Toronto Real Estate Report

One Dollar Commission

The Toronto Star reports today "Get set for cheaper fees for Canadian real estate transactions."

The article details the recent agreement between the Canadian Competition Bureau and the Canadian Real Estate Association which will now allow real estate agents to provide "innovative services and pricing options to customers." Toronto Star Article

This is a landmark deal?  Real estate agents have always been allowed to be innovative and offer a variety of pricing options.  A listing agreement can be arranged based on 5, 6 or 7% commission. There is no price-fixing in commission fees, the rate is related to the value of the service. You can also charge 1% or NOTHING, if you like to work for free.

I noticed a listing on the Multiple Listing Service this week, which has been on the market for 89 days, before this landmark deal was reached. The commission offered to the Co-operating Broker (the one who brings the buyer) is $1. The remarks to Brokers is as follows :

The Seller Is Selling Privately And Will Negotiate Directly With Cooperating Broker Under Guidance Of His Lawyer. All Appointments And Offers Are To Be Arranged Directly With The Seller

So there you have it folks! Innovative pricing, $1 commission, and someone who is selling privately and is listed on the MLS. Congratulations!

But what does that accomplish? The listing has been reduced from $709,000 to $689,000 and has been sitting on the market for 83 days. Statistics indicate that properties that are handled by a skilled professional Realtor will be on the market for less than 30 days, and on average sell for 97% of list price.

One of my clients, was very eloquently able to communicate the value of a Realtor, in his letter of recommendation to me he wrote:

While the financial results you obtained were exceptional what impressed me most was the thorough and professional approach that you took throughout the process. You were industrious, practical, and honest in your treatment of both the prospective buyers and me.

Perhaps your greatest asset is your attention to, and skill at, communication. I was very inexperienced in the process of selling a house but such was the information you provided regularly that I came to feel comfortable and competent, and always in the loop.

 My family chose you over agents that we knew and who offered a discount rate. You were worth every penny of your commission and proved once again that one usually gets what one pays for.

I rest my case.

MPAC Assessment

In 2008 we were all sent our new Property Assessment by the Municipla Property Assessment Corporation (MPAC).  It provided our current value assessment from 2005 and the new revised assessment for 2008.  I understand that real estate values increase each year, which is why I believe in it as a long term investment, but I was a bit shocked to see that the estimated value reflected a 35% increase in just 3 years, roughly about 12% a year.

So I did what all outraged homewoners do, I filed a "Request for Reconsideration".  I have to admit I submitted it on the last day, with a quick scan of comparable listings and sent it off.  I was successful in having the assessed value reduced, but only by $31,000 thereby reflecting a 29% increase in my property value. This only translates to a saving of about $265 on my property tax bill, which can also vary depending on the mill rate each year.

However, the bigger impact is felt in the way they are phasing in the new assessment value and the resulting yearly tax bill.  If they had jacked my tax bill up in 2009 to reflect the full 29% increase in value, my tax owing would have increased by approximately $1140, which is a big increase over a year.  With the phased-in approach the pain is spread over the next 4 years, and I think will amount to about $285 increase per year.

To calculate your own tax bill based on your new assessment, click on the Property Tax Calculator on the City of Toronto website: Toronto Tax Information

To learn more about the Municipal Property Assessment Corporation check out their website:MPAC

Facts about Credit Reports

I attended an informative presentation recently by Equifax, one of the two credit reporting agencies in Canada, and this is what I learned.

Equifax works as a "repository of consumer credit information":

• Do not make credit decisions
• Do not rate consumers
• Do not grant credit or collect money

• They receive credit informaiton from credit grantors as well as other sources on a regular basis

• Compile the information in a credit report for each Consumer

• Provide credit inforamtion to "members" subject to legislation

• The credit grantor supplies the credit reporting agency with credit information and provide a rating to each trade line based on their experience with the consumer.

Their database is comprised of over 22 million individual consumer reports and is made up of over 150 million trade lines.  90 million data items are updated monthly including trade lines, collection data and legal suits.  Basically the have a "give/take" relationship with creditors.  They give the information to Equifax and in return Equifax shares the information on consumers with the creditors.  They have started to include mortgages on credit reports, but only 3 of the big banks have siged up to report mortgage details, so only those 3 banks share mortgage credit details.  If you have a mortgage with one of the banks in the group, your mortgage will show up on your credit report, as the consumer sees everything reported on their individual account.

The terms "Beacon Score" and "FICO Score" are interchangable.  FICO refers to  "Fair Issac and Company" which developed the proprietary formula with which the credit score is based.  It is a numerical rating developed and maintained by this company that is an indicator of a borrower's creditworthiness based on a number of criteria, and is the basis upon which many lenders will decide to loan money.

The score will rate you anywhere between 300-900, however it's unlikely to ever see a score on either extreme.  A good score is in the 600 range, and in fact CMHC requires a minimum score of 620 to be approved for an insured mortgage.

The number of credit inquiries on your account can affect your score and this was a problem when you were shopping for a mortgage.  If you let each bank run a credit inquiry, your credit score would be negatively affected.  However they have changed this, and credit inquiries for auto and mortgage related inquiries that occur during a 30 day period have no effect on the score.

Also, you can request your credit rating as often as you like and it will not affect your score either.  It is recommended that you check your credit report on a regular basis to ensure that all the information is correct and that there hasn't been any unusual activity you don't know about.  You can request your credit information for free by phone, in person or by mail.  To request it online there is a fee, and it depends on the type of report you are requesting.  To learn more check out their website: Equifax

Another tip I came away with was that as a pre-cautionary measure you may want to put an Alert on your credit file.  This will require a credit grantor to verify your identity before extending credit.  With all the news about fraud and identity theft these days, it sounds like a good idea.

My father always said the best time to apply for credit is when you don't need it. The recipe for financial health "Take care of your credit score, pay your bills on time, budget and live within your means. "

Time to Refinance?

Our TD Mortgage specialist has provided some insight into why it may be a good idea to consider refinancing in today's low mortgage rate environment.

Mortgage rates have dropped considerably in recent weeks, and when reviewing their financing options, some borrowers have chosen to refinance their mortgage. Refinancing a mortgage refers to paying off an existing mortgage and replacing it with a new one. Homeowners choose this strategy for a variety of reasons, the most common being:

• Lowering monthly payment to improve cash flow or free up money for a another purpose
• Consolidating high-cost consumer debt, such as credit cards, car loans or other personal loans
• Renovating one’s residence while taking advantage of the new federal home renovation tax credit
• Setting up a home equity line of credit, for future investment opportunities i.e. purchasing real estate
• You are experiencing a decrease in cash flow, and are considering lowering mortgage payments by extending the current amortization

A key element in evaluating any refinancing option is calculating the prepayment penalty that may be imposed by the lender.  There are financial implications to the financial institution holding the mortgage.  They essentially borrowed funds elsewhere, maybe from the funds of another clients GIC with a maturing term the same as the mortgage.  When the mortgage term is broken the bank still has to cover the costs of borrowing the money to fund the mortgage for the remaining term and therefore an Interest Rate Differential may be applied to compensate for the new lower mortgage rate that is subject ot the refinance.

All fixed rate mortgages contain a clause that obliges the borrower to pay a penalty if they pay off their mortgage in full before the maturity date.

Refinancing is a strategic financial decision that requires the assistance of mortgage specialist to find the best solution.  There may be ways to save money.

If you are considering this option, please call our mortgage specialist:

Ramy Ibrahim at 416-997-3279 or email him at ramy.ibrahim@td.com - He can help.

 

Mortgage Magic

Since we've all seen what can happen to a stock portfolio these days, how about looking at paying down your mortgage faster and saving tons of interest payments? 

I really enjoy receiving my subscription to "Money Sense" magazine and in the February/March issue this year they have done the math on a few different scenarios to save you interest costs.

Here is the storyline - Young couple, lives in a 3 bedroom, two-storey home in the suburbs.  The owe $200,000 on their mortgage at 6%.  Current payments are $1340/month and they are on track to pay off their house in 25 years.  Based on this, they will pay more than $200,000 in interest over the life of their mortgage.  But what if they are willing to pay a little more.....

Scenario # 1 - Increase their monthly mortgage payments by $180 to $1520/month, they can pay off their mortgage in 19 years and save $53,510 in interest costs.

Scenario # 2 - Split the current monthly payment in two and pay every 2 weeks instead of monthly, they increase their total mortgage payments from $16,075 a year to $17,415 a year.  They pay off their mortgage in 21 years instead and save nearly $40,000 in interest costs.

Scenario # 3 - Add an additional payment of $7000 once a year, they pay off their mortgage in 13 years and save $107,000 in interest.

And don't ever take the bank up on the "deal" to skip a mortgage payment once a year.  That can stretch the mortgage to almost 31 years and $61,000 more in interest charges!

Put your money into your mortgage and sleep well at night.  You don't have to worry about the next stock market crash, just about how you're going to spend all that money you're saving.  Maybe another real estate investment.......

Rates coming down!

The Bank of Canada announced another rate cut, from 1 % to 1/2%, the lowest level ever!  The Big Banks followed suit reducing the prime rate from 3 1/2% down to 3%.  This is good news for the housing industry and should help stabilize house prices by increasing demand, since the cost of financing that home has just got better, more people can realize their dream of home ownership.

A few statistics that will help put our current market conditions in perspective:

• Canada has one of the soundest banking systems in the world, only 1/4 or 1% of all mortgages are subject to foreclosure.  As of November/08 1 in 488 homes for sale in the United States were in foreclosure.
• In the 1980's inflation was running around 10% and climbing, interest rates to a high of 21.46 in 1981.  The United States was faced with the Savings and Loans crisis and 747 banks failed.

We have the very best interest rate environment NOW.  The demand for housing will continue to rise, in part due to strong immigration numbers.  From 2001 to 2006 there were 1.1 million immigrants that came to Canada, and 45% chose Ontario.

As demand rises, so will house prices.  Get in while the getting is good!

You can't live in your RRSP.

The Economic Forecast

It's that time of year when all the economist and financial wizards look into their crystal balls and predict what will happen in our economy next year.  But according to a recent MoneySense article  by David Aston, "Forecasters have an ugly little secret, they can't actually predict anything".

"The unfortunate truth about economic forecasting is that it is fundamentally unreliable."

The article provides a flashback to December 2007 where most of the predictions indicated the economy would grow by 2% to 3% in 2008, with 2009 being just as good or better.  At that time, Jeff Rubin, chief economist and chief strategist at CIBC World Markets stated the following:

"A two-quarter slowdown, contained by more Fed rate cuts, should set the stage for a gradual re-acceleration of economic growth over the course of 2008, and a subsequent rally in North American stocks to new cyclical highs."

Well he was right about one thing, we sure had a rally, but it hit new LOWS rather than highs!

A recent Globe and Mail article entitled "The BUST of '08" outlines how even the brightest amoung us were taken by surprise this year. It reports as the financial storm gathered momentum, the public, and most investment professionals remained indifferent.  Here are a few examples:

David Dodge, Governor of the Bank of Canada: "I would say, I didn't anticipate that the global situation would deteriorate as much as it did,"

Stephen Jarislowsky, Montreal-based asset manager: "But I had absolutely no clue that the very biggest banks, the biggest mortgage companies, the biggest insurance companies in the world effectively would fall."

So I'm not going to try to predict what the housing market will do in 2009. My personal "gut" feeling is that prices will stabilize and people will continue to buy and sell homes.  The fundamental principals that I feel support this are:

• We live in a great city and there will continue to be a demand for housing
• Most people have a dream of home ownership, and prefer to own rather than rent
• We continue to have immigration into the city, and statistics show us that immigrants buy homes and establish roots here as soon as they are financially able
• Interest rates are low combined with a slight reduction in prices has improved affordability

And, at the end of the day, I'm a real estate agent that helps people buy and sell homes.  I look forward to helping many first time home buyers, move up buyers and investors to find a great house.  I can hardly wait for the year to begin!

No crystal ball required.

New Lending Rules

The Government of Canada recently announced new governing insured mortgages. The changes look like this:

• No more 40 year amortizations, maximum of 35 years
• Minimum down payment of 5%, no more "zero down" mortgages
• A minimum credit score of 620 to qualify
• The introdcution of new loan documentation standards

The Government calls today’s announcement a responsible and measured approach by the Government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.

I'm glad the government has acted to protect our housing industry and consumers. We don't give mortgages to people without jobs, income or assets and now we don't give them to people without the ability to come up with a minimum down payment. To save for a down payment demonstrates the ability to save money, budget your expenses and fiscal responsibility (or asking your parents for some help!). Home ownership is not just about servicing the mortgage debt, but paying the property taxes, utilities and having money left over to cover your living expenses.

House prices have gone up significantly over the last decade and new products and creative financing was developed to compensate for this fact. However, if we get too creative, like they did in the States, we would also end up facing foreclosures. It's time to pull in the reins and get back on track.

We don't want people to have to walk away from their homes, we want them to live happily every after......

The Bank Surprise!

The Bank of Canada proved today that it has a mind of its own!  This was the headline in the June 10th TD Economics commentary.   The financial market predictions have been expecting a quarter point drop in the overnight rate, but it has been held at 3%.  The reason for this was explained by the banks concern over inflation risks.

The factors contributing to the inflation fears are:

• The dampening influences on prices from a high Candian dollar
• The broad pass-through of higher energy costs to consumers

As a result many of the banks raised their mortgage rates, see the details in the Toronto Star article:All Big Five Banks Raise Rates

We still have historically low mortgage rates, and remember your home is a long term investment.  The value may be affected as the rates go up and down, supply and demand varies, but none of that affects you unless you sell your home, it's all just paper gains or losses, that can't actually be quantified until it's sold. 

Just don't use your home like an ATM, like our neighbours to the south.  They increased their mortgages as house values increased, and they can deduct the interest on their mortgage from their taxes so the bigger the mortgage, the bigger the tax write off.  The house values increased due to the large demand of buyers who were buying homes with sub-prime mortgages.  Now the demand has dried up, people are walking away from their homes and the foreclosure rates are astounding!

There are signs of economic concern but we are conservative, sensible Canadians, no need to worry. Actually I'm Icelandic Canadian, peaceful and conservative! Iceland Rated Most Peaceful

NINJA Loans

There is definitely lots of press these days regarding the sub-prime mortgage melt-down occurring in the States right now.  Bad news sells.

I found it interesting to learn that these sub-prime mortgages are referred to as Ninja Loans - to describe loans to borrowers who had No Income, No Job and No Assets.  A recipe for disaster. 

Ken McLachlan, Broker/Owner of RE/MAX Hallmark Realty Ltd., has provided us with a clear and concise understanding of the Canadian real estate market and the factors that will contribute to it's ongoing strength. 

I hope you enjoy this article: State of Toronto Real Estate Market