rental stock,” he says, adding that some 100,000 new people are flocking to the GTA each year.
“We are one of the only markets in the world that is catering to renters and first-time buyers by creating these smaller suites. In my view, this is absolutely the best approach. Great cities grow and expand, they have people walking around and you can only do that if you have a lot of people living downtown.”
While Vaughan has fought hard to see continued construction of larger and three-bedroom units that provide a better mix of residents, he finds older condo dwellers are gravitating to smaller buildings where the number of owner-occupants tends to be higher.
Developer Peter Cortellucci has seen what’s happening downtown and his Cortel Group made a conscious decision to head the other direction. Its five new condo towers planned for the Vaughan Metropolitan Centre at Highway 7 and Jane St. will feature bigger units and sales contracts discourage buyers just looking for units to rent out.
“We’re trying to create a sense of community and a neighbourhood where people actually live,” says Cortellucci, vice president of Cortel.
“We took a bit of a risk with large units and we’ve been quite successful so far. We wanted people to come in and say, ‘I could really live here.’ We didn’t want it to be too far a stretch from their homes.”
Whether you are looking to purchase a new home or an investment property, I'm here to help. Contact me today.
“The bigger the building, the higher the rate of renters,” says Vaughan.
The optics can be even more obvious when he steps inside. Even newer buildings can have the feel of university dormitories with shabby lobbies and cheap carpeting meant to keep down maintenance costs for investors who own a unit or two but may live half a world away.
With Toronto’s condo market among the hottest in the world right now — almost 68,000 new units are now in the planning stages or under construction across the GTA — investors are cashing in big time on what looks like a sure bet compared to battered stock markets.
Some 45 to 60 per cent of all new condos planned for the GTA are being snapped up by investors, says market research group Urbanation. That number is believed to be closer to 80 per cent in the downtown core where 12 new highrises, with 5,707 new units, are creeping floor by floor into the Toronto skyline right now.
That frenzy of investor activity is now being seen — and felt — as developers try to keep condo prices down by building more, and smaller, units meant to maximize investments for people who will never have to live in studios smaller than hotel rooms.
The surge of investors is part of the reason new downtown units are now averaging just 749 square feet — about half the 1,440 square feet average being built in crowded Manhattan.
While there are growing concerns about where Toronto’s condo market is heading, the activity here comes as a shock to Jonathan Miller who monitors the U.S. as president and CEO of Manhattan-based Miller Samuel Real Estate Appraisers & Consultants.
“If this isn’t a bubble, I don’t know what is,” says Miller. “This is going to end badly.
“You can’t have such a rapid influx of supply without this going too far. One thing I’ve learned is that builders will build until they can’t build anymore.”
Ben Myers disagrees. The editor and executive vice president of Urbanation has recently started tracking rental demand for those condos.
“This (condo building spree) is providing the city’s rental stock,” he says, adding that some 100,000 new people are flocking to the GTA each year.
“We are one of the only markets in the world that is catering to renters and first-time buyers by creating these smaller suites. In my view, this is absolutely the best approach. Great cities grow and expand, they have people walking around and you can only do that if you have a lot of people living downtown.”
While Vaughan has fought hard to see continued construction of larger and three-bedroom units that provide a better mix of residents, he finds older condo dwellers are gravitating to smaller buildings where the number of owner-occupants tends to be higher.
Developer Peter Cortellucci has seen what’s happening downtown and his Cortel Group made a conscious decision to head the other direction. Its five new condo towers planned for the Vaughan Metropolitan Centre at Highway 7 and Jane St. will feature bigger units and sales contracts discourage buyers just looking for units to rent out.
“We’re trying to create a sense of community and a neighbourhood where people actually live,” says Cortellucci, vice president of Cortel.
“We took a bit of a risk with large units and we’ve been quite successful so far. We wanted people to come in and say, ‘I could really live here.’ We didn’t want it to be too far a stretch from their homes.”
Whether you are looking to purchase a new home or an investment property, I'm here to help. Contact me today.
Monday, September 26, 2011
Economic trends that are affecting you
Home prices to stabalise
Housing prices in the Greater Toronto Area won’t be skyrocketing as much over the next few months as they did over the last year or so, says an analyst with the Toronto Real Estate Board.
That’s because more houses are being put on the market, according to Jason Mercer.
“With the prices having risen the way they did, more people are going to start listing because they think they can take advantage of the prices they’ll get,” said Mercer. If enough people list, that can drive prices down.
“There’s no question that it’s been a seller’s market recently, but as more inventory comes onto the market, things will start to become more balanced,” Mercer said.
Still, Mercer isn’t expecting prices to be slashed – he just doesn’t think they’re going to rise as quickly
“I still think there’s enough support for some price increases, but it’s not going to be what it has been,” Mercer said. The average price of a home in the Greater Toronto Area was $451,000 in August, up 10 per cent from the same time last year.
Housing prices in the Greater Toronto Area won’t be skyrocketing as much over the next few months as they did over the last year or so, says an analyst with the Toronto Real Estate Board.
That’s because more houses are being put on the market, according to Jason Mercer.
“With the prices having risen the way they did, more people are going to start listing because they think they can take advantage of the prices they’ll get,” said Mercer. If enough people list, that can drive prices down.
“There’s no question that it’s been a seller’s market recently, but as more inventory comes onto the market, things will start to become more balanced,” Mercer said.
Still, Mercer isn’t expecting prices to be slashed – he just doesn’t think they’re going to rise as quickly
“I still think there’s enough support for some price increases, but it’s not going to be what it has been,” Mercer said. The average price of a home in the Greater Toronto Area was $451,000 in August, up 10 per cent from the same time last year.
Friday, September 16, 2011
GTA home prices hit new high
By Sue Pigg
Toronto home sales were up 2 per cent in August over July, outpacing the rest of the country where sales declined 0.5 per cent, according to figures from the Canadian Real Estate Association.
Average house prices were down slightly across the GTA in August, to $451,663 from July’s average of $459,122.
However, average prices recorded in August were up 10 per cent year-over-year.
An easing of demand for high-end homes in both Toronto and Vancouver, which had been putting upward pressure on average prices right across the country, saw average Canadian prices decline to $349,916 in August from $361,181 in July.
The average price of a house or condo in Canada was up 7.7 per cent in August from a year ago, said Gregory Klump, CREA’s chief economist.
The price of a detached house in Toronto hit a record $648,491 in August — compared to $531,458 in the 905 regions — largely because of a shortage of listings. But prices are expected to ease somewhat as more houses come on the market over the next few weeks.
There were a record number of balanced markets across Canada in August, which included the GTA, said Klump. That means there was, for the most part, a healthy ratio of homes for sale to people looking to buy.
While Toronto’s spring market was unusually hot, fuelling bidding wars and double-digit price increases, those are expected to ease back into the low- or mid-single digit range going into 2012, said Jason Mercer, the Toronto Real Estate Board’s senior manager of market analysis.
“Looking ahead, less favourable economic fundamentals and heightened financial uncertainty are likely to take more wind out of the market’s sails,” said TD Economics housing analyst Francis Fong.
He expects the market to continue to “oscillate alongside the rest of the economy” until the end of 2012, and predicts house prices could drop about 10 per cent from current levels when interest rates eventually start to rise, likely in early 2013, said Fong.
Some 324,030 homes have changed hands in Canada so far this year via MLS, according to CREA.
“This bumpy ride that the global economy and financial markets are on is good for the continuation of low interest rates and low interest rates are good for the housing market,” said Klump.
Contact me to see how much your home is worth.
Toronto home sales were up 2 per cent in August over July, outpacing the rest of the country where sales declined 0.5 per cent, according to figures from the Canadian Real Estate Association.
Average house prices were down slightly across the GTA in August, to $451,663 from July’s average of $459,122.
However, average prices recorded in August were up 10 per cent year-over-year.
An easing of demand for high-end homes in both Toronto and Vancouver, which had been putting upward pressure on average prices right across the country, saw average Canadian prices decline to $349,916 in August from $361,181 in July.
The average price of a house or condo in Canada was up 7.7 per cent in August from a year ago, said Gregory Klump, CREA’s chief economist.
The price of a detached house in Toronto hit a record $648,491 in August — compared to $531,458 in the 905 regions — largely because of a shortage of listings. But prices are expected to ease somewhat as more houses come on the market over the next few weeks.
There were a record number of balanced markets across Canada in August, which included the GTA, said Klump. That means there was, for the most part, a healthy ratio of homes for sale to people looking to buy.
While Toronto’s spring market was unusually hot, fuelling bidding wars and double-digit price increases, those are expected to ease back into the low- or mid-single digit range going into 2012, said Jason Mercer, the Toronto Real Estate Board’s senior manager of market analysis.
“Looking ahead, less favourable economic fundamentals and heightened financial uncertainty are likely to take more wind out of the market’s sails,” said TD Economics housing analyst Francis Fong.
He expects the market to continue to “oscillate alongside the rest of the economy” until the end of 2012, and predicts house prices could drop about 10 per cent from current levels when interest rates eventually start to rise, likely in early 2013, said Fong.
Some 324,030 homes have changed hands in Canada so far this year via MLS, according to CREA.
“This bumpy ride that the global economy and financial markets are on is good for the continuation of low interest rates and low interest rates are good for the housing market,” said Klump.
Contact me to see how much your home is worth.
Thursday, August 25, 2011
Milton boom pushes Halton home sales to a high
Moneyville - Wed Aug 24 2011
All that hot weather did nothing to cool buyers’ heels as new home sales surged in July across the greater Toronto region.
Halton region recorded the biggest spike: a 305.4 per cent increase in new home sales compared to July 2010 and a 214 per cent increase in condo sales. Most of these were in the Milton area.
Toronto registered an unusual 90.5 per cent gain, thanks largely to sales at The Neighbourhoods of Queen St. E., a chic townhouse development underway near Boulton Ave. and Clark St.
Across the GTA, the volume of sales rose an average 36 per cent.
Most of that increase came in the 905 region, which reported a 64 per cent spike in house sales and a 20 per cent jump in condo sales, according to statistics released Monday by the Building Industry and Land Development Association (BILD).
“It speaks to this island that the GTA has become. We are the largest new home housing market in North America, by far, right now,” said BILD president Stephen Dupuis.
Almost 27,000 new homes and condos have been built in the GTA so far this year, up 22.2 per cent from the same period last year.
“The public perception is that the economy is weaker than it is, but the real estate market is defying that. It has been for months,” said Dupuis.
Neighbouring Peel saw a significant decline in condo sales, almost 90 per cent, compared to a July 2010, when a number of new buildings opened in Mississauga and Brampton.
Dupuis noted there’s a lingering lack of supply in the new home sector across the GTA, with just a five-month backlog of new properties on the market.
All that hot weather did nothing to cool buyers’ heels as new home sales surged in July across the greater Toronto region.
Halton region recorded the biggest spike: a 305.4 per cent increase in new home sales compared to July 2010 and a 214 per cent increase in condo sales. Most of these were in the Milton area.
Toronto registered an unusual 90.5 per cent gain, thanks largely to sales at The Neighbourhoods of Queen St. E., a chic townhouse development underway near Boulton Ave. and Clark St.
Across the GTA, the volume of sales rose an average 36 per cent.
Most of that increase came in the 905 region, which reported a 64 per cent spike in house sales and a 20 per cent jump in condo sales, according to statistics released Monday by the Building Industry and Land Development Association (BILD).
“It speaks to this island that the GTA has become. We are the largest new home housing market in North America, by far, right now,” said BILD president Stephen Dupuis.
Almost 27,000 new homes and condos have been built in the GTA so far this year, up 22.2 per cent from the same period last year.
“The public perception is that the economy is weaker than it is, but the real estate market is defying that. It has been for months,” said Dupuis.
Neighbouring Peel saw a significant decline in condo sales, almost 90 per cent, compared to a July 2010, when a number of new buildings opened in Mississauga and Brampton.
Dupuis noted there’s a lingering lack of supply in the new home sector across the GTA, with just a five-month backlog of new properties on the market.
Tuesday, August 16, 2011
Market downturn could jeopardize surprisingly strong housing market
By Sunny Freeman, The Canadian Press
A stronger than expected housing market has helped propel growth in the Canadian economy this year, but economists say recent economic and market tumult could jeopardize momentum in the sector.
The Canada Mortgage and Housing Corp. said Monday that national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and 4.3 per cent more than the 196,600 recorded this June.
However, the pickup, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year, rather than expectations of coming growth.
Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.
During the first half of last year, the market was rebounding from recession and buyers were on a tear, prompting an influx of demand and the need to build more units.
Housing starts tend to lag activity in the resale market, and economists believe the recent strong construction activity is the result of increased demand last year.
But they doubt whether the pace can continue as the prospect of a double dip recession in the U.S. forces them to rethink the prospects for economic growth in Canada.
The housing market and the Canadian economy as a whole are more susceptible to an economic downturn than they were at the outset of the 2008-2009 recession, said Diana Petramala, an economist with TD Bank.
"Households aren't starting in a position where they have a strong ability to take on more debt (and) continue spending despite the economic downturn and help drive a recovery," Petramala said.
"I think at this point . . . households would start to ease on their rate of borrowing and probably cut back on purchases."
Any continuation of stock market volatility could weaken consumer and business confidence, meaning that households may hold back on big ticket purchases like home buying and developers could be jittery about new builds, she added.
"Home prices in Canada are 10 to 15 per cent overvalued, particularly in Toronto and Vancouver," she said. "That certainly leaves the market susceptible to any potential economic downturn."
TD Economics has predicted that home prices will contract by about 16 per cent in 2011-2012, but Petramala said that could now happen sooner than expected.
Stock markets — although they rebounded sharply on Tuesday — have seen severe selloffs in recent days over fears about U.S. and European debt loads and the potential for a double-dip recession south of the border.
The Canadian economy is so closely linked to the U.S. that slower American growth translates into less demand for Canadian goods, and lower employment and income growth in Canada.
Those worries could soon sour the mood of real estate investors who may not want to bet on an improving economy by the time new builds go on the market.
Buyer sentiment is "vulnerable to recent market turmoil," as the large decline on stock markets has a negative effect on consumer wealth and confidence, making them less inclined to make big purchases, said CIBC economist Peter Buchanan.
"That of course can cut both ways, it can make investors fearful of buying real estate, on the other hand it does mean the Bank of Canada won't be tightening quite as early," Buchanan said.
"The other thing is that if people are worried about putting their money into the equity market, hey real estate may not look so bad."
Many observers believe the Bank of Canada may now hold its overnight rate — which affects variable mortgage rates tied to bank prime rates — at the current low one per cent until next spring. Fixed rate mortgages could also fall as bond markets react to government debt issues.
The U.S. Federal Reserve announced Tuesday that it will likely keep interest rates at record lows near zero through mid-2013. The Fed had previously said only that it would keep it low for "an extended period" and the more explicit time frame was aimed at giving nervous investors a clearer picture of how long they will be able to obtain ultra-cheap credit.
Low mortgage rates are a big incentive for buyers to get into the market, and led to rampant activity last year.
But even with low rates that make the cost of carrying a mortgage cheaper, pent up demand in the housing market could be largely exhausted.
Many buyers rushed into the market during the closing months of 2009 and early 2010, when the Bank of Canada rate was set at an emergency low of 0.25 per cent. Others decided to buy before the implementation of the new HST in Ontario and British Colombia in July 2010, or to beat two rounds of tighter lending rules.
The trend toward much higher construction on multiple-unit dwellings, and a decline in single family starts, could indicate the housing market isn't as strong as it appears at first glance. Single family homes are usually the barometer of growth in household formation and more multiple unit homes could signal more people are looking to rent.
Multiple urban starts were 13 per cent higher at 120,200 units, while urban single starts decreased by 7.8 per cent to 65,000 units.
For the first seven months of 2011, multiple units starts are up 16.4 per cent year over year while single units are down 22.1 per cent.
CMHC overall urban starts were up 36.1 per cent in the Atlantic region, 33 per cent in British Columbia and 1.7 per cent in Ontario. Quebec posted a decrease of 7.8 per cent in July, while urban starts were off 0.3 per cent in the Prairies.
A stronger than expected housing market has helped propel growth in the Canadian economy this year, but economists say recent economic and market tumult could jeopardize momentum in the sector.
The Canada Mortgage and Housing Corp. said Monday that national housing starts rose to 205,100 units on a seasonally adjusted basis in July, 11.6 per cent higher than the 188,900 reported in the same month last year and 4.3 per cent more than the 196,600 recorded this June.
However, the pickup, driven by strong construction on condos and apartment buildings in urban centres, is likely due to builders catching up to robust demand last year, rather than expectations of coming growth.
Home building activity has been increasing through the first seven months of 2011, but starts are still down 4.6 per cent from a year ago.
During the first half of last year, the market was rebounding from recession and buyers were on a tear, prompting an influx of demand and the need to build more units.
Housing starts tend to lag activity in the resale market, and economists believe the recent strong construction activity is the result of increased demand last year.
But they doubt whether the pace can continue as the prospect of a double dip recession in the U.S. forces them to rethink the prospects for economic growth in Canada.
The housing market and the Canadian economy as a whole are more susceptible to an economic downturn than they were at the outset of the 2008-2009 recession, said Diana Petramala, an economist with TD Bank.
"Households aren't starting in a position where they have a strong ability to take on more debt (and) continue spending despite the economic downturn and help drive a recovery," Petramala said.
"I think at this point . . . households would start to ease on their rate of borrowing and probably cut back on purchases."
Any continuation of stock market volatility could weaken consumer and business confidence, meaning that households may hold back on big ticket purchases like home buying and developers could be jittery about new builds, she added.
"Home prices in Canada are 10 to 15 per cent overvalued, particularly in Toronto and Vancouver," she said. "That certainly leaves the market susceptible to any potential economic downturn."
TD Economics has predicted that home prices will contract by about 16 per cent in 2011-2012, but Petramala said that could now happen sooner than expected.
Stock markets — although they rebounded sharply on Tuesday — have seen severe selloffs in recent days over fears about U.S. and European debt loads and the potential for a double-dip recession south of the border.
The Canadian economy is so closely linked to the U.S. that slower American growth translates into less demand for Canadian goods, and lower employment and income growth in Canada.
Those worries could soon sour the mood of real estate investors who may not want to bet on an improving economy by the time new builds go on the market.
Buyer sentiment is "vulnerable to recent market turmoil," as the large decline on stock markets has a negative effect on consumer wealth and confidence, making them less inclined to make big purchases, said CIBC economist Peter Buchanan.
"That of course can cut both ways, it can make investors fearful of buying real estate, on the other hand it does mean the Bank of Canada won't be tightening quite as early," Buchanan said.
"The other thing is that if people are worried about putting their money into the equity market, hey real estate may not look so bad."
Many observers believe the Bank of Canada may now hold its overnight rate — which affects variable mortgage rates tied to bank prime rates — at the current low one per cent until next spring. Fixed rate mortgages could also fall as bond markets react to government debt issues.
The U.S. Federal Reserve announced Tuesday that it will likely keep interest rates at record lows near zero through mid-2013. The Fed had previously said only that it would keep it low for "an extended period" and the more explicit time frame was aimed at giving nervous investors a clearer picture of how long they will be able to obtain ultra-cheap credit.
Low mortgage rates are a big incentive for buyers to get into the market, and led to rampant activity last year.
But even with low rates that make the cost of carrying a mortgage cheaper, pent up demand in the housing market could be largely exhausted.
Many buyers rushed into the market during the closing months of 2009 and early 2010, when the Bank of Canada rate was set at an emergency low of 0.25 per cent. Others decided to buy before the implementation of the new HST in Ontario and British Colombia in July 2010, or to beat two rounds of tighter lending rules.
The trend toward much higher construction on multiple-unit dwellings, and a decline in single family starts, could indicate the housing market isn't as strong as it appears at first glance. Single family homes are usually the barometer of growth in household formation and more multiple unit homes could signal more people are looking to rent.
Multiple urban starts were 13 per cent higher at 120,200 units, while urban single starts decreased by 7.8 per cent to 65,000 units.
For the first seven months of 2011, multiple units starts are up 16.4 per cent year over year while single units are down 22.1 per cent.
CMHC overall urban starts were up 36.1 per cent in the Atlantic region, 33 per cent in British Columbia and 1.7 per cent in Ontario. Quebec posted a decrease of 7.8 per cent in July, while urban starts were off 0.3 per cent in the Prairies.
Thursday, August 4, 2011
Why becoming a landlord can pay off
By Rubina Ahmed-Haq
When I started my first permanent job as a journalist in 2004, I made the best financial decision of my life — I invested in two rental properties with my brother.
While many of our friends were living in chic condominiums, we were chasing tenants for rent and fixing leaky pipes.
We made mistakes that cost us time and money, but years later we're financially ahead.
Our first investment was a triplex in east Toronto. We took the lowest available five-year, fixed-rate mortgage. Considering the low interest-rate environment that followed, a variable rate would have saved us more than $20,000. But at the time, we were unwilling to take the risk.
With no time or money to renovate, we chose a house that was in move-in condition.
It closed at the beginning of the month, giving us enough time to advertise and have renters in place before the first mortgage payment was due. We moved into one unit and rented out the other two.
From the beginning we paid rent. After all, we were tenants in our investment.
Eighteen months later we took equity out of the investment and bought another property in the same area. We stuck to what we knew and we bought another turnkey triplex.
For the first three years we managed both properties, which was a lot of work. From taking calls in the middle of the night when the furnace broke to the death of a tenant, this was real work and we often thought of quitting.
We also made a lot of mistakes.
In the beginning, we didn't keep a good account of the money we spent on our investment.
Also, we missed opportunities to write off expenses; we saw our tenants as friends and were lax in collecting rent. And we often spent weekends removing snow and throwing out garbage that was piling up because we had failed to create a system for general maintenance.
And, as bad as it sounds, our biggest mistake was borrowing money to put down a responsible 20 per cent on our first property. At the time, 5 per cent would have been enough, and we could have written off the mortgage interest, saving thousands.
After a few years of managing on our own, we sought professional help. We had both moved into our own homes, so we hired a property manager to oversee the six units. His company charges 6 per cent of total rent revenue collected each month. He finds the tenants, does the credit checks and deals with the day-to-day calls.
We're not out-of-touch landlords. My brother and I meet once a month to go over our account, do the checks and balances and bring up any concerns.
We also have a line of credit against our investment. This is our business line and we pay all the bills from it. The interest on this loan is tax deductible and we pay it down with the money collected from rent.
It's also good to have one accountant looking at all the tax claims in your family. It gives them a holistic view of your financial situation and helps identify opportunities to save money. Ours is great. She's not cheap — last year I paid more than $800 in fees — but her advice has saved us thousands over the last few years.
When the time came to renew our first mortgage, I quickly learned banks offer better treatment to new customers and we could take advantage of this fact. Mortgages are banks' biggest business, and they're willing to offer huge incentives to make you a client. We moved our business from one major bank to another and collected thousands in cash-back incentives.
Both of us are in our 30s and we estimate the properties will be paid off by the time we're in our early 50s. Conservatively our real-estate agent says our houses are worth 45 per cent more than what we paid. We realize we've benefited from the housing price boom, but according to the Toronto Real Estate Board the long-term trends are still good. Even with the threat of a house price correction we're okay.
Real-estate investment is not for everyone. If you're a so-called couch-potato investor, don't become a landlord.
In the beginning it's a lot of work. But for us it was worth it and I feel good knowing our investments are growing.
Life only gets more expensive — I realize now the disposable income I had during my first job was the most I will probably ever have and investing it was the smartest move I made.
When I started my first permanent job as a journalist in 2004, I made the best financial decision of my life — I invested in two rental properties with my brother.
While many of our friends were living in chic condominiums, we were chasing tenants for rent and fixing leaky pipes.
We made mistakes that cost us time and money, but years later we're financially ahead.
Our first investment was a triplex in east Toronto. We took the lowest available five-year, fixed-rate mortgage. Considering the low interest-rate environment that followed, a variable rate would have saved us more than $20,000. But at the time, we were unwilling to take the risk.
With no time or money to renovate, we chose a house that was in move-in condition.
It closed at the beginning of the month, giving us enough time to advertise and have renters in place before the first mortgage payment was due. We moved into one unit and rented out the other two.
From the beginning we paid rent. After all, we were tenants in our investment.
Eighteen months later we took equity out of the investment and bought another property in the same area. We stuck to what we knew and we bought another turnkey triplex.
For the first three years we managed both properties, which was a lot of work. From taking calls in the middle of the night when the furnace broke to the death of a tenant, this was real work and we often thought of quitting.
We also made a lot of mistakes.
In the beginning, we didn't keep a good account of the money we spent on our investment.
Also, we missed opportunities to write off expenses; we saw our tenants as friends and were lax in collecting rent. And we often spent weekends removing snow and throwing out garbage that was piling up because we had failed to create a system for general maintenance.
And, as bad as it sounds, our biggest mistake was borrowing money to put down a responsible 20 per cent on our first property. At the time, 5 per cent would have been enough, and we could have written off the mortgage interest, saving thousands.
After a few years of managing on our own, we sought professional help. We had both moved into our own homes, so we hired a property manager to oversee the six units. His company charges 6 per cent of total rent revenue collected each month. He finds the tenants, does the credit checks and deals with the day-to-day calls.
We're not out-of-touch landlords. My brother and I meet once a month to go over our account, do the checks and balances and bring up any concerns.
We also have a line of credit against our investment. This is our business line and we pay all the bills from it. The interest on this loan is tax deductible and we pay it down with the money collected from rent.
It's also good to have one accountant looking at all the tax claims in your family. It gives them a holistic view of your financial situation and helps identify opportunities to save money. Ours is great. She's not cheap — last year I paid more than $800 in fees — but her advice has saved us thousands over the last few years.
When the time came to renew our first mortgage, I quickly learned banks offer better treatment to new customers and we could take advantage of this fact. Mortgages are banks' biggest business, and they're willing to offer huge incentives to make you a client. We moved our business from one major bank to another and collected thousands in cash-back incentives.
Both of us are in our 30s and we estimate the properties will be paid off by the time we're in our early 50s. Conservatively our real-estate agent says our houses are worth 45 per cent more than what we paid. We realize we've benefited from the housing price boom, but according to the Toronto Real Estate Board the long-term trends are still good. Even with the threat of a house price correction we're okay.
Real-estate investment is not for everyone. If you're a so-called couch-potato investor, don't become a landlord.
In the beginning it's a lot of work. But for us it was worth it and I feel good knowing our investments are growing.
Life only gets more expensive — I realize now the disposable income I had during my first job was the most I will probably ever have and investing it was the smartest move I made.
Friday, June 17, 2011
Carney warns of trouble in overheated housing market once interest rates rise
Keven Drews, The Canadian Press
VANCOUVER - Canada's housing market is entering overheated territory and many Canadians could be financially hurt once interest rates begin to rise, Bank of Canada governor Mark Carney is warning.
The central banker on took his case for moderation on Wednesday to Vancouver, the epicentre of Canada's hot housing market where he says home prices are now on par with Hong Kong and Sydney, Australia, as they relate to average incomes.
And some sectors of the market, like condos in big cities, could overshoot because of speculation from foreign investors.
The housing market is still expected to moderate, he said, but recent signals have been mixed.
Carney has been cautioning Canadians for about two year against getting overextended on mortgage borrowing, but Wednesday's speech to the Vancouver Board of Trade suggested some frustration that his words have mostly fallen on deaf ears.
The governor said he has been expecting the housing market to slow, but besides some stuttering signals, it has picked up again of late along with borrowing and mortgage credit.
Once again, Carney repeated his warning to Canadians about becoming overextended.
"It is important that it's emphasized, because it can be forgotten, that we are living in extraordinary times with interest rates that are unusually low, that the outlook for the Canadian economy, the strength of the Canadian economy, the expectations both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels," he said told a later news conference.
"And so Canadians in taking on debt, or Vancouverites, more specifically, in taking on debt, need to...ensure that they can continue to service those debts comfortably in a higher-rate environment."
Carney' speech came on the day the Canadian Real Estate Association released new data showing that average resale home prices rose 8.6 per cent in May from a year ago, and that in Vancouver prices were up 25.7 per cent to $831,555.
At those levels, Carney said Vancouverites are paying 11 times family household income for a home, a multiple similar to global housing hot spots Hong Kong and Sydney, Australia.
When asked if he had any advice to young people who hope to buy a house in Vancouver, Carney responded, "Well, get a good job. That would probably be a good one. Study hard, stay in school and get a good job. How's that?"
The situation is not as dramatic in the rest of the country, but it's bad enough, he said.
He noted that it took nearly 12 years for real estate investment to regain its peak after the 1990s recession. It has taken a year and a half this time and, in fact, average home prices are now 13 per cent higher than where they stood before the 2008-2009 slump.
Carney takes some of the blame for the unprecedented run-up in prices, since the key difference between the two eras is that he drove interest rates down to historic lows in order to salvage the economy. The policy succeeded, but at a cost of driving investment from more productive outlets of the economy to housing.
But he also lays some blame on home buyers, who he implies should know better. He said some Canadians are taking on mortgages as if they believe current ultra-low rates will last forever. They won't, he warns.
"Rates will not remain at their current levels forever," he said. "(And) the impact of eventual increases is likely to be greater than in previous cycles."
A four per cent real mortgage interest rate would see home affordability in Canada fall to the worst level in 16 years, he said. The current real mortgage interest rate, which excludes inflation, is about 2.4 per cent.
Other than issuing a general alert, Carney gave few hints what he can do about it and implied that the ball is in the federal government's court to tighten borrowing requirements again if necessary.
Carney refused to comment when asked whether the government should restrict home ownership to those with Canadian citizenship.
"Obviously, if one restricts demand and takes an important element of marginal demand out of the equation there's going to be an adjustment to price," he said.
"But those type of decisions are decisions for communities to make, and they're complex decisions, and nothing should be read into our commentary about the current environment and housing, whether it’s in Vancouver or across the country."
"We're not weighing into that issue at all."
Finance Minister Jim Flaherty this week also expressed concern with household debt — now amounting to a record $1.5 trillion in the aggregate — and noted he has tightened mortgage requirements three times in the past three years.
Carney suggested in his speech that he will use monetary policy, or interest rate setting, to impact the inflation rate and not exclusively the housing market. Read More..
VANCOUVER - Canada's housing market is entering overheated territory and many Canadians could be financially hurt once interest rates begin to rise, Bank of Canada governor Mark Carney is warning.
The central banker on took his case for moderation on Wednesday to Vancouver, the epicentre of Canada's hot housing market where he says home prices are now on par with Hong Kong and Sydney, Australia, as they relate to average incomes.
And some sectors of the market, like condos in big cities, could overshoot because of speculation from foreign investors.
The housing market is still expected to moderate, he said, but recent signals have been mixed.
Carney has been cautioning Canadians for about two year against getting overextended on mortgage borrowing, but Wednesday's speech to the Vancouver Board of Trade suggested some frustration that his words have mostly fallen on deaf ears.
The governor said he has been expecting the housing market to slow, but besides some stuttering signals, it has picked up again of late along with borrowing and mortgage credit.
Once again, Carney repeated his warning to Canadians about becoming overextended.
"It is important that it's emphasized, because it can be forgotten, that we are living in extraordinary times with interest rates that are unusually low, that the outlook for the Canadian economy, the strength of the Canadian economy, the expectations both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels," he said told a later news conference.
"And so Canadians in taking on debt, or Vancouverites, more specifically, in taking on debt, need to...ensure that they can continue to service those debts comfortably in a higher-rate environment."
Carney' speech came on the day the Canadian Real Estate Association released new data showing that average resale home prices rose 8.6 per cent in May from a year ago, and that in Vancouver prices were up 25.7 per cent to $831,555.
At those levels, Carney said Vancouverites are paying 11 times family household income for a home, a multiple similar to global housing hot spots Hong Kong and Sydney, Australia.
When asked if he had any advice to young people who hope to buy a house in Vancouver, Carney responded, "Well, get a good job. That would probably be a good one. Study hard, stay in school and get a good job. How's that?"
The situation is not as dramatic in the rest of the country, but it's bad enough, he said.
He noted that it took nearly 12 years for real estate investment to regain its peak after the 1990s recession. It has taken a year and a half this time and, in fact, average home prices are now 13 per cent higher than where they stood before the 2008-2009 slump.
Carney takes some of the blame for the unprecedented run-up in prices, since the key difference between the two eras is that he drove interest rates down to historic lows in order to salvage the economy. The policy succeeded, but at a cost of driving investment from more productive outlets of the economy to housing.
But he also lays some blame on home buyers, who he implies should know better. He said some Canadians are taking on mortgages as if they believe current ultra-low rates will last forever. They won't, he warns.
"Rates will not remain at their current levels forever," he said. "(And) the impact of eventual increases is likely to be greater than in previous cycles."
A four per cent real mortgage interest rate would see home affordability in Canada fall to the worst level in 16 years, he said. The current real mortgage interest rate, which excludes inflation, is about 2.4 per cent.
Other than issuing a general alert, Carney gave few hints what he can do about it and implied that the ball is in the federal government's court to tighten borrowing requirements again if necessary.
Carney refused to comment when asked whether the government should restrict home ownership to those with Canadian citizenship.
"Obviously, if one restricts demand and takes an important element of marginal demand out of the equation there's going to be an adjustment to price," he said.
"But those type of decisions are decisions for communities to make, and they're complex decisions, and nothing should be read into our commentary about the current environment and housing, whether it’s in Vancouver or across the country."
"We're not weighing into that issue at all."
Finance Minister Jim Flaherty this week also expressed concern with household debt — now amounting to a record $1.5 trillion in the aggregate — and noted he has tightened mortgage requirements three times in the past three years.
Carney suggested in his speech that he will use monetary policy, or interest rate setting, to impact the inflation rate and not exclusively the housing market. Read More..
Tuesday, June 14, 2011
Recreational property markets bouncing back
OTTAWA — Canada’s recreational property market appears to be bouncing back from a recessionary lull as buyers seek to capitalize on equity and stock-market gains, Re/Max says in a report Monday.
Demand rose 78% in the 46 markets across the country covered by the realtor’s Recreational Property Report, while sales had risen or were on par in 41% of those centres.
“Buyers who held off during the recession are back in recreational property markets from coast-to-coast,” says Pamela Alexander, chief executive of Re/Max for Ontario-Atlantic Canada. “Their patience has been rewarded with more affordable recreational values and greater inventory levels.”
While prices have remained stable in many markets, values could be found for higher-end properties, pushing luxury sales higher in almost half of the markets examined, Re/Max said in its report.
Opportunities were also to be found in Western Canada.
“Prices are down as much as 20% from peak levels reported in 2006-2007, bringing ownership within reach to many potential purchasers,” said Elton Ash, regional executive vice-president of Re/Max in Western Canada.
On British Columbia’s Salt Spring Island, for example, starting prices for oceanfront properties have fallen to $669,000 today from $1.3-million in 2008.
In the North Okanagan Valley, a three-bedroom, winterized recreational property on a standard-sized waterfront lot — the common measures used in Re/Max’s report — that sold for $1.5-million in 2008 now sells for $995,000.
Starting prices for similar properties on Alberta’s Sylvan Lake are now at $800,000 from $1.25-million previously and in the Rocky Mountain resort town of Canmore, a two-bedroom condo has fallen to $229,000 from $320,000.
“The strengthening oil sector has . . . brought Albertans back into mix, driving demand for both local and coastal B.C. properties,” Ash said.
Another factor influencing the recreational property market has been that Americans who bought when the Canadian dollar was at 65 U.S. cents are now cashing out, boosting inventories.
The report found that there has been some tightening for entry-level properties in about one-third of the markets covered. As well, it noted, the supply of properties has tightened considerably at the lower end in Ontario, Quebec and Atlantic Canada.
It also noted that recreational properties are moving more toward year-round homes, with fewer traditional cottages available for sale.
“These waterfront properties are disappearing from the landscape. Meanwhile, today’s average recreational getaways are truly earning the distinction as the “home away from home,” with many of the bells, whistles and comforts of their residential counterparts. Read More
Demand rose 78% in the 46 markets across the country covered by the realtor’s Recreational Property Report, while sales had risen or were on par in 41% of those centres.
“Buyers who held off during the recession are back in recreational property markets from coast-to-coast,” says Pamela Alexander, chief executive of Re/Max for Ontario-Atlantic Canada. “Their patience has been rewarded with more affordable recreational values and greater inventory levels.”
While prices have remained stable in many markets, values could be found for higher-end properties, pushing luxury sales higher in almost half of the markets examined, Re/Max said in its report.
Opportunities were also to be found in Western Canada.
“Prices are down as much as 20% from peak levels reported in 2006-2007, bringing ownership within reach to many potential purchasers,” said Elton Ash, regional executive vice-president of Re/Max in Western Canada.
On British Columbia’s Salt Spring Island, for example, starting prices for oceanfront properties have fallen to $669,000 today from $1.3-million in 2008.
In the North Okanagan Valley, a three-bedroom, winterized recreational property on a standard-sized waterfront lot — the common measures used in Re/Max’s report — that sold for $1.5-million in 2008 now sells for $995,000.
Starting prices for similar properties on Alberta’s Sylvan Lake are now at $800,000 from $1.25-million previously and in the Rocky Mountain resort town of Canmore, a two-bedroom condo has fallen to $229,000 from $320,000.
“The strengthening oil sector has . . . brought Albertans back into mix, driving demand for both local and coastal B.C. properties,” Ash said.
Another factor influencing the recreational property market has been that Americans who bought when the Canadian dollar was at 65 U.S. cents are now cashing out, boosting inventories.
The report found that there has been some tightening for entry-level properties in about one-third of the markets covered. As well, it noted, the supply of properties has tightened considerably at the lower end in Ontario, Quebec and Atlantic Canada.
It also noted that recreational properties are moving more toward year-round homes, with fewer traditional cottages available for sale.
“These waterfront properties are disappearing from the landscape. Meanwhile, today’s average recreational getaways are truly earning the distinction as the “home away from home,” with many of the bells, whistles and comforts of their residential counterparts. Read More
Friday, June 10, 2011
Would this happen in Canada?
Are you House Poor?
The great American Dream has always revolved around owning a home. Sure, having the 2.3 kids, the cushy corporate job and the stylish car to drive to work everyday are part of the myth, too, but nothing quite summed up Americana quite like the white picket fence. But if recent economic numbers are any clue, this dream is becoming a nightmare for many in the US.
According to date released by the United States Census Bureau, an increasing number of homeowners are spending a larger and larger amount of their incomes on housing than in previous years. People in 49 out of 50 states reported an increase. The only state that didn’t, Alaska, spent the same amount. The report showed that people are spending around 21 percent on their housing needs, up from 19 percent in 1999.
This is a huge problem for first-time buyers who may now be priced out of housing markets all across the country. Economists point to rises in home prices in the last 7 years, as well as higher interest rates, coupled with stagnant wages over the same period.
While everyone seems to be in agreement that the housing “bubble” is either bursting, or getting ready to burst depending on where you live, housing prices are still up a remarkable 32 percent since the beginning of the decade.
Household incomes, on the other hand, haven’t done a very good job of keeping up. The same Census report showed that income has actually dropped, not risen, over the past 7 years, down 2.8 percent.
Maybe the worst news in the report was the percent of people who allot more than 30% of their income for housing. The numbers are up almost 8%. National guidelines suggest that more than 30% of household income for housing is excessive and not financially healthy.
What does this mean in the long run?
Most experts agree that until income can catch up to housing, the real estate market will remain lifeless. And since real estate is one of the biggest drivers to the overall economy, a weak real estate market means a weak economy.
Things appear to be the worst in California. Not only do they have the most expensive real estate in the nation, 48 percent of California homeowners spend more than 30% of their income on housing related costs.
Until income can begin to grow as quickly as the real estate market, this trend shows no signs of slowing down. Which could mean that the upcoming real estate slump could last much longer than anyone predicted.
Need to know what your home is worth? Call me for a no obligation valuation of your home.
The great American Dream has always revolved around owning a home. Sure, having the 2.3 kids, the cushy corporate job and the stylish car to drive to work everyday are part of the myth, too, but nothing quite summed up Americana quite like the white picket fence. But if recent economic numbers are any clue, this dream is becoming a nightmare for many in the US.
According to date released by the United States Census Bureau, an increasing number of homeowners are spending a larger and larger amount of their incomes on housing than in previous years. People in 49 out of 50 states reported an increase. The only state that didn’t, Alaska, spent the same amount. The report showed that people are spending around 21 percent on their housing needs, up from 19 percent in 1999.
This is a huge problem for first-time buyers who may now be priced out of housing markets all across the country. Economists point to rises in home prices in the last 7 years, as well as higher interest rates, coupled with stagnant wages over the same period.
While everyone seems to be in agreement that the housing “bubble” is either bursting, or getting ready to burst depending on where you live, housing prices are still up a remarkable 32 percent since the beginning of the decade.
Household incomes, on the other hand, haven’t done a very good job of keeping up. The same Census report showed that income has actually dropped, not risen, over the past 7 years, down 2.8 percent.
Maybe the worst news in the report was the percent of people who allot more than 30% of their income for housing. The numbers are up almost 8%. National guidelines suggest that more than 30% of household income for housing is excessive and not financially healthy.
What does this mean in the long run?
Most experts agree that until income can catch up to housing, the real estate market will remain lifeless. And since real estate is one of the biggest drivers to the overall economy, a weak real estate market means a weak economy.
Things appear to be the worst in California. Not only do they have the most expensive real estate in the nation, 48 percent of California homeowners spend more than 30% of their income on housing related costs.
Until income can begin to grow as quickly as the real estate market, this trend shows no signs of slowing down. Which could mean that the upcoming real estate slump could last much longer than anyone predicted.
Need to know what your home is worth? Call me for a no obligation valuation of your home.
Tuesday, May 31, 2011
GTA housing market hotter then forecast
By Tony Wong
A more robust than expected Greater Toronto Area spring real estate market has the Canada Mortgage and Housing Corporation significantly upping their sales and pricing forecasts.
The federal housing authority now says prices in the Toronto area market should increase by 4.3 per cent this year to a record $451,000 for the average home, according to a report released Monday.
The CMHC had earlier expected in their forecast released at the end of 2010 that prices would go in the opposite direction this year, falling by 0.4 per cent or $428,000.
Sales were also initially forecast to drop by 3.6 per cent, but now they are estimated to be 2.5 per cent below 2010.
“Interest rates have been much lower than expected, so that has given the market a boost for longer than we thought,” said Shaun Hildebrand, CMHC senior market analyst.
That trend may continue. The Bank of Canada meets May 31 to determine whether they should raise their key overnight rate, but a weaker than expected economy has most economists figuring that decision will come much later in the year than expected.
“Home prices have largely benefitted from the ultra-low interest rate environment on the back of the Bank of Canada’s highly accommodative monetary policy stance,” said TD Bank economist Shahrzad Mobasher Fard.
Another reason that average prices are elevated is a lack of listings, combined with the fact that more expensive homes are selling in relation to lower priced homes, skewing prices upward, said the CMHC.
Through the first four months of 2011, one in eight homes sold for above $750,000 and one in twelve condos sold for more than $500,000.
“A rising number of wealthy immigrants, a large share of high income earners, downsizing empty nesters and homeowners with substantial amounts of equity,” are factors in the market, said the CMHC.
When interest rates start to rise again, likely by September, this could eventually put a wet blanket on sales in the second half, especially for sensitive first time buyers, said Hildebrand.
“The elevated level of household indebtedness, which will be further exacerbated by the upcoming monetary policy tightening by the Bank of Canada – will put a damper on the growth rate in home prices as Canadian households become more cautious,” said TD Economist Mobasher Fard.
While Ontario led housing activity in 2010, they will lag the rest of Canada this year and into 2012, said CMHC Ontario regional economist Ted Tsiakopoulos.
“Consumer buying patterns, particularly in more expensive Ontario markets will increasingly shift to less expensive housing over the next few years,” said Tsiakopoulos. “After sharp increases early this year, Ontario home prices will grow closer to inflation as markets move to a more balanced state.”
While the CMHC sees prices still moving upward in the Toronto market, the TD Bank sees average prices coming down across Canada, particularly in cities that have seen major price climbs, such as Vancouver.
A more robust than expected Greater Toronto Area spring real estate market has the Canada Mortgage and Housing Corporation significantly upping their sales and pricing forecasts.
The federal housing authority now says prices in the Toronto area market should increase by 4.3 per cent this year to a record $451,000 for the average home, according to a report released Monday.
The CMHC had earlier expected in their forecast released at the end of 2010 that prices would go in the opposite direction this year, falling by 0.4 per cent or $428,000.
Sales were also initially forecast to drop by 3.6 per cent, but now they are estimated to be 2.5 per cent below 2010.
“Interest rates have been much lower than expected, so that has given the market a boost for longer than we thought,” said Shaun Hildebrand, CMHC senior market analyst.
That trend may continue. The Bank of Canada meets May 31 to determine whether they should raise their key overnight rate, but a weaker than expected economy has most economists figuring that decision will come much later in the year than expected.
“Home prices have largely benefitted from the ultra-low interest rate environment on the back of the Bank of Canada’s highly accommodative monetary policy stance,” said TD Bank economist Shahrzad Mobasher Fard.
Another reason that average prices are elevated is a lack of listings, combined with the fact that more expensive homes are selling in relation to lower priced homes, skewing prices upward, said the CMHC.
Through the first four months of 2011, one in eight homes sold for above $750,000 and one in twelve condos sold for more than $500,000.
“A rising number of wealthy immigrants, a large share of high income earners, downsizing empty nesters and homeowners with substantial amounts of equity,” are factors in the market, said the CMHC.
When interest rates start to rise again, likely by September, this could eventually put a wet blanket on sales in the second half, especially for sensitive first time buyers, said Hildebrand.
“The elevated level of household indebtedness, which will be further exacerbated by the upcoming monetary policy tightening by the Bank of Canada – will put a damper on the growth rate in home prices as Canadian households become more cautious,” said TD Economist Mobasher Fard.
While Ontario led housing activity in 2010, they will lag the rest of Canada this year and into 2012, said CMHC Ontario regional economist Ted Tsiakopoulos.
“Consumer buying patterns, particularly in more expensive Ontario markets will increasingly shift to less expensive housing over the next few years,” said Tsiakopoulos. “After sharp increases early this year, Ontario home prices will grow closer to inflation as markets move to a more balanced state.”
While the CMHC sees prices still moving upward in the Toronto market, the TD Bank sees average prices coming down across Canada, particularly in cities that have seen major price climbs, such as Vancouver.
Friday, May 27, 2011
Buying A Home After Bankruptcy
Experienced bankruptcy lately? You may wonder if you will still will be able to get a home loan. You may also be wondering if buying home after bankruptcy is a good idea for you.
While bankruptcy can make your mortgage loan approval difficult, it is still possible to get approved. In fact there have been more and more, bad credit loans coming out all the time.
They are called the Subprime lenders; they are focusing more on helping individuals with poor credit in buying home after bankruptcy.
This is happening mostly because bankruptcies are still on the rise and there is an increasing number of people with bad credit who are looking for home financing.
Just to give you a bit of an overview here are some very good reasons to consider after bankruptcy buying home:
Increase your credit rating. When you make your payments on a regular basis, you will be able to develop your credit rating. Once your pre-payment penalty is done, you should be able to refinance your credit loan for a much lesser interest rate.
After your bankruptcy has been for ended 2-3 years, you ought to have a much easier time qualifying for a lesser interest rate mortgage loan.
You will be able to own an asset. If you are just renting a home then you are absolutely throwing your monthly payments away. Why not just buy a home, over time, its value will increase and you are working you way towards owing an asset.
Once you have bought your house, as soon as 6 months or so later, you might be able to take out an equity loan on your home and consolidate any other debt that you might have since your bankruptcy or debt that could not be included in your bankruptcy.
Taxes and student loans will not be discharged in a bankruptcy. You may also want to use the extra cash to invest in a business venture or for needed home improvement.
It is very tempting to buy an new home, new car, do some renovations, etc., after bankruptcy discharge you have no debt left. You will probably feel like you can afford a larger house payment due to the financial experience that you have.
But it is not that easy so here are some factors to consider before committing yourself to a new house payment.
The Pre-payment penalty. This penalty is usually about 6 months worth of house payments. And usually lasts from 2-3years. Once you sign those mortgage papers you absolutely have to make those payments. If you don't have the amount of the pre-payment penalty in savings, you are locked into making the payments or losing the house.
The Two Year Mark. Keep in mind that after 2-3 years from the date of the bankruptcy discharge, mortgage loans will be much easier to get. With a small down payment, you might even be able to get a mortgage loan without a pre-payment penalty.
So, if you are within 6 months or so from the 2 year mark. It would be smart to wait it out and have more mortgage loan options.
Borrowing Too Much. This is the most common mistake that we usually get into. If you do decide to buy a house, buy one that you know you will be able to afford. Don't max yourself out on credit, living right up to the edge of your income.
If your income suddenly drops, you'll want to make sure that you can still afford your house payment. Be conservative with how much home you need to buy.
Most of us always think that bankruptcy is the end of our credit life. But don not despair because I know some people that have been in to bankruptcy but has been able to get up again and rebuild there credit quickly most of them has even been able to buy a new house.
Bankruptcy will show up on your credit report for 10 years. That means that every mortgage lender will certainly see that fact when evaluating your mortgage application.
Although it may be difficult to find a bank to give you a mortgage it's certainly not impossible. Banks want to make money and you may find one that's willing to take the risk.
While bankruptcy can make your mortgage loan approval difficult, it is still possible to get approved. In fact there have been more and more, bad credit loans coming out all the time.
They are called the Subprime lenders; they are focusing more on helping individuals with poor credit in buying home after bankruptcy.
This is happening mostly because bankruptcies are still on the rise and there is an increasing number of people with bad credit who are looking for home financing.
Just to give you a bit of an overview here are some very good reasons to consider after bankruptcy buying home:
Increase your credit rating. When you make your payments on a regular basis, you will be able to develop your credit rating. Once your pre-payment penalty is done, you should be able to refinance your credit loan for a much lesser interest rate.
After your bankruptcy has been for ended 2-3 years, you ought to have a much easier time qualifying for a lesser interest rate mortgage loan.
You will be able to own an asset. If you are just renting a home then you are absolutely throwing your monthly payments away. Why not just buy a home, over time, its value will increase and you are working you way towards owing an asset.
Once you have bought your house, as soon as 6 months or so later, you might be able to take out an equity loan on your home and consolidate any other debt that you might have since your bankruptcy or debt that could not be included in your bankruptcy.
Taxes and student loans will not be discharged in a bankruptcy. You may also want to use the extra cash to invest in a business venture or for needed home improvement.
It is very tempting to buy an new home, new car, do some renovations, etc., after bankruptcy discharge you have no debt left. You will probably feel like you can afford a larger house payment due to the financial experience that you have.
But it is not that easy so here are some factors to consider before committing yourself to a new house payment.
The Pre-payment penalty. This penalty is usually about 6 months worth of house payments. And usually lasts from 2-3years. Once you sign those mortgage papers you absolutely have to make those payments. If you don't have the amount of the pre-payment penalty in savings, you are locked into making the payments or losing the house.
The Two Year Mark. Keep in mind that after 2-3 years from the date of the bankruptcy discharge, mortgage loans will be much easier to get. With a small down payment, you might even be able to get a mortgage loan without a pre-payment penalty.
So, if you are within 6 months or so from the 2 year mark. It would be smart to wait it out and have more mortgage loan options.
Borrowing Too Much. This is the most common mistake that we usually get into. If you do decide to buy a house, buy one that you know you will be able to afford. Don't max yourself out on credit, living right up to the edge of your income.
If your income suddenly drops, you'll want to make sure that you can still afford your house payment. Be conservative with how much home you need to buy.
Most of us always think that bankruptcy is the end of our credit life. But don not despair because I know some people that have been in to bankruptcy but has been able to get up again and rebuild there credit quickly most of them has even been able to buy a new house.
Bankruptcy will show up on your credit report for 10 years. That means that every mortgage lender will certainly see that fact when evaluating your mortgage application.
Although it may be difficult to find a bank to give you a mortgage it's certainly not impossible. Banks want to make money and you may find one that's willing to take the risk.
Friday, May 20, 2011
Home prices continue climb
Garry Marr Financial Post May 17, 2011
Canadian home prices continued their upward march in April, driven by strong investor demand in Vancouver, as cracks in the Toronto condominium market may be starting to appear.
The Canadian Real Estate Association said yesterday the average price of a home sold in April in Canada was $372,544, up 8% from a year ago. It was the third straight month that the average price rose 8% on a yea-over-year basis but the Ottawa-based group cautioned that the figure was skewed due to “surging multimillion-dollar property sales in selected areas of Greater Vancouver.”
The group also shrugged off slow April sales, which dipped 4.4% from March on a seasonally adjusted annual basis and 14.7% on an actual basis from a year earlier. The slow sales are said to have been driven by new mortgage rules that came into effect April 19 and made borrowing tougher, leading people to rush into purchases in March.
The same sort of impact was felt in April 2010. Purchases moved forward to avoid mortgage rule changes, higher interest rates were feared and the harmonized sales tax loomed in two provinces.
“This makes it difficult to compare,” said Gregory Klump, chief economist of CREA. “Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers. By contrast, higher-end homes sales in Greater Vancouver and Toronto had their best April ever.”
Worries about the sustainability of the housing market could be stoked by a report from Urbanation Inc., which monitors the Toronto condominium market. The group says more than 50% of condominiums purchased in the last year were by buyers who do not intend to occupy their units and plan to rent in many instances.
Condominium rents in Toronto in the first quarter of 2011 were $2.11 per square foot compared to $2.09 a year earlier, a 0.8% increase. Condominiums being registered now and ready to be occupied are priced for sale at $450 per square foot range while newer units are going for $550 per square foot.
“What happens when these newer units hit the market?” said Ben Myers, executive vice-president of Urbanation. “At $550 per square foot a 750 square feet [condominium] is $413,000. You put 25% down and you have a mortgage of $310,000. Take a five-year variable rate mortgage at 3% with 25-year amortization and you get $1,475 a month mortgage. Your condo fee is $345, property tax is another $345 and you are up to $2,200 in carrying costs. That’s a huge [operating] loss [given the average rental rate would bring in just under $1,600/month]. People are buying these for capital appreciation.”
Don Lawby, chief executive of Century 21 Canada, says the housing market has been affected by foreign investors — notably Chinese — who have reacted to tougher tax rules in their home country by investing abroad.
“They are buying investment properties and not just in Vancouver but to some degree in Ontario and Calgary,” said Mr. Lawby, adding many of those investors are not concerned with carrying costs. “They are not afraid to offer above price and they are not afraid to get into a bidding war.”
Nevertheless, Mr. Lawby says while these investors are skewing national averages, he maintains the overall numbers are small and the impact on the larger market minimal.
Toronto-Dominion economic analyst Leslie Preston said while April numbers present a market with falling sales and rising prices, she agreed market conditions were exaggerated by some one-time issues.
“I think the effect in April was a little larger and I would expect to see a bit of bounceback in May because of the decline,” says Ms. Preston. “But we have been calling for awhile now for a mild softening in Canadian housing markets overall this year, particularly as interest rates rise.”
Canadian home prices continued their upward march in April, driven by strong investor demand in Vancouver, as cracks in the Toronto condominium market may be starting to appear.
The Canadian Real Estate Association said yesterday the average price of a home sold in April in Canada was $372,544, up 8% from a year ago. It was the third straight month that the average price rose 8% on a yea-over-year basis but the Ottawa-based group cautioned that the figure was skewed due to “surging multimillion-dollar property sales in selected areas of Greater Vancouver.”
The group also shrugged off slow April sales, which dipped 4.4% from March on a seasonally adjusted annual basis and 14.7% on an actual basis from a year earlier. The slow sales are said to have been driven by new mortgage rules that came into effect April 19 and made borrowing tougher, leading people to rush into purchases in March.
The same sort of impact was felt in April 2010. Purchases moved forward to avoid mortgage rule changes, higher interest rates were feared and the harmonized sales tax loomed in two provinces.
“This makes it difficult to compare,” said Gregory Klump, chief economist of CREA. “Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers. By contrast, higher-end homes sales in Greater Vancouver and Toronto had their best April ever.”
Worries about the sustainability of the housing market could be stoked by a report from Urbanation Inc., which monitors the Toronto condominium market. The group says more than 50% of condominiums purchased in the last year were by buyers who do not intend to occupy their units and plan to rent in many instances.
Condominium rents in Toronto in the first quarter of 2011 were $2.11 per square foot compared to $2.09 a year earlier, a 0.8% increase. Condominiums being registered now and ready to be occupied are priced for sale at $450 per square foot range while newer units are going for $550 per square foot.
“What happens when these newer units hit the market?” said Ben Myers, executive vice-president of Urbanation. “At $550 per square foot a 750 square feet [condominium] is $413,000. You put 25% down and you have a mortgage of $310,000. Take a five-year variable rate mortgage at 3% with 25-year amortization and you get $1,475 a month mortgage. Your condo fee is $345, property tax is another $345 and you are up to $2,200 in carrying costs. That’s a huge [operating] loss [given the average rental rate would bring in just under $1,600/month]. People are buying these for capital appreciation.”
Don Lawby, chief executive of Century 21 Canada, says the housing market has been affected by foreign investors — notably Chinese — who have reacted to tougher tax rules in their home country by investing abroad.
“They are buying investment properties and not just in Vancouver but to some degree in Ontario and Calgary,” said Mr. Lawby, adding many of those investors are not concerned with carrying costs. “They are not afraid to offer above price and they are not afraid to get into a bidding war.”
Nevertheless, Mr. Lawby says while these investors are skewing national averages, he maintains the overall numbers are small and the impact on the larger market minimal.
Toronto-Dominion economic analyst Leslie Preston said while April numbers present a market with falling sales and rising prices, she agreed market conditions were exaggerated by some one-time issues.
“I think the effect in April was a little larger and I would expect to see a bit of bounceback in May because of the decline,” says Ms. Preston. “But we have been calling for awhile now for a mild softening in Canadian housing markets overall this year, particularly as interest rates rise.”
Tuesday, May 17, 2011
A Second Home: Take it or Leave it?
For many, wanderlust is just a part of life. You buy a beautiful home somewhere, settle down, have a family, but there is always a part of you that’s itching to get away. Vacations are part of that wanderlust; the chance to get away someplace beautiful. And then you see it. The local newspaper at your vacation destination, and lo and behold, there is a real estate section right there. Dare you even look? You can’t afford it, can you? Two homes? Is dual home ownership for you?
A second home can work for you, but you have to go into the process knowing what to expect. If you’re looking to get rich quick, don’t count on it. According to recent data, the price of real estate in areas that are deemed “Vacation Markets” has risen twice as fast as real estate in other areas. So, not only is a second home in your destination of choice going to cost you a pretty penny, it’s no longer a well-kept secret anymore and the chances of you flipping it to make a quick buck are slim.
The best piece of advice a possible vacation home buyer can heed right now is to buy for love not for money. Recent sharp downturns in vacation markets like Naples, Florida, Lake Tahoe, Nevada and Cape Cod, Massachusetts, have shown that trying to turn a profit in a vacation market is close to impossible. But there is a bright side to all of this. With the housing bubble going poof all across the country, those that are looking to sell will be doing so at lower prices. Now could be a great time to buy a place that you’re planning on keeping for a long while.
But how do you know if you have your head on straight about the whole thing? Well, take some time and evaluate the pluses and minuses of buying another home. Once you’ve decided on an area, spend some time there to make sure you like it. If it’s going to be a vacation home, you’ll want the scenery to be relaxing (if that’s what you’re looking for) or exciting (if that’s what you go on vacation to experience). A final check should be the bottom-line cost. If the price of the two houses makes up more than one third of your total income, you’ve spent too much.
Buying property is a huge investment for everyone, even the rich. Take the time to properly evaluate the pros and cons before you decide to own a second home or you could find yourself on a permanent vacation.
A second home can work for you, but you have to go into the process knowing what to expect. If you’re looking to get rich quick, don’t count on it. According to recent data, the price of real estate in areas that are deemed “Vacation Markets” has risen twice as fast as real estate in other areas. So, not only is a second home in your destination of choice going to cost you a pretty penny, it’s no longer a well-kept secret anymore and the chances of you flipping it to make a quick buck are slim.
The best piece of advice a possible vacation home buyer can heed right now is to buy for love not for money. Recent sharp downturns in vacation markets like Naples, Florida, Lake Tahoe, Nevada and Cape Cod, Massachusetts, have shown that trying to turn a profit in a vacation market is close to impossible. But there is a bright side to all of this. With the housing bubble going poof all across the country, those that are looking to sell will be doing so at lower prices. Now could be a great time to buy a place that you’re planning on keeping for a long while.
But how do you know if you have your head on straight about the whole thing? Well, take some time and evaluate the pluses and minuses of buying another home. Once you’ve decided on an area, spend some time there to make sure you like it. If it’s going to be a vacation home, you’ll want the scenery to be relaxing (if that’s what you’re looking for) or exciting (if that’s what you go on vacation to experience). A final check should be the bottom-line cost. If the price of the two houses makes up more than one third of your total income, you’ve spent too much.
Buying property is a huge investment for everyone, even the rich. Take the time to properly evaluate the pros and cons before you decide to own a second home or you could find yourself on a permanent vacation.
Monday, May 16, 2011
Why I wouldn’t sell my home myself
By Mark Weisleder - Moneyville
Since writing about whether you could create a bidding war without an agent, I have received numerous emails from sellers, real estate agents and companies that provide “for sale by owner” services on the pros and cons of selling by yourself.
Allison Philpot sold her home in Ottawa using a For Sale by Owner marketing service. She listed her home for $419,000, and was able to create a bidding war after her first open house. She received a top bid of $429,000, which she accepted.
The buyers seemed like nice people, as they lived in the community. Unfortunately, they later terminated the deal, relying on a condition in the offer, although Allison suspected that they just found a house that they liked better. The second bidder was no longer interested.
She then dealt with another buyer, who was represented by a buyer agent. Allison later admitted that she was out-matched in the negotiations, and eventually sold her home for $405,000. In addition, she agreed to pay the buyer agent a commission of approximately 2 per cent or $8,000. So her net selling price was $397,000.
After the fact, she reasoned that had she used an agent from the start, she would have probably sold for about $430,000, and that even if she paid $20,000 in commission, she would have netted $410,000, or $13,000 more, without any of the aggravation.
Still, Allison states that had she not gone through the experience herself, she would probably have felt that she had overpaid the agent.
The buyer who walked away from the first deal later told Allison that he would never try and buy a property again without an agent, as he found the process way too stressful himself.
I received many emails from real estate agents talking about their additional network of potential buyers that they bring to every sale, as well as their own experience in qualifying potential buyers in advance and protecting sellers from unusual clauses that are sometimes inserted into agreements. Many agents in Vancouver are now setting up marketing events overseas, as more and more foreigners are looking at Canadian real estate as a safe haven to invest. More buyers mean better prices for sellers.
I spoke with Patrick Sullivan, a vice-president for Com Free, a company that provides services to assist home owners selling by themselves. These tools include a guide to assist the seller in determining the sale price, staging the home for sale, conducting open houses and preparing for negotiations. He suggested that there is no real harm in a seller trying to save money selling by themselves. They can sell with an agent later if they are not successful. He also claims that Com Free listings continue to grow and that they have many success stories. However, because they have no contract with the seller, the seller is not obligated to tell them how long it took to sell and what the property sold for, so it is difficult for Com Free to state how their seller compares with sellers who use an agent.
If you plan on doing this by yourself, at a minimum either have your lawyer look at the contract before you sign it, or make the deal conditional on your lawyer’s review and approval of the agreement. In my opinion, no marketing service can properly prepare buyers or sellers to deal with the stress and emotion that will invariably be involved with any real estate negotiation. It is not easy. Every buyer, seller and property are unique and will require a successful strategy to win.
Whatever method you choose to buy or sell your next home, be prepared and fully informed before you start.
Mark Weisleder is a lawyer, author and speaker to the real estate industry.
Since writing about whether you could create a bidding war without an agent, I have received numerous emails from sellers, real estate agents and companies that provide “for sale by owner” services on the pros and cons of selling by yourself.
Allison Philpot sold her home in Ottawa using a For Sale by Owner marketing service. She listed her home for $419,000, and was able to create a bidding war after her first open house. She received a top bid of $429,000, which she accepted.
The buyers seemed like nice people, as they lived in the community. Unfortunately, they later terminated the deal, relying on a condition in the offer, although Allison suspected that they just found a house that they liked better. The second bidder was no longer interested.
She then dealt with another buyer, who was represented by a buyer agent. Allison later admitted that she was out-matched in the negotiations, and eventually sold her home for $405,000. In addition, she agreed to pay the buyer agent a commission of approximately 2 per cent or $8,000. So her net selling price was $397,000.
After the fact, she reasoned that had she used an agent from the start, she would have probably sold for about $430,000, and that even if she paid $20,000 in commission, she would have netted $410,000, or $13,000 more, without any of the aggravation.
Still, Allison states that had she not gone through the experience herself, she would probably have felt that she had overpaid the agent.
The buyer who walked away from the first deal later told Allison that he would never try and buy a property again without an agent, as he found the process way too stressful himself.
I received many emails from real estate agents talking about their additional network of potential buyers that they bring to every sale, as well as their own experience in qualifying potential buyers in advance and protecting sellers from unusual clauses that are sometimes inserted into agreements. Many agents in Vancouver are now setting up marketing events overseas, as more and more foreigners are looking at Canadian real estate as a safe haven to invest. More buyers mean better prices for sellers.
I spoke with Patrick Sullivan, a vice-president for Com Free, a company that provides services to assist home owners selling by themselves. These tools include a guide to assist the seller in determining the sale price, staging the home for sale, conducting open houses and preparing for negotiations. He suggested that there is no real harm in a seller trying to save money selling by themselves. They can sell with an agent later if they are not successful. He also claims that Com Free listings continue to grow and that they have many success stories. However, because they have no contract with the seller, the seller is not obligated to tell them how long it took to sell and what the property sold for, so it is difficult for Com Free to state how their seller compares with sellers who use an agent.
If you plan on doing this by yourself, at a minimum either have your lawyer look at the contract before you sign it, or make the deal conditional on your lawyer’s review and approval of the agreement. In my opinion, no marketing service can properly prepare buyers or sellers to deal with the stress and emotion that will invariably be involved with any real estate negotiation. It is not easy. Every buyer, seller and property are unique and will require a successful strategy to win.
Whatever method you choose to buy or sell your next home, be prepared and fully informed before you start.
Mark Weisleder is a lawyer, author and speaker to the real estate industry.
Monday, May 9, 2011
Home buyer beware when going it alone
By Mark Weisleder
Many people who go it alone when buying a home turn up at open houses or contact the seller’s agent directly, thinking they can save half of the commission and get a better deal.
I’m not so sure it’s that easy. These buyers do not understand that the seller’s agent is working solely in the best interests of the seller, not them.
If the house you like is selling for $400,000, you may assume that the commission payable is 4 to 5 per cent, or between $16,000 and $20,000. But all commissions are negotiable so this may not be true.
The buyer may get the salesperson to bring the commission down to 2 per cent, thinking that they can save between $8,000 and $12,000. What these buyers fail to understand is that rather than focus on the commission savings, they should focus on getting the house for the right price, not overpaying or finding unwelcome surprises after closing.
These things can include defects in the home, neighbours from hell, all night parties from student residences, a new development that may affect privacy or problems with water in the basement or roof leaks.
Buyers think they know how to negotiate, but most don’t. They say things to the salesperson to try and establish a rapport, thinking they can get inside information on the sellers. This can include comments on what they like about the house compared to others they have seen, whether they have already sold their own home or what they can afford. What these buyers fail to realize is that the seller agent is obliged to pass all this along to the seller. The buyer has thus weakened their bargaining position.
Professional buyer representatives usually insist that they show buyers a home without the seller or the seller agent being present, so that buyers are free to make any comments about the property. If the seller or seller agent there, the buyers are told not to say anything in their presence.
A buyer agent may check the title registry to determine whether there are any mortgages on title and will thus see whether the seller is in financial difficulty. This is information a buyer needs in order to negotiate.
In addition, buyer agents can act as an objective third party to remind you exactly how much you can afford to spend, so that you do not get carried away in any bidding war. This is the biggest mistake buyers make, which is buying with their heart instead of their head.
Buyer agents will have up to date information about government programs, whether it is using your RRSP or qualifying for a land transfer tax credit that can assist the buyer.
However, before deciding to work with a buyer agent, you need to interview them carefully. Remember, you are trusting this person with what may be the largest investment decision of your life.
Before hiring a buyer agent:
1. Get references from people you trust and then interview at least three agents.
2. Ask about the professionals they work with, including home inspectors, insurance agents, mortgage brokers and planners.
3. Find out whether they have local knowledge of the area you are interested in, which can include neighbourhood conditions.
4. Check out their websites and look at all their twitter and Facebook pages.
5. Limit the buyer agreement to 30 days and only for the local area you are interested in, so that if you are not satisfied for any reason, you do not have to wait long to exit this agreement.
By being prepared before you buy a home, you will find the right home for the right price. Shouldn’t that be the goal of every buyer?
Many people who go it alone when buying a home turn up at open houses or contact the seller’s agent directly, thinking they can save half of the commission and get a better deal.
I’m not so sure it’s that easy. These buyers do not understand that the seller’s agent is working solely in the best interests of the seller, not them.
If the house you like is selling for $400,000, you may assume that the commission payable is 4 to 5 per cent, or between $16,000 and $20,000. But all commissions are negotiable so this may not be true.
The buyer may get the salesperson to bring the commission down to 2 per cent, thinking that they can save between $8,000 and $12,000. What these buyers fail to understand is that rather than focus on the commission savings, they should focus on getting the house for the right price, not overpaying or finding unwelcome surprises after closing.
These things can include defects in the home, neighbours from hell, all night parties from student residences, a new development that may affect privacy or problems with water in the basement or roof leaks.
Buyers think they know how to negotiate, but most don’t. They say things to the salesperson to try and establish a rapport, thinking they can get inside information on the sellers. This can include comments on what they like about the house compared to others they have seen, whether they have already sold their own home or what they can afford. What these buyers fail to realize is that the seller agent is obliged to pass all this along to the seller. The buyer has thus weakened their bargaining position.
Professional buyer representatives usually insist that they show buyers a home without the seller or the seller agent being present, so that buyers are free to make any comments about the property. If the seller or seller agent there, the buyers are told not to say anything in their presence.
A buyer agent may check the title registry to determine whether there are any mortgages on title and will thus see whether the seller is in financial difficulty. This is information a buyer needs in order to negotiate.
In addition, buyer agents can act as an objective third party to remind you exactly how much you can afford to spend, so that you do not get carried away in any bidding war. This is the biggest mistake buyers make, which is buying with their heart instead of their head.
Buyer agents will have up to date information about government programs, whether it is using your RRSP or qualifying for a land transfer tax credit that can assist the buyer.
However, before deciding to work with a buyer agent, you need to interview them carefully. Remember, you are trusting this person with what may be the largest investment decision of your life.
Before hiring a buyer agent:
1. Get references from people you trust and then interview at least three agents.
2. Ask about the professionals they work with, including home inspectors, insurance agents, mortgage brokers and planners.
3. Find out whether they have local knowledge of the area you are interested in, which can include neighbourhood conditions.
4. Check out their websites and look at all their twitter and Facebook pages.
5. Limit the buyer agreement to 30 days and only for the local area you are interested in, so that if you are not satisfied for any reason, you do not have to wait long to exit this agreement.
By being prepared before you buy a home, you will find the right home for the right price. Shouldn’t that be the goal of every buyer?
Tuesday, May 3, 2011
Rate of Home Price Appreciation Stabilizes after Post-Recession Recovery
Home values continue to rise, according to Royal LePage
TORONTO, April 12, 2011 – The Royal LePage House Price Survey released today showed the average price of a home in Canada increased between 3.5 and 4.3 per cent in the first quarter of 2011, compared to the previous year, as markets continued their post-recession recovery. While the rate of year-over-year price appreciation slowed slightly in the first quarter, home values continued the upward climb, which first began late in the second quarter of 2009.
Low interest rates and a recovering economy continued to fuel activity in Canada’s housing markets over the past year, which has led to country-wide increases in average home prices. In the first quarter of 2011, the national average price of a detached bungalow rose 4.3 per cent year-over-year to $341,355, while standard two-storey homes rose 3.5 per cent to $379,388 and standard condominiums rose 4 per cent to $237,919.
“The rate at which Canadian homes are appreciating may well have peaked for the next year or so,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “We expect house prices will continue to creep up, but most of the excess demand created by the initial drop in interest rates has been satisfied, and affordability continues to erode slowly, allowing the listings supply to catch up. In most markets, lower single digit percentage increases are more likely for the balance of the year.”
In the first quarter of 2011, certain markets such as Vancouver, Montreal and Halifax continued to experience significant price gains compared to the same period a year earlier, largely due to favourable regional demographic shifts and healthy local economies.
“Canada’s real estate market has maintained momentum coming out of 2010, indicating that the post-recession recovery is continuing,” Soper added. “While low interest rates continue to drive demand, the tepid pace at which employment levels are improving is tempering the rate of home price appreciation in many Canadian cities. The exception to this trend can be seen in markets like Vancouver, where foreign buyers, particularly from China, are driving demand in select mid-to-high priced markets, and driving up the regional average reported home prices at a surprising pace. In Montreal and Halifax, demand from first-time buyers and purchasers of luxury homes are creating significant year-over-year gains in home values.”
Among the best performing markets in the first quarter of 2011, Vancouver’s standard two-storey homes increased 9.7 per cent year-over-year to $1,083,750. Detached bungalows in Montreal rose 7.6 per cent year-over-year to $276,343 and standard condominiums in Halifax rose 13.1% year-over-year to $191,500.
Meanwhile, year-over-year price appreciation softened in St. John’s where the market is cooling down after an extended period of double digit price increases. In Saint John, detached bungalows dropped 6.3 per cent year-over-year to $178,000. While the medium-term prospects for the housing market in Alberta’s major cities remains very positive, the city of Calgary in particular is still adjusting to the rapid pace at which home prices appreciated in the middle of the past decade. The average price of a standard two-storey Calgary home was down 2.1 per cent year-over-year to $423,122.
REGIONAL MARKET SUMMARIES
Halifax witnessed the largest year-over-year price gains in Atlantic Canada, and some of the highest gains nationally, including the largest increase in standard condominiums rising 13.1 per cent.
Montreal continued to post strong gains as standard condominiums posted a year-over-year increase of 8.7 per cent, while detached bungalows rose 7.6 per cent.
Ottawa’s first-time buyers continue to drive the housing market as the region saw year-over-year price appreciation ranging between 5.2 to 5.9 per cent across all housing types surveyed this quarter.
Toronto’s detached bungalows and standard condominiums made healthy gains increasing 4.5 per cent and 3.7 per cent respectively. Demand for detached bungalows was driven by first-time buyers concerned with potentially rising interest rates and developers who are rebuilding or renovating the homes into larger units.
Winnipeg’s standard two-storey homes posted strong year-over-year gains rising 7.1 per cent to an average price of $297,125, second only to Vancouver in growth and tied with Halifax for this housing type.
While Saskatoon’s housing market posted modest changes, the three housing types surveyed in Regina made healthy year-over-year gains ranging from 3.2 per cent to 5.4 per cent.
Edmonton’s housing market stabilized with year-over-year price changes ranging from minus 1.8 per cent to increases of 2.3 per cent. Calgary’s house prices saw modest year-over-year depreciation across all three housing types surveyed as a result of an increase in inventory. This coupled with low interest rates has presented attractive opportunities for potential buyers.
Driven by low interest rates, single family homes in Vancouver again dominated house price gains as two-storey houses rose year-over-year by 9.7 per cent. Although inventory is down slightly from last year, listings are keeping pace with demand.
TORONTO, April 12, 2011 – The Royal LePage House Price Survey released today showed the average price of a home in Canada increased between 3.5 and 4.3 per cent in the first quarter of 2011, compared to the previous year, as markets continued their post-recession recovery. While the rate of year-over-year price appreciation slowed slightly in the first quarter, home values continued the upward climb, which first began late in the second quarter of 2009.
Low interest rates and a recovering economy continued to fuel activity in Canada’s housing markets over the past year, which has led to country-wide increases in average home prices. In the first quarter of 2011, the national average price of a detached bungalow rose 4.3 per cent year-over-year to $341,355, while standard two-storey homes rose 3.5 per cent to $379,388 and standard condominiums rose 4 per cent to $237,919.
“The rate at which Canadian homes are appreciating may well have peaked for the next year or so,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “We expect house prices will continue to creep up, but most of the excess demand created by the initial drop in interest rates has been satisfied, and affordability continues to erode slowly, allowing the listings supply to catch up. In most markets, lower single digit percentage increases are more likely for the balance of the year.”
In the first quarter of 2011, certain markets such as Vancouver, Montreal and Halifax continued to experience significant price gains compared to the same period a year earlier, largely due to favourable regional demographic shifts and healthy local economies.
“Canada’s real estate market has maintained momentum coming out of 2010, indicating that the post-recession recovery is continuing,” Soper added. “While low interest rates continue to drive demand, the tepid pace at which employment levels are improving is tempering the rate of home price appreciation in many Canadian cities. The exception to this trend can be seen in markets like Vancouver, where foreign buyers, particularly from China, are driving demand in select mid-to-high priced markets, and driving up the regional average reported home prices at a surprising pace. In Montreal and Halifax, demand from first-time buyers and purchasers of luxury homes are creating significant year-over-year gains in home values.”
Among the best performing markets in the first quarter of 2011, Vancouver’s standard two-storey homes increased 9.7 per cent year-over-year to $1,083,750. Detached bungalows in Montreal rose 7.6 per cent year-over-year to $276,343 and standard condominiums in Halifax rose 13.1% year-over-year to $191,500.
Meanwhile, year-over-year price appreciation softened in St. John’s where the market is cooling down after an extended period of double digit price increases. In Saint John, detached bungalows dropped 6.3 per cent year-over-year to $178,000. While the medium-term prospects for the housing market in Alberta’s major cities remains very positive, the city of Calgary in particular is still adjusting to the rapid pace at which home prices appreciated in the middle of the past decade. The average price of a standard two-storey Calgary home was down 2.1 per cent year-over-year to $423,122.
REGIONAL MARKET SUMMARIES
Halifax witnessed the largest year-over-year price gains in Atlantic Canada, and some of the highest gains nationally, including the largest increase in standard condominiums rising 13.1 per cent.
Montreal continued to post strong gains as standard condominiums posted a year-over-year increase of 8.7 per cent, while detached bungalows rose 7.6 per cent.
Ottawa’s first-time buyers continue to drive the housing market as the region saw year-over-year price appreciation ranging between 5.2 to 5.9 per cent across all housing types surveyed this quarter.
Toronto’s detached bungalows and standard condominiums made healthy gains increasing 4.5 per cent and 3.7 per cent respectively. Demand for detached bungalows was driven by first-time buyers concerned with potentially rising interest rates and developers who are rebuilding or renovating the homes into larger units.
Winnipeg’s standard two-storey homes posted strong year-over-year gains rising 7.1 per cent to an average price of $297,125, second only to Vancouver in growth and tied with Halifax for this housing type.
While Saskatoon’s housing market posted modest changes, the three housing types surveyed in Regina made healthy year-over-year gains ranging from 3.2 per cent to 5.4 per cent.
Edmonton’s housing market stabilized with year-over-year price changes ranging from minus 1.8 per cent to increases of 2.3 per cent. Calgary’s house prices saw modest year-over-year depreciation across all three housing types surveyed as a result of an increase in inventory. This coupled with low interest rates has presented attractive opportunities for potential buyers.
Driven by low interest rates, single family homes in Vancouver again dominated house price gains as two-storey houses rose year-over-year by 9.7 per cent. Although inventory is down slightly from last year, listings are keeping pace with demand.
Monday, May 2, 2011
Selling house not just about highest price
Garry Marr, Financial Post
The number one question you need to ask yourself if you're selling your home this spring is: How do I net the most money?
It's not how do I get the most money for my home. It's how do I keep the most money in my pocket after paying all my expenses, including commissions and fees.
Discounters are popping up everywhere now that they can access the Multiple Listing Service. Then there's still the full-service broker who promises a better price and ultimately more money in your pocket.
A settlement last year between the Competition Bureau and the Canadian Real Estate Association, which represents about 100 boards across the country and almost 100,000 agents, allows consumers to have "a mere listing" on the MLS. Being on the MLS system is key since about 90% of transactions are handled by organized real estate.
A poll commissioned by LawPro and TitlePLUS, which sells title insurance, was released Tuesday and it shows confusion still exists in the marketplace.
The poll found even though 72% of Canadians were not aware of the changes made to the MLS, 45% of Canadians would still consider selling privately or using a real estate lawyer to help them sell.
"What these findings show us is that there is an appetite among Canadians to conduct the sale of their home privately," says Ray Leclair, vice-president of TitlePLUS.
So you can be a do-it-yourself real estate agent and use the MLS. But do you want to?
Market conditions have to factor into your decision. There hasn't been a U.S.-style collapse here, but it's no longer a seller's market, meaning you don't just stick a sign in the ground and wait for the pigeons to flock. You're going to have to work.
"For the discount that you're getting, am I willing to take the gamble that my house is being shown at its optimum," says Gary Siegle, Calgary-based regional manager for mortgage broker Invis Inc., about private selling.
He says the industry has been sticking to its guns when it comes to commission rates -generally around 5% of the purchase price -so if you're using an agent, the negotiation might be on the service being provided for that commission.
"The professional service real estate agent is not going to give [commission up] just because someone has access to the MLS. They have to articulate the value more to justify their fee," Mr. Siegle says.
Phil Soper, chief executive of full-service firm Royal LePage Real Estate Services, says the industry has not moved much off commissions since the agreement with the government.
"I think the impact in the market in the first year postchanges has been in the low end of the market," says Mr. Soper, who says that narrow segment of the market is less than 15% of the overall sales volume.
He says for sale by owner or FSBO companies are now merging their operations with independent agents so customers also get an MLS listing as part of their service. "I don't think they are actually selling any more houses. The listings are just showing up on more websites than they used to," Mr. Soper says.
One of those FSBO companies is PropertyGuys.com. Walter Melanson, managing director of the Moncton-based company, says he currently has about 9,000 active listings across the country.
"I watch the comments [of the major real estate companies] and they say nothing has changed and nothing will ever change and that's the way they built their mousetrap," Mr. Melanson says.
What he and others are doing is creating a service that allows you to list with his company for as little as $399. When you sign up, his website hooks you up with a registered real estate agent who doesn't do much but put your home on the MLS, for an extra $299.
The company's Ontario representative, a licensed real estate agent, has close to 1,000 listings. She's based in Hamilton but accepts listings from as far away as Elliot Lake, so she's not doing too many showings.
"We want someone to compare how much it costs to sell your home using PropertyGuys to, say, Re/Max. You do that math and you'll see quite the difference," he says.
It's no small amount. When you consider the average home is now selling for close to $375,000, at 5%, that's $18,750 in commission.
However, consider if you do choose do it yourself on the MLS, you are forcing buyers to jump through one more hoop. In the case of Property Guys, the buyer has to click on the MLS broker's listing office and then punch in the listing number before he's directed to the seller.
"The bounce rate is amazing," Mr. Melanson says. "Who wouldn't look for their dream home and make that extra click? Our data says people will make that click. We've had to deliver magic within a narrow set of rules."
But you have to wonder whether that extra work will affect your sale price at the end of the day. If you save $20,000 in commission, what's the point if your house sells for 5% less?
Market conditions ultimately play into any decision. It comes down to whether you think your agent can earn that commission by getting you a better price or meeting a goal of selling your home in the time frame you want.
The number one question you need to ask yourself if you're selling your home this spring is: How do I net the most money?
It's not how do I get the most money for my home. It's how do I keep the most money in my pocket after paying all my expenses, including commissions and fees.
Discounters are popping up everywhere now that they can access the Multiple Listing Service. Then there's still the full-service broker who promises a better price and ultimately more money in your pocket.
A settlement last year between the Competition Bureau and the Canadian Real Estate Association, which represents about 100 boards across the country and almost 100,000 agents, allows consumers to have "a mere listing" on the MLS. Being on the MLS system is key since about 90% of transactions are handled by organized real estate.
A poll commissioned by LawPro and TitlePLUS, which sells title insurance, was released Tuesday and it shows confusion still exists in the marketplace.
The poll found even though 72% of Canadians were not aware of the changes made to the MLS, 45% of Canadians would still consider selling privately or using a real estate lawyer to help them sell.
"What these findings show us is that there is an appetite among Canadians to conduct the sale of their home privately," says Ray Leclair, vice-president of TitlePLUS.
So you can be a do-it-yourself real estate agent and use the MLS. But do you want to?
Market conditions have to factor into your decision. There hasn't been a U.S.-style collapse here, but it's no longer a seller's market, meaning you don't just stick a sign in the ground and wait for the pigeons to flock. You're going to have to work.
"For the discount that you're getting, am I willing to take the gamble that my house is being shown at its optimum," says Gary Siegle, Calgary-based regional manager for mortgage broker Invis Inc., about private selling.
He says the industry has been sticking to its guns when it comes to commission rates -generally around 5% of the purchase price -so if you're using an agent, the negotiation might be on the service being provided for that commission.
"The professional service real estate agent is not going to give [commission up] just because someone has access to the MLS. They have to articulate the value more to justify their fee," Mr. Siegle says.
Phil Soper, chief executive of full-service firm Royal LePage Real Estate Services, says the industry has not moved much off commissions since the agreement with the government.
"I think the impact in the market in the first year postchanges has been in the low end of the market," says Mr. Soper, who says that narrow segment of the market is less than 15% of the overall sales volume.
He says for sale by owner or FSBO companies are now merging their operations with independent agents so customers also get an MLS listing as part of their service. "I don't think they are actually selling any more houses. The listings are just showing up on more websites than they used to," Mr. Soper says.
One of those FSBO companies is PropertyGuys.com. Walter Melanson, managing director of the Moncton-based company, says he currently has about 9,000 active listings across the country.
"I watch the comments [of the major real estate companies] and they say nothing has changed and nothing will ever change and that's the way they built their mousetrap," Mr. Melanson says.
What he and others are doing is creating a service that allows you to list with his company for as little as $399. When you sign up, his website hooks you up with a registered real estate agent who doesn't do much but put your home on the MLS, for an extra $299.
The company's Ontario representative, a licensed real estate agent, has close to 1,000 listings. She's based in Hamilton but accepts listings from as far away as Elliot Lake, so she's not doing too many showings.
"We want someone to compare how much it costs to sell your home using PropertyGuys to, say, Re/Max. You do that math and you'll see quite the difference," he says.
It's no small amount. When you consider the average home is now selling for close to $375,000, at 5%, that's $18,750 in commission.
However, consider if you do choose do it yourself on the MLS, you are forcing buyers to jump through one more hoop. In the case of Property Guys, the buyer has to click on the MLS broker's listing office and then punch in the listing number before he's directed to the seller.
"The bounce rate is amazing," Mr. Melanson says. "Who wouldn't look for their dream home and make that extra click? Our data says people will make that click. We've had to deliver magic within a narrow set of rules."
But you have to wonder whether that extra work will affect your sale price at the end of the day. If you save $20,000 in commission, what's the point if your house sells for 5% less?
Market conditions ultimately play into any decision. It comes down to whether you think your agent can earn that commission by getting you a better price or meeting a goal of selling your home in the time frame you want.
Thursday, April 28, 2011
Safe as houses? That loud knocking is falling prices
ROB CARRICK - Globe and Mail
The most enduring and simplistic argument for buying a house is that you’re making an investment.
What an understatement. Between your mortgage, property taxes, utility bills, maintenance, furnishings, renovations, landscaping and such, you’ll be investing non-stop in your home. But what’s the return on your money?
Looking back a decade, houses have been an excellent investment that rivalled the stock market. But the view ahead is not nearly so positive. Bear this in mind if you’re considering a jump into this high-priced and increasingly unaffordable real estate market of ours.
How did the market get where it is today? Housing economist Will Dunning says resale housing prices have grown by an average annual 4.9 per cent in Canada since March, 1988, which is the year that comprehensive real estate industry data begins.
The more recent experience with housing is even better, Mr. Dunning found. The 10-year average annual price gain for a house is 8.3 per cent, almost on par with the average 8.9-per-cent increases logged by the S&P/TSX composite index, including dividends.
What we have here is a housing market that has been rising at close to double its long-term rate in the past decade. Don’t expect this to continue.
“I’m not in the camp that says we have a big correction coming, but I think we are looking at a fairly long period of moderate changes in house prices – plus or minus 2 per cent,” Mr. Dunning said.
In its most recent update on housing affordability, Royal Bank of Canada predicted a period ahead of very modest price increases. “(The) rapid home-price appreciation of the past 10 years has likely run its course overall in Canada,” the report said.
We’ll call that the optimistic view of what’s ahead for the market. For the pessimists, the question is how far prices will fall, and for how long. Sample prediction: Toronto-based Capital Economics sees a decline in prices of up to 25 per cent in the next three years.
The negative outlooks for housing are based primarily on factors such as prices, income growth and interest rates, all of which are a function of current economic conditions and thus short-term in nature. A long-term concern for housing values is Canada’s changing demographics.
The fastest-growing component of our population comprises those who are 65 and older. In other words, people who are going to be selling houses over the decades ahead and doing very little buying, if any. That’s bound to affect demand for homes and the potential for price appreciation.
For an actual real life example of how real estate prices can fall, let’s look at what happened in Toronto between April, 1989, and February, 1996. According to Mr. Dunning’s numbers, the average resale home price in the city fell to $192,406 from $280,121, or 31 per cent.
That was an extreme plunge, fuelled in part by a level of rampant speculation that we aren’t seeing in today’s market. But prices can still fall in today’s market. Check out the Calgary market, which dipped 1.7 per cent in March.
“The fact remains that housing can decline in value, and for prolonged periods,” Moshe Milevksy, a finance professor at York University’s Schulich School of Business, wrote in his 2009 book Your Money Milestones. “It is definitely not a risk-free investment.”
Buying a house and living in it for decades can protect you from temporary market dips, just as long-term investing in stocks smoothes out the stock market’s ups and downs. Still, it’s worth noting that someone who bought an average-priced house in Toronto around the ’89 market peak and still owned it would be looking at modest annualized gains in the 2-per-cent range.
Historical changes in housing prices are just a guideline, anyway. They don’t consider things like mortgage interest, property taxes and maintenance, none of which add any value to a home.
Houses bought today have questionable investment value, but there are some other factors to consider if you’re thinking of getting into the market. First, gradually paying down the mortgage on your house is a kind of forced savings plan. Not a great savings plan, but better than nothing.
Second, there’s the best reason of all to own a house. It’s freedom: Your family, your rules, your lifestyle. That’s really what you’re investing in when you buy a home today.
Here's how the housing market compares to other investments over the 10 years to March 31.
Returns are expressed on an average annual basis.
Houses (Average resale housing price in Canada) 8.30%
Stocks (S&P/TSX composite index with dividends included) 8.90%
Bonds (DEX Universe Bond Index) 6.10%
T-bills (91-day Treasury Bill Index) 2.60%
Gold bullion (per ounce, in U.S. dollars) 19.10%
The most enduring and simplistic argument for buying a house is that you’re making an investment.
What an understatement. Between your mortgage, property taxes, utility bills, maintenance, furnishings, renovations, landscaping and such, you’ll be investing non-stop in your home. But what’s the return on your money?
Looking back a decade, houses have been an excellent investment that rivalled the stock market. But the view ahead is not nearly so positive. Bear this in mind if you’re considering a jump into this high-priced and increasingly unaffordable real estate market of ours.
How did the market get where it is today? Housing economist Will Dunning says resale housing prices have grown by an average annual 4.9 per cent in Canada since March, 1988, which is the year that comprehensive real estate industry data begins.
The more recent experience with housing is even better, Mr. Dunning found. The 10-year average annual price gain for a house is 8.3 per cent, almost on par with the average 8.9-per-cent increases logged by the S&P/TSX composite index, including dividends.
What we have here is a housing market that has been rising at close to double its long-term rate in the past decade. Don’t expect this to continue.
“I’m not in the camp that says we have a big correction coming, but I think we are looking at a fairly long period of moderate changes in house prices – plus or minus 2 per cent,” Mr. Dunning said.
In its most recent update on housing affordability, Royal Bank of Canada predicted a period ahead of very modest price increases. “(The) rapid home-price appreciation of the past 10 years has likely run its course overall in Canada,” the report said.
We’ll call that the optimistic view of what’s ahead for the market. For the pessimists, the question is how far prices will fall, and for how long. Sample prediction: Toronto-based Capital Economics sees a decline in prices of up to 25 per cent in the next three years.
The negative outlooks for housing are based primarily on factors such as prices, income growth and interest rates, all of which are a function of current economic conditions and thus short-term in nature. A long-term concern for housing values is Canada’s changing demographics.
The fastest-growing component of our population comprises those who are 65 and older. In other words, people who are going to be selling houses over the decades ahead and doing very little buying, if any. That’s bound to affect demand for homes and the potential for price appreciation.
For an actual real life example of how real estate prices can fall, let’s look at what happened in Toronto between April, 1989, and February, 1996. According to Mr. Dunning’s numbers, the average resale home price in the city fell to $192,406 from $280,121, or 31 per cent.
That was an extreme plunge, fuelled in part by a level of rampant speculation that we aren’t seeing in today’s market. But prices can still fall in today’s market. Check out the Calgary market, which dipped 1.7 per cent in March.
“The fact remains that housing can decline in value, and for prolonged periods,” Moshe Milevksy, a finance professor at York University’s Schulich School of Business, wrote in his 2009 book Your Money Milestones. “It is definitely not a risk-free investment.”
Buying a house and living in it for decades can protect you from temporary market dips, just as long-term investing in stocks smoothes out the stock market’s ups and downs. Still, it’s worth noting that someone who bought an average-priced house in Toronto around the ’89 market peak and still owned it would be looking at modest annualized gains in the 2-per-cent range.
Historical changes in housing prices are just a guideline, anyway. They don’t consider things like mortgage interest, property taxes and maintenance, none of which add any value to a home.
Houses bought today have questionable investment value, but there are some other factors to consider if you’re thinking of getting into the market. First, gradually paying down the mortgage on your house is a kind of forced savings plan. Not a great savings plan, but better than nothing.
Second, there’s the best reason of all to own a house. It’s freedom: Your family, your rules, your lifestyle. That’s really what you’re investing in when you buy a home today.
Here's how the housing market compares to other investments over the 10 years to March 31.
Returns are expressed on an average annual basis.
Houses (Average resale housing price in Canada) 8.30%
Stocks (S&P/TSX composite index with dividends included) 8.90%
Bonds (DEX Universe Bond Index) 6.10%
T-bills (91-day Treasury Bill Index) 2.60%
Gold bullion (per ounce, in U.S. dollars) 19.10%
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