GTA MARKET ON CRUISE CONTROL?

The 2013 key market indices of unit sales and average selling prices are trending in unison with the market we experienced in 2012. April to May unit sales increased 500 properties in both years. Prices rose 5% in both years. Properties put onto the market for sale remain the same. It might appear that we can sit back and relax on cruise control?

But I have noticed that there are a lot of properties finding it difficult to locate new owners. Homes with recent significant updates and upgrades are selling quickly, but the ones without these improvements are not moving. In many instances they end up taking several price reductions and then sell at reduced values that are double the cost of the missing  upgrades.

In neighbourhoods with ageing houses, it is critical to cash in some equity to get the renovations done that buyers want and are happy to pay for.  Many homeowners have all sorts of excuses for not doing these renos, but they end up losing a great deal of money.

An old car can be cleaned up and made mechanically safe and it will sell in a small price range. But a house is very different. You can't easily increase the value of a car, but you sure can easily increase the value and selling price of a house. A professional realtor likely knows some good tradesmen who don't over charge.

Going forward, it appears that 2013 will continue on its present path. All the media frenzy over a balloon in Canadian home prices has come to nought.  In fact, the media tends to report what is reported in other media and no real research is being made. A speculative opinion of a media-popular pundit is reported without the "fortune teller" disclaimer that should have been included. (We are being fed the same drivel on general economic and stock market activities as well.)

With stocks, bonds, and gold values bouncing around like a paddle-ball, it is nice to realize that Canadian real estate is still a solid investment. The most important direction for ageing citizens is to get their homes paid off by the times their incomes begin to decline. 25% of Canadians over 60 still carry a mortgage and the government can't stop rising taxes, rising food prices, rising insurance premiums , etc.

It could take another 4 years to resolve the present monetary wars, so there isn't a lot of time left to structure our future cash-flows and minimalist lifestyles. Once interest rates start to move up, we don't want big mortgages and credit lines on our homes.

The time seems right for "empty nesters" to downsize while values are at record highs in the GTA. Call me if you need a realtor.

"STOP" Mill Pond Bylaw (2) 

Local Mill Pond residents and Richmond Hill property owners need to rally together to "STOP" a pending bylaw change in the Mill Pond quadrant.

The local Councillor explained to me that the Council is trying to create a new "Tertiary Plan" approved by immediate local residents that may enable Council to be more successful at OMB hearings than in the past.

I was told by a local resident that they received a notice that a bylaw change to "medium density" was to be discussed at a local "Community Information Session" on January 22nd, 2013 as required for bylaw changes. This bylaw would affect all of this tightly knit community, but only a few households have been made aware of the bylaw revision to allow for "Medium Density" in the area. It would appear that the fact that many residents enjoy recreational strolls or jogs through these streets isn't adequate to be informed about significant changes to the area.

Such a bylaw change could include extension of current 3-storey height limits to allow for 4-storey heights, in other words for "Stacked Townhouses" and "Apartment" buildings. There are likley other changes to accomodate less "open space" and smaller residential units.

At present the area has about six buildings that don't conform to the rest of the building laws in the area more than one block from the 4 main highways surrounding the Mill Pond: Yonge/Bathurst/Major Mackenzie/Elgin Mills. The proposal initially limits the incursion of the new regulations to within two blocks west of Yonge St. But once in place there may be increasing pressure to expand the new designations.

Richmond Hill has already made major densification increases along Yonge St. south to Highway 7 and on the East side of Yonge north to Gamble Rd. There is no significant reason why this special area needs more housing density. The only logical reason is the profit motive.

The Mill Pond is receiving increasing recognition for its stable family community lifestyles. The housing proposed is usually mostly rentals with absent owners and higher than usual turnoverand police activity. It would be very different from the current demographic mix. It could not be considered and improvement in the area whatsoever.

Please contact the following people to stop this bylaw change:

Mayor Dave Barrow: officeofthemayor@richmondhill.ca

Regional Councillor Brenda Hogg: bhogg@richmondhill,ca

Ward 4 Councillor Lynn Foster: lfoster@richmondhill.ca

Please send this link to your friends.

Thank you.

Jim Reid

2013 REAL ESTATE PROSPECTS LOOKING GOOD!

Even with a decline of 3.8%, GTA Real Estate unit sales were the third highest ever in 2012. Prices rose a handsome 6.9%, so homeowners should be quite pleased with the appreciation in their home values.

During 2013, economic factors, low interest rates, low inventories, inventory upgrades and MPAC assessments will all contribute towards establishing a current "floor" to the GTA real estate market.

Economic Factors:

Many pundits are projecting Canada's economy will grow by 2.0% in 2013, but they are also guessing that real estate prices will fall before they return to current levels sometime in 2014. I don't think they are basing their projections on solid research and analysis.

Low Interest Rates:

It is common for the GTA prices to fluctuate during each year with many "up" months and a few "down" months. But it is fairly certain that interest rates on average will stay low (in spite of the annual hikes by the Banks every Spring). Low interest rates keep houses affordable, so there is no pressure here to reduce prices.

Low Inventories:

An over supply of properties for sale will cause prices to drop, but with the GTA market exceeding 80,000 for the past four years, we would need a large number of people needing to sell to drive the number of Listings up enough to create an over-supply in the market. The GTA is growing too fast to make this a likelihood for a significant period.

Inventory Upgrades:

With low interest loans available, the on-going renovations and upgrading boom will continue throughout 2013. In fact, real value is being added to GTA homes and the real estate market every day. These properties sell first and at high prices. They support our growing market values.

MPAC Assessment Jumps:

MPAC sets property values in the GTA and then the municipalities set their Mill Rate for their property tax collectors. For 2013 MPAC has made a huge increase in assessed property values for the next four years. (Don't think that the municipalities will reduce their Mill Rates to hold down tax increases!) However, property owners, buyers, and mortgage lenders look at the "Assessement Values" when determining offer prices. Since GTA assessed values have been raised so much there will be little incentive to lower asking and purchase prices in 2013. (A USA style property  "Tax Revolt" is definitely plausible in the GTA in 2013, but Canadians usually bite their tongues and send in the dough.)

There you have it. There are mostly strong market reasons for no declines in GTA property values. If prices do fall it will be because Canadian politicians and mortgage holders spread unfounded dire warnings that scare homeowners into dropping their prices.

IMF Sabotaging Canadian Housing Market?

It began last April with the reputed Economist magazine asserting that Canada was harboring an un-popped house price bubble. Their data, which compared us to other countries around the world,  was highly flawed as they didn't take into account the unique differences in Canadian housing, tax policies, mortgage lending criteria, construction costs, our large middle class, immigration and rent controls that influence our housing market.

Now the International Monetary Fund has elected to believe this misinformation and is warning Canadian monetary authorities to put a lid on our home prices. The only thing they will do is create unnecessary panic amongst home-owners and mortgage lenders which could shrink prices in the short term.

Canadian house prices lagged behind growth rates in Europe and the USA for many years. However, increasing immigration and migration to our major cities has raised demand beyond our capacity to construct our regulated higher quality 4 season homes. Our prices have risen modestly as a result.

At present, Toronto is in the midst of a condominium construction boom caused by the delay in many projects caused by the financial market crisis of 2007 through 2011. Also, Toronto is in the process of increasing its densification in preparation for a large ageing population downsizing. These are all normal activities and represent no balooning of prices and deflation of values.

It makes me wonder if the IMF is just jealous of Canada's prudent financial management. What do you think?

CANADA HAS BIGGEST HOUSING BUBBLE?

According to the March 31st issue of The Economist, Canada has the highest Price Bubble "Rental Ratio" in the World at 76!

Canada is 4th, behind Belgium, The Netherlands and France in their bubble "Income Ratio" at 32.

 Singapore, Hong Kong and Belgium are the only places with a higher average "Price Bubble" risk ratio than Canada, which is at 54.

What does this really mean?

Is there a possibility that current prices could plummet 79% or even 54%? - NOT LIKELY!

Unfortunately, the Canadian housing market is quite different from most of the rest of the world.

RENTAL RATIO:

Our rental market is extremely small compared to most countries and we have powerful laws protecting renters and controlling rental rates. Even our rental properties are financed differently, with Landlords having to hold much higher equity levels than usual. Thus, our rental rates are lower than elsewhere in comparison to property values.

In recent years, our rental inventory has reached the end of its lifespan and many buildings have turned into condominium ownership. In fact, a large portion of rental properties have transferred into individual condo unit landlords from the traditional large apartment buildings.

Low interest rates and declining down payment requirements have transferred many renters into first time home owners. This has also helped to reduce prices than can be charged on older rental units.

These factors have produced an artificially high "Rental Ratio" in The Economist's index of Canadian housing prices.

INCOME RATIO:

Similarly, there are unique factors that cause their "Price to Income" ratio to be overstated as well. Since Canadians can not deduct home mortgage interest payments from their income tax, our incomes appear to be lower than Americans and others, because we pay more tax.

Also, we generally pay higher taxes anyway and this is a factor why our deficits are lower percentages of GDP than other nations in this survey.

Similarly, our house prices will have a natural tendency to be higher than other nations because we have greater equity in our homes and thus pay lower interest rates which combine to allow our prices to rise more than others.

Our homes are also much larger and better constructed to handle the needs of our climate. They cost much more to build, so our values will be higher.

Even our property markets are different in Canada. Due to our relative prosperity, our homes tend to have more updates and upgrades. (Have you seen the quality of homes on those British real estate shows?)

And finally, the demand for housing in Canada is very strong due to immigration and family growth. Vancouver has a shortage of land, so their price increases have been driven by real volume demand. Toronto is more spread out, but due to poor mass transit policies, the city core is quickly being densified. This is creating a normal price growth rate to balance supply and demand.

The Economist pointed out the 32% rise in the value of the dollar as a factor in their 90% value increase since 2006. I don't know where they got this figure, because Toronto prices rose 32.1% from 2006 to 2011.

In fact, the real value of the Canadian dollar should be more than 25% above the $US. (Canadians buying USA real estate are in fact earning a premium of this magnitude or better.) The USA is increasing their currency supply at a much faster rate than Canada is increasing our money supply. This is because there are very few large currency traders and most see the Canadian currency as a minor player in the global currency warfare underway at present. It doesn't cost our Central Bank much to maintain our currency close to the $US.

The bottom line for homeowners is that the report by The Economist is significantly flawed. Any price bubbles in Canada are more like FIZZ in sparkling water that will be easily absorbed by normal local market price adjustments. If a foreign induced housing price drop occurs, just sit tight for a winter of discontent, until we get our economy back on the tracks.

Asians, Persians and Russians in Neighbourhood Land Battles?

Being born and raised in Toronto, it is quite obvious to me that people from the same ethnic or religious heritage tend to live together in large neighbourhoods throughout the GTA.

Realistically, many neighbourhoods are often dominated by only two or three predominant cultural groups.

The GTA comprises people from almost every nationality and religious group on the planet. Thus, it should not be surprising that the newer immigrant cultures don't find it easy to plant or enlarge their own neighbourhoods.

Also, this phenomina is being played out by some of the old established cultures as they are being displaced by new cultural groups.

In recent years, the practice of Listing properties low in the hope of selling high due to multiple offers has been a common practice where cultural shifting is underway.

Recently, a bungalow near Yonge & Sheppard sold at 156%above its list price for $1,180,800. It was very ordinary on a 60 x 100' lot. This price is $197 per sq. ft. for basically  "lot value" in this area. Just 20 minutes, 5 miles north in Richmond Hill a similar property would sell for less than half this price. What happened?

An analysis of recent sales of similar properties in the area indicates that most purchasers are either Asian, Persian or Russian. The selling price of this example with lots of "8's" indicates likelihood an Asian was the buyer.

This community's real estate market is greatly influenced by the arts programmes offered by Earl Haig collegiate, which are favoured by our Asian community. The subway and local shopping infrastructure appeals to the new Persian community. And the luxury in-fill construction potential appeals to the Russian, Persian and Asian builders.

Toronto and the GTA have lots of pockets of homes that aren't ageing well, but the internal cultural groups need to expand. This will continue to inflate property values and stimulate the "in-fill" industry.

"Cultural" real estate battles are here to stay. What do you think?

February Average Sale Hits $502,508

The GTA is clearly one of the best real estate markets in the world right now. Not only did our average home value rise 8.0% from last year's average, but February saw unit sales jump by 16.1% vs. last February.

Low interest rates are a big factor helping buyers feel confident in these higher prices. Inventories are also low, so buyers aren't procrastinating when they find something they like.

With the GTA hitting 6.1 million people, and 9.1 million projected within 20 years, our real estate market has strong future growth potential.

Canada is recognized as a safe refuge from the financial chaos overseas and down south, so we can expect prosperous immigration for the next few years. This will help offset any potential price bubble from having a serious or lengthy local impact.

As our baby boomers get ready to do their 2 for 1 "empty nester" downsizes, we will see the transition from rental apartment buildings to rental condo buildings. Maturing citizens are looking ahead to creating a retirement income stream.

Stocks, bonds and other financial instruments have lost their shine. GTA Real Estate is beginning to"SPARKLE"!

Mortgage penalties for renewals or dissolutions before your term is up can be extremely costly and unfair. But, there is a way to substantially reduce them or even eliminate them.

We locked-in our 5 year term variable rate mortgage at a fixed rate in 2006 after two interest rate increases and a third pending. I saw the economic storm front coming and expected the historical pattern of interest rate increases during economic recessions or depressions.

But, this time the Banks themselves were so over-extended that Canada's Central Bank came to their rescue to lend them cheap money which they re-invested in higher paying government bonds. This kept interest rates low from 2007 to the present as Banks have gradually increased their capital from the "illegal" 3% lows to close to 9% to-day.

This "Rule Change" left us with a very expensive interest rate that was locked-in for five years. In the past, any changes to my mortgage usually carried only a 3-month interest penalty. But this time I learned about a small type clause that allowed the Bank to charge me for all the interest they would lose if they gave me a new mortgage.

During the past 4 years the Banks have been swamped with customers who didn't know about these clauses when they signed up. The ones who made the most fuss were given a bit of a break, but most have been gouged if they had to sell their properties and change their mortgages.

Of course, I've made sure that the Governor of the Bank of Canada, the Minister of Finance and the Bank Ombudsman clearly know that the consumer has been exploited and in fact extorted by the Bank mortgage departments. They have not come up with any of my suggested actions to help assuage this financial grab by the Banks.

As more families begin to mature and downsize, it is critical to get the right kind of mortgage as your financial situations and cash-flows undergo significant changes. Long-term mortgages at low interest rates appear great now, but be sure to understand what it will cost if you need to get out of your new mortgage.

Using your own RRSP funds to finance your home makes a great deal of financial sense. But, there are a few things that affect how much benefit you realize.

First of all, your financial institutions, (Stock Brokers and Banks), aren't going to jump out of their chairs to help you set up a self-directed mortgage using your money instead of theirs. The stock brokers don't earn commissions on your mortgage payments and the banks don't receive the interest payments - you receive the interest payments.

On a $200,000 self-directed mortgage with 5% interest, in five years your family achieves a net gain of 37.5%. On a traditional mortgage, the total interest payments exceed the principal paid so your net gain is actually a loss of 6.2%. If your $200,000 remains in an RRSP that earns 5% for five years, your net gain is 27.6%. But, you need to deduct the loss from your traditional mortgage, so your real net gain is only 21.4%. Thus, your self-directed mortgage puts an extra $32,000 into your pocket.

Of course, if your broker can consistently get you an 8% return, it is a break-even scenario. But the nice thing of the self-directed mortgage is that the interest payments are going to your family instead of the Bank! (By the way, the interest rate you charge yourself has to be close to current market rates.)

I've written to the Minister of Finance requesting a few changes to the regulations to make self-directed mortgages more consumer friendly and less costly to set up. Current start up fees amount to $2200: Trust Fund setup- $400, Legal- $400, CMHC Insurance- $1000, Annual Admin. Fee- $400.

Another issue is how the family's RRSP's are distributed amongst family members. At present, each RRSP must have a unique mortgage. We may not consolidate an RRSP with an RSP with a Spousal RRSP or with the other spouse's RRSP. This means that it may be too costly to assemble several mortgages to make it worthwhile.

An important consideration is when the family needs the RRSP funds. By 72 years of age, RRSP holders have had to convert them into annuities where monthly paydowns go into taxable income. I haven't found out if this age deadline creates a problem with an overlapping self-directed mortgage term.

I hope this has helped reduce some of the fog surrounding this great way to make your RRSP work for you.

The global financial sector excess leveraging crisis is presently supplanted by the excess soveregn debts crisis.

Governments that can't generate adequate economic activity to pay the interest on their loans and pay the costs to operate their bureaucracies, (Greece, Italy, Spain, Ireland, Belgium, East European nations, etc.) must either accept foreign imposed financial constraints or withdraw from international economic activities.

Canada can still pay its interest costs on our $550 billion federal debt, but it will grow to $700 billion within 5 years. Our provincial debt loads are barely sustainable and some municipal debt loads are not sustainable.

Canadian banks are increasingly exposed to low interest mortgage loans that will not finance adequate increases in investment capital they need to offset the recent and imminent losses from their foreign financial investments. Once inflation arrives and forces interest rates up, the banks will face large mortgage defaults that will undermine property values.

In the GTA, the most exposed sector is the vast increase and speculation in condominiums. By 2015, this sector could lose 25% of its value as it did in the 1990-1996 recession. Larger losses are possible as the structural weaknesses of this recession are much more severe than 20 years ago.

Houses on the other hand have land underneath them. (They aren't just boxes in the sky above previously valuable lots.) Toronto is still going to be a "go-to" destination for people leaving poorly managed countries. Thus our real estate has excellent long-term value.

Since it will likley take until 2017-2019 to restructure the global economy, our Canadian economy is not likley to experience significant growth. In fact, we may experience an increase in unemployment and flat wages that will increase the number of property Listings. If interest rates start to increase, there will be even more properties placed on the market and thus prices will be forced down.

From a family financial strategy perspective, there is increasing risk of a decline in property values in the GTA. The upside potential appears to be less likley.

When selling prices decline, it comes right out of the equity of the homeowner. Thus most people with high ratio mortgages will be forced to sell at a loss and the rest will see their retirement equity reduced. Thus, this may be the right time to downsize to minimize your loss of equity.

Right now, nothing is a "sure thing" bet. But as the clouds darken, it becomes fairly obvious that rain or snow will follow.