REDISCOVER REAL ESTATE

Drop in Toronto condo sales shows market balancing out, industry group says

Toronto builders call it stability but their latest statistics show condominium sales are down 20.2% this year and now prices are falling.

The Building Industry and Land Development Association says there were 7,047 high-rises purchased over the first four months of the year, down from 8,833 for the same period a year earlier. The average high-rise apartment sold for $431,800 in April, off 3.5% from a year earlier.

The builders say home sales are in line with more typical periods during this boom and comparisons against 2011 are against a record-breaking year.

“We try to use a five-year average,” says Bryan Tuckey, chief executive of BILD, in talking about comparisons. “It’s very positive in that it’s balancing the market. You look at trends and forecasts and actual sales, it’s very seldom a straight line but these [results] are balanced to the way things have been going the past four or five years.”

The exceptions have been 2008 and 2009, years affected by the recession, and the record-breaking pace of 2011, he says. “You have to remember 2011 really was a banner year,” says Mr. Tuckey, adding he doesn’t see downward price pressure because of the demand created from people moving to Toronto.

The drop in sales didn’t come as a huge surprise to CIBC deputy economist Benjamin Tal, who says a 20% drop in sales and 10% decline in prices is what he’s been expecting — something he says will be good for the condo market. “It’s exactly what we expected.” >>>> see full story

Garry Marr May 23, 2012 – 10:03 PM ET Property Post

Looking to sell or buy? Need some professional advice? What are your real estate options?

How may I help you today? Direct line: 416-219-6662

 

It’s still a good time to buy a home: make it a long term investment!

For every economist who tells you Canadian real estate prices are headed for a crash, there is another who says prices will remain stable — with both sides using a lot of “averages” to justify their points. Who is right?

When it comes to Toronto real estate, one argument goes like this: The average home price is $500,000. The average income for a family is less than $100,000. In the U.S., when this same one-to-five ratio was reached, the real estate market began its collapse.

The second one argues that the ratio between average household income and average household debt is currently 153 per cent, which also means that for every household earning $100,000 per year, they owe $153,000.

What these doomsday arguments forget to do is ask some very important questions:

• Instead of averages, should we not be focused on whether a home is in fact affordable for those currently renting a home?

• Should renters even be considering homes that are completely beyond their reach?

Last July, GWL Realty Advisors, an investment adviser providing asset management, property management, development and specialized real estate advisory services to pension funds and institutional clients, published a study that argues that in major cities like Toronto and Vancouver, renters paying the top 20 per cent rate are in fact able to comfortably afford a home in the bottom 10-20 per cent of these markets. This is true even if they only have a 10 per cent down payment.

The fact is that in Toronto, the lowest 10 per cent of properties, worth around $200,000, are in older condominium units. This is where the majority of first-time buyers enter the market. They do not — and in most cases should not — look at a detached home, where prices routinely start at $500,000. This is clearly beyond their means.

Simon Giannini, a Toronto real estate broker, has developed an affordability index that demonstrates home ownership is in fact more affordable today than it was 20 years ago.

For example, in Toronto, 20 years ago, the average two-bedroom condominium sold for $250,000. The interest rates were 12 per cent and the amortization rate 25 years. You needed 20 per cent as a down payment, which in this case was $50,000. Your monthly costs to carry the unit in 1990 were as follows:

• Mortgage payment: $2,072

• Taxes:$ 150

• Maintenance fees:$ 300

• Total:$2,522

According to CMHC guidelines, the household income required to afford these payments is approximately $94,500.

The average rental rate in 1990 for a similar two-bedroom condominium in Toronto was $1,200. It thus made little sense at that time for renters to enter the housing market.

Today, the same condo averages $500,000. The interest rate for a five-year mortgage is 3 per cent and the amortization period is 30 years. With a 20 per cent down payment, the monthly cost to carry this condo would be as follows:

• Mortgage payment: $1,682

• Taxes:$ 300

• Maintenance fees:$ 500

• Total:$2,482

The average rent for a similar unit today is $2,300, so you can see that it is conceivable for those renting even in these price ranges to afford to buy.

According to CMHC guidelines, the household income required to afford these payments is approximately $93,000.

If you have only 10 per cent as a down payment today, this will add approximately $250 to your monthly payment. If you have 5 per cent, it will add about $350. If the government changes the amortization period back to 25 years, this will add about $250 to each of the above mortgage payment numbers.

Since the top 20 per cent of renters average more than $100,000 a year in income, they should be able to comfortably afford those properties in the bottom 20 per cent of the GTA. Some can even look higher, depending on their individual situation.

In other communities, where the average price is much lower, the math works out even better. As your main expense, your mortgage payment, is still based on the lowest interest rates in history, still at favourable amortization rates.

Looking to sell or buy? Need some professional advice? What are your real estate options?

How may I help you today? Direct line: 416-219-6662

Toronto Real Estate Market Cooling? Probably Not...

Toronto’s gravity defying house prices should continue their upward climb over the next three years with gains of about 4 per cent both this year and next, predicts a new housing report by Central 1 Credit Union.

That means the average Toronto home could cost $523,000 by the beginning of 2014, up from about $500,000 right now, despite interest rates that could climb to an average of almost 4 per cent for a one-year term and 5.7 per cent for a five-year rate by 2013, says the report released Friday.

The average house price across the rest of Ontario should hit $378,700 this year, up about 3.4 per cent, and register further gains of 4 per cent next year before slowing to about 2.6 per cent in 2014, says the Ontario Housing Outlook 2012-2014 report.

While interest rates are expected to climb further in 2014, they are likely to remain at near historic lows, says the report by Central 1 chief economist Helmut Pastrick.

“My view is that the market is not overvalued, that we’re not in a housing bubble. What we’re seeing is high prices that are just due to supply and demand fundamentals, for the most part,” says Pastrick.

“I don’t expect a price correction any time in the next couple of years.” see full article here

Looking to sell or buy? Need some professional advice? What are your real estate options?

How may I help you today? Direct line: 416-219-6662

Investors shut out of low-rates boom

Low rates and high temperatures conspired to increase home prices in the first quarter of 2012, according to new numbers from one of the largest real estate organizations, but few sales likely involved investors.

The Royal LePage House Price Survey showed the average price of a home in Canada increased between 2.2 and five per cent in the first quarter of 2012, compared to the previous year.

In the first quarter, standard two-storey homes rose five per cent year-over-year to $398,282, while detached bungalows increased 4.4 per cent to $356,306. Average prices for standard condominiums increased 2.2 per cent to $243,153.

Market activity in the first quarter of 2012 was unusually high resulting in tight inventories and strong price appreciation in most major cities, said the survey.

Investors, grappling with new tighter lending guidelines at the banks, didn't significantly contribute to that climate, whereas homebuyers, with greater access to lending options, drove the market, using historically low mortgage rates. For their part, sellers brought listing inventory to market earlier than normal, encouraged by unseasonably warm weather.

“Our housing market is being pulled in opposite directions by opposing economic forces,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “On one hand, there is the rapidly strengthening U.S. economy, increasing Canadian consumer confidence and what can only be called a national mortgage sale encouraging activity and bidding up home prices. On the other, we have signs of over-shooting values and strained affordability in our largest cities. We are likely to see much more modest price appreciation as the year unfolds.”

Soper commented that the effect of low mortgage rates, which fell below three per cent for a five-year fixed-mortgage, is more pronounced in cities that are affordable such as Winnipeg, Ottawa and St. John's.

“In Vancouver, the average price of a standard two-storey home is now $1,182,250,” he said. “Although the city posted strong year-over-year price gains in the first quarter, we expect to see Vancouver’s housing market to reach a level of price resistance. Although desirability is high, many potential buyers have simply been pushed out of the market and cannot take advantage of low mortgage rates, which will ease demand and should bring price relief.”

In comparison, Soper commented that he did not expect price resistance to affect Toronto’s housing market where a standard two-storey home would sell for $645,467.

Another notable exception was Calgary whose flat year-over-year house price appreciation masked a very active housing market that witnessed double digit growth in unit sales compared to the same period in 2011.

Looking to sell or buy? Need some professional advice? What are your real estate options?

How may I help you today? Direct line: 416-219-6662

Mortgage rates raised

TORONTO - Canada's largest banks are raising their posted mortgage rates in a sign the era of ultra-low borrowing could be drawing to a close.

Royal Bank and TD Bank both announced Monday their posted five-year closed mortgage rates will move up 20 basis points to 5.44 per cent effective Mar. 29, while both raised their special fixed rate offer on a four-year fixed rate by 50 basis points to 3.49 per cent.

A basis point is one-hundredth of a percentage point.

Meanwhile, their posted five-year variable rate — which rises or falls along with the banks' prime lending rate — will rise 10 basis points to prime plus 0.20 percentage points.

The prime rate, which usually moves with the Bank of Canada's key interest rate, is currently three per cent.

The moves come after a recent race to the bottom that saw several banks offer special fixed rates as low as 2.99 per cent.

Although variable rates usually follow the lead of the Bank of Canada, longer-term rates are more influenced by bonds. Higher bond yields increase the cost of funds for lenders, who in turn pass them on to customers.

Government of Canada five-year bond yields have jumped more than 50 basis points in the past three months alone.

In a BMO report Friday, its economists argued that with the U.S. recovering gathering steam, central bankers on both sides of the border are becoming more comfortable with the economy and less so with historically low interest rates that in Canada are fanning the flames of the hot housing market.

Both Finance Minister Jim Flaherty and Bank of Governor Mark Carney have recently flagged household debt at a danger to the economy.

Household debt to disposable annual income is above 150 per cent.

By The Canadian Press

Looking to sell or buy? Need some professional advice? What are your real estate options?

How may I help you today? Direct line: 416-219-6662