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No housing bubble to burst

but warning signs in some Western cities

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TD Economics report published today concludes that housing activity in Central and Atlantic Canada has cooled down without prompting a price correction. However, select urban centres in Western Canada are "flashing warning signs" that suggest the recent pace of price gains has been unsustainable.

"Canada's real estate markets appear to be in good shape and market conditions are becoming more balanced. Key exceptions are Vancouver, Calgary and Edmonton," said Craig Alexander, Deputy Chief Economist of TD Economics, who co-authored the report with fellow economist Steve Chan. "The recent dramatic price gains in Calgary and Vancouver are unsustainable over the long-term, and both cities are vulnerable to significant moderation. Edmonton is also experiencing explosive price growth, but affordability remains surprisingly good."

The report's release coincides with mounting concern about the sharp slowdown in the U.S. housing market and its potent adverse impact on the overall economy. However, there are few parallels with the Canadian market. Canadian housing markets have boomed in recent years with extremely high levels of starts, sales and price gains, but the report's authors state "the country's real estate markets have generally lacked the degree of speculation that dominated past boom-bust cycles and the excesses have been far less than those evident in the U.S."

Canada's housing market at the national level is delivering a robust performance. Sales of existing homes are on track for another record year and strong demand has created upward pressure on prices. Resale home prices rose by 12.9 percent in the second quarter of 2006 from a year earlier, which is marginally faster than the 12.0 percent gain posted in the first three months of the year and far exceeds the long-term national average of 5.6 percent.

However, the national story is being badly distorted by regional developments according to TD Economics. Excluding Alberta and British Columbia, the average rise in resale prices across the other provinces is a more moderate 7.3 percent. Alberta is also responsible for almost half of the gain in the national average of new home prices. "Moreover," Alexander said "the dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth - all of which point to more balanced market conditions and declining real estate risks."

The report identifies key developments affecting local housing markets across Canada. A summary of findings are below:

Victoria: Demand conditions are clearly softening. Unit sales have fallen in five of the last seven months on a year-over-year basis, which indicates the housing market has become more balanced. However, with 50 percent of household income going to home ownership costs (mortgage interest, principal payments, property taxes and utilities), affordability is still a major issue. Price gains need to slow more in the months ahead to create a more sustainable market.

Vancouver: Demand for housing has been softening since the beginning of 2006, though it remains a seller's market. In six of the last seven months, unit sales have been virtually flat or negative on a year-over-year basis. This may reflect the fact that the average resale house is now priced at over half a million dollars and home ownership costs have climbed to about 50 percent of household income. The recent trend towards weaker unit sales and rising listings is a positive development that might augur for a soft-landing if it continues. Close monitoring of this market is clearly called for.

Calgary: Although the Calgary housing market has begun to open up with a substantial increase in new listings in June and July, it remains a seller's market, particularly for new homes. The low level of available housing units is keeping the new and resale markets very hot. This has led resale home prices to accelerate from 25.5 percent year-over-year in the first quarter to an outsized 43.3 percent in the second quarter.

Despite it being a seller's market, housing in Calgary still remains affordable. For instance, it is still less expensive than Toronto or Montreal. In the second quarter of 2006, home ownership costs were only 24 percent of household income in Calgary. If the trend towards weaker unit sales and greater new listings continues, it should help to dampen price growth eventually, although there is little doubt that price gains in the coming months will remain extremely elevated and far greater than in other cities. Given that the market overheated at the moment, a bubble may be forming, or could easily develop, but the hope is that the trend towards a more balanced market continues.

Edmonton: Robust demand and tight supply has fuelled dramatic price growth, with resale prices surging by 31 percent in July from a year ago. However, housing remains surprisingly affordable, with housing-related expenses accounting for 18 per cent of household income. The message is the same as for Calgary. The strength in the real estate market is supported by economic fundamentals, but prices cannot continue to go up at their recent rate indefinitely. If the pace doesn't soften, a bubble could form.

Saskatoon: On the whole, the outflow of workers to Alberta has largely been balanced by an influx of people moving from rural Saskatchewan into the city. With houses remaining reasonably affordable, the market should become more balanced and prices will not rise as quickly.

Winnipeg: The city's housing market remains solid and the pace of price gains remains well above its historical average. With home ownership costs representing only about 14 percent of household income, Winnipeg remains one of the most affordable cities in the country to own a home.

Greater Toronto Area: The Greater Toronto housing market has cooled. While demand for housing remains robust in Toronto, unit sales appear to have reached a plateau in the past few months. At the same time, supply has increased slightly. As a result of these and other trends, the housing market has moved into a balanced position favouring neither seller nor buyer.

Ottawa: Resale home prices have appreciated at a considerably slower pace, dropping from a 6.2 percent year-over-year increase in April to 1.4 percent in July. This can be partly explained by an increase in new homes, which has put a damper on price growth.

Montreal: The city's housing market remains strong. Over the last couple of months both unit sales and new listings have increased at a slower pace, but the sales-to-new listings ratio shows that the market remains well balanced. However, in the May-July period, the number of unsold new homes was at its highest recorded three-month average of 3,946 units, with the majority being in condos and lofts. This suggests that price growth may moderate in the months ahead.

Atlantic Canada: Supply and demand conditions suggest that the markets in St. John's, Saint John, and PEI are balanced. Conditions in Halifax are tighter and are tipped towards a seller's market. Halifax should also continue to benefit from strong activity at the port. As a result, Halifax's housing market is likely to outperform the regional average, but the odds of a bubble are limited.

The TD Economics report "Housing Bubble Watch" can be found at www.td.com/economics.

August 31, 2006 in Toronto Real Estate Update | Permalink | Comments (7) | TrackBack

Toronto Home Buyer Registry

Service promotes buyer interest while protecting them

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uyers can get the word out to several listing REALTORS® that they are interested in purchasing a home, and still only sign one representation agreement. The Toronto Real Estate Board Buyer Registry Service (BRS) allows Toronto REALTORS® to register the existence of Buyer Representation Agreements online, without ever compromising the privacy of the buyer. With anonymous buyer profiles posted on the BRS, other Toronto Board members listing a property can locate likely qualified buyers who are actively in the market.

The Toronto Board also expects the service to reduce the likelihood of duplicate buyer agreements, protecting both clients from potential liability and brokerages from infringing on existing agreements.

While the service is not mandatory, TREB sees it as a good marketing tool, and one that, in time, buyers will want and will consider as a criteria for choosing their representation.

The system has a reverse search function that offers key benefits to both buyers and sellers. When details of a listing are entered, the system returns a list of Toronto Board REALTORS® (who’ve opted for the service) who have potentially interested clients, allowing listing salespeople to target their marketing efforts.

The Toronto Real Estate Board expects that once there is a significant volume of buyers on the system, statistics based on BRS volume may be a useful market tracking tool that may help sellers and buyers time their entry into the market. TREB’s BRS is the first system of its kind in Ontario.

August 31, 2006 in Buying Toronto Real Estate | Permalink | Comments (0) | TrackBack

About Real Estate Commissions

How are real estate agents paid?

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eal estate agents (the brokers with whom they are registered) are usually paid a commission. A commission is a fee, often calculated as a percentage of a home's sale price, paid to a real estate broker. The broker then divides this fee, sharing it with the real estate agent and cooperating broker/agent (if any) in the transaction.

Payment for real estate services may also be charged as a flat fee, irrespective of sale price.

How are buyer's agents compensated?

It used to be that seller-only agency was "customary" in residential real estate. The real estate commission was thought to be paid by the home's seller, deducted from the home sale proceeds at the time of closing. Real estate agents and brokers represented the interests of the property's seller; the buyer was unrepresented in the transaction – and usually not even aware that this was the case.

This "conventional wisdom" changed in Ontario, and across Canada, during the 1990s: without buyers, nothing sells. The real estate commission is derived from the proceeds of the home sale, and is really paid by both buyer and seller. Both parties are entitled to an "agency relationship," and the representation it entails.

With the advent of buyer agency, home buyers are now able to be fully represented by a real estate agent in the purchase of property. In most provinces, it's rare that buyers would pay their agent/broker directly for services in finding and purchasing a home. If a broker does charge buyers a direct fee, it should be outlined in an exclusive agency agreement that the buyer signs when engaging the broker.

When a buyer is represented by a real estate agent, she/he comes to terms on which services the buyer-client is seeking, and the manner in which the agent will be compensated for providing those services. In most cases, a fee or commission is still derived from the seller's proceeds of sale, and shared between the seller's (listing) and buyer's (selling) agents and brokers.

What does a real estate commission include?

Real estate brokers must independently determine their costs of doing business, calculating both fixed and variable expenses. In addition to maintaining their office's business environment, brokers incur many costs as they market and promote their listed properties. Be sure you know what you're being offered. Regardless of how many or few services you receive, the commission generally remains the fee, stated in the company's listing agreement as a percentage of the eventual sale price.

Is commission negotiable?

Yes, commission is by law negotiable at the time it is established. In most cases, this means that the commission will be established between the seller and the agent who lists his/her home, long before a buyer is present.

Buyers and sellers should refrain from attempting to negotiate commission when an offer to purchase is presented. At that point, a specific fee has been established for services from the real estate company; those services have resulted in the offer on the property. Payment should proceed as it was contracted. Think of it this way: would you ask a doctor to lower a fee, after your appendix was successfully removed?

Our company's commission plan is outlined here:

August 31, 2006 in Selling Toronto Real Estate | Permalink | Comments (1) | TrackBack

Homeowners vulnerable to fraud

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ntario property owners may soon enjoy better protection against the growing spectre of real estate fraud as government and opposition MPs alike agree to make it a priority.

Ontario's Minister of Government Services Gerry Phillips and provincial Burlington Conservative MPP Cam Jackson both say the public needs better protection from fraud artists who secretly commandeer property titles from legitimate owners, drain the value from their homes by taking out new mortgages, and then disappear.

Phillips met recently with about 50 leaders in the field, including mortgage brokers, bankers and real estate lawyers to work on ways to tighten up the system.

"It is growing and it is an item of concern to us, so we're moving quite aggressively on it," Phillips said yesterday. "If we're going to tackle this thing, we've got to do it together."

Jackson, whose opposition portfolio includes seniors, says Queen's Park should order the mortgage industry to create and fund an insurance system that would protect homeowners from criminals who steal identities to obtain mortgages for properties they don't own.

Insurance against title fraud is available today, but it's expensive, Jackson said. The businesses that profit from mortgage lending should also be the ones to protect consumers who become victims of mortgage fraud, he said.

"In my view, that's the fairest way to do it."

Although there are no specific numbers available on real estate crime in Canada, it is generally agreed that it is rising.

A report by the Law Society of Upper Canada last year found that changing business conditions have helped to create a fertile climate for mortgage fraud.

An increasingly competitive mortgage market, with more brokers and more lenders, plus technology that makes it possible for huge transactions to take place without parties ever actually meeting, have made it easier for criminals, the report said.

Competition between lenders and a hot real estate market have created pressure for quick approvals, the report said, exposing the industry to further risk.

The report found that mortgage fraud in the United States is worth several billion dollars annually.

Jackson said the crime is still rare in Canada, but the consequences can be severe for victims who are left struggling to prove they are the legitimate owners of their own properties -- after they have lost control of their own titles.

Jackson said yesterday that seniors in particular are vulnerable to mortgage fraud because they are more likely to have clear title to their properties. That means there is more equity to steal from them.

Jackson said the government should make everyone in the process more accountable, including lenders, brokers and lawyers.

Phillips said his government is planning to tighten controls over the registration of real estate documents.

"We're all going to have to work harder on this," Phillips said. "The solution to this won't be an event. It's going to be an ongoing process. I have this feeling that as we plug one hole, we're going to have to stay ahead of the criminals before they find another hole."

"Identity theft is a big problem, and that paves the way for mortgage fraud," he said. "Mortgage lenders have to practise more due diligence in making sure that the people standing there in front of them are the people they purport themselves to be."

August 30, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

Older homeowners most vulnerable

... to real estate fraud

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espite the increasing number of high profile real estate title fraud cases in Canada, older Canadian homeowners remain unaware of the only way to protect themselves against this crime. For the second consecutive year, First Canadian Title commissioned Environics Research to measure Canadian homeowners' knowledge and awareness of title insurance. The national survey asked approximately 1,500 Canadian homeowners whether they had protection in the form of title insurance for their home. Nearly half of homeowners over the age of 45 said they do not have title insurance or are unaware if they do.

The survey also found that 63 per cent of Canadian homeowners without title protection had absolutely no understanding of title insurance - a number that rose to 66 per cent for those over the age of 60.

Title insurance was introduced to Canadians by First Canadian Title in 1991. Since then, it has slowly become a standard offer to home buyers. Two years ago, First Canadian Title introduced title insurance to existing homeowners.

"Few people are aware of the possibility of fraud against their home - the single largest purchase they are ever likely to make," said Susan Leslie, First Canadian Title's VP of Claims and Underwriting. "But as many of them get older, they are more likely to have more equity and spend more time out of their home. This makes them easy prey for sophisticated fraudsters who have the means to perpetrate this kind of crime."

Survey highlights:

"It's surprising to me that after so much attention to this issue, so many Canadians remain unaware and unprotected," said Susan Lawrence, a Toronto victim of real estate fraud whose home was mortgaged for almost $300,000 by fraudsters who forged her signature and walked away with the money earlier this year. "Until I was defrauded, I was not aware that if I had title insurance, I would have been protected."

Lawrence is currently involved in a long legal battle to get her home back. An Ontario court recently restored her title, returning ownership to her. However, she is still fighting to have the fraudulent mortgage discharged.

"The onus is on homeowners to prove the crime and it can be very costly - financially and emotionally - to clear your name," said Leslie. "For a one-time premium, title insurance is an effective and inexpensive way to ensure title to your property is protected. It covers legal expenses related to restoring title and is available to existing home owners even if they have owned their property for some time."

First Canadian Title, estimates the average case of real estate fraud to be $300,000, compared to estimates of $1,200 by the RCMP for cases involving credit card fraud. In 2000, real estate title fraud claims accounted for only 6 per cent of total dollars paid in claims at First Canadian Title. By 2005, that number reached 33 per cent.

August 29, 2006 in Arranging Mortgage Financing | Permalink | Comments (0) | TrackBack

2007 Ontario Rental Guidelines

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he Ministry of Municipal Affairs and Housing has released the province’s rent increase guideline for 2007. The 2007 guideline will be 2.6 per cent. The new rent increase guideline becomes effective January 1, 2007 and establishes the maximum amount that a landlord can increase a tenant’s rent without making an application to the Ontario Rental Housing Tribunal.

This guideline does not apply when renting a vacant unit. Under the Tenant Protection Act, 1997, when a unit becomes vacant, a landlord is free to charge whatever rent he/she chooses. Once the unit is rented, however, the guideline increase applies for subsequent increases to that tenant.

The guideline applies to most private residential rental accomodation covered by the Tenant Protection Act, 1997. The guideline does not apply to residential dwellings first occupied (by any owner or tenant) on or after November 1, 1991.

For more information on rent increases, please contact the Ontario Rental Housing Tribunal at 416-645-8080 or 1-888-332-3234.

August 29, 2006 in Legal Considerations | Permalink | Comments (1) | TrackBack

Senior victim of mortgage fraud

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n 89-year-old resident of Brockville, Ontario says he is heartbroken and feeling betrayed after his rental property was stolen through apparent title title fraud. Paul Reviczky, who fled Hungary in 1957 to escape Communist persecution, is one of the latest homeowners to discover that Ontario law favours banks, mortgage companies and purchasers over innocent victims of fraud.

"I was shocked to learn that this could be the law in Canada," Reviczky said. "I fled Hungary to escape lawlessness like this and now my sense of security in Canada is gone." Gerry Phillips, Ontario's minister of government services, has vowed to change the land-registry system to protect homeowners like Reviczky from title fraud.

Reviczky purchased the bungalow in Brockville in 1980 for $67,500 to generate a rental income that would help pay for the education of relatives back in Hungary. Since his wife's death in February 2005, he has lived alone in his home a few kilometres from the rental property.

Reviczky said he could not believe his ears on June 26 when his neighbour, a REALTOR®, told him she had noticed that he had sold his rental property in May. "So I went back to my office, got the record from the computer and showed it to him," Vivian Ho said. "His face turned red and I was worried that he was going to have a heart attack."

Police suspect Reviczky's most recent "tenants" forged his name on a power of attorney that purported to give a fictitious grandson authority to sell the home on his behalf. "I don't have any grandsons" Reviczky said. On May 15, the property was sold on his behalf for $450,000 to a purchaser who took out a mortgage of $337,500.

"I did not get the proceeds," Reviczky said. Reviczky's lawyer, Tonu Toome, said it was "very painful" to have to break the news to Reviczky that he may lose his house forever - even though he was a totally innocent victim of the fraud - because Ontario law, as it stands now, recognizes the transaction as valid where the purchaser is unaware of the scam.

"I had to tell him that although he would ultimately receive financial compensation for the loss of his home, this would entail legal fees and an application to Ontario's Land Titles Assurance Fund, which could take several years," Toome says.

See the full story in the Toronto Star:

August 28, 2006 in Legal Considerations | Permalink | Comments (1) | TrackBack

Ways to Add Value to your Home

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hen you purchased your home, you selected it based on your specific criteria for space, number of bedrooms and baths, and amenities to suit your lifestyle. As you live in your home, you stamp your own personality on it through decorating, improvements, and other enhancements.

How about adding value to your home at the same time that you personalize it? Here are the five most common ways to add real value to your property, for your comfort and enjoyment-and for resale down the road.

Maintenance:

Many small problems, when left untreated, can blossom into major repairs. By spending a little time and money on the problem up front, you save major repair bills over time. A good example is earth-to-wood contact. Clear the dirt away from the house. This will minimize pest infestation later on.

Cosmetic Improvements:

The best way to enhance the value of your property is to paint, update fixtures, and replace/refinish carpets and flooring. This immediately enhances your home's appeal and updates it without a major cash outlay.

Remodeling:

Select your projects wisely. Updating the kitchen and baths usually provides the greatest return on your investment. But make sure you don't over-improve for the neighborhood, or you will not get the return on your dollar.

Financing:

Stay on top of interest rates. You may want to take advantage of interest rate drops to refinance at a lower rate.

Energy Efficiency:

Consider installing energy-efficient appliances, heating and cooling systems, and double- or triple-pane windows. Spending money up front can save you substantial sums long term.

August 25, 2006 in Home Maintenance Matters | Permalink | Comments (4) | TrackBack

Home resales lowest since 2004

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he pace of home resales in the United States fell a sharper-than-expected 4.1 per cent in July to their lowest level since January 2004 as the downturn in the U.S. housing sector accelerated, the National Association of Realtors said.

U.S. home resales fell for a fourth consecutive month to a seasonally adjusted annual rate of 6.33 million units in July from a downwardly revised 6.60 million-unit pace recorded in June.

The July pace was 11.2 per cent below the July 2005 pace of 7.13 million.

Analysts had expected home resales to slow to 6.55 million units from June's originally reported rate of 6.62 million.

The national median home resale price for all housing types was $230,000 (U.S.) in July, up 0.9 per cent from July 2005, in the slowest year-on-year price gain since May 1995.

The supply of homes for sale at the end of July jumped sharply by 3.2 per cent to 3.86 million units. This represented 7.3 months supply, the highest since April 1993.

August 24, 2006 in What's next (in real estate) | Permalink | Comments (0) | TrackBack

Will housing boom bust?

One analyst sees a jarring halt.

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hould the U.S. housing market bog down in an anticipated slump, its Canadian counterpart is likely to be in for a softer landing thanks to lower interest rates and a different attitude to home financing, observers say. "When you take a look at the new-home construction numbers, we've been running at the 200,000-plus level for a number of years — this will mark the fifth such year — and it's felt that generally this is in excess of what long-run demographic demand is," said Brent Weimer, senior economist with the Canada Mortgage and Housing Corporation.

"We see housing activity easing to a more long-run sustainable level."

In recent weeks, analysts have been debating an impending North American housing slowdown and the form it may take. Some say when the market drops, it will do so with a resounding crash, while others forecast a more gradual decline.

They also differ on how Canada and the U.S. will fare.

In Canada, rises in interest rates, increasing home prices and higher energy costs are nibbling away at affordability but the country has benefited from a strong housing market in the West, as more and more workers settle in Alberta, drawn by the province's energy boom.

Canadians have also seen less aggressive interest rate increases than in the United States, and are less likely to borrow as much money for their homes.

David Rosenberg, North American economist for Merrill Lynch, has pegged the odds of a "hard landing" in the U.S. between 40 per cent and 80 per cent — significantly above the consensus view of 27 per cent.

"Practically every indicator at our disposal tells us that we are very late in the cycle and the historical record also strongly suggests that the next wave after the Fed has inverted the entire yield curve is either a hard landing or a very bumpy soft landing," he said in a note.

Yesterday, U.S. luxury-home builder Toll Brothers Inc., based in Philadelphia, reported its third-quarter profits fell by 19 per cent as housing-market woes weighed on sales and caused the company to abandon some building locations.

A day earlier, home-improvement chain Lowe's Cos. warned that a slowing U.S. housing market will hurt its earnings for the rest of the year.

Bank of Montreal economist Douglas Porter said a correction in Canada "won't be nearly as severe as it's likely to be in the U.S., because the boom hasn't rumbled on as long (here)."

And while he expects housing starts and sales to weaken in 2007 and possibly in 2008, he doesn't see the impending slowdown as a sure thing.

"This housing cycle has been counted out a number of times in the past and it's proved to be a lot healthier than many economists believed possible," Porter said.

August 24, 2006 in Toronto Real Estate Update | Permalink | Comments (2) | TrackBack

 

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