U.S.-Style Home Price Correction Unlikely in Canada

As a Realtor, the first question posed to me when I meet new people is always “How is the market?” This is often followed with “Where is the market heading?” I always enjoy these conversations with individuals who are interested in the dynamic market I am very much immersed in. The looming introduction of the GST is almost a month away and many people want to know how this is going to impact the market in the immediate term. Many fear we could be at the top of the market and heading for a correction. Below, you will find an excellent commentary from CREA on this very question.

The Canadian Real Estate Association (CREA) released a new report today indicating that home prices will stabilize, and will remain stable for some time. This means that Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes.

“The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, Chief Economist, CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.”

Home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time. For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth. Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined.

Klump adds: “The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle. History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again.”

The correction in U.S. home prices has sparked fears that Canadian home prices may share a similar fate. However, according to Klump, “warnings to this effect ignore solid Canadian mortgage market trends.”

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle. Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. These trends are expected to help Canada avoid a U.S.-style housing crisis.

The correction in U.S. home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand due to unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices.

I hope you have found this information informative and I always welcome your comments or viewpoints on this and all topics posted on 905westword.com. I can also be reached at 905-330-1241 or rdavison@trebnet.com.

Advertisements

Cancellation of Home Retrofit Program –

A lot of home sellers have reaped the rewards of the home retrofit program. The benefits were two fold in that home owners made their homes more efficient while at the same time increasing the value of their properties. The program was introduced in 2007 as the ecoEnergy program. After conducting the initial audit home owners were able to update their properties with everything from insulation to furnaces and air conditioners in order to get back as much as $5,000 in rebates. In order to obtain the rebates a follow up audit had to be performed.

This program was intended to run until March 2011. However, on March 31st at 5pm ET it was announced that the Department of Natural Resources would not be accepting any new applicants to the program. Those who have had the first audit done can complete their retrofits and then complete the second audit to get the rebates. According to the press release If you have already booked an appointment for a pre-retrofit evaluation, have completed an evaluation or applied for re-entry to the program, you remain eligible to apply for a grant.” Homeowners who have not booked an audit will not be eligible for the rebate. The Government will be administering the program until March 31, 2011.

The speed at which the program was cancelled and with little to no warming is drawing fire from the political opposition. This program was also creating many jobs in Canada.

I know that I personally have benefited from this program, as have numerous clients of mine. Hopefully the decision makers will reconsider this decision. For those of you that missed the opportunity you may want to send your opinion to Ottawa. For those that are still going to squeak in under the wire, you will want to make the most of the opportunity.

If I can be of assistance to you with regard to this information, please contact me at 905-330-1241 or rdavison@trebnet.com. All the best. Ryan.

Low inventory levels set stage for heated Spring market in most major Canadian centres, says RE/MAX

Active listings down in 81 per cent of markets in January

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.

Markets experiencing the tightest inventory levels include Toronto (- 41 per cent); Kitchener-Waterloo
(-33 per cent); Ottawa (- 30 per cent); Victoria (- 30 per cent); Greater Vancouver (- 27 per cent); Halifax-Dartmouth (- 19 per cent); London-St. Thomas (- 18 per cent); Regina (- 16 per cent); and Winnipeg (- 13 per cent). Conditions were still balanced, but starting to tighten in Calgary, Edmonton and Saskatoon, particularly in the single-family detached category.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 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. These included Victoria at 25.5 per cent, Kelowna at 22 per cent, Greater Vancouver at 19.5 per cent, and Winnipeg at 17 per cent. St. John’s (23 per cent) and Toronto (19 per cent) were also among the frontrunners for price growth.

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?

The local real estate market is quite active at the moment. Should you wish to discuss how the information above might impact the value of your current home or the price of a home you might be considering, please feel free to contact me at rdavison@trebnet.com or 905-330-1241. Exciting times!

Jim Flaherty’s Changes to Mortgage Qualification Rules

Finance Minister Jim Flaherty announced three changes to Canadian mortgage rules on February the 16th. These are important changes, but less important that what Mr. Flaherty did not change. There had been industry talk of increasing the minimum down payment from 5% to 10% and shortening the maximum amortization period from the available 35 years. Thankfully Jim Flaherty understood that increasing the down payment rules and shortening the amortization would potentially put the brakes on higher priced markets like Toronto, Vancouver and Calgary.

The changes that the Finance Minister did make are designed to impact real estate speculators and heavily indebted people looking to roll higher priced debt into their mortgages. The every day home purchaser should not notice much of a difference following the implementation of the changes as of April 19th, 2010. These changes impact mortgages with less than 20 per cent down that are covered by government backed mortgage insurance, in the following ways:

– Increased mortgage term used for mortgage qualification calculations. Regardless of the term or type of mortgage the consumer selects, they must qualify against the 5 year fixed rate. This is up from the 3 year fixed rate that is currently used for qualification. Once qualified against the 5 year fixed rate, the consumer can select whichever type and term of mortgage they wish. This approach will insulate borrowers from the shock of the rising rates in the future.

– Increased down payment requirements for income properties when the property is not the owner’s principal residence. Investors that purchase these investment properties will have to come up with a 20% down payment to qualify for mortgage insurance as of April 19th, 2010, instead of the 5% down payment required at the moment. Currently, very few investors would purchase a rental property with 5% down payment.

– Mortgage refinance restrictions. Home owners that are looking to roll higher priced consumer debt into their longer term, lower cost mortgage debt through refinancing will face limited access to their equity. Currently, home owners are able to take up to 95% of the equity out of their homes. As of April 19, 2010 refinancing will only be allowed to a limit of 90% of the equity of the home.

Jim Flaherty’s changes to mortgage qualification rules are slightly more restrictive than what was in place prior to his February 16th, 2010 announcement. However, he has not implemented any changes that will put healthy Canadian real estate markets in shackles. These are responsible restrictions that will help the real estate market avoid over heating and heading toward bubble territory.

Should you have any questions about this or any other piece on the 905 West Word blog please feel free to contact me at rdavison@trebnet.com or 905-330-1241.

Resale housing forecast extended to 2011

Published February 8, 2010

OTTAWA – February 8, 2010 – The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010. Annual activity in 2010 is forecast to be well above the previous year’s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

National home sales activity is expected to remain strong in the first half of 2010, fuelled by low interest rates and homebuyers motivated to avoid the HST before it comes into effect in Ontario and British Columbia. Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.

Interest rate increases will contribute to weaker national sales activity in 2011. National home sales activity is forecast to decline 7.1 per cent to 490,100 units in 2011, putting it on par with annual levels reported in 2005 and 2006.

“Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand,” said CREA President Dale Ripplinger.

The national average home price is forecast to climb 5.4 per cent in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario.

The national average price is forecast to ease by 1.5 per cent in 2011. Modest average price gains are forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease. The shift in the contribution made by provinces toward national activity will continue skewing the annual comparison in the national average price in 2011.

The price trend is similar but less dramatic for the weighted national average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national average price is forecast to climb 4.8 per cent in 2010, and remain stable in 2011.

“Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,” said Chief Economist Gregory Klump.

“Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the U.S. economic recovery proves to be weak and protracted,” said Klump.

“The Bank of Canada will need time to gauge the effect of interest rate increases on Canadian economic growth,” Klump said. “It recognizes that consumer debt burdens are running high, so it will want to gauge the impact of interest rate hikes on domestic demand and overall economic growth. Changes in interest rates impact the economy with a lag, so the timing and magnitude of interest rate hikes will be tricky, given that the Bank expects the private sector to lead economic growth once temporary government stimulus spending expires,” he added.

“The decline and subsequent rebound in sales activity for homes in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010. This segment of housing activity in Ontario and British Columbia is expected to ease beginning in the second half of 2010, causing average prices to moderate in those provinces,” said Klump.

“A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S.”

MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

Are You Fit To Sell? – Curb Appeal

The exterior of your home says a lot about how well your home is maintained both inside and out. When a buyer drives by your home or views photos on line this will create a lasting impression, so show them that your property is well cared for. When buyers see an attractive exterior they will be eager to stop and excited to view the interior as well. Curb appeal is the sizzle that helps to sell the steak.

Preparing your home for sale can be a daunting task. A check list can help focus your efforts in the most productive manner. Please review the list below and be as objective and realistic about the current condition of your home.

Things to consider:

[] What major repairs are needed?

[] What minor repairs are needed?

[] Make a list of what needs to be done

[] Sweep walkways, driveways, patios and decks

[] Maintain front, back and side yards

[] Add flower arrangements on your front porch, in front of your garage and on your decks and patios

[] Is your lawn lush and green?

[] What shape are your flower beds in?

[] Are there any visual distractions?

[] Are the kids toys stored neatly away?

[] What condition is your drive way in?

Committing twenty minutes to honestly review and answer each of the points above will help you increase the curb appeal of your home. Should you wish to discuss any of the points above I am always available at 905-330-1241 or by email at rdavison@trebnet.com . Best of luck!

The New HST: What It Means To You.

July 1, 2010: Be sure to note that date in your Blackberry, iPhone or gadget du jour. This is the date that the new provincial harmonized sales tax (HST) is set to come into effect. In the simplest sense the HST combines the 8% PST and the 5% GST into one 13% HST. This extra 8% will apply to a list of goods and services that were previously exempt from PST.

One large item of interest will be new construction homes. New construction homes have been subject to GST since its introduction in the early 1990’s. The government did create a GST Rebate to first time home buyers of new construction to help ease the burden. With the introduction of the HST, there is an additional 8% tax added onto the price of a new construction home.

To help offset this cost, the government has created the New Housing Rebate. The rebate will be 75% of the provincial portion of the HST payable on the purchase of a new home, up to a maximum rebate of $24,000 (i.e., $400,000 purchase price × 8% provincial component = $32,000 ×75% rebate = $24,000). This results in a maximum rebate of $24,000 if a vendor spends $400,000. A recent update in legislation has made the rebate available to homes of any sale price, to a maximum of $24,000.

What will the HST mean to Ontario resale home purchasers and sellers?
Should you be purchasing or selling a home on or after July 1, 2010, it makes sense to budget an additional 8% more for legal fees, moving costs, real estate commissions, appraisals and home inspection fees to name but a few. The Ontario Real Estate Association estimates that an additional $1,449 in new taxes would be added to a transaction for a home valued at $302,354. This is estimated to add $262 million in new taxation of resale homes annually in Ontario. Even if you are not planning a move in the next couple of years, all homeowners need to take note.

The 8% PST increase in taxation will apply to services required to maintain your home as well. Many of these services would have previously been exempt from PST including utilities, home renovation labour, landscaping, snow removal and more. Should you be renting, you may think that the HST increase would not apply to you. Please take a step back and think about whether your landlord will be willing to take an 8% increase in operating costs or whether he or she might pass as much of that along to you as possible. In fact, condominium residents will experience a similar effect with maintenance fees as these 8% cost increases will need to be passed along or eventually eat away at reserve funds.

Love it or Hate it, the HST is going to be a Canadian reality as of July 1, 2010. (I have an idea which way you might be leaning.) Be aware of the looming increased costs and make smart decisions with the money you have in hand.

Please feel free to call me direct if I can be of any further assistance: 905-330-1241.

Is It Too Late To Maximize The Home Renovation Tax Credit (HRTC)?

I imagine with the time of year, you’ve been likely more focused on gift giving than receiving.  I wanted to take a moment to ensure you are well aware of the gift the Federal Government has wrapped up for Canadian homeowners.  Keep in mind that unlike the Holidays which have come and gone with considerable speed, there are still two months left to take advantage of the Home Renovation Tax Credit (HRTC).  You may have heard mention and not taken a good look into the HRTC.  Please review the details below as you may be eligible for a tax credit.

Here is how the HRTC works:

-A non-refundable tax credit on eligible expenditures for work performed or goods acquired after January 27, 2009 and before February 1, 2010.
-Based on 15% of eligible expenditures greater than $1,000 but less than $10,000.
-Maximum “non-refundable” tax credit: $10,000 – $1,000 = $9,000 x 15% = $1,350.
-All of the eligible expenditures must be supported by receipts, so be sure to hold on to them.
-Here is a brief list of eligible expenditures under the HRTC: Renovating a Kitchen, Bathroom or Basement, Windows & Doors, Carpets & Flooring, Upgrading your wiring from 100 to 200 amp service, Painting Interior/Exterior Walls, Re-shingling a Roof, New Driveway, New Furnace or Air Conditioner, Installing a Permanent Pool or Hot Tub, New Fence, New Deck, Additions and more.
-All associated costs of installation, equipment rentals, permits, professional services and incidental expenses also count towards the HRTC calculation.
-Ineligible Expenditures include but are not limited to: Purchasing tools, Cleaning carpets, Financing Costs, House Cleaning and Maintenance Contracts.
* Subject to Parliamentary approval
As this “gift” from the Federal Government is a limited time offer, 2009/early 2010 is a great time to take advantage of the Home Renovation Tax Credit while simultaneously increasing the value of your home and doing your part to help jumpstart the Canadian Economy. I would be happy to discuss any work you might be considering at your convenience. Be sure to confirm the eligibility of your expenditure at www.cra-arc.gc.ca/hrtc  or by calling 1-877-959-1272.  These types of gifts do not come along everyday, so be sure to see if you might benefit from the HRTC.  Thanks for checking in!

Welcome

And thanks for stopping by our blog!  We are really excited about having a forum to connect with others who share our passion: Residential Real Estate!  We hope to provide you with all of the information and advice that you could want about the Burlington, Oakville and West Mississauga real estate markets.  And you may find some advice as well.

Who Are We?  Ryan & Natalie.  More specifically?

Ryan Davison, Salesperson with Re/Max Realty Enterprises Inc; Brokerage: Ryan decided to leave his role as a Regional Vice-President in investment sales to follow his passion in real estate in 2007 and has never looked back!  And, he’s got the awards to prove it.  In his first year, Ryan earned a spot in  the Re/Max President’s Club.   In 2009, he joined the ranks of the Re/Max 100% Club.  For fun?  Ryan enjoys boating, fishing and football.

Natalie Chapman, Licensed Assistant to Ryan Davison; ASP : Natalie joined Re/Max Realty Enterprises in 2005 and spearheads print, digital and online marketing for Ryan Davison and davisonhomes.ca.  Very excited about the prospect of building a network via the 905 West Word blog, Natalie will be collaborating with Ryan on both content and creativity.  For fun? Natalie enjoys running, writing and reading.