Saturday, January 28, 2012

Why it’s a good time to buy a home

I believe there has never been a better time to buy a home. I’ve been in the industry for 28 years as a lawyer and I haven’t seen so many positive signs for housing, whether you are thinking or buying or locking in a mortgage.

Here’s why:

Mortgage rates at historic lows: They can’t get any lower. Four to five-year fixed mortgages at 3 per cent are unheard of. It is lower than the variable rate that most Canadians have been paying for years. Rates have nowhere to go but up, either later this year or next. If you are paying a variable interest rate, lock in now.

Canada’s appeal: This country has everything going for it — a stable banking and political environment, steady real estate market, the natural resources people want and few social tensions. That makes us a safe haven in a volatile world.

Our immigrant draw: Because of the above, we’re a draw for immigrants, often wealthy ones. When they get here, they need a home. So in my view while the real estate market may level off in some areas of Ontario, it should stay strong in most of the GTA and likely Canada’s other large urban centres as well.

Mortgage defaults: According to CMHC, over 99 per cent of Canadians pay their mortgages on time. It quite a different picture in the U.S. where 7 million homes are in foreclosure and perhaps another 7 million homeowners are under water. This represents almost 15 per cent of all homes. So while the American housing market will likely be weak for the next few years, this should not occur in Canada. Our banks are not dumping homes onto the market, so there is no downward pressure on prices.

Recourse Mortgages: In many U.S. states, if you can’t pay your mortgage, the only thing the bank can do is foreclose; they cannot sue you for any shortfall. So when homes go under water, owners give the keys back to the bank. In Canada, loans are almost all Recourse, meaning if you don’t pay and there is a shortfall, the lender can sue you for the difference. This is another reason why, in my opinion, even if times do get tough, Canadian homeowners will find a way to make the payments until things improve.

Income-to-price ratio: Another misleading statistic is that in major markets, like Toronto, the average price of a home is now 4.6 times the income of the average Canadian. This same statistic was found just before the U.S. and UK markets went into the tank. However, if you look at median incomes of Canadians against the median cost of homes, this average comes down to around 3.5, which is not dangerous. Using averages are wrong. A person receiving social assistance will not buy a home, and should not be included in any relevant statistic.

High consumer debt: The warnings about rising debt ratios must be examined carefully. The Governor of the Bank of Canada is worried that the average personal debt ratio is now 156 per cent in Canada. This means a household making $100,000 per year, owes $156,000, two-thirds of which is mortgage debt. Why is this so bad? At an interest rate of 3 or even 5 per cent, the amount needed to service the debt is manageable. Most people do not pay off their mortgages in one year. Still, this is another good reason to consolidate your debt now, at these low interest rates, and lock in.

No guarantees: Nobody can predict the future and there’s always the possibility of a major economic shock. Yet, in a U.S. presidential election year, politicians will do whatever is necessary to prevent it. If the economy goes into the tank, so do re-election chances. The U.S. is already showing signs of economic recovery.

No matter what, do not take on a monthly payment higher than what you can afford. Meet with your lender or mortgage broker in advance to figure out what you can afford before you start looking for a home. It may be the best time to buy, but you need to buy smart.

Rundown city-owned houses up for sale

Leslie Wallace found an anxious crowd waiting yesterday as he arrived at a dilapidated Crawford St. house for one of the shortest open houses in real estate history — half an hour.

More than two dozen potential buyers lined the walkway and spilled onto the street in front of the well-worn Toronto Community Housing property, a detached, three-storey brick home listed for almost $1 million.

“I’ve never seen anything like this,” says Wallace, who’s been selling real estate in central Toronto for 28 years. “The amount of interest in these properties is overwhelming.”

The city is hoping to sell off close to 700 stand-alone houses scattered from Scarborough to Etobicoke to free up cash for much-needed repairs to its decades-old stock of multi-unit assisted housing. And the race is on.

With interest rates at historic lows and a drastically short supply of homes for sale across Toronto, buyers are clearly banking on deals —and a rare chance to live on some of the most desirable streets in the city.

So far city council has approved a sell-off of 27 homes, 10 of which still need approval from the province. Five have sold so far, in the east-end Beach neighbourhood and the city pocketed $3.28 million.

The city has set a Jan. 30 deadline for offers on the three homes Wallace now has listed on Crawford, an eclectic, family friendly street near Christie that stretches south of Queen St. to north of Bloor St.

Two others will hit MLS in the next few weeks.

The properties are being listed in a slow and staggered fashion to not flood the market. And while the properties all need tens of thousands in work, realtors are predicting intense bidding wars.

When it comes to Crawford, it’s clearly not about the house so much as location, location, location.

All three properties back onto major parks — either Christie Pits or Trinity Bellwoods.

In fact, one home — a battered, boarded-up brick semi that’s listed for $495,000 — is tucked so tightly up against sprawling Christie Pits Park that kids could almost jump into the pool from the second-storey bedroom window.

Just a handful of houses to the north is another brick semi that, apart from the serious mould problem in its one bathroom, is remarkably well kept. More stunning is the land it sits on — a 43.6 by 110 foot lot with a private drive big enough to fit a small house.

All three homes are just steps from shopping and the Queen or Bloor Sts. transit lines.

The biggest, the three-storey detached that has drawn so much interest, is crying out for a gutting and is listed at a relatively steep $995,000. It sits on an overgrown 33 by 118 foot lot and can only be shown for half an hour a few times each week so as not to disrupt the three generations of one family who still call it home.

But at Thursday’s supposedly brief showing there was such a rush of interest, Wallace was still struggling to lock the door after an hour. He was just stepping across the hardwood flooring to the foyer when a High Park couple — their teenage daughter in tow — walked in the house and headed up the stairs.

“Even though they all need renovations, people can see that this is a really hot area,” says Wallace, urging the family to be quick. “You’re steps from Ossington, Little Italy, Queen St. West and close to the downtown.

“I’ve had clients says they would just paint and live here — that they don’t need granite countertops because it’s a big house and they like parks.”

The High Park family says otherwise.

“You’d need about 20 (reno) containers and you could easily sink $300,000 to $400,000 into this house,” says the experienced renovator as he, his wife and teenaged daughter give the house a final once-over from the sidewalk.

“Who knows what’s going to happen to the Toronto market,” he says, sizing up the cluttered porch and worn windows. “I prefer High Park, but my kids really want to live here because it’s close to everything.”

Their daughter’s glee is palpable, as is the pain on her parents’ face.

The three head home to crunch some numbers — and talk about booking a return visit for Sunday.

Tuesday, January 24, 2012

Toronto real estate safe as houses

TORONTO - Eileen Campbell looks around her lovely 900-sq.-ft. downtown Toronto condo and sighs.

For the past seven years, the chef has made her two-bedroom corner unit at 550 Front St. W. really feel like home by gutting the kitchen, installing a quartz counter top and opening up the space.

Campbell, 65, moved west after living in a home in the Beach area, loving that she no longer has to maintain a backyard or shovel snow off a driveway.

And being a foodie, she’s close to hip restaurants along the King West strip. She’s also able to enjoy summers out in her terrace with her little chihuahua — that is, when there isn’t a dust storm from nearby construction of other condos going up along the waterfront.

But retirement is nearing for Campbell and she’s made the decision move again — to a house in the Niagara Region.

Economists forecast Toronto’s booming condo market will experience a crisis in a few years with too much supply and sagging demand, starting in 2013.

So for Campbell, this is the ideal time to sell and is listing her property at $449,800.

“In my mind, if there is that much inventory for people to choose from, would they choose (to buy) a brand-new place or a place that’s been here for a while?” she said. “I don’t want to wait to find out. I’d rather get my equity out now and move onto something else.”

Several of Canada’s biggest banks recently warned about a possible correction in the housing market. Still, prices of homes keep rising, according to the Toronto Real Estate Board (TREB) with mortgage rates remaining low, hovering around 3%.

In fact, the Economist recently declared Canada as one of nine countries where “home prices are overvalued by about 25% or more” and among four countries where prices are in line with those in the United States “at the peak of its bubble.”

While many fear Toronto’s real estate bubble is on the verge of bursting, analyst are cautioning buyers and sellers to relax.

“I do not believe that Toronto, as a whole, is in a bubble,” explains Don Campbell, president of the Real Estate Investment Network. “I think it’s more like a balloon where the air is going to start leaking out.”

Housing will continue to stay strong throughout downtown communities and surrounding areas, such as Leslieville and the Junction, where many newcomers may choose to buy homes because downtown is too expensive, Campbell said. Where there is trouble is the new condo market.

“I believe we’re going to feel an over supply in 2013 because we’ve got a record number of condos coming onto the market in 2012,” he says. “In addition, there have been a lot of development applications put forward to the City of Toronto at the end of December. We’re already starting to see a slowdown in foreign money going into the condo market.”

When those who bought new condos are handed their keys with the intention of immediately flipping the property, they’ll be others doing the same.

“Therefore, you’re going to have an oversupply of the situation come on,” Campbell adds. “That oversupply won’t last for a long time — not like the U.S. — but it’s going to keep a real cap on value.”

Craig Alexander, chief economist for TD Canada Trust, says many first-time home buyers jumped into the real estate market in 2009 because of record-low mortgage rates. The market remained strong in 2010, but it began moderating in 2011.

“I think in the coming year we’ll see the housing market pretty flat,” he predicts.

“I don’t see the likelihood of a major correction coming this year. I do think there’s over-valuation in the market, but I don’t see a major housing bubble in the GTA. I think when we see interest rates rise, we’ll see housing prices decline but it won’t be a dramatic decline.”

The big risk to the so-called bubble occurs when there’s a sharp spike in unemployment or as interest rates shoot up. Alexander figures interest rates should increase by a modest rate — 1% in 2013 and 1% in 2014.

“Torontonians need to be careful not to over-extend themselves because eventually, interest rates will rise,” he said. “I feel like the little boy that cried wolf because every year I tell people that rates could rise and then they don’t. But I always have to remind people that the wolf does show up at the end of the story.”

Richard Silver, the president of the Toronto Real Estate Board (TREB), said the seller’s market has transitioned to a balanced market with more listings now than a year ago.

“Anything that came on the market had multiple offers and buyers had to get a lot more aggressive,” he said.

“They had to get their ducks in a row — like their financing and building inspections and had to make decisions quickly. Now, buyers have more time. They can look around.”

With the new condo sales, it really depends on what is happening in foreign investors, Silver said.

“A lot of (condo deals) happen offshore … that’s a really big part of the market,” he said. “We’re very lucky in Toronto. Right now, there’s a lot of shovels going in the ground. I look at New York and there’s hardly anything being built. Yet, in Toronto, it’s gangbusters.”

TREB had second-best year on record for sales in 2011 with 89,347 — up 4% from the previous year.

According to the real estate board, $465,000 is the average price of a single-family home in 2011. So, what does that get you in the GTA? Surprisingly, not as much as you’d think.

In Toronto, that amount will get you a 800-900-sq.-ft. condo, though it will be renovated and in move-in condition.

“There was only one house that turned up (on a search) – it was on Dufferin, there were no pictures, so it would’ve been an absolute fixer-upper for $465,000,” said Kimball Sarin, a broker with Bosley Real Estate, who has been in the real estate business for a decade. “Whereas this price range for condos, you could get a decent space in move-in conditions. You can sometimes get two bedrooms.”

If you’re looking for a house in Toronto, you’ll likely have to scour Leslieville or the Junction area — places that are roughly 20 minutes outside the downtown core.

“I find people who are looking for only condos don’t even want to discuss moving outwards, they just want to be downtown,” Sarin said. “They’re mostly younger people, 20s-30s typically, first-time buyers. We’re also getting a lot of empty-nesters. People that are going to be selling a larger house.”

Catherine McIsaac, a Sutton Group sales representative, said parts of the 905 are slowly catching up with the rising prices in Toronto. The only detached property available in Oakville was a 1,500-2,000-sq.-ft. three-bedroom family home in the West Oak Trails with an unfinished basement.

In Mississauga, the Marilyn Monroe building — a unique curvy condo tower at 50 Absolute Ave. near Square One — fits in the $465,000 budget. That price fetches a two-bedroom plus den, 997-sq.-ft. unit which costs about $428,400.

With an influx of 100,000 people to the GTA each year, many renters are moving into condos purchased by offshore investors because there aren’t many developers building rental properties anymore.

“There are several new condo developments in the area,” said Tanya Crepulja of Sutton Group Realty. “Condos accounted for about 1/4 of the sales in the GTA, which shows there’s high demand for this type of product.”

The only affordable area for single family homes was in Durham Region. Royal LePage Frank Real Estate sales representative Alexis Appleby said you could get a decent home for around $380,000. And the further you head east towards Oshawa, the cheaper it gets.

York Region, on the other hand, is experiencing a serious lack of inventory.

In Richmond Hill alone, last week there were only 13 freehold houses available for under $500,000 — representing 6.5% of the total number of houses on the market in that area.

“I think that paints a picture of how almost desperate the inventory situation is,” said Jim Common, sales representative for RE/MAX. “The average days on market at this price point is 15 days. There are 200 homes for sale in Richmond Hill — 66 of those are over $1 million. I think interest rates will eventually increase and that will bust the bubble.”

And prices are expected to keep climbing in 2012. According to TREB economist Jason Mercer, he predicts the average price of a home will rise to $480,000 this year.

That makes it tougher for first-time home buyers to save and bank away a down payment for a decent home.

Trellawny Graham, a 32-year-old who works in advertising, bought a house in November. She ended up purchasing a two-bedroom, 1000-square-feet home in Oshawa because that was the only area she could afford.

“I can get so much more for my money,” she said. “I find places closer to (the city) are just double or triple the price and not even as nice as mine. It sits on deep plot of land. I was able to get my house for $185,900. It was just scary to think if I’d ever find a house that I can actually afford to buy.”

Toronto real estate lawyer James Fraser said as worrisome Canada’s housing market is, it is incomparable to the U.S. because Canadian buyers and banks are both prudent.

“Our foreclosure rate has not budged at all during the recession – it’s less than 1%,” he said. “If someone’s thrown out of a job, then that’s going to be an extremely stressful situation and people could lose their houses. But I don’t see the same factors that have devastated the US housing market — I’m not seeing people get into the housing market when they can’t afford it.”