DORIANA ZOHIL’S MARKET REPORT
Your Greater Toronto Real Estate Newsletter
Jan – Feb, 2015
MARKET STRENGTH FORECAST TO CONTINUE – NO INTEREST RATE HIKES SOON
Improving labour markets will support stronger home sales in 2015. A report by Marcus & Millichap Research forecasts the creation of up to 51,000 new jobs in the GTA this year. It says there will be job gains in professional/scientific/managerial services, financial/insurance/real estate services, retail/wholesale trade and construction.
Canada Mortgage and Housing Corp. (CMHC) believes that as the U.S. economy improves, and with support from a weaker Canadian dollar, Ontario’s manufacturing industries will see improved employment prospects. Incomes are expected to increase modestly.
In the GTA, higher than historic average immigration will boost population growth and housing demand. A new federal immigration program will make it easier for employers to find skilled labour and qualified immigrants will be able to settle faster “and ultimately enter the homeownership market,” says CMHC.
Perhaps what is most important is that the federal housing agency does not “expect interest rate increases before the latter part of 2015 in both Canada and the United States. Inflation remains under control in both countries.”
When all the numbers are tallied for the end of 2014, it’s expected that Toronto will set a new all-time record for home sales. CMHC believes that the record won’t last long and a new high-water mark will be set again in 2015, when 96,000 transactions are expected.
By the end of 2015, prices will be up by 6.5 per cent compared to 2013, predicts CMHC. In 2015 they will rise by another 2.2 per cent and in 2016 by 1.8 per cent, when mortgage rate hikes should start to slow down the market. CMHC also anticipates that more listings on the market will put a drag on price growth.
Figures from the Toronto Real Estate Board (TREB) show that during the first half of November 2014, the average price of a detached home in the City of Toronto was $922,524 – an increase of 8.4 per cent compared to the same time period in 2013. In the 905 regions, the average detached home price in 2014 was $664,340, up 11.8 per cent from a year ago.
Semi-detached home sales averaged $673,666 in the city and $443,008 in the 905 regions during the first half of November 2014. Overall, new listings in the GTA for all home types were up by 2.2 per cent compared to the first half of November 2013.
“In many neighbourhoods across the GTA, there are a number of buyers competing for a constrained supply of singles, semis and townhouses,” says Jason Mercer, director of market analysis for TREB. “This is why, more often than not, annual average rates of price growth for these home types have been in the high single digits or low double digits this year .”
WHAT’S YOUR STUFF WORTH? – TAKE A HOME INVENTORY
Insurance is one of those topics that makes your eyelids heavy and your head start to nod…until something happens and you need to file a claim. If you had a fire or a break-in at your home, would you be able to tell your insurance company exactly what possessions you lost and what they are worth?
Most homeowner’s policies cover contents up to a specific percentage of the total insured value of the home, according to the Insurance Bureau of Canada (IBC). You can also buy extra insurance for more valuable items.
The IBC and several insurance companies offer online home inventory lists. You can fill out these inventories online or print out the list and do it by hand, and then store the completed inventory in a safety deposit box or a fireproof safe.
The list should include everything that’s in each room, including its cost, purchase date, and serial number (if it has one). Take pictures or video of all of your valuables, including electronics, jewellery, artwork and other prized possessions, and keep the photographic record with your inventory list.
Every time you make a major purchase, keep the original sales receipt, along with the owner’s manual if there is one. These items can serve as proof of ownership. It is a good idea to update the list annually to reflect new purchases or items that you’ve replaced.
CONDO DEMAND MAY BE UNDERESTIMATED – PRICES EDGING UP
A recent report from CIBC World Markets reveals that official population projections may be underestimating population growth by almost 100,000 people, which has big implications on housing demand.
The report found that new immigrants account for about 70 per cent of the increase in the Canadian population. Many of them settle in the GTA. Half of them are in the “prime-aged, 25 to 44-year-old cohort [which] represent the economy’s engine as those who have the highest employment levels and those most likely to start families.” They are also prime home buyers.
The authors, Banjamin Tal and Nick Exarhos, discovered that the number of non-permanent Canadian residents – including students, temporary workers, and humanitarian refugees – increased by 22,000 to 774,000 in 2013. “Those are big numbers,” say the authors. “When it comes to measuring household formation in Canada and its implication for the appropriate level of homebuilding, we systematically understate the number of those non-permanent residents.”
More households translates into more condo buyers and more renters for condo investors. During the first half of November 2014, the average condo apartment in the City of Toronto sold for $407,178, an increase of 2.9 per cent compared to the same time in 2013. In the 905 regions, the average condo apartment sold for $303,665, an increase of 10.5 per cent compared to the first half of November 2013.
CMHC thinks that demand for condo apartments from both baby boomers and millennials will increase during the next two years.
MORTGAGE? RRSP? TFSA? – WHERE SHOULD YOU INVEST?
“Perhaps no question has been discussed more in the annals of personal finance than whether, given a fixed amount of annual income, we should use those funds to save towards retirement or to pay down debt,” says Jamie Golombek of CIBC Private Wealth.
For years we wondered if it was better to pay off the mortgage or contribute to a Registered Retirement Savings Plan (RRSP). Then a few years ago, the government introduced another option: the Tax-Free Savings Account (TFSA).
Mortgage interest rates have remained at historically low levels for several years and shouldn’t rise for at least a year, so it’s tempting to hang on to the mortgage and invest elsewhere. However, if rates climb near or at your mortgage renewal time, you may regret not paying down the debt faster.
“When tax rates today are the same as the tax rates that are expected to apply on further plan withdrawals, the decision…boils down to a mathematical question: Can you get a higher rate of return on your investments than the interest rate on your debt, given a level of risk at which you are comfortable?” says Golombek. “If so, then investing is the better bet; otherwise, paying debt is the better choice.”
A big consideration when making this decision is your tax situation. RRSPs are taxable upon retirement. If you have a company pension plan that will provide secure income and you add your RRSP income to it, you could find yourself in a higher tax bracket. Some of your Old Age Security benefits could be clawed back by the government. In this case, it’s better to pay off the mortgage or invest in a TFSA, neither of which has tax implications.
You can only invest up to $5,500 in a TFSA each year and there are tax penalties if you go over that amount. You may invest up to 18 per cent of the previous year’s income in an RRSP. The amount you can pay off your mortgage depends on the terms of your contract.
HEATING YOUR HOME THIS WINTER – FURNACES
Furnaces aren’t known for being fickle, but there are certain protective measures homeowners should implement to ensure their homes are warm and comfortable this winter.
- Furnace Filters
Your furnace filter should be checked monthly to determine if it needs cleaning or changing. Typically located in the air return duct adjacent to the furnace, making sure your furnace filter is in good condition can help improve both comfort and heating costs. You will need to see if you should purchase a cleanable or disposable furnace filter – most homeowners choose to have a disposable filter, for convenience, but both are good choices.
- Furnace Humidifiers
While ideal humidity for homes can be as low as 5%, people feel the most comfortable in environments with 60% humidity. Unfortunately, houses can have a hard time coping with this in cold weather. Too little humidity makes people feel uncomfortable. Too much can cause condensation, mold, mildew, and rot in homes as the warm moist air hits cool surfaces. Contrary to popular belief, homeowners actually have to lower the humidistat setting as the weather outside gets colder. The colder is it outside, the easier it is for condensation to form on cool surfaces, like windows. Homeowners can reduce condensation and the risk of mold by lowering the interior humidity level. The recommended house humidity levels are:
Watching for condensation on your windows is another great way to gauge your house humidity level. Lower the humidity when you see condensation. In addition, room temperature and humidity monitors, available at hardware and building supply stores, can help you manage your humidity.
- Furnace Efficiency
High efficiency furnaces are complex, and as a result they’re often more expensive than conventional furnaces. High efficiency furnaces on average cost about $1,000 – $1,500 more than a conventional furnace. If you spend $1,000 per year heating your house with a conventional furnace, you can save close to $350 with a high efficiency furnace. A high efficiency furnace may pay for itself in 3 years.
If you’re considering a high efficiency furnace for your home, speak with a reliable heating or HVAC contractor to discuss the pros and con of various models and any estimated increase in furnace maintenance costs.
The above article is reprinted with the permission of Carson, Dunlop & Associates Ltd., Consulting Engineers – Expert Home Inspections.
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