Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Monday Morning Interest Rate Update (December 19, 2011)

David Larock in Mortgages and Finance, Home Buying

Last week the Bank of Canada (BoC) issued its latest Financial System Review (FSR), and its governor, Mark Carney, gave a speech called “Growth in the Age of Deleveraging”. If you’re trying to gauge where mortgage rates are headed, both links are well worth the read.

The bi-annual Financial System Review basically outlines what the BoC is worried about and explains to what degree. Not surprisingly, the report concludes that “the risks to the stability of Canada’s financial system are high and have increased markedly over the last six months”. Here are the highlights: 

• The BoC’s greatest concerns are “(i) a sharp escalation of the sovereign debt crisis in the euro area; (ii) a much weaker outlook for global economic growth; and (iii) a pronounced retrenchment from risk taking in international financial markets.”
• The report’s general assessment of the euro-zone crisis is that member countries have not responded with appropriate urgency and that their window for pre-empting a full-blown bond-market meltdown is closing rapidly.
• The BoC is also concerned about economic growth in the world’s largest economies, highlighting “the risk that household deleveraging and fiscal consolidation in the U.S. could drag the U.S. economy into another recession” and “an increased risk of a more pronounced slowing of economic activity in China”. (And although not many people are focusing on this elephant in the room yet, if China falters in a major way it will be a game changer.) 
• On the topic of Canadian consumer debt levels: “[Canadian household] credit growth has slowed noticeably over the last six months” but remains a “heightened risk”.
• The report’s overall assessment is that “the global recovery is expected to remain weak and uneven”.  

Mr. Carney’s Monday speech on “Growth in the Age of Deleveraging” was refreshingly candid, and for a person whose words can move markets, he certainly didn’t pull any punches. Here is a summary of what the BoC Governor said (although it is tough to write a summary that does this content-rich speech justice): 

• Global debt has risen to critical levels and only hard choices remain.
• While corporate borrowing helps an economy grow because it leads to increased productivity, government and household borrowing provides an economy with little lasting benefit. (Unfortunately, almost all of the borrowing in advanced countries during this debt super-cycle has come from the latter and not the former.)
• Advanced countries simply can’t borrow their way out of their current predicaments, and they have no choice but to accept the Pyrrhic medicine of deleveraging.

• Europe is in for a long, grinding recovery: “fiscal austerity and structural adjustment will mean falling wages, high unemployment, and tight credit conditions”.
• Canada, relatively speaking, is in the best shape of any country in the G-7, but we are headed in the wrong direction since most of our borrowing is the non-productive consumer kind. We need to wean our economy off consumer spending, and businesses need to make up the difference by investing in productivity and focusing on increasing exports to emerging markets.
• In a related but more general vein, Mr. Carney said that all advanced nations need to retool their economies to replace falling domestic demand with export-led growth. At the same time, emerging countries which can no longer rely on demand from advanced countries must allow their currencies to float (and appreciate versus advanced-country currencies) while shifting their focus to domestic led growth. While this makes good sense, Mr. Carney laments that in actuality, “both sides are [instead] doubling down on losing strategies”.    

Five-year Government of Canada bond yields plunged another 15 basis points last week and closed at 1.18% on Friday as investors continued to prioritize ‘preservation of capital’ over ‘return on capital’. Five-year fixed-mortgage rates inched down last week, with 3.29% now more widely available, but lenders are still pocketing the higher spreads like Scrooge instead of discounting their mortgage rates like Santa.

Variable-rate mortgage discounts continue to shrink, but prime minus .20% are still available from a lender offering attractive terms and conditions. If you’re considering a variable rate and want to see how the potential cost of current variable and fixed-rate five-year terms might compare under different interest-rate projections, check out my latest Rate Simulation analysis (posted last Wednesday).

The bottom line: I’ve said it before but it bears repeating. If Canadian consumer-borrowing rates don’t moderate, and fast, more mortgage rule changes are coming. That’s not exactly music to my ears, but all of the alternatives are worse.

David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave

Toronto Real Estate Roundup December 16th 2011

John Pasalis in Real Estate Roundup   

 

Record high household debt in Canada triggers alarm (Globe and Mail)

Debt-Payments-to-Income. A Trend to Watch (Canadian Mortgage Trends)

Canadian home sales edge higher in November (CREA)

Toronto real estate market favours sellers (CTV)

Q&A: Is Toronto in a real estate bubble? (National Post)

Toronto house prices hit new record (Toronto Star)

The Case of the Condom-inium (Toronto Standard)

Mortgage rules should be stricter: TD chief (Globe and Mail)

Housing industry shy on new rules (National Post)

Agent sues for $3,340 after home deal goes sour (Toronto Star)

Flatiron building sold for $15.3M (National Post)

Saadi Gaddafi’s $1.6M Toronto condo: dictator’s son owns penthouse near waterfront (National Post)

Saadi Gadhafi’s million-dollar (but unused) Toronto penthouse (Yahoo)

Real estate: What you got in Toronto for $500,000 in 2011 (Globe and Mail)

Real estate: What you can got in Toronto for $1 million in 2011 (Globe and Mail)

Rob Ford pledges to reduce land-transfer tax by the end of next year (National Post)

Chinese property: a lofty ceiling (Financial Tiles)

Would You Save More With a Fixed or Variable-Rate Mortgage? (Rate Simulator – 2011 Year End Edition)

David Larock in Mortgages and Finance, Home Buying

It’s been three months since we last ran scenarios that compare the potential costs of fixed vs. variable-rate five-year mortgages using today’s market rates. Over that period, five-year variable-rate discounts have shrunk from prime minus .70% to prime minus .20% (which is 2.80% using today’s prime rate), and five-year fixed rates have dropped from 3.49% to 3.39% (or better if you know where to look).

The narrowing gap between today’s fixed and variable rates (3.39% vs. 2.80%) makes it harder to decide between them. Do you take the fixed rate because it gives you payment certainty for a premium of only .59%? Or do you bet that the same subdued economic forecasts that are driving fixed rates down will lead to a drop in the variable rate?

Five Questions for...Architect Kevin Weiss on Shaping Toronto's Streets

Urmi Desai in 5 Questions

Editor's Note: In our "Five Questions" series, Move Smartly bloggers get answers to the questions we'd all like to ask about Toronto real estate.

Russett Avenue, Larkin Architect Limited, Photos: Shai Gil

Toronto architect Kevin Weiss, principal at Larkin Architect Limited, has been busy. After a fire destroyed a row of historic houses in Toronto's west-end Wallace Emerson neighbourhood, several owners contacted Weiss to help them rebuild. Linear and modern, his creations complicate the Victorian streets of Toronto.

I asked Kevin Five Questions about the working life of someone who shapes Toronto:

Urmi Desai: Why were you approached by several home owners on Franklin Avenue (Wallace Emerson) to design their houses? What made them chose you in particular?

Kevin Weiss: A couple of years ago a really terrible fire occurred which destroyed six row houses on the street.

The artist Sylvie Bélanger, who shows at the Birch Libralato Gallery and is the owner of the corner lot, was referred to me. So, it was Sylvie and her husband, Rick, that hired me first to design a new detached house on their wide lot (the source of the fire had been the neighbouring attached house). I designed a house suited for a very unique site – on a corner and across the from a beautiful treed city park – for a very unique and design-engaged couple. My firm holds centre to its belief that good clients are needed for good architecture.

As the post-fire houses were all left standing – albeit destroyed – with the six different owners in difficult negotiations with various insurance adjusters, only Sylvie and Rick had begun to prepare plans for their rebuild. Given that the house remnants were all attached together, we could not start construction until all the houses had been demolished. And in the City of Toronto, you can't demolish until you get a building permit. But the condition of the burnt-out houses was creating a hazardous situation in that a strong wind could easily cause the unsupported walls to collapse. We wrote a letter to the City stating that since demolition permits were being denied, the City would be responsible should anything happen. The City granted a permit within two days.  

In the meantime, to try to get the neighbours moving along in their rebuilding process, Sylvie and Rick asked me to speak to them. I suggested that unless they worked collectively – with coordinated building plans and with one contractor – the building costs and schedule would significantly increase. The group asked me for a fee proposal. I was somewhat hesitant as the five other house owners were a widely varied group including an elderly Portuguese couple, a talented young chef Cordon Bleu in France, a highly opinionated Denturist who was acting on behalf of his mother, the TD Bank who before the fire had foreclosed on one of the houses, and finally, a very nice couple who unfortunately were in the midst of a divorce. In the end, we ended doing Sylvie’s house and three of the remaining five.

Urmi: One of the criticisms of your work on Franklin Avenue, we'll call it the "Crystal critique" (in honour of the modern update to the traditional ROM facade), is that it breaks up the orderly line up of heritage houses that Toronto is known for, and irrevocably ends a legacy that collectively belongs to us. How do you respond to this?

Monday Morning Interest Rate Update (December 12, 2011)

David Larock in Mortgages and Finance, Home Buying

Friday’s much-anticipated meeting of European Union (EU) leaders in Brussels was the region’s latest attempt to reassure the markets that its financial crisis is being brought under control. Here are the highlights:

• Twenty-six of the EU’s twenty-seven member countries agreed to limit their future structural deficits to .5% of GDP (the UK rejected this proposal).
• Over-indebted member countries agreed to reduce their debt loads by one-twentieth each year.
• Failure to comply with either commitment will, in most cases, trigger sanctions and penalties.
• Participating countries agreed to submit their budgets to a pan-European body in charge of fiscal oversight to ensure compliance.
• EU members also agreed to boost the IMF’s reserves by another 200 billion euros and to move up the launch date for a new bailout fund, called the European Stability Mechanism, to next summer.

But was it enough to reassure the markets? Based on their initial reaction, the answer appears to be “no”.

While monitoring EU sovereign budgets more closely should help prevent a future crisis, it will actually exacerbate the current one. Member countries must now hack and slash their budgets to bring them in line with new fiscal standards at the same time that the region is tipping into recession. These new austerity measures will hammer the EU’s fragile economies at the worst possible time, causing deficits to soar higher as growth slows sharply, and this is very likely to spook investors even more. Without economic growth, EU countries cannot get out in front of their spiraling interest-rate costs. The Germans got what they wanted, but the phrase “Be careful what you wish for” comes to mind.  

The experts I read believe that there are only two remedies that will ultimately save Europe: 1) the European Central Bank (ECB) announcing that it will provide unlimited support to the sovereign debt of member countries (to scare off speculators), and 2) the EU launching a new euro bond that is backed by all member countries (which will give struggling member countries access to German-level borrowing rates).

Neither remedy appears imminent - Germany has adamantly opposed any notion of a euro bond, and the ECB reiterated just last week that it had no plans to step up its sovereign bond-buying programs. (The ECB did cut its benchmark interest rate by .25% last week, citing “high uncertainty”, and “substantial downside risks”…so at least there’s that.)

Five-year Government of Canada bond yields dropped another 6 basis points this week, closing at 1.33% on Friday (ahh…stability). We were hoping for a round of five-year fixed-rate mortgage cuts last week but instead, lenders have launched new promotions based on shorter-than-normal rate-hold periods (called “Quick Closes”). Gross spreads on standard five-year fixed rate mortgages are still as plump as jolly old Saint Nick, so we’ll hold out hope for a discount in borrower’s stockings in the near future (after all, with minuscule default rates borrowers have certainly been good this year).

Variable-rate mortgage holders saw the Bank of Canada (BoC) maintain its 1% overnight rate last Tuesday. The BoC’s accompanying commentary reiterated concerns over the “weakening external outlook” and there was nothing in the report to suggest any material change in its overriding views.

The bottom line: The EU’s latest summit made the threat of more sovereign defaults in the region less likely, while making the threat of a long and protracted recession all but inevitable. From a Canadian mortgage perspective, this is the best we could hope for. Sovereign defaults can spook global financial markets and drive up borrowing rates everywhere, and this was our greatest contagion threat. An extended period of European economic malaise isn’t anything to celebrate, but from a systemic risk perspective, it’s far better than the alternative.

David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave

When a detached home is not a detached home

Bob Aaron in Legal, Home Selling

When you’re selling a house known as a link-semi, is it wrong to advertise it as a detached home?

The link house style was popular in Toronto in the 1970s and 1980s. The only physical attachment that joins two adjacent houses typically consists of one or two short rows of underground concrete block footings, at right angles to the foundation walls. They are entirely unnecessary for structural reasons.

Looking at the houses from the street, they are clearly detached, with a few feet separating them. It is impossible to tell that the houses are linked because the only physical attachment is the concrete blocks that are invisible above ground level. In fact, the only purpose of the attaching footings was to allow builders to construct what looked like detached houses on lots which were designated for semi-detached models.

One Toronto real estate agent found out the hard way that the Real Estate Council of Ontario (RECO), the industry regulator, takes a dim view of agents who advertise link houses as detached.

Back in May 2007, this selling agent listed a house for a client, describing it on the Multiple Listing Service (MLS) as “detached,” which from a street view, it was.
The property was listed at $320,000, sold for $329,000 through a buyer broker, and closed Aug. 31, 2007.

Toronto Real Estate Roundup December 9th 2011

John Pasalis in Real Estate Roundup   

 

Will the red-hot Canadian housing bubble burst? (Global News)

Bank of Canada warns condo boom could be ending (Globe and Mail)

Canada's housing starts slow in November (Globe and Mail)

Canadian home prices, sales better than expected in 2011 (Toronto Star)

Canada October New House Price Index Report (Bloomberg)

Condo Madness?! (Huffington Post)

See which Toronto neighbourhood is the toniest in Canada (Toronto Star)

Canada's Richest Neighbourhoods (Canadian Business)

CIBC: real estate to dip 10%-15% in medium-term (Canadian Real Estate Magazine)

Canadian real estate “defies logic” in 2011 with growth (Canadian Real Estate Magazine)

Toronto housing market still on fire (Financial Post)

Toronto Real Estate Sales up 11% in November

John Pasalis in Toronto Real Estate News

Below is the Toronto Real Estate Board's press release with November's sales statistics:

Greater Toronto REALTORS® reported 7,092 residential transactions through the TorontoMLS® system in November – up 11 per cent in comparison to November 2010. At the same time, the number of new listings was up by 14 per cent in comparison to last year.

“We have seen strong annual sales growth through the 2011 fall market. The increase in transactions has been broad-based, with strong growth across low-rise and high-rise home types throughout the Greater Toronto Area,” said Toronto Real Estate Board (TREB) President Richard Silver. “The market has also become better supplied, with annual new listings growth outstripping that of sales. As this trend continues into 2012, we will see more balanced market conditions.”

The average price for November transactions was $480,421, representing an increase of almost 10 per cent in comparison to $437,494 in November 2010.

“Despite strong price growth this year, the housing market remains affordable in the GTA,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “The correct method of assessing affordability is to consider the share of the average household’s income that is dedicated to mortgage principal and interest, property taxes and utilities. Currently, this share remains in line with generally accepted lending guidelines. Given this positive affordability picture, average price growth is forecast to continue in 2012, albeit at a more moderate pace.”

John Pasalis is the Broker Owner of Realosophy Realty Inc in Toronto. Realosophy focuses on researching Toronto neighbourhoods to help their clients make smarter real estate decisions. Email John

Subscribe to the Move Smartly blog by email  

 

Monday Morning Interest Rate Update (December 5, 2011)

David Larock in Mortgages and Finance, Home Buying

On Friday, all twenty-seven leaders from the countries that make up the European Union (EU) will assemble in Brussels to take their latest shot at resolving the region’s financial crisis, which is based largely in the seventeen EU countries that use the euro as their currency (called the euro zone).

If past is prologue, the meeting will end with a press conference where EU leaders announce new measures and declare an end to the current crisis once and for all. The markets will rally around the headline, but as scant details emerge in the coming days, doubt will creep back in, and we’ll be one more whippy rally away from being right back where we started. (Sorry to spoil the ending for you.)

The euro-zone crisis won’t end until its member countries agree to cede their fiscal sovereignty to a central body that will enforce strict budgetary discipline, and politicians can’t sell that kind of concession to their voters until the majority of them are convinced that the only alternative is financial collapse. That means that the current crisis has to continue to get worse before it can get better – but this is a dangerous game the euro-zone leaders are playing as they cling to the market’s tiger tail for dear life, hoping for that fleeting moment when political expediency meets economic necessity.

Here are some other highlights from last week:

Central banks from several of the world’s largest economies (including the Bank of Canada) joined together to lower the cost of their short-term loans to the European Central Bank. True to form, bond markets rallied on the news, but the momentum was short-lived because making liquidity cheaper and more easily available does nothing to address the fundamental cause of the euro-zone crisis, which is solvency. Instead of a cure, this was more like giving a terminally ill patient another shot of morphine to ease the pain.

The U.S. Department of Labor released its latest employment report , showing a net gain of 120,000 new jobs in November and, to everyone’s surprise, a dramatic decline in the overall unemployment rate from 9% to 8.6%. A closer look at this unexpected drop reveals that it was primarily caused by 315,000 fewer Americans actively looking for work (this is referred to as a drop in the “participation rate”).  If we adjust the current employment numbers using the U.S.’s historical-average participation rate, U.S. unemployment is actually in the 11 to 12% range, and to put that in perspective, the U.S. would have to average 400,000 new jobs each month between now and 2020 to return to its long-term average employment level.

Meanwhile, in the Great White North, we lost another 19,000 jobs in November on top of our 59,000 net loss in October. While our third-quarter gross domestic product (GDP) increase came in at a robust 3.5%, most of that growth was export driven, and with global growth slowly markedly, this momentum is not expected to continue. In short, there was nothing in the latest data to change my prevailing view that mortgage rates will be on hold for the foreseeable future.

Five-year Government of Canada bond yields had one of the stranger weeks I can remember. We started with a few days of big rallies but by the end of each day they had fizzled to nothing. The market seemed ready to rally on any hint of good news but there just wasn’t enough confidence to keep the surges going. In the end, all that volatility left the five-year yield at 1.36% on Friday, down 3 basis points overall for the week. One of the major banks dropped its five-year fixed-mortgage rate by 10 basis points on Friday, so expect other lenders to respond in kind over the next few days.

Variable-rate mortgages have fallen out of favour with the Big Five, and this was confirmed in the comments accompanying their latest quarterly results. If you’re thinking about a variable rate mortgage, non-bank lenders are your best bet these days.  

The bottom line: The markets are so desperate for any good news that we will probably see a run-up in bond yields this week in anticipation of the EU’s Friday meeting. If you’re in the market for a pre-approval, best to lock in today so you don’t get wrong-sided by market overreaction to the post-meeting press conference where EU leaders will declare the crisis over…again.

David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave

Toronto Real Estate Roundup December 2nd 2011

John Pasalis in Real Estate Roundup   

 

Warning Signs in the Ultra-Luxury Market (True Condos)

Vertical Toronto: Going, going up (Toronto Star)

Alarm bells sound over our house prices (Toronto Star)

Is home ownership really a smart investment? (Toronto Star)

Luxury Living: Cool with condo (National Post)

75-storey condo in downtown Toronto proposed (City News)

House prices flatten in September (Canadian Real Estate Magazine)

New investors face tighter credit score demands (Canadian Real Estate Magazine)

Joint venture on Toronto condo cuts a new path for development (Globe and Mail)

Toronto Mayor Rob Ford to seek 2.5-per-cent property-tax hike (Globe and Mail)

TTC may not run the Eglinton Crosstown LRT (Toronto Star)

Canadians rein in debts amid uncertainty (Globe and Mail)

We Live Here: 157 Coxwell Avenue (Torontoist)

New Loblaws unveiled at Maple Leaf Gardens (BlogTO)

 

Editor's appeal: In today's world, you’re nobody till facebook likes you. So if you enjoy reading the Move Smartly blog, please scroll to the right column of this blog and click on the facebook "like" button just under the the subscribers box. And thanks for the love!