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The Voice of Experience |
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| Posted on Mon, 08 Mar 2010, 01:54:36 PM in Home buying tips | | Changes announced by the Federal Finance Dept. are intended to ensure that the real estate market does not experience a crash because they fear that the public has overextended themselves in terms of their mortgage commitments. It’s nice to know that a Government that has trouble running its own state of affairs knows more than consumers and lenders.
The best that can be said about these changes is at least the Finance Dept. did not ‘screw up’ the real estate and mortgage markets at a time when they are an important contributor in getting us out of the current recession. When so many markets are underperforming, let’s kill the ones that are doing well! This would only make sense to a government official. Thank goodness the changes will have only a minimum impact on our real estate markets.
But enough of the sarcasm, let’s focus on the changes. The most important one is that buyers must now qualify for a mortgage based on the five year fixed rate, regardless of the type of mortgage being borrowed. The fact that a five year fixed rate can be either a posted rate or a discounted rate with most lenders seems to have escaped the bureaucrat’s keen eyes. As well, different lenders also have different five year rates. I am sure the Government will now come up with a ‘prescribed rate’ and we will have to set up a new department just to research, calculate, and announce changes from time to time! Also overlooked was the fact that lenders currently qualify buyers at their own three year fixed rate. Using discounted rates from a single lender, the difference in qualifying rates from three to five years will be just over 1/2%. When you factor in how much extra income a person will need for a $300,000 mortgage, it will probably amount to an extra $4,000 a year in qualifying income.
The second change involves refinancing an existing property. Now an owner can only refinance up to 90% from 95% in the past. This is not a bad change as owners cannot just keep refinancing to the max to take money out of their property.
The third change involves rental properties whereby a buyer must now put down a 20% minimum down payment. It was unfortunate that the press release referred to these types of buyers as ‘speculators’ rather than investors which just demonstrates the thinking of bureaucrats. Again we are not opposed to this change. Anyone buying a condo to rent out knows that you need at least 25-35% down, just to break-even. Many non-resident investors are buying new condos ‘all cash’. This change may impact those buyers in small market areas where 10% down can generate a positive cash flow from rental properties. It will have no impact in the Toronto condo market.
In closing, let’s be grateful that the Finance Dept. did not increase the down payment from 5% to 10% for buyers, on the mistaken belief that more down means buyers will not default when lenders are qualifying on the basis of income! This change would have killed the ‘first time’ buyer market and that in turn would have put the brakes on the ‘move up’ market because these people would have had no buyers for their property! The end result would have a big real estate crash which was what the Government was trying to avoid in the first place!! What more can we say! | |
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| Posted on Mon, 08 Mar 2010, 01:17:20 PM in Marketing strategies | | Sales Commentary
January sales on the Toronto Real Estate Board at 4986 units were up by 87% over 2009. Condo sales, performed even better, with an increase of over 100%. But that is not the real story. The numbers were expected. More importantly sales matched those of 2007 and 2008 for January. Hence we have established a bench mark for this market. Why some naysayers still see sales retreating to levels of five years ago makes little sense. Looking forward, we are forecasting February sales at 7600 units which will be an 'all time' record for the month of February!
But there are some factors which give pause to this euphoria. In the downtown condo market, the sale-to-list ratio was 44% in January, down from over 80% at the end of last year and the number of new listings in February is accelerating. While multiple offers are common on well priced units in the popular price range ($300-450,000), more and more listings that are not priced right will sit in this market. We also know that time is running out for sellers. The HST, coming July 1st, does not apply to resale housing but it will impact new sales coming after that date. The immediate impact is that consumers will be paying more for a lot of items not previously taxed such as utilities and maintenance contracts imbedded in condo fees, legal fees and realtor commissions. This, together with any increase in mortgage interest rates, will reduce the number of buyers who can qualify in the second half of the year. As we said in our forecast, 2010 will be the reverse of 2009 - strong first half, and lower second half! In total, we expect sales to match the record breaking year of 2007. (If you want to see our comments on the new mortgage qualification rules click here)
In this issue, we examined sales at New Times Square - 109 Front Street E. in the St. Lawrence Market area. Prices in this building tend to be lower than others in the area. The first unit we looked at was a one-bedroom, 780sf, 2 level loft with parking and locker. The last sale was in August of 2009 at $332,000 (107% of list). It previously sold in 2006 for $245,000 and in 2003 for $215,000. The current price is $425 per sf and the unit has appreciated by 55% over 6 years or just under 9% per year. A second unit we looked at was a two-bedroom, two bath unit with parking and locker. At just over 900sf it sold at the end of 2009 for $450,000 (again 107% of list). It also sold in 2003 and 2001 for $295,000 each time. The current price of $490 per sf supports what we told you two years ago, that while smaller units were more expensive on a per sf basis, larger units would generate higher prices in the future and we are now seeing that changeover, as condo buyers start to move up and demand bigger units. The problem is that developers are building fewer big units over 1,000sf and that will be where the price premium will kick in as we go forward in this market.
Rental Commentary
The rental market in January picked up. Downtown, 20 studios, 197 one-bedroom, 75 two-bedroom, and 5 three-bedroom units were leased in January. Leasing activity has picked up about 20% from the end of last year. Rental prices are also holding steady with studios going for $1250, and one-bedroom units ranging from $1450 with no parking to $1650 for parking and a den. Two-bedroom units ranged from $2000 to $2500 for parking and a den. Three-bedroom units averaged $4500. Units are leasing for 100% of list price, on average and there has been the occasional 'multiple offer' situation as the vacancy rate for rental condos is still under 1%. | |
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| Posted on Wed, 27 Jan 2010, 10:22:49 AM in Marketing strategies | | WHAT TO LOOK FOR IN 2010
1) NO real estate ‘bubble’ this year! Some doomsayers are falling back on this tact after the failed sales crash of 2009 forecast. For anyone who has studied real estate trends, it usually takes three years of double digit price increases to produce the effect. And in the condo market we have had about 8 months so far!
2) NO interest rate spikes this year. The Bank of Canada and Finance Minister are left with nothing but ‘moral suasion’ in an attempt to slow down this market. Our bank rates (variable) are not going higher until the U.S. raises theirs, and that wont’ be in 2010. Fixed rates could move slightly higher if Governments start heavy borrowing in Canadian markets to cover their deficits.
3) DON’T get sidetracked by Canadian real estate markets. Focus on the condo market – particularly downtown. The bad news about the U.S. market is really centered on 4 states and 21 counties. I was recently in South Florida. Miami condos are a disaster (as everyone knows) but 5 miles across the causeway in South Beach, the market is still going strong – no foreclosures and rising prices! Why? There was no SPEC construction and there is a limited supply of product. So what happens in Vegas stays in Vegas! And that too is real estate.
4) HST (JULY 1ST) will impact the real estate market. First it will bring sales forward from the second half of the year and secondly, a new tax always causes consumers to stop spending on everything for a period of time. Remember the City Land Transfer tax and the introduction of the GST? After several months of complaining, Canadians will just get on with life, accept more taxes, and resume their spending habits.
5) Watch the average price per sq.ft. differential between the resale market and the new condo market. That will tell you where the investors are going. Seven years ago the differential was only $25 and investors poured into new projects. Over time the gap rose to about $150 per sq.ft. and investors moved back to the resale market. Investors returned to the new project market in the fall of 2009, when the differential had dropped to under $75. Today the average price for resale condos is about $500 and for new projects it is $600 per sq.ft.
WHAT TO DO IN 2010
1) What are driving prices in this market are NOT cheap mortgage rates but rather a lack of listings and a race by buyers to purchase before the HST! Again this year will be made up of two markets. The first half of the year will be a sellers’ market. SELLERS should list NOW or be prepared to wait until 2011.
2) In the condo market over the past five years there have been very few buying opportunities. One presented itself in the first half of 2009. (We reported in our April Report of ’09 that the market had bottomed in the first week of February).The second opportunity for BUYERS will be this fall. Don’t expect prices to drop but do expect prices to stabilize and ‘multiple offer’ scenarios to drop significantly. Besides the HST, a significant number of new condo projects will be registering in the second half of the year and we expect an additional 2,000 units will come on the market from investors (that is about a 3-4 months’ supply) which will significantly reduce the listing shortage in the back end of the year.
3) BE A PLAYER IN THE ASSIGNMENT MARKET (buying and selling properties before they are registered) an often overlooked area by buyers and sellers. Sellers can bring their property to market earlier (and beat the slowdown in the latter half of the year) and buyers can escape from the ‘multiple offer’ frenzy and move in earlier. To be a PLAYER you need a knowledgeable realtor who knows how to structure the deal and you need a skilled lawyer who knows how to close the deal!
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| Posted on Mon, 25 Jan 2010, 01:00:42 PM in Home selling tips | Thinking of selling your home but not sure if now is the "right time?"
Talk to Sonja for sound advice on when to sell your home in the least amount of time for the best possible price.
First I will help you examine your reasons for wanting to sell. The most common reasons why people decide to sell their homes include changes to their financial status, an employment transfer, a growing family or retirement. Today's low interest rates have also made it attractive for many homeowners to "move up" to a larger home.
Whatever your reason, selling a house is a complicated procedure so it's imperative to have a qualified real estate professional on your side. Because selling a home involves large sums of money and complicated legal documents, my expertise and experience can help a homeowner avoid costly mistakes.
Real estate cycles
Buying your home was probably the best investment you ever made. That's because over the long term, real estate has proven to be a sound investment while at the same time offering you and your family shelter and a feeling of pride of ownership.
However, real estate is subject to the law of supply and demand which creates cycles in the market. A shortage of homes generally means prices rise. This cycle is commonly known as a "seller's market." Alternately, a surplus of homes can result in a slow down in home sales or even a reduction in prices and is often referred to as a "buyers market."
One of the most important services I can provide is market analysis. Most people don't have the time it takes to conduct the comprehensive market research required to accurately price a home. I can give you up-to-date information on what economic and other factors are impacting current market conditions.
Which market is best?
Obviously, you will want to sell your home quickly and for the highest possible price. In a "seller's market," you often see many buyers competing for the same house resulting in top prices -- sometimes even over the original list price. However, if you are planning to purchase another home after the sale, chances are you will be competing in the same seller's market faced with higher prices.
In a buyer's market you may find you have to wait longer to sell your home for a fair price. The upside to selling your home in a buyer's market is you'll have more selection and pricing options when you go looking for your new property.
Although the current market cycle should influence your decision to sell, remember there are trade-offs to selling in either a buyer's or seller's market. Some people are concerned that if they trade up to a larger home in a buyer's market they will lose some of their home's equity in the sale. But, while you may sell your home at a "discount," it's likely you will purchase your larger home at an even greater discount. The advantage is you then own a larger asset with even greater potential for appreciation.
Seasonality
In Ontario, changing seasons and the weather can affect buyer demand. For example, fewer buyers may be out looking at homes during the cold and snowy winter months, but as a seller you will be competing with fewer homes on the market. Spring tends to be an attractive time for real estate sales as gardens start to look nice again and people come out of hibernation. Buyers with school-aged children like to purchase in the spring so they can move in over the summer. However, homes sell throughout the year so think of the season as only one factor in deciding when to sell your home.
There are many important issues that come into play when deciding to sell your home. I can help you to determine if now is the best time for you.
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