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Real Estate Roundup July 30th 2010

Real Estate Roundup

Real Estate News

CREA lowers housing forecast again (CBC) 

Canada's May home resale prices up for 13th straight month, but not likely to be sustained (Vancouver Sun) 

Canadian home sales forecast to decline in 2010 (Toronto Star) 

Think before you sue, it could get complicated (Toronto Star) 

Toronto to get new office tower and hotel near Union Station (Toronto Star) 

Consumer satisfaction for new home builders up in 2010 (Toronto Star) 

Frank Gehry’s childhood home to be razed (Toronto Star) 

Variable rate may no longer win (Financial Post) 

Toronto News

Website offers anonymous child-care reviews (CBC) 

Metrolinx signs big contract to purchase four tunnel boring machines (insideToronto) 

Army of burrowing machines to be unleashed under GTA (Globe and Mail) 

Ontario to run airport link after private deal collapses (Globe and Mail) 

Cycling in Toronto is a joke (Toronto Star) 

Parliament St. condo works 'brilliantly' (Toronto Star) 

A book of the Toronto you never knew (Toronto Star) 

US Real Estate News

For Housing Outlook, Look Past Tax Credit to Jobs (Wall Street Journal) 

Chance of double-dip recession is high: Shiller (Reuters) 

U.S. home sales snap back 24% in June (Financial Post)

Applying for a Mortgage: The Income Tests

David Larock in Mortgage and Finance

When it comes to underwriting a mortgage application, your income is the straw that stirs the drink. Income has proven to be the lender’s most reliable indicator of loan risk and, as such, the standards set for confirming it are rigorous. Once your exact income has been established, lenders then perform two tests to determine how much money they can safely lend to you. The first test, called your Gross Debt Service (GDS) ratio, takes the most basic costs of owning your home (property tax + heat) and combines them with the your projected mortgage payment before comparing the total to your gross income. The second test, called Total Debt Service (TDS) ratio, takes the same costs used in the GDS ratio and adds the ongoing costs of any other outstanding debt that you have before also comparing the total to your gross income. Today’s post will provide insights into how the income tests are handled by lenders. We’ll also touch on what to expect if you are self-employed or have non-traditional income, and we’ll close with some suggestions on the best approach to use when applying.

Canada’s lenders (and their insurers) have the benefit of decades of mortgage lending experience, and they have used their loan performance data to try to predict how much today’s applicants can safely afford to borrow. Because income has proven a powerful indicator of loan risk, the income tests are sacrosanct  The Canadian benchmarks for maximum GDS and TDS ratios originate at CMHC and serve as an industry standard that lenders observe (except maybe within a point or two). The maximum thresholds say that your gross debt service (GDS) costs should not exceed 35% of your household’s income, and that your total debt service (TDS) costs should not exceed 42% of your household’s income. As with any policy, exceptions can be made. For example, some lenders do not use the GDS test as a hard-and-fast rule and in some cases, TDS ratios can be stretched as high as 45%. Generally speaking, the banks are the most conservative when applying their income tests while the non-bank lenders, who offer the same interest rates or better mind you, will sometimes allow a little more flexibility.

Toronto's building department operations are neither open nor transparent

Bob Aaron in Legal

Before closing the purchase of their home, Pierre Marcoux and Caroline Bougie discovered the City of Toronto building department had an “open file” on the house. They wanted the seller, Darlene Remlinger, to rectify the situation by having the city’s file closed.

Typically, sellers are required by the purchase agreement to provide clear title free of any liens, mortgages, and other matters including breaches of the building code or zoning bylaws.

The purchase agreement signed by Marcoux, Bougie and Remlinger was on the typical standard form published by the Ontario Real Estate Association (OREA). It contained a very badly worded 149-word sentence which deals with title problems and outstanding municipal orders.

Translated into understandable English, the tortured provision says that if the buyers object to any outstanding municipal work order or deficiency notice, and the seller is unable or unwilling to rectify the issue or obtain insurance (but not fire insurance) protecting the buyer and any mortgage lender, then the agreement is ended and the deposit returned.

Unfortunately, the sentence was a major contributing factor to the litigation which arose in this case.

In response to the demand by the buyers, the seller and her lawyer offered to provide the buyers with a title insurance policy purporting to protect them against whatever the city was concerned about in its “open file.”

Real Estate Roundup July 23rd 2010

Real Estate Roundup

Real Estate News

Toronto, Calgary lead drop in house sales (Financial Post)

10 worst first-time homebuyer mistakes (Globe and Mail)

The psychology of real estate (Smart Money)

Holmes tackles First Nation housing (CBC)

Economic News

Canada's economy slowing sharply, central bank says (Toronto Star)

Canada consumer debt signals central bank lending rate rise (Bloomberg)

Bank of Canada tips its hand on rates (Financial Post)

Bank of Canada interest rates likely to top 1% this year: report (Financial Post)

Easing inflation points to gradual interest rate hikes (Toronto Star)

Toronto News

Toronto rises as the new capital of cool (The Huffington Post)

Smitherman calls on Ford to debate him (CBC)

Stick with the Presto smart card, Board of Trade tells TTC (Toronto Star)

Conrad Black: I'd like to go back. Toronto's nice this time of year (Globe and Mail)

Off-hours in Toronto: Monday

Urmi Desai in Toronto Neighbourhoods

A semi-regular feature highlighting things to do on weekdays and other non-peak times.

Volunteer - Canadian Red Cross Society Monday Morning Breakfast - Every Monday

Location: Our Lady of Lourdes Church, 520 Sherbourne (see Jarvis Street Corridor Neighbourhood Profile)

Around the world, communities based on religion, culture or geography are being replaced by communities of interest, a shift powered by the internet. This has no doubt enabled many people to live richer and truer lives. One downside to community based on the transient nature of our interests may be the loss of “slow relationships” – relationships built by meeting at the same time and place over years. Fight the sense of being lonely amidst a busy calendar by getting back to some old fashioned neighbourhood volunteering. The Canadian Red Cross Society is looking for food/kitchen prep help at their Monday Morning Breakfast for the Homeless – see listing at volunteertoronto.ca for more details.

Trampoline Hall Lectures - Monday July 19 at 8pm

Location: The Garrison, 1197 Dundas West (see Beaconsfield Neighbourhood Profile)

Remember those high school events where your fellow students took the stage to make speeches? (At my school, the occasion was usually highly fraught student elections a la Tracy Flick.) You either slept or watched uneasily until you found yourself laughing out loud to a joke that was actually meant to be a joke, leaving you with that warm “damn, that girl is good” feeling. At Trampoline Hall, normally held one Monday a month, you get to feel that way again and again. Each session, a guest curator invites three non-expert speakers (local artists, activists, personalities, etc.), each speaks about a (generally loopy) topic, the crowd gets involved in QAs, hilarity ensues. The result is a Toronto that is smart, funny and cool. Just like your high school crush. See the Trampoline Hall website for more info.

Further Reading - more things to do on Monday:

Blog: 52 Things to do in Toronto on a Monday Night 

Blog TO

Torontoist

Now Weekly

Eye Weekly

Toronto Life

Real Estate Roundup July 16th 2010

Real Estate Roundup

Real Estate News

What's next for Canada's housing market? (Globe and Mail) 

House prices fall for first time this year (Globe and Mail) 

Sex sells. No, wait. Maybe it doesn’t (Globe and Mail) 

Crews begin work Friday on Jarvis bike lanes (Globe and Mail) 

Signing real estate deals requires careful attention (Toronto Star) 

Canadian home sales on the wane (Toronto Star) 

Which GTA neighbourhood is the best bang for your buck? (Toronto Star) 

Deerhurst Resort in Huntsville put up for sale (Toronto Star) 

Construction on island tunnel to start in 2011 (National Post)

Interest Rates and The Liquidity Trap

David Larock in Mortgage and Finance

Falling interest rates are usually met by borrowers with a toast all round. After all, what other substantial cost do we have that has the potential to decrease over time? Consumers and businesses alike can use this found money to pay down debt faster, to reinvest, or to spend. But the decision they make about what to do with this extra money has far-reaching implications for the overall economy because while reinvesting or spending the money contributes to economic growth, saving it or paying down debt has the opposite effect. With thousands of people making the decisions to save/spend on a daily basis, our economy’s momentum is in constant flux and our central bank uses short-term interest rate adjustments to keep it from becoming too hot or too cold. This ability to adjust short-term interest rates is our central bank’s main policy instrument, and it is a powerful tool until the overnight rate approaches zero. When this happens, the ability to stimulate growth by lowering rates is lost, and threat of a liquidity trap emerges. Today’s post will explain how a liquidity trap is caused and may well change your reaction the next time Mr. Carney inches the overnight rate upwards.

Let’s start by outlining the circumstances under which our central bank would lower the overnight rate to zero percent. Such an emergency measure is required when spending and business investment plummet because with less money circulating, the economy slows dramatically. The central bank tries to offset this negative momentum by lowering policy rates, making saving less attractive and borrowing more so (in effect by penalizing savers and rewarding borrowers). If the stimulus works, spending and investment increases, and the economy recovers. But it’s a gamble. Like an engine that is flooded with gas from too much priming, very low rates can instead stall the economy if consumers and business don’t respond to these incentives and decide to save instead of spend. This is the liquidity trap - policy rates at or near zero causing increased savings instead of increased spending.

RECO decision heralds new rules about basement apartments

Bob Aaron in Legal

A discipline decision by the Real Estate Council of Ontario (RECO) earlier this year has established what may be a new disclosure standard for real estate agents dealing with basement apartments and land surveys.

Back in 2006, Richmond Hill real estate agent Sean Marandi listed a property for sale. In the published listing, it was described as a “magnificent house . . . elegant design with two apartments in the basement ($1,150 income) . . . three fridges, three stoves . . . Seller and agent do not warrant the retrofit status of basement apartment.”

Two days after the listing was published, Marandi drafted an offer on behalf of a buyer. He had advised the buyer that the property would be an excellent purchase for investment purposes because the previous owner had built a separate entrance to the basement.

The buyer signed a dual representation acknowledgement confirming that Marandi and his brokerage represented both buyer and seller.

In preparing the offer, Marandi did not insert a clause to ensure that the buyer was fully informed of the legality and suitability of the basement units for his intended use.

The offer did, however, contain a clause requiring the seller to provide an existing land survey of the property. That was never done.

Real Estate Roundup July 9th 2010

Real Estate Roundup

Real Estate News

Need A Job? Try Canada, Where Hiring Is Booming And Home Prices Are Rising (Huffington Post)

Balanced market favours buyers (Toronto Star) 

How to protect against caveat emptor (Toronto Star) 

‘Moderate decline’ forecast for Toronto house prices (Toronto Star) 

Toronto existing home sales fall by 23 per cent in June (Toronto Star) 

Canadian new home prices up by 0.3 per cent in May (Toronto Star) 

Small developer makes an impact in the downtown east side (Toronto Star) 

Canada home prices, sales seen stabilizing in 2d half (Reuters) 

Purchasing data tips cooler Canadian economy (Reuters) 

Housing starts fall in May (National Post) 

Drop in home sales may be sign of peak (National Post) 

First-time home buyers want more for less (Canoe)

Toronto council calls federal census decision 'shortsighted' (Inside Toronto) 

Islamic finance and mortgages (Globe and Mail) 

Calgary Tower now Canada's 2nd tallest (National Post) 

Toronto house sales sink 23% (CBC) 

'Sexist' ads for condo removed after uproar (CBC) 

House Hunting in ... Vancouver (New York Times) 

Handyman’s Special or Move in and Enjoy? (The House Fly)

The RRSP Homebuyers Plan: An Excellent Way to Save for the Down Payment on Your First Home

 Jesse Merson in Home Buying, Mortgages and Finance

Let's face it, saving money for the down payment on your first home can be an overwhelming task. These days, you are required to put down a minimum of 5% of the purchase price of your first home, the minimum that mortgage insurers CMHC or Genworth will allow.

If you are looking at buying a home for $300,000, you will need a minimum down payment of $15,000. Buying a home for $500,000? You will need a minimum down payment of $25,000, and so on.

When I meet with first time home buyers, more often than not we have a thorough discussion around the federal Home Buyers Plan. There seems to be a few misconceptions out there when it comes to the details of the plan and how it actually works. The Home Buyers Plan is an excellent way to get a "boost" from your current savings or to help you get started saving towards your down payment.

What is the Home Buyers Plan? It is a government program that lets you withdraw money from your RRSP savings (even if you don't have any), towards the down payment on your first home, tax free and without paying a penalty. You can also use the Home Buyers Plan to help a relative with a disability buy a home.

 

If you fall into either of the following scenarios, you may be able to take advantage of the Home Buyers Plan and benefit from significant tax breaks:

• You do not have enough money for a down payment, but have money in a Registered Retirement Savings Plan (RRSP).
• You have money for a down payment and have unused RRSP contribution room.