Wednesday, February 24, 2010

Low inventory levels set stage for heated Spring market

Lack of inventory will be the greatest challenge facing housing markets across the country this Spring, according to a report released by RE/MAX.

The RE/MAX Market Trends Report 2010, which examined real estate trends and developments in 16 markets across the country, found that unusually strong activity during one of the traditionally quietest months of the year has led to a sharp decline in active listings in 81 per cent of markets surveyed. The threat of higher interest rates, tighter lending criteria, and in British Columbia and Ontario, the introduction of the new Harmonized Sales Tax (HST) have clearly served to kick-start real estate activity from coast-to-coast, prompting an unprecedented influx of purchasers. As a result, 87.5 per cent of markets posted an increase in sales in January. Average price appreciated in 81 per cent of markets surveyed.

There have never been so many motivating factors in play at once. We’re in for a heated Spring market that will, in all probability, spill over into the summer months, as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Greater Toronto (87 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent). Western Canadian cities dominated the list of centres with the highest increases in price appreciation.

Affordability is the catalyst for the vast majority of purchasers in today’s housing market. While homeownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.

While buyers are taking advantage of favourable conditions, sellers too are reaping the rewards. Competing bids are a factor in the marketplace once again, with well-priced listings — especially at the entry-level price point — experiencing multiple offers. Properties priced at fair-market value will likely sell quickly for top dollar. The overall pressure on sales and price is significant across the board – and it’s not likely to subside unless more inventory comes on-stream.

The level of frustration is growing, as pent-up demand builds. For every successful offer, there are those that will walk away empty-handed. They’re thrust back into the buyer pool and the process starts all over again. Some buyers are upping the ante, while others are considering alternate housing options. Still, purchasers remain cautious in their bids, with most careful not to max out debt service ratios.

Recent revisions to lending criteria will add fuel to the fire in the short term. Buyers considering a variable rate mortgage will step up their plans for homeownership in the next month or so just to get in under the wire. In the longer term, buyers will adjust, but move forward. Compromise has long been a reality—particularly in the larger centres. This simply means they may go smaller or further in their pursuits.

It’s been a 180 degree turnaround from this time last year. It’s clear that real estate from coast to coast has roared back to life and markets are once again firing on all cylinders. The vast majority of markets are now recovered and fully-evolved, with all segments working in tandem. At the luxury price point, activity was brisk in seventy-three per cent of centres surveyed, with momentum ramping up in the remainder. Opportunity exists in some areas, but the question is for how much longer?

New Mortgage Rules quick reference

You've likely seen media coverage on measures the government of Canada announced to help keep the housing market stable for the long-term.

There are three different changes. All are aimed at keeping the housing market stable and consumers' debt loads manageable, even if interest rates rise. Discussions are still going on that could fine-tune changes, but here's a brief summary of all three updates:

First, in order to qualify for any kind of mortgage, borrowers will need to have the income to qualify at the five-year posted rate - even if the rate they're being offered is less than the posted rate, whether for a fixed or variable-rate mortgage. For example, we currently have a seven-year mortgage on special at 4.95%, but a borrower would need to meet the income test to qualify for the five-year posted rate of 5.39%.

Second, investors who want to buy a home that they don't plan to live in will have to make a minimum down payment of 20%, up from the 15% currently required.

And third, homeowners who want to refinance will only be able to borrow 90% of the value of their home, down from 95%.

These changes will take effect for transactions started on or after April 19, 2010.

What do these changes mean for home buyers?

The first rule change will be felt the most - affecting approximately 29% of borrowers. According to TD Economics, based on the national average home price of $337,000, a buyer with only 5% down would require roughly $9,200 more in annual income to qualify under the new rules. To buy a $200,000 home, potential buyers with only 5% down would need $5,500 more in annual income.

As a result, some customers may choose to buy a less expensive house or consider a different type of mortgage product. Others may decide to delay buying.

The lower cap on how much a home can be refinanced for will help keep customers debt at a manageable level. And finally, the rule about mortgages for investment properties needing a larger down payment will help limit the effect of speculation on the market.

Friday, February 19, 2010


Greater Toronto REALTORS reported 3,555 sales through the Multiple Listing Service during the first two weeks of February.

This represented a 74 per cent increase compared to the 2,044 sales recorded during the same period in 2009 when resale transactions had dipped due to the recession. The February mid-month sales total was also 7.7 per cent above the previous high set in 2006.

"Home ownership demand remains strong in the GTA, as households remain confident that economic recovery is at hand and that ownership housing will continue to be a quality long-term investment," said Toronto Real Estate Board President Tom Lebour.

The average price for February mid-month transactions was $429,997 - an 18 per cent increase over 2009. New Listings within the Toronto Real Estate Board boundaries were up 15 per cent to 6,212.

"Double-digit price increases will persist through the first quarter of the year," said Jason Mercer, TREB's Senior Manager of Market Analysis. "However, as new listings continue to increase creating a better supplied market, we will see the annual rate of price growth moderate into the single digits."

HST Transition Rules


The provincial government has passed legislation to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).

The HST is NOT YET IN EFFECT. The HST will come into effect beginning on July 1, 2010; however, note transition rules below.

* HST will not apply on the purchase price of re-sale homes.

* HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.

* HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.

Transitional Rules for New Housing

Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.

The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

Additional Transitional Rules

Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.

Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,

* Before October 15, 2009, HST will generally not apply (however, see above
transition rules for new housing).

* From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.

* From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.

* After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.

With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.

With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.

Tuesday, February 16, 2010


Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. CAAMP was actively engaged in the discussions around these changes which are as follows:

1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;

2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;

3. Non-owner occupied properties will require a minimum down payment of 20%.

There were no changes to down payment requirements or length of amortizations for owner-occupied residences.

Thursday, February 4, 2010


Greater Toronto REALTORS® reported 4,986 transactions through the Multiple Listing Service (MLS®) in January 2010. This result represented a large increase over the 2,670 sales in January 2009 when the home sales were in a recessionary trough. Last month’s sales were slightly higher than the January average in the five years
preceding 2009.

“The GTA housing market has rebounded well from the lows in sales experienced at the beginning of 2009. Sales climbed back to healthy levels across the GTA because the cost of home ownership remained affordable in the Toronto area,” said TREB President Tom Lebour.“Increasingly confident consumers moved to take advantage of affordable home ownership.”

The average home selling price in January 2010 climbed 19 per cent to $409,058, compared to 343,632 in the same month last year.

“Expect strong annual growth rates for existing home sales and average price through the first quarter as we continue to make comparisons to the weak market conditions at the beginning of 2009,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “The rate of sales and price growth will be lower in the second half of 2010.”

Monday, February 1, 2010

86% of Canadians opt for fixed-rate mortgages

Despite concerns about a Canadian housing bubble and high levels of household debt, a survey commissioned by the country’s mortgage brokers suggests Canadians are exhibiting prudence when borrowing from a home.

The survey, released by the Canadian Association of Accredited Mortgage Professionals, indicated the vast majority of home buyers, at 86%, were opting for fixed-rate mortgages over variable products. Moreover, 70% of people surveyed opted for terms of at least five years or more -– a signal that buyers realize interest rates are headed upward and want to capitalize on the record-low borrowing costs for as long a period as possible.

“This new research shows that Canadians are assessing their abilities and vulnerabilities,” said Jim Murphy, CAAMP’s president and chief executive. “They are being prudent and the vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions.”

The results emerge after senior officials at the Bank of Canada said that it was “premature” to talk about a housing bubble in the country. Still, the central bank has warned about rising household debt levels and consumers’ ability to finance that debt once interest rates begin their climb back upward.

The survey is based on questions to members who issued more than 40,000 mortgage loans totalling $10-billion, which were funded during 2009 (the data is for home purchases only and excludes renewals or refinances of existing mortgages). CAAMP said the data represent about one-sixth of total mortgage activity for home purchases in Canada.

The findings also indicated that the majority of people who took out their first mortgage last year borrowed less than they could afford to, as their debt service ratios are below allowed maximums.

“The high share of fixed rate mortgages and low debt-service ratios for home buyers are contrary to perceptions that consumers and financial institutions are taking on more risk,” CAAMP said.

In an updated economic forecast CIBC World Markets indicated that the red-hot housing market is set to cool down this year as listings increase and buyers back off once mortgage rates begin to climb.

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