Toronto at Home - A Real Estate Blog

The dream house nightmare

Top court rules anyone building a home can be liable

by Bob Arron

Imagine living in a house, which shifts slightly under a heavy snow load or in a high wind, because of an unstable centre-bearing wall. Whenever it rains, water enters the building through a breach in the building envelope. The flooding in the basement creates a proliferation of toxic mould.

Sharon Ann Mariani got more than she bargained for when she moved into her 3,459-square-foot house in the Township of Puslinch, south of Guelph, in 1991. The house had been built as a dream home by John and Anne Lemstra back in 1987. Although not professional builders, they did much of the work themselves, and enlisted the help of a contractor and some sub-trades. They had a building permit, but moved in without a final inspection or an occupancy permit.

Last week, the Supreme Court of Canada wrote the final chapter in a case, which began back in 1993 when Mariani sued the Lemstras and the township for damages. After a nine-day trial in 2001, Justice Thomas Dunn ruled that the house was a write-off and had to be demolished. He awarded Mariani $300,000, plus interest and costs. The Township was responsible for 25 per cent, but had already settled with Mariani for $150,000.

Justice Dunn based his ruling on fraudulent representation and negligent misstatement. The listing agreement for the house described it as well-built, but the agreement of purchase and sale contained no warranties.

Last year, the case got to the Ontario Court of Appeal. Justice Robert Sharpe found that there were no grounds for finding that the Lemstras were responsible for fraudulent or negligent misstatement. The three-judge panel held the Lemstras liable for negligent construction. Their liability was based on a 1995 decision of the Supreme Court of Canada in the case of Winnipeg Condominium Corporation 36 v. Bird Construction. That case ruled that a builder owes a duty of care to subsequent purchasers, not just the first buyers, with respect to dangerous defects.

The Court of Appeal decided that Mariani was only entitled to "to the reasonable cost of putting the building into a non-dangerous state" and not any resulting damages such as repairing Building Code defects. It reduced Mariani's damages from the cost of demolishing and replacing the house to the cost of repairing the defects -slightly more than $75,000, less $30,000 in costs awarded to the Lemstras because they were successful in having the damages reduced. The Lemstras, however, had to pay court costs of the original trial.

After the Ontario Court of Appeal decision, both parties were unhappy and applied for permission to appeal to the Supreme Court of Canada. Earlier this month, the Supreme Court dismissed both applications for leave to appeal without giving any reasons. This effectively means that the Court of Appeal judgment is final, and the Supreme Court in Ottawa will not interfere with it.

In the aftermath of Mariani v. Lemstra, anyone building a home, whether a professional or amateur builder, can be held responsible not only to the first purchasers, but to an endless chain of subsequent owners, if the house contains hidden dangers or unsafe conditions.

The case emphasizes once more the importance of buyers of new homes checking out the reputation and track record of their builders. Using a professional home inspector when buying a new or resale home is money well spent.

Home is where the savings are

New study from
Scotia Economics

Canadians are putting their savings into their homes instead of financial assets, according to a new report from Scotia Economics. The report states that a prolonged period of low returns in financial markets has encouraged Canadians to take advantage of generational low interest rates and rising home values.

The bellwether national rate of savings – the difference between current personal income and expenditures measured as a share of disposable income – had effectively plunged to zero in the July 2004 to September 2004 period, according to the report. This marked a low point in the 22-year declining trend from the savings rate of 20 per cent set in 1982.

"This development is particularly relevant to the issue of saving, since real estate investments, home buying as well as renovations, are not included in the conventional methodology for determining the national savings rate,” said Aron Gampel, Deputy Chief Economist at Scotia Economics, who noted that statisticians consider this a form of consumption.

Capital gains, both realized and unrealized, accruing from investments in both real estate and financial assets are also not counted. The conventional savings rate also excludes contributions of Canadians to social insurance and employee pension plans – non-discretionary savings that are deducted directly from paycheques. Simply adding back these deductions would lift the measured savings rate above eight per cent, according to Gampel.

Looking at the performance of household balance sheets presents a much brighter snapshot of the financial well being of Canadians, owing in part to rising home prices and rising home ownership rates. Total assets have climbed to record levels, pushing the collective net worth of households to an all-time high of almost six times annual personal disposable income in 2004. The increase in net real estate and financial assets as a share of after-tax income – an alternative broader measure of savings – has averaged roughly 35 per cent in 2003-2004, above its long-term trend of close to 30 per cent.

"These broader measures highlight that collectively, Canadians are not in the dire financial straits suggested by the precipitous drop in savings out of current income," said Adrienne Warren, Senior Economist.

The report also found that Canadians are not taking full advantage of their RRSP room. In the 2003 tax year, 5.9 million Canadians made a contribution to an RRSP, down from 6.3 million in 2000, representing just 34 per cent of eligible taxfilers. Total contributions of $27.6 billion represented only nine per cent of the total room available to these tax filers. The median contribution has remained steady at roughly $2,600 since the beginning of the decade, despite expanded contribution limits.

New home prices rise in November

from Canadian Press

Strong demand and higher prices for labour and building materials pushed up prices for new houses across the country again in November, says Statistics Canada. The price of new homes increased 5.3 per cent compared with November, 2003, according to the agency's new housing price index based on contractor selling prices.

That was down from a 5.6-per-cent annual increase in October. Month over month, across the country, new housing prices rose 0.4 per cent, compared with a 0.2-per-cent increase in October. Winnipeg again posted the largest 12-month increase at 8.1 per cent, followed by Regina at 7.3 per cent, St. John's at 7.1 per cent and Kitchener, Ont., at 7 per cent.

Housing market still hot in York

Patrick Mangion reports that Scugog, Uxbridge growth outpaces Toronto urban areas:

Head West became a post-Confederation mantra for pioneering Canadians to settle.

But, according to recent real estate figures, the future is east.

It seems York Region, an oasis of suburban enclaves, is being eclipsed by traditionally rural centres of Scugog, Uxbridge and Whitchurch-Stouffville.

But as urban boundaries continue to swell outward as demand for detached homes builds, real estate in York's southern municipalities also remains a solid investment, according to figures released by the Toronto Real Estate Board.

Despite projections calling for cooling in the marketplace, 2004 was a banner year for real estate across the Greater Toronto Area as a record-setting 83,501 homes were sold.

The convergence of Richmond Hill, Markham and Thornhill at Yonge Street in the south end of the region appreciated the most over the past year as the median price of a home swelled by nearly 28 per cent from $268,000 to $342,000, the board reported.

It suggests homeowners are willing to pay a premium for a central location, within close proximity of Toronto, said Neil Rogers of the Urban Development Institute.

But perhaps surprisingly, with a 22.7-per-cent increase in median home prices, Whitchurch-Stouffville isn't lagging too far behind York's central hub north of Steeles Avenue.

The median price indicates half of the homes sold for less while the other half sold for more.

"I wouldn't suggest areas like Richmond Hill aren't showing any (price) appreciation," Mr.Rogers said.

"No matter what the demographic, people want the best of both worlds," he said.

Growing communities, such as Whitchurch-Stouffville and Uxbridge, will continue to garner interest from home buyers demanding a mix of urban conveniences, such as shopping and employment, with suburban tranquility, Mr. Rogers said.

Employment growth in York has also made commuting from municipalities to the east more attractive, said Bill Jenkins, the broker owner of Re/Max in Aurora.

"Places like Newmarket and Aurora aren't priced out of the market though," said Mr. Jenkins, adding there is still room for growth in York's most populated municipalities.

"As for when we top up, who knows?"

But the trend toward York's eastern border may be further fueled by empty-nesters abandoning their urban surroundings for a more rural lifestyle, while remaining in the region, Mr. Rogers said.

Meanwhile, the median price of a home in Greater Toronto rose 6 per cent to $270,000 as last month proved to be one of the busiest even though December has traditionally been one of the slowest for realtors.

Of the 4,000 home sales recorded last month, 800 were in the 23 north districts, which include 15 in York Region.

The average home here sold for $365,112, according to the real estate board.

King Township, known for its sprawling estates, experienced the most significant dip as its median home price plunged nearly 49 per cent in 2004 from the previous year.

Rate and cost hikes hit home starts

by CAROLYN LEITCH

Low interest rates, a healthy economy and a buoyant mood among consumers will keep house prices rising in Canada in 2005, say real estate market watchers.

But after several years of rapidly escalating prices, the pace of growth will slow, forecasters predicts. For sellers across most of the country, that will mean fewer bidding wars for houses. Buyers, meantime, will have a little more bargaining power.

In Toronto prices will rise by a tepid 2.5 per cent after last year's torrid activity, Royal LePage Real Estate Services predicts. Halifax is also expected to slow, with prices rising only 1.7 per cent.

Edmonton, Calgary and Winnipeg, meanwhile, will see the greatest advances -- with percentage gains of more than 6 per cent -- as those cities play catch-up, Royal LePage said.

For Ontario, balanced conditions have started to emerge for the first time in more than four years, said Michael Polzler, executive vice-president for ReMax Ontario-Atlantic Canada.

"With supply and demand on more even ground, housing values are expected to moderate somewhat in coming months -- unlike 2004, when average prices had strong upward momentum."

Mr. Polzler said the market began to wind down in the final months of 2004, earlier than expected.

Only older, established communities in Toronto and other major cities are bucking the trend.

Demand for properties in blue chip neighbourhoods generally outpaced supply, Mr. Polzler said, leading to bidding wars in the most popular areas.

When final figures are tallied for 2004, ReMax estimates 85,700 houses, condominiums and townhouses will have changed hands in the Greater Toronto Area, with the average price peaking at $318,000. That's an 8.5-per-cent jump in price over 2003 and marks a record for number of deals closed.

For 2005 in the GTA, ReMax is calling for a 3.5-per-cent rise in the average price to $329,000.

Gregory Klump, chief economist for the Canadian Real Estate Association, predicted the Bank of Canada will hold its trend-setting bank rate steady until at least the spring after the Canadian dollar spiked up against the U.S. currency and economic growth began to slow in this country.

Those relatively low interest rates will keep the housing market robust, Mr. Klump forecasted.

The average house price in Canada will rise by 4.5 per cent to $236,588 this year, according to forecasters at Royal LePage.

Phil Soper, president and chief executive officer at Royal LePage, said listings have been rising, which means price increases will ease.

As for the new home market, Royal LePage said the market across Canada is under pressure from rising construction costs and the upward trend in mortgage rates.

Over all, starts may drop slightly, but the adjustment will vary by region and will not be sufficient to impact strong employment in the construction sector, the company said.

Possible challenges in 2005 include rising energy prices, the strengthening Canadian dollar, and the potential for a slowdown in the U.S. real estate market, Mr. Soper said.

He added, however, that nothing on the immediate horizon appears set to directly threaten Canada's housing market.

Saving plan for buying a home

Use your Home Buyers' Plan money, says Alan Silverstein

IF YOU'VE MADE a New Year's resolution to become a first-time homebuyer next spring or summer, some year-end planning could help you reap rewards in 2005. Act now and your RRSP contribution will qualify under the Home Buyers' Plan (the "HBP," often called the "RRSP program"), besides generating a generous tax refund for 2004.

First, the basics. Under the HBP, first-time buyers can borrow up to $20,000 interest-free from their RRSPs when buying or building a new or resale home in Canada. (For two eligible spouses or partners, that figure doubles.) Homeowners who buy or build a home that's more accessible or better suited for a disabled relation also qualify under the HBP, as do former homeowners returning to the market after being away the last four full calendar years.

How much tax is saved from an RRSP contribution? For the answer, look to your marginal tax rate. For example, in 2004 if you have taxable income between $35,000 and $58,768, the rate is 31.15%. Drop $5,000 into your RRSP for 2004, and the tax refund totals $1,557.50.

90-DAY LIMIT

One major limitation on the HBP: Only funds in an RRSP for at least 90 days can be withdrawn. So make that 2004 contribution pronto. The sooner it lands in your RRSP, the sooner it becomes eligible. For a bigger bang, do the same for 2005 come Jan. 1. Once that 90-day hiatus is over, those funds qualify under the HBP too.

What if one of two spouses or partners already owns a home? The real question is who lived there. If "Dave" was an owner-occupant with his spouse "Denise" (who never owned a home) at any time during the last four full calendar years, Denise is out of luck. But if it were continuously rented out, Denise remains HBP eligible.

Time is on your side when repaying the RRSP loan. The payback period is 15 years, with the minimum annual repayment just 1/15th of the amount borrowed. (For a $5,000 withdrawal, that's $333.34 annually). But a generous grace period comes first: The rest of the withdrawal year; two full calendar years, plus the first 60 days of the next year. For 2005 participants, the first instalment falls due Feb. 29, 2008. Repayments can start sooner, and prepayments are permitted, penalty-free. Keep those minimum annual repayments up-to-date; normal RRSP contributions are then okay despite the outstanding loan.

BECOMES TAXABLE

It's dangerous and expensive to skip that annual payback. The missed payment becomes taxable income the year of default, and regular RRSP contributions are disallowed that year, too.

Once all HBP criteria are satisfied, the borrowed funds can be used anywhere -- the down payment, mortgage, furniture, appliances, home improvements, even legal fees, as well as disbursements and the Land Transfer Tax.

Larger down payments cut mortgage needs dollar-for-dollar. At 6% amortized over 25 years, a $20,000 RRSP loan saves borrowers $128 monthly.

RRSP funds can also nudge borrowers into a cheaper mortgage insurance category. That's because the insurance premium is 3.25% of the mortgage if the down payment falls between 5% and 9.9% of the purchase price. But the rate drops to 2% when the down payment ranges between 10% and 14.9% of the purchase price. On a $300,000 purchase with $25,000 down, the insurance premium is 3.25% or $8,937.50. But with a $5,000 HBP loan, the 10% (or $30,000) down payment lops nearly 40% off the insurance premium. Now it's 2% or $5,400.

Home affordability erodes slightly

The cost of owning a home in Ontario was slightly higher in the third quarter of 2004 as affordability mildly eroded, according to a Housing Affordability study released by RBC Economics.

The RBC Housing Affordability Index for Ontario -- which measures the proportion of pre-tax household income needed to service the costs of owning a home - eroded slightly from 30.1 to 30.4 per cent in the third quarter of 2004. This works out to a monthly payment of $1,462 for an average detached bungalow (principal, interest, tax and utilities), 5.4 per cent higher than a year ago and compares with a national average of 31.8 per cent or $1,343 per month. The erosion was mostly attributed to slightly higher home prices during the period.

"Ontario's housing market is beginning to loosen up because of moderately eroding affordability," said Carl Gomez, RBC economist. "Looking ahead, an increasing supply of both new and resale homes will help to further ease market conditions and temper the overall rate of pricing growth."

In Toronto, affordability held steady at 38.4 per cent-- for a monthly cost of $1,956, but existing home sales fell slightly in the third quarter reflecting a sharper erosion of affordability in the previous quarter. Going forward, sales activity will continue to soften as a shrinking pool of potential first-time buyers increasingly bumps up against further deteriorations of affordability. This means housing types that generally appeal to this group -- such as small condominiums -- will experience weaker demand, greater supply and ultimately some price declines over the next few years.

According to the report, fewer first-time buyers along with a moderate outflow of Ontarians to other provinces will also translate to fewer housing starts and a lower level of housing construction in 2005. While Ontario housing starts will peak this year at an expected 83,100 units, they are expected to decline by 12 per cent by next year.

The RBC report notes, however, that older and more experienced buyers are becoming more dominant players in the housing market. "These groups are largely insulated from a rising rate environment given the huge amounts of equity they have in their homes," said Gomez. "Their increased participation suggests that the expected slowdown in housing activity will be much milder than previous cycles."

Every region of the country experienced a decline in affordability during the third quarter of 2004, but slightly lower mortgage rates in tandem with softer pricing growth helped to make this erosion fairly modest. Manitoba and British Columbia had the largest deteriorations while Alberta was the most affordable due to softer price increases and solid income growth.

The Housing Affordability Index, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a typical target home for first-time buyers.
The higher the index, the more costly it is to afford a house. For example, an Affordability Index of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household's monthly pre-tax income.

RBC's Affordability Index for Canada's largest cities for the third quarter of 2004 are as follows: Vancouver 48.6 per cent, Toronto 38.4 per cent, Montreal 31.3 per cent, Ottawa 31 per cent, and Calgary 28.3 per cent.

Highlights from across Canada:

• British Columbia: B.C.'s Affordability Index sharply eroded to 44.3 per cent, its worst since the last quarter of 1999. While this will continue to slow the pace of first-time home buying, other improving fundamentals will help keep new construction activity elevated as starts expand by about 1.5 per cent in 2005 after increasing by an anticipated 15 per cent in 2004.
• Alberta: At 26.5 per cent, Alberta is the most affordable province in Canada in which to own a home. Alberta's housing markets will remain healthy, as soaring income growth helps to offset higher borrowing rates heading into 2005. However, a lack of pent-up demand will put further downward pressure on new construction activity in 2005.
• Saskatchewan: Receding pricing pressure combined with slightly lower mortgage rates helped keep Saskatchewan's housing affordability steady at 27.7 per cent.
• Manitoba: Affordability eroded to 30.4 from 29.6 per cent in the previous quarter, thanks to sharp price increases brought on by a supply squeeze. The erosion would have been worse were it not for strong wage growth and lower mortgage rates during the period.
• Quebec: Housing affordability remained stable at 31.2 per cent for the third quarter of 2004 with Quebec's housing market still going strong as homes sales climbed six per cent. While affordability will continue to erode in the months to come, a softer pace of price growth driven by a solid increase in new listings will moderate the deterioration.
• Atlantic region: Atlantic's housing affordability remains at 26.7 percent, the second best rate in the country behind Alberta. While the housing market in Nova Scotia has slowed considerably, Prince Edward Island and New Brunswick's markets were comparatively more buoyant. Newfoundland and Labrador experienced very sharp price increase, the result of shortages in certain types of housing.

Sales sink but consumers buoyant

Sales of new U.S. homes fell at the sharpest rate in more than a decade in November, the U.S. government says, but a separate report indicated the mood of U.S. consumers is still buoyant.

A slew of reports, issued ahead of a holiday today that will see U.S. government offices and financial markets closed for Christmas, painted a mixed picture of steady but unspectacular expansion.

Sales of new homes plunged 12 per cent last month, the biggest drop since a 23.8-per-cent fall in January, 1994, to a seasonally adjusted annual rate of 1.125 million units. But industry analysts played its significance down, saying applications for new mortgages still were at healthy levels.

"I would not view this report as the beginning of a significant downturn," said economist David Berson at mortgage financing giant Fannie Mae in Washington.

A forward-looking report from the University of Michigan indicated its final index reading of consumer confidence for December at 97.1, up from November's final reading of 92.8 and December's preliminary reading of 95.7.

"The sentiment gain is a good sign that consumer spending could remain a mainstay of economic growth," said Patrick Fearon, an economist with A.G. Edwards and Sons Inc. in St. Louis.

Stable resale market predicted

The average price of a resale home in Canada will rise 4.5 per cent next year, but sales will fall as the market calms down from a red-hot 2004, real estate broker Royal LePage predicts in a report released this week.

The average price of a house will be $236,588, from a projected $226,400 for 2004, the company said in its forecast on housing trends. However, overall sales will slip 1 per cent to 457,325 units.

The past year represented a record pace of sales volume and price increases, but 2005 will represent a market "in equilibrium, where both buyers and sellers will equally share the benefits," Royal LePage predicted.

Buyers will continue to benefit from historically low interest rates as the cheap cost of borrowing money extends homeownership to a majority of Canadians, the company said. The most affordable cities in Canada to find houses will be Regina, Winnipeg and Halifax, while the most expensive will be Vancouver, Toronto and Ottawa.

New-home sales in U.S. may hit record in 2005

New homes sold at a 1.2 million annual rate in the U.S. last month, remaining near record highs as low mortgage rates and employment growth encouraged buyers, economists forecast ahead of U.S. Commerce Department report.

The projected sales, the median estimate of 59 economists surveyed by Bloomberg News, follows a 1.22 million rate reported for October and would be the fifth-highest on record. Sales reached an all-time high of a 1.27 million rate in March.

"Sub-6 per cent mortgage rates and the ready availability of mortgage credit continue to support home buying," said Steven Wood, president of Insight Economics LLC in California.

Sales of new homes may reach a record in 2005, helped by mortgage rates that largely stayed near last year's record low and an improving economy.

Property boom fizzles in the United Kingdom

An index measuring changes in U.K. house prices fell in the three months through November to the lowest since 1992, suggesting a decline in the nation's property market is deepening.

The Bank of England's Monetary Policy Committee, which has raised interest rates to a three-year high of 4.75 per cent, forecast declines in house prices amid evidence that a five-year property boom is fizzling out.

The value of home inspections

Home Inspections provide a definite value by giving a level of objectivity in evaluating a home. When a home owner determines the value or condition of a home, it is very difficult to separate the emotional aspects of the home from the objective inventory of features and condition. It is part of our nature to invoke the emotional value in a home from our personal perspective, which can cause conflict in the sale process. A deal for buying a home can fall apart over old appliances or home improvement work that has sentimental but not intrinsic value.

Home inspectors play the role of objective third party. Typically, home inspectors evaluate a property five to 10 days after negotiation of a contract is complete in order to secure mortgage approval. This inspection only checks the condition of the home at the time of inspection and is no guarantee of condition beyond that point. Home inspectors need no special equipment beyond flashlight, ladder, simple tools and documentation. Some special features on a home may not be included in the inspection such as swimming pools, in-ground sprinklers, gazeboes, etc.

A good inspector will check for radon and other harmful gases. It is important that buyers of a home go on the inspection with the inspector and observe. A good inspector will freely describe what they are looking at, how to check for problems and what condition they believe the area is in. Often they can show you useful things like a shut off for water, where to light a pilot light on a furnace and other bits of information.

Do not settle for a verbal confirmation of condition on a property — get a report in writing. Some inspectors will fill out a standard inspection checklist, but detailed reports are far more helpful. This is not to say that inspectors will catch every possible problem in a home, but a thorough inspection will give a much greater piece of mind to a purchaser.

A typical inspection will cost about $250 to $350 and take a few hours. It is recommended that any home, even a new home, be inspected. Often in a rush to develop a subdivision corners may be cut that can present problems in the near future. The new home delivered to you may not be as flawless as the model you tour. Inspection allows buyers and sellers to resolve problems prior to closing and makes it less likely to the buyer that some defect has not been disclosed about the property.

Home inspection is largely an unregulated industry so do not neglect making sure you get a qualified inspector. Home inspectors should not recommend or bid on repair work, as this is a conflict of interest. When selecting your inspector, get a few references from the inspector and do contact them. Get a referral for an inspector from a source other than a real estate company (such as your mortgage lender).

Quality Check

Check to see how long the company has been doing inspection. Does the company have Error and Omissions insurance? Will the company give a written and signed report? Does a company stand behind its report (give a guarantee)? How many real estate companies does the company give service too?