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%
Helping you is what I do!
Thursday, April 28, 2011
Tuesday, April 26, 2011
The 'thrill' of buying a house
William Hanley, Financial Post
You walk into the open house, take one look and say to yourself: This is it. It’s the house I have to live in. Where do I pay? A bidding war? I’m in.
Over my years of buying houses, I never bought one that did not have that frisson moment, that thrill of finding a place so suited to my wants. Indeed, I have in the past decided that I wanted to buy a house in what seems, in retrospect, to be nanoseconds. (By contrast, I’ve taken weeks to decide on the right pair of shoes.)
It is no way to make an “investment,” to be sure. But, as I’ve previously discussed in this space, buying a house is perhaps the most uninvestment-like of investments.
Just about anyone who’s purchased a property or thought about purchasing knows that it is much about gut-feel, in which the senses can conspire to trump sense.
Now, as the major real estate selling season gets under way, along comes a survey commissioned by BMO Bank of Montreal to give statistical weight to the notion that intuition carries a particularly heavy weight in the house-buying process.
The survey by Leger Marketing found that more than two-thirds of Canadians cited a “good feeling” toward the property as a reason to buy. Meantime, though, good sense is not thrown out of that gorgeous bay window and into those manicured flower beds. More than 90% of house-hunters value affordability and location over resale value.
So, the axiom that there are three important things in real estate – location, location and location – might reasonably be replaced by the Three Ps: Price, place and personality.
Nevertheless, that resale value is not a big concern to these surveyed house-hunters – people between 25 and 45 who plan to buy a home within two years – is a telling sign of the real estate times.
With some dips here and there, Canadian house prices have been rising strongly for more than a decade. Indeed, even the recession created just a downward blip in the chart of ever-growing values, with the average national price rising 8.9% last month from the previous March (but just 4.3% excluding Vancouver).
As a result, most of the house-hunters surveyed might never have been aware of a housing market that was not rising. I suspect many in this 25-to-45 demographic believe house prices basically keep going up forever, that though they downplay resale value in the survey, the expectation for solid gains is, well, a given. (Any significant drop in prices would surely shake that belief.)
In recent times, investors have been asked if they are stocks or bonds. If you’re a stock, you are prepared to take on more investment risk. If you’re a bond, you are not.
Perhaps, though, many people are probably houses when it comes to investing. A home is both partly a stock and a bond – and somehow neither.
It is a bond because over the long term it will likely produce modest returns through the enforced savings required by paying down the mortgage. It is a stock because the gains could be outsized if the investor were to buy and sell at propitious entry and exit points for market-timing gains.
And it is neither because it is an “investment” with many moving parts and frictional costs. You don’t live in a stock or a bond, but when the house leaks, it costs money and cuts into the investment. Meantime, the costs associated with buying and selling a property are becoming more daunting in many jurisdictions, with some observers reckoning that a house is often a mediocre investment at best.
But most young first-time buyers and mover-uppers are not fazed by such commentary. Home ownership is a cornerstone of our culture, with 70% of the population owning properties and many of the other 30% looking to join the majority.
And the real estate industry has become far more adept at marketing and selling than in the days decades ago when I was in the market. Today, houses are often professionally “staged” to produce that frisson moment. Prices are sometimes set artificially low to produce that exciting bidding war and that extra frisson of “winning.”
A house, it is said, is not a home. And a home is not strictly an investment. But does a stock have granite counters? Does a bond have stainless steel appliances?
You walk into the open house, take one look and say to yourself: This is it. It’s the house I have to live in. Where do I pay? A bidding war? I’m in.
Over my years of buying houses, I never bought one that did not have that frisson moment, that thrill of finding a place so suited to my wants. Indeed, I have in the past decided that I wanted to buy a house in what seems, in retrospect, to be nanoseconds. (By contrast, I’ve taken weeks to decide on the right pair of shoes.)
It is no way to make an “investment,” to be sure. But, as I’ve previously discussed in this space, buying a house is perhaps the most uninvestment-like of investments.
Just about anyone who’s purchased a property or thought about purchasing knows that it is much about gut-feel, in which the senses can conspire to trump sense.
Now, as the major real estate selling season gets under way, along comes a survey commissioned by BMO Bank of Montreal to give statistical weight to the notion that intuition carries a particularly heavy weight in the house-buying process.
The survey by Leger Marketing found that more than two-thirds of Canadians cited a “good feeling” toward the property as a reason to buy. Meantime, though, good sense is not thrown out of that gorgeous bay window and into those manicured flower beds. More than 90% of house-hunters value affordability and location over resale value.
So, the axiom that there are three important things in real estate – location, location and location – might reasonably be replaced by the Three Ps: Price, place and personality.
Nevertheless, that resale value is not a big concern to these surveyed house-hunters – people between 25 and 45 who plan to buy a home within two years – is a telling sign of the real estate times.
With some dips here and there, Canadian house prices have been rising strongly for more than a decade. Indeed, even the recession created just a downward blip in the chart of ever-growing values, with the average national price rising 8.9% last month from the previous March (but just 4.3% excluding Vancouver).
As a result, most of the house-hunters surveyed might never have been aware of a housing market that was not rising. I suspect many in this 25-to-45 demographic believe house prices basically keep going up forever, that though they downplay resale value in the survey, the expectation for solid gains is, well, a given. (Any significant drop in prices would surely shake that belief.)
In recent times, investors have been asked if they are stocks or bonds. If you’re a stock, you are prepared to take on more investment risk. If you’re a bond, you are not.
Perhaps, though, many people are probably houses when it comes to investing. A home is both partly a stock and a bond – and somehow neither.
It is a bond because over the long term it will likely produce modest returns through the enforced savings required by paying down the mortgage. It is a stock because the gains could be outsized if the investor were to buy and sell at propitious entry and exit points for market-timing gains.
And it is neither because it is an “investment” with many moving parts and frictional costs. You don’t live in a stock or a bond, but when the house leaks, it costs money and cuts into the investment. Meantime, the costs associated with buying and selling a property are becoming more daunting in many jurisdictions, with some observers reckoning that a house is often a mediocre investment at best.
But most young first-time buyers and mover-uppers are not fazed by such commentary. Home ownership is a cornerstone of our culture, with 70% of the population owning properties and many of the other 30% looking to join the majority.
And the real estate industry has become far more adept at marketing and selling than in the days decades ago when I was in the market. Today, houses are often professionally “staged” to produce that frisson moment. Prices are sometimes set artificially low to produce that exciting bidding war and that extra frisson of “winning.”
A house, it is said, is not a home. And a home is not strictly an investment. But does a stock have granite counters? Does a bond have stainless steel appliances?
Wednesday, April 20, 2011
GTA new home sales slide
By Tony Wong
James Bazely will build about 20 homes in the Barrie area this year. In past years the contractor would have averaged closer to 50, but a lack of available land for low rise housing has become a serious constraint.
“We’ve basically run out of land to build on in Barrie,” says Bazely, the president of Gregor Homes. “It has gotten to be a real problem.”
While local builders such as Bazely complain about the lack of serviceable lots to build large subdivisions, the problem is even more acute in the city of Toronto. Infill building is typically the norm in the 416, since it is virtually impossible to get large swaths of land for development, where a lack of land for low rise housing is being blamed for the drop in new home sales across the Greater Toronto Area in the first quarter.
The new home market cooled off rapidly in March, with sales down by 25 per cent compared with a year earlier according to a report Tuesday by Realnet Canada Inc.
There were 3,434 homes sold in March, down from 4,569 in 2010. Sales were down a total of 8.5 per cent for the first quarter.
“You can’t sell what you don’t have,” said George Carras, president of Realnet. “Active new home inventories are well below the long term average levels.”
The Building, Industry & Land Development Association blamed the “constrained low rise land supply” and lack of available lots particularly in the 905 as the reason for the lower sales. Builders have been complaining over the past year that red tape and a lack of serviceable land has constrained their businesses. Meanwhile, suburban municipalities such as Markham and Mississauga have encouraged higher densification with high rises becoming the new norm in some areas.
Builders have reported line ups at new home sites this year to buy single detached and town homes. Some buyers have been buying condominiums instead, which has resulted in condo sales up slightly by 0.5 per cent in the first quarter, with low rise sales down by 18.3 per cent.
Bazely says he is increasingly looking further afield to do his building. But a lack of serviceable lots is not the only issue. Smaller town builders in Ontario are generally in a less robust market compared with their 416 counterparts.
But while the new housing market showed signs of slowing down, the resale market remained relatively buoyant.
The Toronto Real Estate Board reported that there were 4,444 sales during the first two weeks of April, a three per cent decrease compared with the same time a year earlier, but still quite healthy, since last April was a record for that month.
“If this economic activity is sustained for the remainder of the month, we could see April transactions close to last year’s record result,” said TREB president Bill Johnston.
With lower than normal inventory levels, prices have also taken a substantial hike upward to $483,165 up 12 per cent from the same time period a year earlier.
“The number of homes listed for sale so far in 2011 has been below expectations,” said Jason Mercer, TREB’s senior manager of market analysis. “Market conditions have tightened, resulting in increased competition between home buyers and accelerating rates of average price growth.”
Mercer said the strong prices for the spring market will likely encourage more buyers to place their homes for sale, resulting in more inventory in the second quarter.
Most analysts are forecasting that prices should flat line or even come down in the second half. So far that hasn’t been the case, especially since there is less low rise product in the new home market to choose from. Builders have also complained that government levies on new home building account for as much as 30 per cent of the cost of a new home to the consumer, further inflating pricing.
“Based on a softer level of demand, we should see a deceleration and stabilization of values,” said housing economist Will Dunning. “But the limited construction inventory plus the rising government imposed costs are creating pressure for price rises.”
James Bazely will build about 20 homes in the Barrie area this year. In past years the contractor would have averaged closer to 50, but a lack of available land for low rise housing has become a serious constraint.
“We’ve basically run out of land to build on in Barrie,” says Bazely, the president of Gregor Homes. “It has gotten to be a real problem.”
While local builders such as Bazely complain about the lack of serviceable lots to build large subdivisions, the problem is even more acute in the city of Toronto. Infill building is typically the norm in the 416, since it is virtually impossible to get large swaths of land for development, where a lack of land for low rise housing is being blamed for the drop in new home sales across the Greater Toronto Area in the first quarter.
The new home market cooled off rapidly in March, with sales down by 25 per cent compared with a year earlier according to a report Tuesday by Realnet Canada Inc.
There were 3,434 homes sold in March, down from 4,569 in 2010. Sales were down a total of 8.5 per cent for the first quarter.
“You can’t sell what you don’t have,” said George Carras, president of Realnet. “Active new home inventories are well below the long term average levels.”
The Building, Industry & Land Development Association blamed the “constrained low rise land supply” and lack of available lots particularly in the 905 as the reason for the lower sales. Builders have been complaining over the past year that red tape and a lack of serviceable land has constrained their businesses. Meanwhile, suburban municipalities such as Markham and Mississauga have encouraged higher densification with high rises becoming the new norm in some areas.
Builders have reported line ups at new home sites this year to buy single detached and town homes. Some buyers have been buying condominiums instead, which has resulted in condo sales up slightly by 0.5 per cent in the first quarter, with low rise sales down by 18.3 per cent.
Bazely says he is increasingly looking further afield to do his building. But a lack of serviceable lots is not the only issue. Smaller town builders in Ontario are generally in a less robust market compared with their 416 counterparts.
But while the new housing market showed signs of slowing down, the resale market remained relatively buoyant.
The Toronto Real Estate Board reported that there were 4,444 sales during the first two weeks of April, a three per cent decrease compared with the same time a year earlier, but still quite healthy, since last April was a record for that month.
“If this economic activity is sustained for the remainder of the month, we could see April transactions close to last year’s record result,” said TREB president Bill Johnston.
With lower than normal inventory levels, prices have also taken a substantial hike upward to $483,165 up 12 per cent from the same time period a year earlier.
“The number of homes listed for sale so far in 2011 has been below expectations,” said Jason Mercer, TREB’s senior manager of market analysis. “Market conditions have tightened, resulting in increased competition between home buyers and accelerating rates of average price growth.”
Mercer said the strong prices for the spring market will likely encourage more buyers to place their homes for sale, resulting in more inventory in the second quarter.
Most analysts are forecasting that prices should flat line or even come down in the second half. So far that hasn’t been the case, especially since there is less low rise product in the new home market to choose from. Builders have also complained that government levies on new home building account for as much as 30 per cent of the cost of a new home to the consumer, further inflating pricing.
“Based on a softer level of demand, we should see a deceleration and stabilization of values,” said housing economist Will Dunning. “But the limited construction inventory plus the rising government imposed costs are creating pressure for price rises.”
Friday, April 15, 2011
QR Codes - What are they?
In brief, a QR code (short for Quick Response) is a specific matrix barcode (or two-dimensional code), readable by dedicated QR barcode readers and camera phones. The code consists of black modules arranged in a square pattern on a white background. The information encoded can be text, URL or other data.
It was originally created in Japan by Toyota subsidiary Denso-Wave in 1994, the QR code is one of the most popular types of two-dimensional barcodes. QR is the abbreviation for Quick Response, as the creator intended the code to allow its contents to be decoded at high speed.
The QR code is a great new tool for Realtors, (look for the QR code on my signs), and within seconds of scanning the bar code, you have all the information in the palm of your hand.
Helping you is what I do!
It was originally created in Japan by Toyota subsidiary Denso-Wave in 1994, the QR code is one of the most popular types of two-dimensional barcodes. QR is the abbreviation for Quick Response, as the creator intended the code to allow its contents to be decoded at high speed.
Helping you is what I do!
Monday, April 11, 2011
The high cost of rising home values
By Tony Wong
Dragica Donia bought her downtown Toronto row house more than two decades ago, figuring that it would suit her well during her retirement years.
But now, at 76, she’s worried everything will have to change. High property taxes mean she might not be able to continue living in her modest residence near the popular Little Italy neighbourhood.
“This is a very real concern to me,” said the 76-year-old senior, a retired administrative assistant. “I am going to have to sell my home and rent if taxes keep going up.
According to property assessment data obtained by the Star, the value of homes in Donia’s area has increased overall by 18 per cent since 2008. That means she may be in for a higher assessment in the future.
It is a story that is being played out in neighbourhoods across the GTA, all of which have seen a remarkable surge in house prices over the past decade. But that comes with a downside.
In particular, the cost of houses in the trendy and in-demand neighbourhoods that have driven demand have soared in value. And that could mean higher taxes for some homeowners and a real crisis for those on fixed incomes, like Donia.
Leaving her house would be a difficult decision for the divorced woman, who immigrated to Canada from Yugoslavia in 1963. This is where her friends are. She walks to the doctor, the dentist and the baker. When she had a heart attack several years ago, it was her neighbour who took her to the hospital and saved her life.
“It’s very hard for me to give this up, but when your pension goes up a few bucks and your taxes go up a whole lot more, you have to make a decision what to do,” said Donia. “I shouldn’t be in this position. But I am.”
With data from the Municipal Property Assessment Corp. (MPAC), the provincial non-profit that oversees the assessments, the Star got a sneak peek into the potential impact of rising property prices across the GTA. For houses that sold in 2010, we compared the selling price to the 2008 MPAC valuation.
The average 2010 resale price compared to the average 2008 assessments shows that property prices increased by 15 per cent in the Toronto market. In the 905 area, prices have increased by 13 per cent.
But some neighbourhoods, including Donia’s, have seen more outsized increases. Among other areas that have gentrified over the years, downtown east has seen prices increase by 24 per cent and downtown west by 22 per cent.
Under provincial law, assessments are revenue-neutral to municipalities, which means municipalities get no additional gain from increased assessment values — the burden of taxation simply shifts to more highly valued areas.
The assessments are done on a four-year cycle. Property owners last received their assessment notices in the fall of 2008 for the 2009 taxation year. The next province-wide assessment will take place in 2012, for the 2013 taxation year.
The data obtained by the Star is a harbinger of things to come — although the market could conceivably change within a year.
(Some analysts are saying the market has been overvalued by as much as 20 per cent, although they are in the minority. If prices do fall, some property values could conceivably be lower next year than this year.)
“Residents have every right to question the system,” said Kristyn Wong-Tam, councillor for Ward 27, which includes Rosedale and Moore Park. “At the end of the day it impacts families in a big way and could determine anything from better food on the table to whether they should send their kids to camp.
“You have seniors who have lived there for 40 years and the neighbourhood has transitioned around them,” continued Wong-Tam. “They could have bought the property for $70,000 and now it’s worth $2 million.”
Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons (CARP), says rising taxes as a result of increased assessments has long been a worry for her members.
“The overriding goal is for people to stay at home as long as possible even if they have medical or other challenges,” said Eng. “Escalating costs like utility bills and property taxes are major concerns.”
How much a property sold for is just one tool used by MPAC to determine value. The organization also looks at the sale prices of comparable properties in the area, as well as more than 200 other factors, including recent renovations and even the quality of construction, to determine value.
And just because values may rise by 15 per cent does not mean that taxes will rise by an equal amount. It depends on what other homes in the same municipality have gone up by as well. If you are close to the average increase, you likely won’t have to pay more.
The type of dwelling also makes a difference. Bungalows were the big gainers over the past few years. This includes a 41 per cent increase for bungalows in Wong-Tam’s ward of Moore Park and Rosedale, and 22 per cent in Davisville and Lawrence Park, and a 25 per cent gain in York Mills and the Bridle Path.
“It’s really remarkable just growing up and seeing things change in your neighbourhood,” said Christine Acconcia, whose approximately 2,500-square-foot bungalow is dwarfed by far larger infill building in her area.
Acconcia’s parents moved into the exclusive enclave of Hogg’s Hollow in the York Mills neighbourhood when she was just a year old.
Since then she has lived in and out of the area and has purchased her own bungalow not far from her parent’s house.
Over the years, Hogg’s Hollow has become one of the city’s most affluent areas — as bungalows such as Acconcia’s have been turned into urban palaces by developers, with some properties going for well north of $3 million.
The shortage of buildable land in the city has meant that tear-down bungalows are in demand by developers — and prices have appreciated.
As a result, long-time residents are concerned that property tax assessments have also increased.
Acconcia, the president of the York Mills Valley Association residents group, has appealed one assessment already and received a small abatement.
“It’s a small victory, because you have to do it all over again when they come back in the next four years,” she said.
Developer Michael Chung, general manager of family-owned firm Berkfife Ltd., says prices of bungalows in some areas of the city are now so high that it’s not profitable to build on them.
Bungalows that could be purchased for $400,000 to 500,000 and severed into two lots are now costing anywhere from $750,000 and up, said Chung.
“The land value is driving prices, but there isn’t much profit at the end of the day if you have to pay that money.”
There is such a shortage of lots that Chung has had an agent do cold calls, knocking on doors of dozens of homes asking residents if they want to sell.
“We’ve gone across the city and back from Etobicoke, to Central Toronto to Scarborough. People have been sitting on their properties because they have become gold mines.”
Acconcia has had developers ask if she wants to sell. But she’s not leaving her beloved Hogg’s Hollow anytime soon.
“I grew up here and I really love the area,” she said. “I can’t think of living anywhere else.”
Whether it is in Hogg’s Hollow or in the increasingly gentrified neighbourhood that Donia lives in, residents say the assessment process can be mystifying. But that hasn’t stopped them from appealing.
Despite a heart condition and the onset of Parkinson’s disease, Donia has invested hundreds of hours trying to figure out her taxes.
She has stacks of boxes containing documents related to her battles over the years to have her taxes reduced. But this year was different. She considered an appeal, but decided against it because she wasn’t feeling well.
“I can’t fight them anymore,” she said. “I just don’t have the strength.”
Donia said she doesn’t understand why she paid $1,219 in tax in 1998, and then had to pay $3,156 in 2010 for a house that is less than 14 feet wide, with virtually no renovations since she’s owned it.
“That’s a lot of money for me. I don’t go out to eat, I cook everything, I do everything for myself. Every time I think about it I am shaking. I am so upset.”
CARP’s Eng says Donia is not alone. Her membership is also worried about how their assessments are being handled.
“Their anger is directed at not only the absolute increases, but also the manner in which the increases occur, the seeming arbitrariness of the assessment process at MPAC and the seeming lack of recourse.”
In December the Ontario Auditor General blasted MPAC for out-of-date valuations, with homeowners paying too much or too little in taxes. The selling price of one in eight of the 11,500 homes the Auditor General looked at had a 20 per cent difference compared with the market value assessment, because of outdated information.
“We always look to improve our process and we welcome any review,” said spokesperson Joe Regina. The organization intends to implement all recommendations from the Auditor General, he said.
In response to Eng’s comments, Regina said: “Our assessments are reflective of trends in the real estate market, these are not arbitrary results. If a property owner feels that his assessment is not reflective, then they have the option of filing a request for a reconsideration which is free.”
There is some relief for seniors and for property tax owners who may be blindsided by sudden tax hikes.
The provincial government implemented changes that took effect in the 2009 property tax year that phased in any increases in taxes over four years. Decreases are not phased in. And seniors who qualify are also entitled to a tax relief grant instituted by the provincial government, with a maximum rebate of $500 for the 2010 tax year.
Donia says every little bit helps. Still, if taxes go up further next year, she plans to sell and move out.
“(The government) is not doing enough for people like me to stay in their homes. That’s the problem.”
Dragica Donia bought her downtown Toronto row house more than two decades ago, figuring that it would suit her well during her retirement years.
But now, at 76, she’s worried everything will have to change. High property taxes mean she might not be able to continue living in her modest residence near the popular Little Italy neighbourhood.
“This is a very real concern to me,” said the 76-year-old senior, a retired administrative assistant. “I am going to have to sell my home and rent if taxes keep going up.
According to property assessment data obtained by the Star, the value of homes in Donia’s area has increased overall by 18 per cent since 2008. That means she may be in for a higher assessment in the future.
It is a story that is being played out in neighbourhoods across the GTA, all of which have seen a remarkable surge in house prices over the past decade. But that comes with a downside.
In particular, the cost of houses in the trendy and in-demand neighbourhoods that have driven demand have soared in value. And that could mean higher taxes for some homeowners and a real crisis for those on fixed incomes, like Donia.
Leaving her house would be a difficult decision for the divorced woman, who immigrated to Canada from Yugoslavia in 1963. This is where her friends are. She walks to the doctor, the dentist and the baker. When she had a heart attack several years ago, it was her neighbour who took her to the hospital and saved her life.
“It’s very hard for me to give this up, but when your pension goes up a few bucks and your taxes go up a whole lot more, you have to make a decision what to do,” said Donia. “I shouldn’t be in this position. But I am.”
With data from the Municipal Property Assessment Corp. (MPAC), the provincial non-profit that oversees the assessments, the Star got a sneak peek into the potential impact of rising property prices across the GTA. For houses that sold in 2010, we compared the selling price to the 2008 MPAC valuation.
The average 2010 resale price compared to the average 2008 assessments shows that property prices increased by 15 per cent in the Toronto market. In the 905 area, prices have increased by 13 per cent.
But some neighbourhoods, including Donia’s, have seen more outsized increases. Among other areas that have gentrified over the years, downtown east has seen prices increase by 24 per cent and downtown west by 22 per cent.
Under provincial law, assessments are revenue-neutral to municipalities, which means municipalities get no additional gain from increased assessment values — the burden of taxation simply shifts to more highly valued areas.
The assessments are done on a four-year cycle. Property owners last received their assessment notices in the fall of 2008 for the 2009 taxation year. The next province-wide assessment will take place in 2012, for the 2013 taxation year.
The data obtained by the Star is a harbinger of things to come — although the market could conceivably change within a year.
(Some analysts are saying the market has been overvalued by as much as 20 per cent, although they are in the minority. If prices do fall, some property values could conceivably be lower next year than this year.)
“Residents have every right to question the system,” said Kristyn Wong-Tam, councillor for Ward 27, which includes Rosedale and Moore Park. “At the end of the day it impacts families in a big way and could determine anything from better food on the table to whether they should send their kids to camp.
“You have seniors who have lived there for 40 years and the neighbourhood has transitioned around them,” continued Wong-Tam. “They could have bought the property for $70,000 and now it’s worth $2 million.”
Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons (CARP), says rising taxes as a result of increased assessments has long been a worry for her members.
“The overriding goal is for people to stay at home as long as possible even if they have medical or other challenges,” said Eng. “Escalating costs like utility bills and property taxes are major concerns.”
How much a property sold for is just one tool used by MPAC to determine value. The organization also looks at the sale prices of comparable properties in the area, as well as more than 200 other factors, including recent renovations and even the quality of construction, to determine value.
And just because values may rise by 15 per cent does not mean that taxes will rise by an equal amount. It depends on what other homes in the same municipality have gone up by as well. If you are close to the average increase, you likely won’t have to pay more.
The type of dwelling also makes a difference. Bungalows were the big gainers over the past few years. This includes a 41 per cent increase for bungalows in Wong-Tam’s ward of Moore Park and Rosedale, and 22 per cent in Davisville and Lawrence Park, and a 25 per cent gain in York Mills and the Bridle Path.
“It’s really remarkable just growing up and seeing things change in your neighbourhood,” said Christine Acconcia, whose approximately 2,500-square-foot bungalow is dwarfed by far larger infill building in her area.
Acconcia’s parents moved into the exclusive enclave of Hogg’s Hollow in the York Mills neighbourhood when she was just a year old.
Since then she has lived in and out of the area and has purchased her own bungalow not far from her parent’s house.
Over the years, Hogg’s Hollow has become one of the city’s most affluent areas — as bungalows such as Acconcia’s have been turned into urban palaces by developers, with some properties going for well north of $3 million.
The shortage of buildable land in the city has meant that tear-down bungalows are in demand by developers — and prices have appreciated.
As a result, long-time residents are concerned that property tax assessments have also increased.
Acconcia, the president of the York Mills Valley Association residents group, has appealed one assessment already and received a small abatement.
“It’s a small victory, because you have to do it all over again when they come back in the next four years,” she said.
Developer Michael Chung, general manager of family-owned firm Berkfife Ltd., says prices of bungalows in some areas of the city are now so high that it’s not profitable to build on them.
Bungalows that could be purchased for $400,000 to 500,000 and severed into two lots are now costing anywhere from $750,000 and up, said Chung.
“The land value is driving prices, but there isn’t much profit at the end of the day if you have to pay that money.”
There is such a shortage of lots that Chung has had an agent do cold calls, knocking on doors of dozens of homes asking residents if they want to sell.
“We’ve gone across the city and back from Etobicoke, to Central Toronto to Scarborough. People have been sitting on their properties because they have become gold mines.”
Acconcia has had developers ask if she wants to sell. But she’s not leaving her beloved Hogg’s Hollow anytime soon.
“I grew up here and I really love the area,” she said. “I can’t think of living anywhere else.”
Whether it is in Hogg’s Hollow or in the increasingly gentrified neighbourhood that Donia lives in, residents say the assessment process can be mystifying. But that hasn’t stopped them from appealing.
Despite a heart condition and the onset of Parkinson’s disease, Donia has invested hundreds of hours trying to figure out her taxes.
She has stacks of boxes containing documents related to her battles over the years to have her taxes reduced. But this year was different. She considered an appeal, but decided against it because she wasn’t feeling well.
“I can’t fight them anymore,” she said. “I just don’t have the strength.”
Donia said she doesn’t understand why she paid $1,219 in tax in 1998, and then had to pay $3,156 in 2010 for a house that is less than 14 feet wide, with virtually no renovations since she’s owned it.
“That’s a lot of money for me. I don’t go out to eat, I cook everything, I do everything for myself. Every time I think about it I am shaking. I am so upset.”
CARP’s Eng says Donia is not alone. Her membership is also worried about how their assessments are being handled.
“Their anger is directed at not only the absolute increases, but also the manner in which the increases occur, the seeming arbitrariness of the assessment process at MPAC and the seeming lack of recourse.”
In December the Ontario Auditor General blasted MPAC for out-of-date valuations, with homeowners paying too much or too little in taxes. The selling price of one in eight of the 11,500 homes the Auditor General looked at had a 20 per cent difference compared with the market value assessment, because of outdated information.
“We always look to improve our process and we welcome any review,” said spokesperson Joe Regina. The organization intends to implement all recommendations from the Auditor General, he said.
In response to Eng’s comments, Regina said: “Our assessments are reflective of trends in the real estate market, these are not arbitrary results. If a property owner feels that his assessment is not reflective, then they have the option of filing a request for a reconsideration which is free.”
There is some relief for seniors and for property tax owners who may be blindsided by sudden tax hikes.
The provincial government implemented changes that took effect in the 2009 property tax year that phased in any increases in taxes over four years. Decreases are not phased in. And seniors who qualify are also entitled to a tax relief grant instituted by the provincial government, with a maximum rebate of $500 for the 2010 tax year.
Donia says every little bit helps. Still, if taxes go up further next year, she plans to sell and move out.
“(The government) is not doing enough for people like me to stay in their homes. That’s the problem.”
Friday, April 8, 2011
More than half of young adults waiting till next year to buy home: RBC survey
By Sunny Freeman, The Canadian Press
TORONTO - As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.
RBC's annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That's 10 percentage points more than the national average for all age groups.
Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much income — suggesting their peers may have good reason to wait.
A sharp rebound in housing market activity as Canada emerged from a recession in late 2009 and early 2010 has sent home prices soaring.
The national average home price rose 8.8 per cent year over year to a record $365,192 in February, although it was skewed upward by sales in the red hot Vancouver market where the average home price was $790,380.
Meanwhile, Canada's job market has taken longer to recover and income levels haven't grown at the same rate. A Bank of Montreal report released last month found average resale home prices compared with personal incomes are 14 per cent above the long-term trend.
That makes it more difficult to afford a home — as mortgage payments eat into a larger portion of Canadians' paycheques — especially those of young people who are just settling into careers and tend to have less money saved.
In addition, young people already struggling with student loan payments may be influenced by a steady stream of warnings over the past year about Canadian debt-to-income ratios reaching record highs, suggested Bernice Dunsby, RBC's director of client acquisition for home equity.
"Canadians are heeding some of the advice around larger debt levels and stretching themselves too thin so they're actually taking the time to pause and reflect and plan accordingly, especially when it comes to things like their down payment," Dunsby said.
Some young people watching home prices soar beyond pre-recession levels may be waiting for a widely predicted drop anticipated over the next year or so, said David Madani, Canada economist at Capital Economics.
"We've kind of reached a threshold in the sense that affordability is pretty tough," he said.
"If you're talking about a potential young home buyer who is living in Toronto or Vancouver or some other big market, it's really pricey to get into right now, so that's discouraging for some young home buyers."
First-time buyers account for a huge portion of all Canadian housing sales, making the demographic influential in determining the health of the country's housing market.
This year's survey, conducted by Ipsos Reid in mid-January, came at a cooling off period in the Canadian housing market following a spate of frenzied buying in the early months of last year.
There will be a drop in demand this year after a number of factors last year combined to drive buyers to jump into the market earlier than planned, Dunsby said.
Many first-time buyers rushed into the market in the first half of 2010 while the Bank of Canada's key interest rate — which influences commercial lending rates — was set at emergency lows of 0.25 per cent because of the recession.
Those changes affect a minority of mortgage holders who opt for variable rate mortgages linked to the commercial banks' prime rates.
"(However) they may look at interest rates as an indicator of when to jump into the market," said Dunsby.
Some buyers also wanted to enter the market before the new harmonized sales tax was implemented last July in Ontario and British Columbia, two of the country's largest real-estate markets.
Although the HST only applied to some services associated with a home purchase, such as lawyers’ fees, some buyers thought it could push closing costs up a lot more.
First-time homebuyers are also most affected by government moves to change mortgage rules that made it more difficult to qualify for a mortgage. Stricter lending rules brought in the spring of 2010 require all homebuyers to qualify for a standard five-year, fixed-rate mortgage.
More recently, new changes enacted last month shortened the maximum amortization period for a mortgage to 30 years from 35, increasing the size of monthly mortgage payments.
Demand for homes began to wane last spring in the face of rising home prices and short-term mortgage rates, along with stricter mortgage rules and the exhaustion of pent-up demand from the recession.
That has put buyers and sellers on a more even footing when they negotiate.
"In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home," Dunsby said.
"It's also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don't become house poor, as home maintenance and lifestyle costs can add up."
While 43 per cent of younger Canadians told Ipsos Reid they were paying off their mortgage faster than expected, two-thirds, or 66 per cent, said their mortgages were still larger than they would like.
Rising real estate prices, along with having a large enough down payment, were the biggest concerns among young people surveyed.
Still, 43 per cent of the young adults who responded to the survey said they were looking to buy in the next two years, suggesting the housing market will continue to be healthy going forward.
That's higher than the national average of 29 per cent for all age groups.
In comparison, only 29 per cent of Canadians aged 35 to 54 said they want to buy within two years and only 17 per cent of respondents over 55 were looking.
The survey also revealed that young people have different ideas about how to seek advice on home ownership than those belonging to older generations.
Most young people said they were more inclined to use websites, family or friends for advice while more than 70 per cent of Canadians over 45 said they would rely on a real estate agent.
The survey's findings are based on responses from an online panel of 2,103 Canadians, conducted Jan. 12 to 17. A survey of this size has a margin of error of plus or minus two percentage points 19 times out of 20
TORONTO - As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.
RBC's annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That's 10 percentage points more than the national average for all age groups.
Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much income — suggesting their peers may have good reason to wait.
A sharp rebound in housing market activity as Canada emerged from a recession in late 2009 and early 2010 has sent home prices soaring.
The national average home price rose 8.8 per cent year over year to a record $365,192 in February, although it was skewed upward by sales in the red hot Vancouver market where the average home price was $790,380.
Meanwhile, Canada's job market has taken longer to recover and income levels haven't grown at the same rate. A Bank of Montreal report released last month found average resale home prices compared with personal incomes are 14 per cent above the long-term trend.
That makes it more difficult to afford a home — as mortgage payments eat into a larger portion of Canadians' paycheques — especially those of young people who are just settling into careers and tend to have less money saved.
In addition, young people already struggling with student loan payments may be influenced by a steady stream of warnings over the past year about Canadian debt-to-income ratios reaching record highs, suggested Bernice Dunsby, RBC's director of client acquisition for home equity.
"Canadians are heeding some of the advice around larger debt levels and stretching themselves too thin so they're actually taking the time to pause and reflect and plan accordingly, especially when it comes to things like their down payment," Dunsby said.
Some young people watching home prices soar beyond pre-recession levels may be waiting for a widely predicted drop anticipated over the next year or so, said David Madani, Canada economist at Capital Economics.
"We've kind of reached a threshold in the sense that affordability is pretty tough," he said.
"If you're talking about a potential young home buyer who is living in Toronto or Vancouver or some other big market, it's really pricey to get into right now, so that's discouraging for some young home buyers."
First-time buyers account for a huge portion of all Canadian housing sales, making the demographic influential in determining the health of the country's housing market.
This year's survey, conducted by Ipsos Reid in mid-January, came at a cooling off period in the Canadian housing market following a spate of frenzied buying in the early months of last year.
There will be a drop in demand this year after a number of factors last year combined to drive buyers to jump into the market earlier than planned, Dunsby said.
Many first-time buyers rushed into the market in the first half of 2010 while the Bank of Canada's key interest rate — which influences commercial lending rates — was set at emergency lows of 0.25 per cent because of the recession.
Those changes affect a minority of mortgage holders who opt for variable rate mortgages linked to the commercial banks' prime rates.
"(However) they may look at interest rates as an indicator of when to jump into the market," said Dunsby.
Some buyers also wanted to enter the market before the new harmonized sales tax was implemented last July in Ontario and British Columbia, two of the country's largest real-estate markets.
Although the HST only applied to some services associated with a home purchase, such as lawyers’ fees, some buyers thought it could push closing costs up a lot more.
First-time homebuyers are also most affected by government moves to change mortgage rules that made it more difficult to qualify for a mortgage. Stricter lending rules brought in the spring of 2010 require all homebuyers to qualify for a standard five-year, fixed-rate mortgage.
More recently, new changes enacted last month shortened the maximum amortization period for a mortgage to 30 years from 35, increasing the size of monthly mortgage payments.
Demand for homes began to wane last spring in the face of rising home prices and short-term mortgage rates, along with stricter mortgage rules and the exhaustion of pent-up demand from the recession.
That has put buyers and sellers on a more even footing when they negotiate.
"In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home," Dunsby said.
"It's also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don't become house poor, as home maintenance and lifestyle costs can add up."
While 43 per cent of younger Canadians told Ipsos Reid they were paying off their mortgage faster than expected, two-thirds, or 66 per cent, said their mortgages were still larger than they would like.
Rising real estate prices, along with having a large enough down payment, were the biggest concerns among young people surveyed.
Still, 43 per cent of the young adults who responded to the survey said they were looking to buy in the next two years, suggesting the housing market will continue to be healthy going forward.
That's higher than the national average of 29 per cent for all age groups.
In comparison, only 29 per cent of Canadians aged 35 to 54 said they want to buy within two years and only 17 per cent of respondents over 55 were looking.
The survey also revealed that young people have different ideas about how to seek advice on home ownership than those belonging to older generations.
Most young people said they were more inclined to use websites, family or friends for advice while more than 70 per cent of Canadians over 45 said they would rely on a real estate agent.
The survey's findings are based on responses from an online panel of 2,103 Canadians, conducted Jan. 12 to 17. A survey of this size has a margin of error of plus or minus two percentage points 19 times out of 20
Tuesday, April 5, 2011
No simple answers for new buyers
Paul Barker, Postmedia News
Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.
Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple's short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.
"I always ask clients whether they can afford to ride the wave, because there will be waves," she says. "If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you."
Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.
"Do your homework and if you do lock in, do not look back," she says. "It depends on the person and what they can tolerate. Some people can't sleep at night because they're worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years."
Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to "find out a little more about who they are.
"If they can't sleep at night, what's the point?" she asks. "[But] if someone has enough money and enough savings and risk, why wouldn't you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in."
For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to "pick the mortgage that fits."
"This slows someone down and helps them work through the thought process and making that decision," Ms. Parsons says.
"After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well."
Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.
"Not all fixed rates are equal in terms of the product and not all variables are equal," she says.
"As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don't. You have to really make sure you are signing the right document."
For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.
"Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage," Ms. Dominelli says.
"That's what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don't know if we can count on history repeating itself."
Ms. Parsons says people are really paying attention to interest costs, and so they should. "As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000," she says. "It's huge.
"There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you're at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment."
Do you lock in or go variable? With mortgage rates tantalizingly low it is easy to see why so many people prefer the latter, but that could change if the rates start to rise.
Maria Dominelli, a mortgage specialist with independent mortgage brokerage firm Invis in Victoria, B.C., says deciding which route to choose depends on an individual or couple's short-and long-term goals, the amount of debt being carried and their overall tolerance to risk.
"I always ask clients whether they can afford to ride the wave, because there will be waves," she says. "If you cannot afford an extra couple of hundred dollars a month if rates rise, it is not for you."
Contrary to what many might think, there is not a downside to locking in, says Laura Parsons, a mortgage expert with BMO Financial Group in Calgary.
"Do your homework and if you do lock in, do not look back," she says. "It depends on the person and what they can tolerate. Some people can't sleep at night because they're worried about what the rates are going to do. In that case, of course, a variable rate would not be suitable. You may want to just know what your mortgage rate is going to be for the next five years."
Karen Blomquist, a mortgage associate with Invis affiliate Mortgage Intelligence based in Calgary, conducts a needs analysis with her clients to "find out a little more about who they are.
"If they can't sleep at night, what's the point?" she asks. "[But] if someone has enough money and enough savings and risk, why wouldn't you go variable? But if you are a little tight, you have a fear of fixed changing and you like to look at the long term, then I would say absolutely, lock in."
For anyone who is undecided, BMO offers a service called Online MortgageMate, which involves answering six questions in order to "pick the mortgage that fits."
"This slows someone down and helps them work through the thought process and making that decision," Ms. Parsons says.
"After they answer the questions online it will automatically tell them that they should be in a fixed or a variable, based on the information they provide. You should be setting your payments higher in order to avoid payment shock. It is the payment shock that most people have a problem with. At least have an emergency fund that you can draw on and lump sum your mortgage in order to reduce your payments as well."
Ms. Dominelli says that mortgage professionals have a responsibility to make sure that consumers really understand what they are getting into.
"Not all fixed rates are equal in terms of the product and not all variables are equal," she says.
"As an example, bi-weekly does nothing for you. It gives the lender your money more often. Accelerated is when you have 26 payments. You may think you have an accelerated payment, but in reality you don't. You have to really make sure you are signing the right document."
For the purpose of this story, she calculated the difference between a $250,000 mortgage, amortized over 25 years at a five-year fixed rate of 3.69%, and a variable mortgage at prime minus 0.80%. In each case, the monthly payments were $1,273.38.
"Assuming the current prime rate of three per cent steadily increases to five per cent by the end of the term at the end the five-year period, the principal balance in the fixed term (assuming no extra payments) would be $216,444 versus $208,027 in the variable rate mortgage," Ms. Dominelli says.
"That's what makes a variable mortgage attractive, when you work out the numbers and show people the potential. However, I say that with caution because I would never show that to a highratio borrower. The reality is that this is what has happened as of late: you have had the lowest interest rate on the variable and the fixed, but going forward I don't know if we can count on history repeating itself."
Ms. Parsons says people are really paying attention to interest costs, and so they should. "As an example, taking five years off the amortization of a $300,000 mortgage can save you $53,000," she says. "It's huge.
"There is nothing wrong with requesting an amortization schedule when you get your mortgage so you know where you're at in the first five years, 10, 15 and so on. Paying weekly, rather than monthly is a great way to battle that interest cost and also, get used to having a higher payment."
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