Why GTA Housing Market Will Stay Strong in 2013

Toronto Star

Life / Homes

Excerpted from The Toronto Star

Why GTA housing market will stay strong in 2013

Many economists predicted a local real estate crash this year, with prices falling by up to 25 per cent. It didn't happen and won't in 2013, says our real estate columnist.

DAVID COOPER / TORONTO STAR

Condo towers keep changing the Toronto skyline, and if you can't sell yours, there are lots of people who want to rent.

By:Mark Weisleder Published on Fri Dec 21 2012

 

Many economists predicted a local real estate crash this year, with prices falling by up to 25 per cent. I didn’t see that prediction coming true and it didn’t. Nor will do I believe it will happen in 2013.

Here’s why:
1. Homes are more affordable
In 1990, the average GTA home cost half of what it does today. But interest rates were 12 per cent for a five-year term at the time. So if a two- bedroom condo cost $250,000 in 1990 and you had a 20-per-cent down payment, your monthly carrying costs, including interest, taxes and common expenses, were about $2,500. The average rental for a two-bedroom condo at the time was $1,100, according to the Housing New Canadians research group. So the economics of ownership made no sense.
Today, even with a price of $500,000, if you have a 20-per-cent down payment, with current interest rates at 3 per cent, the total monthly payment is what it was in 1990. It is still $2,500 per month, including common expenses and taxes. But in downtown Toronto, the average rent paid for a two-bedroom unit is now close to $2,500 per month.
Most tenants who can afford $2,500 a month or more in rent can probably afford to buy a home now, if they have 10 per cent down payment or more.
2. The lesson from 2012
Toronto Real Estate Board statistics up until Nov. 30 show 82,200 units had sold in the GTA so far this year. In 2011, it was 84,900, and in 2010 it was 81,900. The average price on Nov. 30 was 2 per cent higher than a year ago. If anything, the market has remained very stable for the past three years.
3. Impact of mortgage rule changes is minor
The mortgage rule changes imposed in early July lowered the amortization period to 25 years if you were putting less than 20 per cent down and lowered the percentage of your income that could be used for borrowing from 44 per cent to 39 per cent. The result was that buyers who would have purchased in late summer or fall moved up their purchasing decision to the spring. By fall, this meant many would-be first-time buyers were looking to rent instead of buy. This contributed to low vacancy rates.
4. 2013 will be fine
Despite the doom and gloom, Toronto condo rental vacancy rates are 1.7 per cent. This means that for those people who cannot sell their condos, there are plenty of renters who can cover the monthly costs.
5. Debt-to-income ratio not relevant
As our American friends like to say, “that dog won’t hunt.” Every month we are told that because the ratio of household debt to household income continues to rise — and is now at 164 per cent — there is a danger of a real estate collapse.

What this really means is that the average Canadian household has an income of $100,000 and total debt of $164,000 (of which their real estate debt constitutes-two thirds). Again, as stated earlier, with interest rates at 3 per cent, this is not a dangerous problem.

If interest rates were 12 per cent, as they were in 1990, or if all your debt was on your credit cards (with interest rates averaging 18 per cent), then this would be a serious problem.
Note to readers: pay down or eliminate your credit card debt in 2013.

Note to government: with mortgage interest rates at 3 per cent, it is almost criminal for lenders to be able to charge 18 per cent on consumer credit cards.
6. Interest rates may not rise until 2015
The U.S. Federal Reserve is now saying it won’t raise rates until 2015. Our rates can’t differ much from theirs without harming our economy with a strong dollar and slower growth.
These are all things to keep in mind in the coming year. Somebody has been predicting a Canadian real estate market collapse for the past 12 years. It hasn’t happened yet and won’t happen in 2013.

More columns by Mark Weisleder
Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com

How do Canadian & U.S. House Price Fundamentals Stack Up?

Excerpted from The Globe and Mail

18 Toronto

 

REUTERS

How do Canadian and U.S. house price fundamentals stack up?

Ben Rabidoux

Published Wednesday, Apr. 24, 2013 05:00AM EDT
Last updated Wednesday, Apr. 24, 2013 09:52AM EDT
 

Canadians are obsessed with whether or not our housing market is going to suffer a “U.S.-style” correction. It’s by now widely accepted that corrections are happening in key Canadian cities. Sure, there are still pockets of strength – Calgary and the detached market in Toronto, for example – but most markets are seeing rising inventory and falling sales, which typically foretell price weakness.
I don’t believe that what happened in the U.S. is going to happen in Canada. The U.S. housing crash was the greatest destruction of wealth in human history. House prices dropped 35 per cent nationally from peak to trough, inflicting a crippling and long-lasting blow on their economy and labour market.
But that doesn’t mean we have nothing to worry about. As I’ve argued before, there are a lot of very negative outcomes between “painless soft landing” and “U.S.-style collapse.” And given that the Canadian economy and labour market are significantly more reliant on housing-related industries than the U.S. ever was, even at market peak, I am extremely skeptical that policy makers can easily orchestrate a soft landing without significant collateral damage.

Here are three ways Canada compares to the U.S. in terms of some important house price fundamentals, and why there may be cause for concern:

1) Average resale price
Admittedly, the average is not a perfect measure of house prices due to it being easily moved by outliers. For example, people will point out that Vancouver’s crazy-high house prices artificially distort the Canadian average. But this same dynamic is also at work in the U.S., where states like California push the average price higher. For reference, California accounts for 12 per cent of the U.S. population, while British Columbia accounts for 13 per cent of Canadian population. Call this a wash.

Note that average resale prices in Canada and the U.S. have always tended to track each other closely, which one would expect given similar income and per-capita GDP figures and comparable borrowing costs. Today, however, we find that Canadian house prices command a 55 per cent premium to U.S. prices. See this chart for details.

2) Real house prices
I’ve previously written about real (inflation-adjusted) house prices in Canada. The idea here is that over time, house prices tend to pace inflation, with perhaps a slight upward bias. Record-high real house prices were one of the warning signs economist Robert Shiller pointed to when he presciently warned of a U.S. housing crash. Real house prices in Canada are at record highs, while the U.S. is back to what might be considered a fundamental level. This chart shows that.

3) House prices relative to per-capita GDP
There was an interesting article published in the May/June 2011 edition of the Financial Analyst Journal titled “The margin of safety and turning points in house prices.” In it, the authors studied house prices in developed countries and found:

“These data, when detrended, reveal long-term mean-reverting relationships between house prices and other macroeconomic variables – in particular, GDP per capita. ... Hence, when prices deviate from the mean, the question is not if they will revert but when.”

As seen in this chart, the average Canadian home now sells for a record multiple of per-capita GDP. That's something that should concern us all.

Ben Rabidoux is a Canadian analyst and strategist with U.S.-based Hanson Advisors, as well as the author of The Economic Analyst blog.

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Competition Watchdog Loses Online-listing Case Against TREB

Toronto Star

Business

Excerpted from The Toronto Star

Competition watchdog loses online-listing case against Toronto Real Estate Board

By:Susan PiggBusiness Reporter, Published on Tue Apr 16 2013

It was a high-profile war of words between Ottawa’s former competition watchdog and the country’s biggest real estate board — and it ended with a whimper rather than the potentially damaging ruling that many realtors had feared.
 

Interim Commissioner of Competition, John Pecman, said his office is “disappointed” and will be reviewing the decision released Monday by the competition tribunal.
 

The densely worded, seven-page ruling dismissed allegations of anti-competitive practices by the Toronto Real Estate Board on a technicality: The Commissioner filed the case under the wrong section of the Competition Act, said the tribunal after months of costly legal preparation and two months of hearings into the case in Toronto last fall.
 

In dismissing the case and awarding TREB costs, the tribunal said the case “does not fall under the 2012 Abuse of Dominance Guidelines” and is “inconsistent” with subsection 79 (4) of the Act which applies to competing firms.
 

A better section, the tribunal says, would have been Section 90 of the Act, which deals with behaviour by trade associations.
 

“We will be reviewing the Tribunal’s decision to determine our next steps,” said Pecman in a statement on the complex case which had been initiated by his predecessor, former Competition Commissioner Melanie Aitken, and escalated into a public feud with the country’s largest real estate board, which represents more than 35,000 realtors.
 

“The Tribunal’s decision was the right decision,” said TREB president Ann Hannah in a statement Tuesday on the ruling, which many realtors feared could have forced real estate boards across the country to give up their exclusive control of the Multiple Listing Service (MLS) and provide critical information, such as historic sales data, to new online competitors seeking to offer cheaper, a la carte services to consumers, often from the comfort of their home computers.

“TREB and its members will continue to offer the highest possible quality
 real estate service without sacrificing the privacy rights of consumers.”
 

While the tribunal ruling sets out a road map, of sorts, for moving ahead with the case under Section 90 of the Competition Act instead, it cautions that there is no guarantee of success.

“This could just be the beginning of another long and costly legal process,” said realtor Lawrence Dale who, as president of the discount and now defunct firm Realtysellers Real Estate Inc. first raised concerns about what he believed to be TREB’s anti-competitive practices with the Competition Bureau.
 

Dale likened the tribunal’s ruling to saying someone was charged with speeding when they actually made an illegal right turn: The ruling makes clear that the case still has merit, noted Dale, who is now head of group real estate with Rogers Communications’ expanding online real estate venture Zoocasa. com.
 

“This should be a wake-up call for all sides to use this as an opportunity to negotiate a fair settlement,” said Dale Monday evening, stressing he’s still determined to see the MLS system opened up.
 

That more open access has revolutionized house hunting south of the border and allowed buyers and sellers to cut costs and do far more of their own research from the comfort of their home computers through online sites such as Zillow.com and Trulia.com.
 

TREB has already moved, under intense pressure from Aitken over the last five years, to provide more MLS data to so-called virtual office websites now springing up across the GTA to take on traditional “bricks and mortar” brokerages with hosts of new online real estate offerings.

TREB members routinely hand out rich MLS information to clients via phone, email and in person that is key to making real estate decisions, such as the historic sales prices of homes. But TREB told the tribunal it was opposed to opening up access to the same information to online competitors because that would violate privacy laws, professional regulations and copyright laws.

Canada's Housing Market Drawing the Big-money Crowd

Toronto Star

Business / Real Estate

Excerpted from The Toronto Star

Canada’s housing market drawing the big-money crowd

Sotheby’s finds more foreign buyers looking to Canada as a safe and stable place to live

The Toronto Star

According to Sotheby's, foreign interest in high-dollar homes like this one is increasing.

By:Susan PiggBusiness Reporter, Published on Wed Apr 17 2013

 

Sotheby’s International Realty is seeing a surge in demand from wealthy Syrians, Egyptians and Europeans looking for a safe and relatively stable place to park their millions — Canada’s softening real estate market.
 

There has been an uptick in “very significant transactions” in tony areas like Oakville and North Toronto by Europeans, many with young families who originally had planned to settle in the U.S. but fell in love with Canada instead, says Sotheby’s Canada CEO Ross McCredie.
 

At the same time, Montreal’s exclusive Westmount area has become top of the real estate wish list for high-net worth Syrians and Egyptians looking for a safe haven for their money and families, he added.
 

Increasingly, many of these deals — especially those over $10 millionthose over $10 million — aren’t even showing up in MLS sales tallies because of buyers seeking the privacy afforded by private or exclusive deals, or finalized under the cloak of a corporate purchase, McCredie noted.

“The lack of inventory is a big problem in the high-end market,” so agents are having to find their own properties rather than look to the MLS system, said Andy Taylor of Sotheby’s Toronto office, which has done more international business in the last 18 months than in the last six years.
 

 

 

Do You Want To Sell Your Home On Your Own?

Excerpts From Moneyville

Back to Selling a home on your own: 5 things to consider
Selling a home on your own: 5 things to consider
November 05, 2010
Mark Weisleder

Selling your home without an agent can save you money, but requires work.

As a result of the new deal between the Competition Bureau and the Canadian Real Estate Association, more choices are now available to sellers who wish to sell a home by themselves. You can use the for-sale-by-owner websites, or you can now use a real estate agent to just post your home on the MLS (Multiple Listing Service) system, and then, for an additional fee, ask for assistance with marketing, open houses, staging or negotiating any agreement. There are also agents who are advertising flat fees for the entire service, instead of a percentage of the sale price, so there will be more options available. Remember to ask what everything will cost.

If you are considering selling your home by yourself, here are five issues you need to understand in advance:

Pricing: This will require you to conduct research, on the Internet at sites like www.realtor.ca as well as touring your neighbourhood to look at what homes are selling for. You will not have the same up-to-date access to what properties have sold for as an agent does, but you can get a general idea as to what your home is worth. You will also need to visit the ‘competition’ to look at how they compare to your home. Most sellers think of their home as unique, or special. Not true. You need to be realistic when setting a price. Most buyers will expect a discount since you are not paying real estate commission. As an alternative, you can get a professional appraisal for $300 to $500 to obtain a more accurate idea of what your property is worth. Go to www.aicanada.ca to find an appraiser in your area.

Screening Buyers: This is a real challenge. Most who sell by themselves depend on open houses to invite potential buyers in to see their property. You don’t know who is coming. Many people who attend these open houses cannot afford your home. They are just coming to look, and in extreme cases, to steal from your home while you are distracted. To protect against this, check the license plate and car of everyone who comes to your home, and ask questions such as: “Where do you live? Do you own a home now? When are you thinking of moving?” to get a better sense whether these are legitimate buyers. Make sure valuables are safely locked up and that there are two or three people with you to observe everything going on,inside and outside your home.

Disclose Defects: Sellers need to understand that if they know about major problems to the home that are not visible, such as a basement or roof leak, mould behind the walls or a problem with the foundation, then this must be disclosed to potential buyers. If you do not disclose them, you can be sued by the buyer after closing. A good strategy is to have your house inspected by a professional home inspector before you put it on the market, then give a copy of the report to any potential buyer. You can find a home inspector at www.oahi.com

Staging Your Home: Home stagers can provide useful information on making your home more attractive to buyers. This could include de-cluttering, removing or replacing furniture, repainting or minor renovations, and exterior lawn care to give your home more curb appeal. If you plan on selling by yourself, Consider hiring a home stager, or possibly a landscape designer, to assist you.
Negotiating the Agreement of Purchase and Sale: The fine print in a standard real estate contract is complicated. The buyer may also include conditions, representations and warranties, any of which could permit her to back out of the deal at the last minute, or cause you to have to pay for something unexpectedly after closing. Ask for a deposit of 5 per cent to make sure an offer is serious. You will need a lawyer to assist you. Since multiple offers may come in, not always during business hours, you should try ensure your lawyer will be available to assist you when needed.

If you are not comfortable dealing with the issues raised above, or if you find yourself in a buyer’s market where there are more houses for sale than available buyers, consider retaining a professional real estate agent to assist you.

Toronto lawyer and author Mark Weisleder is a consultant to the real estate industry. His latest book is Put the Pen Down! What Homebuyers and Sellers Need to Know Before Signing.

Canadian Housing Market 'in a highly unusual Place'

Toronto Star

Business / Real Estate

Excerpted from The Toronto Star

Canadian housing market ‘in a highly unusual place’

An unusual combination of factors is fueling house price increases despite a downturn in sales, a new housing survey finds.

Toronto Star / Dick Loek

Toronto house prices are likely to continue to soften into next year, but will avoid a hotly anticipated major downtown, a new housing survey suggests.

By:Susan PiggBusiness Reporter, Published on Thu Apr 04 2013

 

Toronto house prices are likely to continue to soften into next year, but will avoid a hotly anticipated major downturn, as “2013 finds the Canadian housing industry in a highly unusual place,” according to a new quarterly housing survey by Royal LePage.
 

The rare combination of low interest rates, flattening house prices and an improving economy “is not something we’ve seen before,” says Royal LePage president Phil Soper.
 

“Typically, one of these variables is moving hard in an opposite direction.”

That unusual combination of factors should give buyers some breathing space, as prices flatline and sellers gain some confidence that house values will hold strong, according to the quarterly survey, which shows that despite a significant slowdown in sales since last summer, the average price of a home in Canada increased between 1.2 and 2.4 per cent in the first quarter of this year over the same time last year.
 

“While some have spoken loudly about impending market volatility and dramatic downward pressure on home prices, we are simply not seeing evidence of this,” said Soper, whose company has a network of 14,000 realtors across Canada.
 

“The current environment is very supportive for housing. Those waiting for big declines in home prices will likely be disappointed.”
 

While such optimism is unsurprising from a real estate company, despite the fact sales have plummeted across the country since last summer — especially in the condo sector — the survey of Canadian house prices in the first quarter does provide hopeful signs.
 

Only the once superhot Vancouver and Victoria housing markets, along with Saint John, N.B., have seen significant downturns in house and condo prices, according the annual survey, which looks at seven types of housing in over 250 Canadian communities.
 

Vancouver bungalows, for instance, which still average just over $1 million, saw price declines of 5.1 per cent while condo prices were down almost 6 per cent in the first quarter of 2013, year over year.

Saint John’s declines are largely because an influx of new jobs and consumer confidence, which started four years ago, is starting to peter out, noted Soper.
 

St. John’s, N.L., on the other hand, saw some of the biggest price gains in the country, with two-storey houses up an average 10.6 per cent year over year, largely buoyed by move-up and executives buying pricier homes.
 

While Toronto saw a double-digit downturn in buying activity in the first quarter of this year over last, it has yet to seriously impact prices, the survey shows.
 

The average price of a bungalow was up almost 4 per cent in the first quarter over the same time last year, to $565,700. Even condo prices were up almost 2 per cent year over year to an average $359,671, according to the survey.
 

But Soper noted that those gains are unlikely going forward, even if sales do start to pick up, as Royal LePage expects, later this year.
 

Soper predicts prices gains could slip, possibly into negative territory, by the end of 2013 and would be unlikely to pick up again until into 2015, driving the Toronto market into serious buyers’ territory for the first time since the 2008 recession.