No slowdown on horizon for housing market

It’s the debate that’s destined to keep raging through 2014: Is Canada’s housing market too hot to touch, or set to keep climbing with no ceiling in sight?

“Talk of a ‘soft landing’ for Canada’s real estate market in the new year is misguided,” says one of the country’s biggest brokerages, early out of the 2014 gate, in its quarterly Royal LePage House Price Survey.

“We expect no landing, no slowdown, and no correction in the near-term.”

In fact, price gains are likely to average 3.7 per cent nationally in 2014 as buyers who’ve put purchases on hold the last year or two, expecting a major correction, have watched sales rebound and prices take off again, says Phil Soper, president and chief executive of Royal LePage.

“In the absence of some calamitous event or material increase in mortgage financing costs, we expect this positive momentum to characterize 2014. In fact, we expect a market tipped decidedly in favour of sellers for the first half of the year, after which we project a shift to a more balanced market.”

Those gains are likely to be even bigger in Toronto — Royal LePage predicts prices should climb a further 3.9 per cent in 2014 over average gains of 5.1 per cent in 2013 — as a shortage of lowrise homes in the 416 region continues to drive up average sale prices.

Things aren’t holding up quite so well on the new home housing front, however. Canadian housing starts, which started to cool in the latter part of 2013, are expected to continue their decline into 2014 as affordability, and a significant decline in condo construction, continues to impact sales.

Canadian housing starts slipped 4.1 per cent in December. As of the end of December, some 188,200 units had been started across the country, compared to 215,000 in 2012, according to figures released Thursday. December was the lowest level for low-rise housing starts in 17 years, apart from the 2008 recession, although the slowdown in multi-unit condo construction accounted for most of the decline in building in 2013, according to the figures from the Canada Mortgage and Housing Corp.

Canadian new home prices essentially flatlined, with growth as of November, the most recent figures available, coming in at just 1.4 per cent year over year.

Where housing is headed is really anyone’s guess, with some economists and analysts warning that sales have softened the last three months and could remain that way through the first part of 2014 in the wake of a rush of buyers into the market over the summer as long-term mortgage rates climbed unexpectedly.

One ReMax realtor, with a respectable record of calling the ups and downs of Toronto’s condo market, in particular, blogged this week that he’s heard from so many buyers fed up waiting for prices to drop, he expects to see 95,000 sales transactions this year across the GTA.

That would surpass the previous sales record of 93,193 back in 2007 and last year’s 87,111 sales.

The “moderate” price growth that defined the Vancouver market in 2013 is likely to continue through 2014, Royal LePage anticipates, with prices project to rise 4.4 per cent.

That’s because things are improving on the jobs and economic front, both major drivers of housing demand, notes the survey of some seven housing types in over 250 communities across Canada.

Interest rates are likely to stay put, as well, it says.

But Royal LePage’s most ambitious assumption may be that “aggressive government intervention” — such as further tightening of mortgage lending rules, which knocked many first-time buyers out of the market in the latter part of 2012 and first half of 2013 — is “unlikely to occur in 2014.”

Finance Minister Jim Flaherty has warned repeatedly that he’s especially watching the Toronto and Vancouver markets and is prepared to act again if needed.

Canada’s two priciest markets have had surprisingly rapid comebacks from what Soper terms the country’s “year-long correctional cycle of dramatically slowed sales volumes” that started in 2012.

The survey provides a breakdown of price gains in 17 major Canadian cities, and for three housing types: detached bungalows, standard two-storey homes and condominiums.

The average sale price of a Toronto bungalow was up 3.9 per cent in 2013, followed by 2.7 per cent for two-storey detached homes and 1 per cent for resale condo units, it shows.

The report doesn’t focus any attention on what to expect in the condo sector specifically in 2014, other than to point to a December report commissioned by Royal LePage which said that markets in Toronto, Vancouver and Montreal face some “instability” over the next two years as sales drop off from boom levels and starts outstrip demand.

Can You Afford to Buy a House?

Although the thought of paying a mortgage is more enticing than paying rent, it's important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners.

Potential buyers sometimes forget to factor in the down payment, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.

The days of calling up the landlord to fix your problems come to an abrupt halt when you're a homeowner. You'll be responsible for everything from malfunctioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you'll probably eventually encounter costly repairs, such as replacing the roof or windows.

 

To determine whether you can afford to buy a home, you should do the following:

 

1. Determine the property value of homes that interest you. The property value (what the home is worth) is determined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real estate agent will be able to provide this information to you.

 

2. Review different mortgage loan types and compare their required down payment amounts to the money you have available. Down payments, based on a percentage of the value of the property and determined by the type of mortgage you select, typically range from three to 20 percent of the property value. Don't forget to factor in private mortgage insurance, a policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3 percent down. Usually, the lower the down payment, the higher the PMI, which typically will cost somewhere between $40 and $125 a month.

 

3. Get an estimate of your closing costs, including points (the dollar amount paid to a lender for obtaining a lower interest rate on a loan—one point is one percent of the loan amount), taxes, recording, inspections, prepaid loan interest, title insurance (a policy that insures a home buyer against errors in the title search; cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller) and financing costs from your mortgage lender or a real estate professional. These will generally add up to between 2 and 7 percent of the property value. You'll receive an estimate of these costs from your lender after you apply for a mortgage.

 

4. Add the down payment requirements and the closing costs together to determine the amount of money you'll need right off the bat. But you're not done yet.

 

5. Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.

 

6. Property taxes. Many lenders will require an impound account in which monthly payments for property tax (and often insurance) are paid together with the monthly mortgage payment. You can figure your average annual tax rate will be about 1.5 percent of the purchase price of your home.

 

7. Next, budget for maintenance and repairs. HouseMaster, a home inspection company with 300 franchises nationwide, said that based on a study that evaluated 2,000 inspection reports, the typical costs of major repairs are:

• Roofing: $1,500 to $5,000
• Electrical systems: $20 to $1,500
• Plumbing systems: $300 to $5,000
• Central cooling: $800 to $2,500
• Central heating: $1,500 to $3,000
• Insulation: $800 to $1,500
• Structural systems: $3,000 to $1,500
• Water seepage: $600 to $5,000

Once you crunch the numbers and find you come up a bit short, investigate ways to reduce or creatively fund your down payment—it can come from a variety of sources. Check with your realtor or lender to find out what's available.

You'll also need to factor in the cost of homeowners insurance. In addition to the type of construction, age of the home, your credit history and past insurance history, new issues like litigating costly toxic mold cases are raising homeowners insurance rates.

In fact, the National Association of Insurance Commissioners reports that homeowners will spent an average of $822 on homeowners insurance in 2007, the last year data was available.

In your final analysis of whether you can afford to buy a home, you'll want to weigh the costs with the financial benefits—a consistent mortgage payment (unlike rent, which can increase), the tax benefits (you can deduct, in most cases, mortgage interest, closing costs, and property taxes), and the all-important appreciation factor—the rate of increase in a home's value.

And of course, you'll want to weigh perhaps the biggest benefit of all—having a place to call your own.

What are your core investment filters?

If you invest in real estate (or any asset class for that matter), you need to have a goal. Goals provide focus and focus helps to eliminate all of the clutter and/or noise that surrounds us everyday. It is so easy to get lost in the endless possibilities and loose sight of your vision or what you want to achieve with your money. It is very similar to investing in the capital markets, smart investors choose one strategy and stick with it. For example, a day trader is likely to steer clear of blue-chip stocks for the same reason that a dividend investor would stay away from the venture exchange or penny stocks.
Core filters provide clarity and a reference point to specific goals. Even public REIT’s stay within their core competencies and use filters to sift through the massive pool of opportunities. For example, consider Allied Properties REIT for a moment – their acquisition criteria is very clear : class 1 office space in urban settings and I imagine, they use this goal to filter most opportunities. Have a close look at their portfolio and most of their assets look and feel the same.
For me, filters are critical to my investment goals. Every filter narrows the pool of possible investments and provides laser focus. In the end, I only invest in assets that have passed the ‘filter test’. I should also note that they are in order of priority (to me, yours might be different). Opportunities must also flow through the filters in order. MY filters were developed over time and with experience.

5. GOAL ALIGNMENT – Does this match my long-term goal?
This one filter eliminates 95% of the opportunities that I investigate. This filter is critical to keeping the strategy in place and not loosing sight of the end-game. For some, this means ‘passive income’ and for others, this means building your capital base.
4. RESPONSIBILITY – Is this a passive investment (or will this require time & effort)?
This filter narrows the buying pool even further. Since I don’t have a lot of personal time to devote to managing a real estate asset, the property must be manageable by a third-party at a decent price. Some assets require too much work up front and/or are too labour intensive.
Note: I will consider building / renovating as long as I will reap the rewards on the other end (after completion). Sometimes, the growth in equity will give you the opportunity to take out the initial capital investment OR it will dramatically increase the ROI and/or cap rate making it worth while to invest the energy.
3. RISK – Is this investment insulated?
How insulated is this property? What is the absorption rate for this product? Can I handle vacancy in this asset and for how long? Every investment is different and totally dependant on the product / timing / cost, etc.
2. DUE DILIGENCE – Do the numbers make sense?
Next is the due diligence process and this means doing the homework on the property including lease audits, projections, IRR calculations, etc. This is the final step in a very long process and very few assets make it to this stage. Because this is the most time consuming, I need to be confident that it is a viable option well before I begin this process.
1. STRESS - Will this investment add stress to my family/partners/life?
This is my favourite step and it is the most subjective filter. It is the final decision that depends on various external factors specific to every new opportunity. It is the gut instinct that tells you this is the right or the wrong investment.

How to Maximize Your Selling Potential During Winter

Some say winter is the worst time to sell a home. Given the cold and stormy weather we have been experiencing, there are definitely challenges, but don't be discouraged. First impressions and lasting impressions are key to progress potential buyers into active buyers. Be very wary as the slightest discomfort or issue can sour this experience and turn a buyer away from your home, but by addressing a few key areas, any winter woes can be easily avoided. Here are five simple tips to maximize the showing potential of your home during the winter months. 1. Don't Let Winter be an Obstacle It’s storming or just post-storm, but you have showings booked for your home. (You must have motivated buyers to go out in that weather!) Don't make it even more of a chore for them, be sure to shovel your drive or walkway so that the first impression is a clean and accessible entry. Buyers have been known to turn away, rather than hike to the doorway in knee deep snow and risk snow in their shoes, wet pants, and wet socks. 2. Consider Your Home’s Temperature Remember, buyers are usually viewing more than one home at a time, and thus traveling around and running in and out of cars or up and down elevators in condos. Typically they will be dressed for the great outdoors, so although having the heat way up is great for lounging on the couch, it can be oppressive for visiting buyers. Be sure to monitor the temperature of the entire house and set it appropriately. 3. Get Buyers Out of the Dark and Into the LightThe winter months also mean shorter days and less natural light. Be sure to have adequate lighting in every room. Dark rooms are depressing when coming in from the cold. Keep it bright in the winter. Some may object for energy saving reasons, but it is best to leave all the lights on before showings or use timers. This allows you to set the mood lighting, and saves the buyers fumbling for light switches. Remember first impressions. Is your home a sanctuary or an oasis from the cold? 4. Preparation is KeyBe sure to prepare for those wet and snowy shoes and boots. No one likes having snow and dirt tracked around their home by shoes or wet socks, just as no one enjoys having wet socks and dodging puddles in the doorway. Be sure to have a "Shoes Off" sign. Place an absorbent mat protecting your stone or wood flooring. Be sure to have a shoe tray or appropriate storage area for shoes, not only to avoid the puddles but to show off the organization of your home. Apply this also to winter jackets, hats and scarves. Show functioning and organization by thoughtfully arranged set ups, don't just have outerwear exploding out of closets or haphazardly hanging on hooks or coat racks. 5. Pet-Friendly—and Groomed! If you do own pets, be sure to have the appearance of clean pets…especially dogs. We love our furry friends, but it’s best not to leave those dirty slush-soaked towels and doggy outfits laying around. The last thing you want is the smell of wet dog greeting your buyers at the front door.

2014 Canadian Real Estate Outlook Positive

Canada’s real estate outlook for the coming year has been revised to reflect better than expected growth in 2013, according to the Canadian Real Estate Association (CREA). Transaction volume is expected to grow by 3.7% in the coming year and the national average home price is expected to increase 2.5% on top of the 3.7% forecast for the previous year. Experts note that regional markets remain well balanced and in a position to enjoy healthy gains.

The Canadian Real Estate Association (CREA) has updated its forecast for home sales due to  stronger than expected activity through the summer and early autumn months.
Although monthly sales volatility has increased in recent years, particularly surrounding changes to mortgage rules, national activity on an annual basis has remained remarkably stable, it says in its latest report.
It points out that for the sixth consecutive year, annual sales in 2013 will remain within short reach of 450,000 units. Activity and prices have remained slightly stronger than expected in Western Canada. By comparison, the sales and pricing environment has generally been softer in Eastern Canada.
Sales are projected to reach 458,200 units for the year. This represents an increase of eight tenths of one per cent from last year.
Sales projections have been revised slightly upward for British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario. Previously, British Columbia and Alberta were the only provinces where forecast annual sales for 2013 were expected to top 2012 levels. Ontario sales are now also projected to increase marginally.
In 2014, national activity is forecast to climb to 475,000 units, growth of 3.7%. Most of the increase reflects the weak start to 2013, which is not expected to recur in early 2014.
British Columbia is still forecast to post the strongest sales increase in 2014 of 8.4%, reflecting the return to of activity to more normal levels compared to a weak start to the year in 2013. Most other provinces are forecast to post gains in the range between 2% and 4%.
CREA also says that average prices have remained firmer than expected, in large part due to a rise in the share of national sales among more active and pricier markets as compared to last year.

 

The national average home price is projected to rise by 5.2% to $382,200 in 2013, with similar gains in the Prairie provinces, Ontario, and Newfoundland and Labrador. Smaller gains are projected in other provinces.
‘Most housing markets are well balanced, including many large urban centres. Housing price gains are always stronger in places where supply is tight relative to demand, such as we’re seeing in Calgary and in parts of southern Ontario including the low rise market in Toronto. Prospects for price appreciation will be limited in parts of Quebec and some areas in the Maritimes, where competition among sellers has increased,’ said Gregory Klump, CREA’s chief economist.
The national average price is forecast to rise a further 2.5% in 2014 to $391,100. Klump pointed out that as with sales activity, much of the increase reflects prices that were still being skewed lower in the first quarter of 2013 after having softened in late 2012.
Alberta is forecast to post the biggest rise in average price in 2014 at 3.4%, with gains in Saskatchewan, Manitoba, and Newfoundland and Labrador running just ahead of overall consumer price inflation, and the average price increase in Ontario running just below it.