DORIANA ZOHIL’S MARKET REPORT
Your Greater Toronto Real Estate Newsletter
Mar – Apr, 2015
MARKET OFF TO FAST START – NO END IN SIGHT FOR LOW RATES
The recent decision by the Bank of Canada to drop interest rates gave Toronto’s housing market an even bigger boost. The market was already active, with January sales up 6.1 per cent compared to 2014.
Just when most analysts thought mortgage interest rates had to start rising after many years of rock-bottom rates, dropping oil prices prompted the Bank of Canada to cut rates for the first time in years. Initially the major banks were criticized for dropping the interest rates on saving accounts immediately, while being reluctant to lower mortgage rates. However, the Bank of Canada’s move ensures that homeowners won’t have to worry about significant rate hikes until at least 2016.
The low rates should create an even busier spring real estate market. Traditionally, it’s the season with the most activity, and it may already be underway. But the problem that buyers faced all last year persists: there’s a shortage of houses for sale.
“A constrained supply of listings for singles, semis and townhouses coupled with balanced market conditions for condominium apartments points to further growth in the average selling price in 2015,” says Jason Mercer, director of market analysis for the Toronto Real Estate Board. “A sustained period of strong listings growth will be required to account for the pent-up demand for ownership housing in the GTA.”
The average selling price for detached homes in January was $948,713 in the City of Toronto and $648,233 in the 905 areas. Semi-detached prices averaged $667,452 in the city and $456,653 in the 905. The average condo apartment sold for $382,458 in the city and $310,045 in the 905.
Lower oil prices and a sinking dollar are bad for the Canadian economy overall but good news for some Ontario businesses. It helps exporters and manufacturers and could lead to more employment opportunities. With some jobs out west drying up, more people will come to the GTA looking for work. Immigration to the area remains strong. All of these factors continue to boost housing demand.
A recent TD Economics report says that government housing policies are falling short in providing a balance between affordability, environmental protection and smart land-use policies. It adds that provincial legislation such as the Greenbelt and Places to Grow initiatives are “laudable goals” to help slow urban sprawl. The report suggests that by encouraging the development of small condo units that “it can reasonably be argued that the pendulum has swung too far.” The report wonders how the GTA will accommodate the changing needs of the echo generation, who will soon be starting their own families.
CONDO AMENITIES THAT MATTER – WELLNESS PROGRAMS OR DOG WASHES?
In the early days of condominium living, the amenities in most buildings were generally limited to a large, empty space called a “party room” and, perhaps, an indoor pool.
Today’s condo developers offer much more to entice buyers, ranging from movie theatres to guest suites to concierge services. When making your condo buying decision, it’s important to see how much you’ll pay for the amenities and if they will help with the resale value of your unit.
Right now, fitness centres are hot. The best ones provide natural light with a decent view and offer modern exercise equipment and fitness classes or personal trainers. Some new buildings have squash or basketball courts. Former CFL player Jeff Johnson is bringing a fitness program called Wellbeats to Canadian condos. It delivers classes on big-screen TVs in condo fitness rooms.
The party rooms of the past have given way to more intimate settings. These rooms, similar to a lounge, have small seating areas and perhaps a fireplace, some TV screens and a bar so you can invite friends over to watch a game or a movie. With condo units getting smaller, these rooms are important for those who like to entertain.
Other amenities can include dog washes or an outdoor movie theatre on the roof. Some condo buildings offer life-saving services such as a day care or 24-hour medical care, depending on the demographics and lifestyle of the residents who live there.
THE UNDERGROUND ECONOMY – PITFALLS OF NOT PAYING TAXES
Everyone’s least-favourite government department, the Canada Revenue Agency, is cracking down on construction contractors who don’t pay their taxes — part of the so-called underground economy. While it is tempting to pay for renovation work in cash or “under the table” to avoid paying taxes, you should know the pitfalls of doing so.
For your protection, every home renovation job should include a written contract so you can ensure the job is done correctly. The contract should include the contractor’s full contact information, proof of Workers’ Compensation and business liability insurance, and confirmation that they have the necessary permits and licenses to do the job.
Failure to follow these procedures could mean you will be liable should a worker get injured on your property. Without the proper permits, building inspectors may order alterations or even demolition of the project. If the contractor fails to pay a tradesperson who worked on your reno that person could place a lien on your home.
You also should insist on a written warranty that details what work is covered and for how long.
The Canadian Home Builders’ Association says that contractors who don’t follow the rules make it hard for honest contractors who strive to do quality work since those who don’t pay their taxes have an unfair business advantage.
The CRA claims the underground economy places an unfair burden on law-abiding taxpayers. Unpaid taxes mean less money for programs such as health care, employment insurance and pensions.
SECOND MORTGAGE – IS IT RIGHT FOR YOU?
Second mortgages allow you to use the equity in your home to help with a financial goal, whether it’s a home renovation, borrowing to pay off higher-interest debts such as a credit card or even financing a small business.
A home equity loan, such as a second mortgage, provides much cheaper interest rates than taking out a personal loan. You can get fixed or variable rates.
A second mortgage is, as the name says, a second loan that you take out on your home in addition to a first mortgage. You must continue making payments on the first mortgage as well as the second mortgage. In the event of default, your first mortgage lender gets priority and as such is paid first with any funds available before the second mortgage provider gets paid anything.
Since a second mortgage is riskier for the lender, interest rates are usually higher than for a first mortgage. You can borrow up to 80 per cent of the appraised value of your home, less the amount left to pay on the first mortgage.
As with all mortgage loans, you will be required to pay closing costs on your second mortgage. Closing costs are generally two to five per cent of the value of the second mortgage and could include an appraisal fee, legal fees, a title search and title insurance.
To qualify for a second mortgage, the lender will want to know your employment situation and history and other financial details to ensure that you can afford the mortgage.
Other home equity options to consider are re-financing your existing first mortgage, borrowing any amount you pre-paid on your mortgage or obtaining a home equity line of credit.
Many people use second mortgages to finance renovations to their home. You can increase your home’s value and gain more equity all while benefiting from the improvements.
With today’s competitive mortgage market, it’s worthwhile to shop around and talk to a variety of lenders before deciding what to do. Fees and mortgage stipulations vary from lender to lender, so take your time.
HOME INSPECTIONS – THE TOP FIVE MISCONCEPTIONS
Home inspections are a fairly new piece of the real estate puzzle. Unheard of in Canada prior to the mid-1970s, this consulting service is now a standard part of most real estate transactions. While homeowners recognize the importance of home inspection services, few are familiar with the details, including what is involved and how it works. There are several misconceptions and we’ll look at our top five here.
- 1. Exclusively for home buyers
Home inspections are not just for home buyers and actually make great sense for sellers. There has been a dramatic increase in the number of sellers’ home inspections in the last few years. During the spring and fall markets, up to 40% of inspections completed are for sellers. Sellers’ home inspections work for both sellers and buyers. They help the process in many ways, resulting in faster sales, increased comfort levels, fewer renegotiations, reduced uncertainty, and lower liability.
- 2. Only needed for older homes
Many feel that home inspections are only valuable for older homes. Newer properties often have problems, frequently the result of original construction issues or neglected maintenance. Home inspectors provide significant value for new homes, including assistance with information for home warranties.
- 3. You need a PhD to understand your report
Inspection reports don’t have to be complicated. They don’t have to include technical jargon, complex symbols and legends, illegible handwriting, or indecipherable notes. Many inspectors provide an easy-to read electronic report that includes photos, illustrations, and ballpark costs to address issues. Many reports are delivered the same day the inspection occurs. They include not only the information needed to make a buying decision, but great advice for the long term, helping you protect your largest investment.
- 4. Take place Monday through Friday
The world of real estate does not operate on a Monday to Friday, 9-to-5 schedule, and neither should home inspectors. Many inspectors perform inspections on weekends as well as in the evenings, provided there is adequate daylight.
- 5. Require planning and advanced notice
A large number of home buyers forgo their home inspection because they think they cannot schedule an inspection on short notice. In reality, home inspections can often be performed the same day they are requested. Many only require a few hours of notice, can be requested online, and take just a few minutes to book. Some companies offer real-time online booking through their website.
The above article is reprinted with the permission of Carson, Dunlop & Associates Ltd., Consulting Engineers – Expert Home Inspections.
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