This weeks top stories include how mortgage growth in Canada has begun to slow and the big banks have taken notice, how a home buying mistake could be quite costly if not handled correctly, how the Toronto condo market is showing signs of traction as bidding wars return, how Toronto home sales have seen a year over year decrease of 50%, how interest rates will stay low for an unspecified period of time and how Canada’s housing market is noted to be one of the most overvalued housing markets in the world.
In the past, when a bull housing market comes to a stop, it comes with little warning and does just that. It stops. But things may be a little different this time as industry players are all noting that the bull market is finally coming to an end and that the end is in sight. There was recently a bank chief executive conference in Toronto where the heads of all the major banks met and agreed that mortgage growth volume is starting to slow.
This was after last years period of double digit growth, which slowed on the heels of new mortgage regulations and tightening of overall mortgage lending. This lead the chiefs of the big five to state that residential real estate is headed in the direction of a soft landing. Barclay’s Capital analyst John Aiken was noted as saying, “The slowdown in Canadian housing market finally appears to be hitting residential mortgages. Mortgages held by the banks grew just 0.4% in November compared to the previous month, or 9% year over year”
He was further noted as saying, “With recent real estate data indicating that sales activity in Canada’s real estate market continues to cool, we anticipate loan volumes should continue to ease.” Even with recent changes to the mortgage lending guidelines, household debt continues to climb past previous record highs and is still noted as the largest risk facing the Canadian economy. What do you think? Will we be able to reign in on household debt before it affects the greater economy? Please comment below.
When buying a home, many buyers ask that things remaining to be fixed around the property are taken care of prior to closing but you must ensure that these items are clearly set out in writing prior to closing or deal with serious consequences. An example of this is the case of Janet Marrow who agreed to purchase a home of $174,000 with 60 days closing.
Upon inspection of the home, she noticed that there were many minor problems with the home and advised the seller that she wouldn’t close without the necessary repairs being done. The seller fixed majority of the issues but Janet found that all the repairs weren’t completed. She advised the seller that she would not close until they were completed. The seller offered Janet a cash compensation so that she could fix the repairs herself by reducing the purchase price. Janet refused and decided to not close on the property.
The home was sold to a different buyer for $46,000 less than the original selling price to Janet. The seller than sued Janet for the $46,000 deficiency from the new sale and won. The seller argued to the judge that the house was for the most part what she agreed to buy and the Judge sided with the seller. This is a prime example of why things need to be put into writing prior to closing. If the seller undertakes to do repairs on the property but does not complete them, you cannot refuse to close but you are entitled to reasonable compensation for the work to be completed.
The advise here is to get repair estimates in writing so that you can both agree to the costs for repairing the items noted. If the seller doesn’t get the repairs done, there is a clear understanding from both parties what the costs incurred will be. Both parties should obtain independent legal advice when dealing with a contract or any amendments to a current contract, especially if they are in regards to repair obligations or issues. What do you think? Please comment below.
The Toronto condo market is showing strong signs of traction with an unexpected increase in condo buyers going into bidding wars on units. ReMax realtor Peter Krpan commented, “I was shocked” referring to what he had hoped that his buyers would be at an advantage with the current soft market. Things changed quickly as the buyers were outbid on a number of units.
After witnessing sales slow to a crawl and prices that have flat lined in the month of December, life has shown signs again in what was considered to be the end of the housing market. The last two weeks also revived bidding wars in Toronto in some premier neighbourhoods where inventory is low. There is still substantial supply in Toronto’s condo market but majority of that supply are condo’s that are extremely small, poorly laid out and aimed at investors, not the average buyer looking to stay in the property.
Most people have been waiting on the sidelines for the market to crash but the last couple of weeks have changed most peoples tune. According to a report by Canada Mortgage and Housing Corporation (CMHC), first time home buyers will account for 30% of purchases over the next two years. With recent changes to mortgage regulations, these buyers must be more credit worthy than previous buyers and make more income to qualify for the same size loan. What do you think? Please comment below.
Housing sales numbers have been on the decline for roughly the last year. The latest news is that the Greater Toronto Area (GTA) is showing a drop in sales of 52.1% year over year in the month of December according to RealNet Canada Inc. Inventory levels have been doing the complete opposite with unsold inventory increasing 29.1% from December of last year.
Although inventory numbers were down 2.2% in November, the greater picture over the year shows a drastic increase in the amount of available inventory on the market. The lack of housing is strictly in the low rise sector, which continues to impact prices across the GTA. George Carras, president of RealNet commented, “It’s impossible to have a healthy understanding of the condominium market by only looking at the condominium market when provincial growth planning policies are forcing a shift to higher density development. While it’s hard for most people to miss the growing number of new condominiums, it’s easy to miss the shrinking number of ground-related developments across the GTA, and therefore misunderstand the market.”
High rise sale prices for the month of December averaged $436,024 in the Greater Toronto Area, which was a 0.4% increase from last year. Low rise sale prices were up 16% from last year, reaching $632,868 in December. The opposite to this is the actual sales numbers. Low rise sales were down 20% at the end of 2012 when compared to the previous year and was noted be the lowest number on record since 2000. Low rise homes have seen prices increase 44% in the past four years based on its index with supply decreasing 52% during the same time period. What do you think of this information? Please comment below.
The Bank of Canada (BoC) signaled this week that interest rates will stay low for an undefined period of time. The noted that slower than expected economic growth and a shift in consumer buying habits have taken away the need to raise interest rates immediately. The overnight lending rate stayed at 1% as expected by most economists. The trend setting rate has been at 1% for over two years.
BoC governor Mark Carney was noted as saying, “Caution about high debt levels has begun to restrain household spending,. The Bank expects trend growth in household credit to moderate further.” This is on the heels of many announcements that Canadians are taking on too much household debt compared to their incomes. Household debt had reached an all time high of 163% of disposable income towards the end of 2012. This may have come down enough now to prevent the BoC from taking any action on the issue, which would include raising interest rates to stop consumers from over borrowing.
The change, mixed with a weaker than forecasted domestic economy, and a flat inflation outlook, caused the bank to adjust its standard statement of future strategy and note that interest rate hikes are not coming in the near future. Economic growth is still expected to be less than predicted in October, which was 2.2%. The BoC is saying last years numbers were actually closer to 1.9% for the 2012 year and expect 2% this year. The next interest rate meeting will be held on March 6, 2013. Stay posted for your next interest rate update.
Economist were noted as saying this week that the Canadian housing market is one of the most overheated housing markets in the world. Even with current signs of the market cooling, overvaluation in Canada is coming in at an unfathomable 78% price to rents ratio. Japan leads the other end of the scale with an undervaluation of 37%.
The Economist recently did a survey on the global housing market and was noted as writing, “Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration. Singapore and Hong Kong also look vulnerable to a correction, given the overvaluation on their price-to-rents ratios.”
Bank of Canada (BoC) governor Mark Carney, along with finance minister Jim Flaherty, made the decision to tighten up mortgage lending guidelines in July of 2012, which put Canada’s overheated housing market into a standstill. Reports this week stated that home price gains in the month of December were at the lowest levels in the past three years. This is at the same time that home sales were down 50% from the previous year. Vancouver is noted to be the second least affordable major city in the world, only ranking behind Hong Kong when it comes to purchasing real estate. What do you think of this news? Please comment below.
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