Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Some Title Insurance is Better Than Others

Bob Aaron in Legal, Home Buying

In the world of real estate, it’s not very well known that title insurance policies vary significantly from one company to another.

When it comes to basic title protection, though, policy coverage among insurers is very similar. Title insurance typically protects home buyers against loss from risks which are listed in the policy, including another person having an ownership interest in the property, outstanding liens, construction without a permit, fraudulent title dealing, breach of zoning bylaws and other circumstances which could result in loss.

But unlike insurance policies in other fields, some title insurance policies also include coverage for risks that are not specifically itemized.

This type of protection is called legal services coverage and not every title insurer offers it.

In plain language, if a mistake in a real estate transaction occurs due to a lawyer’s negligence, legal services coverage in a title policy protects the owner — even if the mistake falls outside the specific risks listed in the policy.

I often say that there is no such thing as a simple real estate deal. There are numerous aspects of a real-estate transaction in which mistakes can occur, even though the owner has received good and valid title to the property.

Our Latest CPI Data Suggests That it’s Back to the Revising Board for the BoC ... Again (Tuesday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

Anyone keeping an eye on Canadian mortgage rates should pay close attention to the Consumer Price Index (CPI) which is released monthly by Statistics Canada. The CPI tells us whether average prices have increased or decreased over the past twelve months, and over time, changes in the CPI influence Bank of Canada (BoC) monetary policy more than any other economic measurement.

Before looking at the details in the latest CPI (released last Friday), let’s highlight a few phrases from the BoC’s oft repeated inflation-control strategy, which it includes at the front of each Monetary Policy Report (MPR).

• At the heart of its inflation-control strategy, the BoC believes that “that the best way to foster confidence in the value of money and to contribute to sustained economic growth, employment gains and improved living standards is by keeping inflation low, stable and predictable”.
• Further to that point, the BoC’s inflation-targeting approach is symmetric, meaning “that the Bank is equally concerned about inflation rising above or falling below the 2 per cent target”.

As you will see in a moment, that last phrase is critical in the current context. If the BoC’s monetary policy actions are primarily governed by the goal of steering inflation towards 2% over time, then current CPI trends clearly imply that the BoC’s next move in its overnight rate should be a decrease, rather than the increase it has repeatedly warned us about.

A Review of Our Latest Employment Report with Implications for Canadian Mortgage Rates (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

Anyone keeping an eye on Canadian mortgage rates should pay special attention to our Labour Force Survey (commonly referred to as our ‘employment report’), which is released by Statistics Canada each month.

The Survey gives us a bevy of useful information about whether and where our economy is adding jobs, whether average incomes are rising or falling, and whether the average worker is putting in more or less hours of work each month. Together, these factors combine to give us valuable insight into where our overall economic momentum is headed.  

Here are the data from the latest report, which was released last Friday, with some thoughts on its implications for Canadian mortgage rates:

• Our economy added 12,500 new jobs overall last month, almost bang on the 12,400 new jobs that we have averaged over the last six months. The federal government has hinted that over the near term the Bank of Canada (BoC) will lean its monetary policy more towards job creation than tight inflation control and the April employment data shouldn’t give them any cause to alter that approach.   
• The public sector added 34,200 new jobs in April. In other words, full-time government hiring was the only reason we added jobs over the past month. That’s an unsustainable trend that can’t be relied upon in this age of austerity-themed government budgets.
• The private sector lost 20,000 jobs in April and has now shed 105,400 jobs over the past two months. In fact, this sector has grown by only 0.1% over the past year so our current private-sector hiring slump is actually very well entrenched. This is a big concern because private-sector job growth and GDP growth go hand-in-hand, making it unlikely that we will see any real change in our overall economic momentum until private-sector hiring looks very different than it does today.

Beware Sending a Real Estate Deal Off the Rails

Bob Aaron in Legal, Home Selling, Home Buying

An interesting decision from Toronto’s small claims court last December provides a useful lesson on the obligations of buyers, sellers and lawyers when a real estate transaction starts to go off the rails.

In his decision, Justice M. Donald Godfrey wrote that the case came to court because the parties and their lawyers were unable to work out a “reasonable compromise” on the closing of a transaction on Mould Ave., in Toronto.

Nuno Barbosa and Paula Boas agreed to buy the house for $516,000 from Helder and Maria Rodriguez, with a scheduled closing of October 30, 2009. Two days before closing, the buyers discovered that the property taxes were not $2,300 as indicated on the MLS listing but were in fact almost $4,600. The increase was the result of a re-assessment of taxes due to an addition to the property which was completed in early 2008.

The buyers requested a $10,000 price reduction. When the sellers declined the offer, the buyers refused to close even though their lawyer was holding enough trust funds to complete the transaction.

After receiving advice from another lawyer, the buyers changed their minds and told their lawyer that they were willing to close and sue later. But the request was not made until after the 6 p.m. closing deadline.

The sellers did not agree since they did not know what damages they were exposed to as a result of two “chain reaction” closings, which depended on the sale of their Mould Avenue house.

The buyers then sued the sellers for return of their $10,000 deposit, and the sellers sued the buyers for damages resulting from their refusal to close. 

After an unusually long three-day trial, Justice Godfrey ruled that the buyers should have closed the transaction on time since the breach of contract was “not material.” However, the judge also decided that the sellers were entitled to refuse to close 15 minutes after the 6 p.m. deadline because the contract stated that time was “of the essence.”

Canadian Mortgage Rates Will Inevitably Rise … But When? (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

Today’s consensus on mortgage rates goes something like this: Central banks around the world are printing money like crazy in an attempt to stimulate (and reflate) their economies and to keep their governments (and in many cases their banks) from going broke. All of this ‘new money’ will eventually lead to higher inflation and when it does, higher mortgage rates will inevitably follow.

I agree with this general premise but it omits the most important detail – when.

While the Bank of Canada (BoC) and many prominent Big Five Bank economists have until recently been warning Canadians that higher mortgage rates could be just around the corner, I have consistently subscribed to the view that this day of reckoning will actually arrive later than most believe.  

Today, let’s look at the impact (or lack thereof) that the U.S. Federal Reserve’s actions have had on the U.S. economy over the last several years – it’s a key element in my ‘lower-for longer’ view. I am focusing on the U.S. example because the U.S. and Canadian economies (and monetary policies) are tightly linked and if the U.S. economy experiences significantly higher inflation, we will import it.   

For starters, it may be splitting hairs but technically the U.S. Fed isn’t actually ‘printing’ new money. Instead, it is expanding its balance sheet by increasing its purchases of U.S. treasuries which it typically buys from U.S. banks. That action increases each bank’s reserves but has no impact on the amount of money that is actually circulating in the economy. If the Fed wants to increase the supply of money circulating in the real economy it needs U.S. banks to act as the transmission mechanism, and it is here that the first breakdown in its master plan is occurring.

Despite its best efforts, the Fed has not increased either the banks’ appetites for lending, or consumer appetites for borrowing. When once asked about how to deal with this specific problem U.S. Federal Reserve Chairman Ben Bernanke famously said that if the banks wouldn’t start lending more he would drop money from helicopters directly into consumer’s wallets, earning him the nickname ‘Helicopter Ben’.

Has the Bank of Canada Discovered Life on Mars? (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

The Bank of Canada (BoC) left its overnight rate unchanged last week, as expected.

The Bank also released its latest Monetary Policy Report (MPR), which I read with great interest because it gives us the BoC’s views on the state of the world’s economies and includes projections for where the Bank sees foreign and domestic economic momentum headed over the next several years.

In a perfect world, the MPR would offer an unbiased assessment but bluntly put, that has not been the case for some time now. The BoC remains primarily concerned about our elevated household debt levels and continues to warn Canadian consumers about higher future interest rates. The Bank’s hope is that this form of ‘moral suasion’ will help counteract the natural effect that its ultra-low interest-rate policy is having on household borrowing. If successful, the BoC would be able to continue stimulating the rest of our small, open economy, which is needed in light of current global economic conditions, without fueling a household credit bubble as a by-product.

The challenge that the BoC has today when drafting its MPRs is that it must support its higher interest-rate warning with forecasts to match. This is where the tangled web that tries to connect the Bank’s warning to the hard economic data can be most plainly seen.

A pattern has emerged in the last several MPRs where the Bank downgrades its current data and near-term forecasts, unable to deny that our near-term economic momentum is slowing, but then offers more optimistic medium-term projections as an offset. This is a clever way of massaging the data because it allows the Bank to use a distant pickup in economic momentum as a way of continuing to justify its threat of higher interest rates, even while we are clearly still in the midst of an economic slump. Then, later, as the future unfolds and that momentum doesn’t materialize, the BoC simply adjusts its projections downward as they move nearer to the present day and makes new medium-term projections to fit as needed. Wash, rinse, repeat (and hope no one notices).

How Japan's New All-in Monetary Policy Will Affect Canadian Mortgage Rates (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

Since the start of the Great Recession, Government of Canada (GoC) bond yields have been consistently pushed lower by wave after wave of troubling economic news from beyond our borders.

GoC bonds are part of a shrinking pool of available safe-haven assets and as economic fear and uncertainty have increased, so has the premium that international bond-market investors are willing to pay for those assets. Since our ever popular fixed-mortgage rates move in close relation to GoC bond yields, this fear premium has created a significant interest-cost saving for the majority of Canadian mortgage borrowers.Today, Japan is most responsible for recent increases in investor uncertainty. The Bank of Japan (BoJ) recently announced a new monetary stimulus package that would make even U.S. Federal Reserve Chairman Ben Bernanke blush (the same man who some have come to call Ben BernanQE). To put the latest announcement in perspective, consider that the BoJ’s balance sheet expansion will be equivalent to 30% of Japanese GDP over the next two years, as compared to the U.S. Fed’s expansion of 15% of U.S. GDP over the last five years. This is a radical and unprecedented shift from what had previously been a conservative central bank, and the impacts are already being felt around the globe.

The political pressure to do something of consequence in Japan was understandable. Thirteen years of essentially 0% policy rates have done nothing to reflate Japan’s low-growth economy and the BoJ has long been criticized for not providing enough monetary policy stimulus along the way. Recently elected Japanese Prime Minister Shinzo Abe was swept into office largely on a promise to right that perceived wrong and he has not disappointed his supporters, quickly appointing a new and compliant BoJ Governor, Haruhiko Kuroda, to do his bidding. But while Prime Minister Abe has won short-term political approval, he will ultimately be judged by the longer-term success or failure of his actions - and the ultimate outcome of these actions is far from assured.

Should Murder or Suicide be Disclosed?

Bob Aaron in Legal, Home Selling, Home Buying

Shortly after Sidney and his wife bought their Toronto home last fall, a number of their new neighbours told them that there had been a suicide there just prior to their purchase.

The neighbours knew in great detail that the event occurred in the basement washroom, and was soon followed by a crime scene-like display of 10 police cars, fire trucks and an ambulance.

Sidney emailed me to report that the seller told them that her brother, the original owner, died of a heart attack.

The property was inherited by the owner’s sister, who sold the house right afterward.

At the time of the sale, the house was in its original condition except that the basement washroom had been gutted and renovated. The buyers were told that the reason for new basement washroom was due to “renovations they never ended up finishing.”

The new owners are very unhappy. They wanted to know whether the seller was required by law to reveal the truth about the suicide, and how this impacts them when they resell the house.

In Ontario, sellers and real estate agents have no legal obligation to disclose information about suicides, murders, or any other matters which might stigmatize the house.

March Employment Numbers Push CDN Bond Yields Down But U.S. Stagflation Threat Rising (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.

The latest Canadian and U.S. employment reports were released last Friday and the data in both came in well below expectations.  

U.S. and Canadian employment data should always be counted among the most important economic indicators for anyone keeping an eye on where Canadian mortgage rates are headed. In normal times, this is primarily because rising labour costs have an 80%+ correlation with rising inflation which then leads to higher mortgage rates. But in today’s world, the employment data in both countries take on an even greater significance. Here’s why:

• The U.S. Federal Reserve has stated that it will continue its current quantitative easing programs until U.S. unemployment reaches 6.50%, provided that U.S. inflation does not exceed 2.50%. (This unconventional and unprecedented level of monetary stimulus adds $85 billion to the U.S. Fed’s already bloated balance sheet each month.)
• Canadian Federal Finance Minister Jim Flaherty has said that the Bank of Canada’s near-term monetary-policy objectives should also be focused primarily on job growth. He introduced the term “flexible-inflation targeting” when explaining that short-term interest rates should be allowed to remain at ultra-low levels, even if that means letting the Consumer Price Index (CPI) temporarily rise beyond its 1% to 3% target range over the short term. Our recent inflation data don’t indicate that we will exceed this target any time soon, but Mr. Flaherty’s comments on the subject confirm that Canada’s near-term monetary-policy objectives are also focused on employment growth above all else.

Now that we have reaffirmed the importance of the employment data in both Canada and the U.S., let’s take a closer look at what was in the latest reports and draw out some of the implications:

How to See Homes for Sale Before They’re on Realtor.ca - Part 2

John Pasalis in Home Buying

In Part 1 of this post, we talked about how Toronto buyers can get a jump on other buyers in competitive spring market. My top tip was to go to see a home as soon as it is listed in order to make an offer before other buyers have even had a chance to see it – thereby (hopefully) skipping the headache of competing in a bidding war.

While most buyers will agree that this sounds like a great plan, you might wonder how you are supposed to find out about houses for sale “first” if every buyer as the same access to this info.

When you see new houses listed for sale on MLS.ca (now Realtor.ca), many of these have actually been listed for sale 2 to 3 days earlier – which explains why you’ll see a house that you think was just listed, but when you call to enquire about it you find out that it’s already been sold.

Even buyers who are receiving automated emails of new listings from their real estate agent every day are getting the newest listings a day after they went onto the market. Even this is a day too late if you want to have an advantage over other buyers.

So how to be first? The key is to see homes the same day they are listed on the internal MLS website that only agents have access to. Up to now, agents have been the only people with access to the newest properties coming onto the market for sale. Fortunately, thanks to the de-regulation that is happening in the Canadian real estate industry, buyers now have the same access.