Ajax Pickering Real Estate Blog

Anne Howland, CanWest News Service

Home prices across Canada are ripe for a fall, says one bank economist.

Adrienne Warren, senior economist with Scotia Economics, said a bustling real estate market has led to housing in many regions of the country being overvalued, increasing the risk of prices dipping in the longer-term.

“The fundamentals underpinning Canada’s real estate market are still quite good,” said Warren in Scotia Economics’ latest Real Estate Trends.

“Unemployment is low, immigration is high and apartment vacancy rates are tight. There is little evidence of overbuilding or speculative buying. The industry also has relatively little direct exposure to subprime lending, with these loans accounting for only about five per cent of domestic mortgages in recent years, compared with about 20 per cent in the United States.

“Yet there is little doubt that current trends are unsustainable,” added Warren. “Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising real estate prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems.”

RBC Economics reported that real estate affordability in Canada in the second quarter worsened in every housing type, every province and every major city.

“In the second quarter, Canada’s housing affordability experienced one of the largest and most broadly based quarterly deteriorations since the mid-1990s,” said Derek Holt, assistant chief economist with RBC. “Higher real estate prices, mortgage rates, utilities and property taxes all combined to drive the country-wide deterioration.”

The Scotia Economics report noted that, in all 15 cities examined with the exception of St. John’s, N.L., house prices are above their long-term trend, with big regional variations, from one per cent above trend in Ottawa, to 25 per cent in Edmonton.

The average deviation at mid-year was roughly eight per cent, the report said.

“Some deviation from underlying trends is to be expected at the late stage of a real estate boom,” said Warren. “At the peak of the prior two housing cycles in 1976 and 1989, national home prices were 12 per cent and 18 per cent, respectively, above their long-term trend. The smaller degree of overshooting this time around, and the sustainability of price appreciation, may reflect in part an undervaluation of Canadian real estate prices in the late 1990s and into the early part of this decade.”

The Canadian Real Estate Association said last month that the national average price of a home sold in July was $311,495, a 12.6 per cent increase from a year earlier.

Warren estimated that average real home prices in the United States carried a near-record 14 per cent premium in 2005, but have since slipped below trend due to increased supply of housing and weakening demand.

In Canada, she added, most major markets are still sellers’ territory, where prices rise faster than inflation. Cities enjoying the biggest price increases have the tightest supply-demand conditions, including Regina and Saskatoon.

“The further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction,” said Warren.

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Move risks overheating already hot real estate market

Garry Marr, Financial Post

You have to wonder what David Dodge will be thinking this time. Just over a year ago, the Bank of Canada governor met with Canada Mortgage and Housing Corp. because of his fears exotic mortgages were juicing an already robust Canadian housing market. Now CMHC has decided it is going to let Canadians buy investment properties with no down payment.

The Crown corporation, which controls about 70% of the mortgage insurance market in Canada, has quietly introduced changes that lower the down-payment threshold for an investment property. Instead of needing 15% down, Canadians will be able to buy a second property — not to mention a third and fourth and fifth — with no money down.

“These enhancements will ensure continued supply of affordable rental accommodations across Canada,” said Pierre Serre, vice-president of insurance products with CMHC.

Critics charge CMHC once again has moved into risky territory, the last time being its decision to allow Canadians no money down on a principle residence. “Look at the fee, anytime it’s that high, you know there is a lot of risk,” said one senior mortgage industry observer.

The mortgage insurance fee for the new product is 7.25% of the total amount of the loan.  So a $300,000 mortgage would have a $21,750 mortgage insurance fee.

Instead of paying the fee up front, CMHC will allow that fee to be added to the overall mortgage which can be amortized over as many as 40 years. Based on 5.8% interest,  the current discounted rate for a five-year term, it would cost just over $1,700 a month to carry that $321,750 mortgage.

By law, any consumer with less than a 20% downpayment must buy mortgage insurance if they are borrowing money from a financial institution covered under the Bank Act.

None of CMHC’s competitors are coming close to this new offer. Genworth Financial Canada — the other dominate player with about 30% of the mortgage insurance market — requires investors to have at least 10% down.

Back in July, 2006, Mr. Dodge demanded a meeting with the federal crown corporation. He was concerned about products like interest-only mortgages which give consumers the option of not making a principle payment for the first 10 years of a mortgage.

Mr. Serre said CMHC did consider the issue of whether the changes could overstimulate the market. “We look at those kind of considerations all the time,” he said, adding that to get a loan consumers will have to meet certain criteria in terms of their overall debt load. “We’re not trying to get people into situations they can’t manage.”

Some question whether there was any need for the latest change, given how strong the market in Canada remains.

The Building Industry and Land Development Association said this week condo sales in Toronto - the largest market for new high rises in North America — were up 31% over the first nine months of the year from a year earlier.

“I’m not sure why CMHC is relaxing the rules, the logic escapes me,” said Stephen Dupuis, chief executive of BILD. “The market is strong. I look at what is happening in the United States and wonder if there is a need to be so free with credit.”

The real reason for the new program, suggest some commentators, is CMHC trying to fend off competitors in the marketplace. In a constant battle with Genworth, CMHC is also facing up to four new mortgage insurers who have applied to do business in Canada or are already licenced to do so.

“There are competitors in the marketplace that didn’t exist before. They are reacting to competition that hasn’t even materialized yet,” said Mr. Dupuis. CIBC World Markets senior economist Benjamin Tal said the latest changes by CMHC are probably just the beginning. “The genie is out of the bottle, this mortgage market is starting to move. Over the past 16 months we’ve seen more changes than the past 30 years,” said Mr. Tal.

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There are usually many costs, on top of the buying price, that you must consider when buying a home in Pickering or Ajax. These extra fees, such as taxes and other additional costs come into play whether you’re looking to buy your first home, or trading up to a larger or smaller one. You will be surprised of an unwanted financial nightmare on the closing day if you’re not informed and prepared in advance. However, some of these costs are only one-time fixed payments, while others unfortunately represent an ongoing monthly or yearly commitment. It’s better to know about these costs are ahead of time so you can budget properly, even if they don’t apply in your situation.

Whether it’s your first, second or tenth home, buying real estate is a major milestone and there are many important details to address, during the process. The last thing you need are unbudgeted financial obligations cropping up hours before you take possession of your new home.

Carefully view the following list to make sure you’re budgeting properly for your next move.

1. Appraisal Fee
Your lending institution may request an appraisal of the property, which you will be responsible to pay for. Appraisals can vary in price from approximately $200 - $350.

2. Survey Fee
If the home you purchase is a resale, your lending institution may ask for an updated property survey. The price for this survey can vary between $800 - $1000.

3. Property Taxes
Your lending institution may decide to include your property taxes in your monthly mortgage payments, depending on your down payment. If your property taxes are not added to your monthly payments, ensure to have annual proof that your taxes have been paid.

4. Property Insurance
Home insurance covers the replacement value of your home. Proof that you are insured will be requested by your lending institution will request as it protects their investment on the loan.

5. Legal Fees
A lawyer must be involved to review all paperwork, even of the simplest of home purchases. Shop around, as rates vary greatly depending on the complexity of the issues and the experience of the lawyer.

6. Mortgage Loan Insurance Fee
Depending upon the equity in your home, some mortgages may require mortgage loan insurance. This type of insurance will cost you between 0.5% - 3.5% of the total amount of the mortgage. In addition to your mortgage and tax payment, these payments are also made monthly.

7. Mortgage Brokers Fee
In order to source a lender and organize the financing, you will need a mortgage broker who is entitled to charge you a fee for his/her services. However, it better for you to look around because many mortgage brokers will provide their services free to you by having the lending institution absorb the cost.

8. Moving Costs
The cost for a professional mover can cost you in the range of $50-$100/hour for a van and 3 movers, and 10-20% higher during peak demand seasons, like Christmas or March break.

9. Service Charges
Any new utility that services your hook up, such as telephone or cable, may require an installation fee.

10. Maintenance Fees
In your budget, ensure to have a section for maintenance fees, such as carpet cleaning or deck painting.

11. Water Quality and Quality Certification
If the home you purchased is serviced by a well, you must consider having your water checked regularly. Where you live determines whether or not a fee is charged to certify the quantity and quality of the water reaching your home.

12. Local Improvements
If the town or neighbourhood you live in has made local improvements, such as the addition of sewers or sidewalks, it could impact a property’s taxes by thousands of dollars.

13. Land Transfer Tax
Whenever a property changes hands, this tax will be applied. The amount that is applied can vary from one property to another.

As you can see, taking those extra costs into consideration is very important. You need to budget properly for your next move to avoid facing any financial troubles. Consult your broker or sales associate if any extra costs will be applied to you. Remember, purchasing a home is a major milestone and if you plan your budget accordingly, you will enjoy the best of your home.

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Contact the Jeffrey Team for more information - 416-388-1960