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The local media is doing a good job reminding us that the GTA real estate market has tanked. The only problem is that the evidence doesn't really add up. Don't get me wrong,
the market data over the past couple of months hints at some alarming trends. But "tank" is a strong word, and I want my clients to understand what's really happening out there so they
know what to expect if they plan to buy or sell in the near future.
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Are Sales Down?
In a nutshell, yes, sales are down. Both the number of listings and completed sales has risen every month for the past two years, until May 2010.
However, the past few years have been record setting sales years, and the recent trend is more indicative of a return to more normal levels rather than some disastrous slide. The federal
government raised interest rates earlier this year in order to curb inflation, and as predicted, rising interest rates had a slowing impact on the real estate market. That impact was neither
unwelcome nor unexpected. In fact, the Bank of Canada raised rates in part because of the difficulty buyers were facing when trying to buy an affordable home in parts of the country.
The aggressive market was great for sellers, as any seller in early 2010 can attest to. Even average properties were receiving multiple offers, often starting well over asking price.
Those conditions however, made buying a home a frustrating affair, and in Canada any market that deviates from equilibrium is just begging for government intervention. The number of sales
has dropped to the kind of numbers we saw in 2006, before lowering interest rates created a feeding frenzy throughout the market.
Are Listings Down?
No, and that's part of the reason the media likes to overplay our sliding market. Listings are actually up from 2009 levels for both May and June, which
only makes the fewer sales seem more depressing. I believe this trend indicates that a lot of people who were on the fence about selling tried to get in on the action before the market
started to slide, which resulted in increased inventory. So now we're seeing more properties on the market, and they're tending to sit longer before selling. As far as I can tell,
the nicer properties are still selling rather quickly, and are still getting increasing sale prices compared to month to month comparisons from last year. Despite the media's assertions to
the contrary, I haven't seen a single market report that can prove a general decline in sale prices for comparable properties year to year. Nice homes are still getting a good buck. But an
increase in inventory and a decrease in sales is evident, and as we all know, nobody ever sold newspapers by saying "It's Not That Bad!" Now add in the fact that the Summer months are
traditionally slow every year, and the timing of the current decline makes the market look even more apathetic.
Give Me the Good News!
The good news is that now is a great time to buy. While interest rates have been raised recently, they are still relatively low when you look back over the
past 10-15 year averages. The large inventory of listings to choose from finally puts buyers back in the driver's seat. My buyers can now shop without pressure, knowing that an offer can once again
include routine conditions, and will probably not be smashed to pieces by three other offers coming over the top. More choice means more negotiating power, and in a market when only one out of
every three listings actually sells, those sellers are more willing to make concessions to get a deal done. If you're looking to buy, now is the time. If you're looking to sell, you need a
great Realtor now more than ever. Give me a call.
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I recently overheard someone complaining about the inevitable raising of mortgage rates, and I must say I've heard a lot of frustration from people of all
walks of life over my years in the business. Questions like "Why Now?" seem to crop up frequently, so I thought I'd offer my two cents on the subject.
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Typically, banks raise their interest rates in response to Bank of Canada changes in interest rates, so the real question is "How does the Bank of Canada devise
its interest rates?" Now I'm not an economist, and a detailed answer is obviously beyond the scope of this newsletter, but the basic fact of the matter is that the
Bank of Canada uses its interest rate as a tool to speed up or slow down the economy.
When the U.S. housing crisis plunged North America into a recession in 2008, the Bank of Canada was quick to lower interest rates. This made investment (either in properties or businesses) more
attractive to buyers/investors who would have otherwise sat on the fence and waited to see how things would play out. Without lower rates, the economy would have slowed to a crawl, as evinced
by the reaction south of the border. In comparison, Canada's economy didn't suffer as deep or lengthy a recession as the U.S. market, in part because of the speedy response by the Bank of Canada.
Likewise, now that our economy has started to take off again, the Bank of Canada will progressively raise rates to combat inflation. Our government tries to keep inflation at a steady rate (around 3%) ,
as a stable and steady economy is the ultimate goal of any government's financial overseers. Inflation can be caused by many factors, including increased demand in the market, decreased supply, or changes in the
cost of doing business (like new taxes, etc.). Without intervention, a strong economy can quickly become a frustrating enemy to potential home buyers. For example, rates have stayed relatively low over the past couple of years.
Meanwhile, home purchases have increased dramatically year to year, in some cases up by 73%. With all that activity, the supply eventually starts to thin out, which inevitably drives up the prices of
remaining properties for sale. Great for sellers, but not necessarily for buyers. For that reason, the federal government and Bank of Canada tend to focus on keeping things stable and fair, rather than
focussing on short-term trends. These kinds of interventions don't always sit well with our neighbours to the south, but the bottom line is that every G20 nation manipulates interest rates to help stabilize their economies.
Now as many newspapers have reported, the Bank of Canada has stated they don't plan
on raising interest rates again in the near future, but given the cyclical nature of the economy, the writing is on the wall. You can realistically expect interest rates to slowly escalate over the next year, unless of course
the economy slows down significantly. In that case, rates could stagnate, or even get lowered again!
The basic theory is that in good times, people are earning more, so rates should rise to reflect that people have more to spend, thus promoting the stability I mentioned earlier.
Canada’s unemployment rate dropped recently, which is great news from an overall economy perspective, but historically, strong employment rates means rising interest rates will soon follow. You should probably expect a small
rate hike over the next few weeks.
For more information on mortgage basics, check out the CAAMP website.
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Some of my clients are renovation veterans, who drool at the prospect of fixing up an older property in order to increase it's value. Most owners, however, fall under the "kill spiders,
change light-bulbs" category, and advanced repairs are beyond them. I thought I'd offer my opinions after a few years of learning things the hard way. The focus of this article is to
educate owners on the routine maintenance tasks that every home needs, and that most people can easily do themselves. If you're looking to do beefier repairs or installations, I suggest you start
combing YouTube.
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The Furnace
When I first bought my house, I hired a duct cleaning service to clean out the ducts. There are a lot of urban myths out there about the kinds of things pulled out of ducts, and frankly I think
most of them are nonsense, perhaps perpetuated by members of the duct cleaning industry. However, I can vouch for the fact that a lot of construction debris and fine dust ends up in a house's ducts, so if
you're buying a new house from a builder I recommend getting the ducts cleaned once you take possession.
The most important task to remember is that your furnace filter needs to be changed or cleaned regularly. The filter stops small particles from being blown into the air you breathe, and it gets dirty in a hurry.
I bought a stainless steel contraption that I can hose down every month or two, but the cardboard replaceables are just as good. The best filters are HEPA rated, but note that some filters advertised as "HEPA type"
aren't nearly as effective. A genuine HEPA filter warranties that it will trap more than 99% of particles 0.3 micrometers in diameter (in case you were wondering). There will always be dust in your home, but a good filter
prevents it from being continously blown up into the air you breathe.
When your filter gets dirty, the air-flow becomes restricted. This can be dangerous for several reasons. Firstly, a furnace with limited airflow can have trouble venting it's carbon monoxide properly, which can be a serious
health hazard to residents. Even if not dangerous, the limited air-flow means less hot or cold air can get through, so your home's temperature won't be regulated as efficiently and you can count on being too cold in winter and
too hot in summer. You'll also see your gas bills increase due to the inefficiency of the furnace. If you've ever found a block of ice on the pipes around your air conditioner, a dirty filter is the culprit. Simply clean the filter, and
turn off the A/C until the ice has a chance to thaw out.
As an aside, you should also clean the filter in your clothes dryer regularly for the same reason.
Light-bulbs
How many owners does it take to change a light-bulb? Hopefully just one, but that doesn't mean there aren't perils. Typical screw-in lightbulbs are simple enough to change, but many houses have flourescent tubes that require changing, particularly
in washrooms or walk-in closets. These tubes just twist into place, but like with all bulbs, it's important to remember to leave the light switched off before changing a tube. The voltage transformer in these types of fixtures increases the potential
amperage, which can result in a shock far more severe than a person could receive from a typical light fixture.
Often light fixtures are located over large drops, so a ladder can't be placed directly beneath the fixture. In these cases it's important to NOT lean over the side of the ladder. If you can't change the bulb with one hand, you're better off
to ask for help from someone with experience working on ladders. As most of my clients know, I happen to be one of those people.
Downspouts
Many owners are surprised to learn how much damage rain water can do to a property. Downspouts direct water away from the foundation of your house so the grading of the lot can send the water toward the nearest storm drain.
Even if water is kept away from the house, it can erode the ground around other structures like patio stones and steps or your driveway. As a rule of thumb, you should never see puddles collecting on your driveway, walkway, or garage floor. While the damage may
already be done, you can mitigate any further damage by keeping rain water directed away from the property. To accomplish this, you can pick up a plastic bendable downspout extension (about $12 at Home Depot) which can be fitted
onto your existing downspout. The simple truth is that all basements eventually leak, because poured concrete walls inevitably crack. The real trick to avoiding water damage is to make sure that water is directed away from your basement walls, both from
downspouts and by the general grading of the property.
Sealing It Up
An air conditioner installer once told me that a typical (untreated) house leaks so much air around it's doors and windows, it's as if there were a two foot hole in an exterior wall. I can't vouch for the accuracy of that statement,
but I can attest to the difference a little weather-stripping makes. Doors and windows should be insulated by the installer, but you can add to their ability to keep air in/out by applying some caulking around the window (inside the frame). If the caulking appears to be missing,
or has started to separate or crumble, it's time to peel it off and apply a new layer. Take care to ensure you don't interfere with any opening mechanisms or sliding action. Likewise, you can buy pre-made weather proofing strips to fit around door frames for external
doors. These little enhancements add up to significant energy savings by years' end.
As an habitual do-it-your-selfer, there aren't many projects you can do in a home that I haven't tried. Feel free to call or email me anytime to find how (or how not) to tackle your next project.
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A friend of mine recently posed the following question:
"How many illegal basement apartments is too many?"
Despite its tongue-in-cheek nature, I thought this was an interesting one to share, as many of my clients live in neighbourhoods where basement apartment rentals are popular. If you don't need the space in your daily lives,
a basement apartment is a great source of income to offset (or even cover) your mortgage payments. However, there are things you should know about renting out your basement, especially if you
plan to construct a rental suite in your currently unfinished basement.
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First of all, a basement apartment is not inherently illegal. A rented apartment that was in use when you bought the property is usually perfectly legal, so long as it complies with Ontario
fire and safety codes. Any newly constructed apartment must comply with Ontario building codes (in addition to fire and safety codes), but building codes are not retroactively applied to
existing apartments. If you bought a property that had a basement apartment, you should ensure that it meets current fire and safety codes. That means having a seperate entrance, windows in any
bedrooms in the event that an emergency exit becomes necessary, and smoke and carbon monoxide detectors. There are other requirements as well, but I'm not a fire code expert, so I urge you to
follow up with your local fire department for more information on fire and safety codes.
If you're building a new apartment you should acquire the proper permits for the construction. That sounds daunting but in my experience is generally not that expensive
or bothersome. Most municipalities in the GTA only require construction plans detailing the proposed work (and your payment of their set fee) in order to issue a building permit. These plans can
be authored by your contractor, or even by you if you feel up to it. Your municipality can provide you with sample plans detailing the kind of documentation they require from you.
Keep in mind that all professional dealings with your tenant are governed by the Residential Tenancies Act (which replaced the Tenant Protection Act), effectively making your basement no different
from any other rental property. There are set rules concerning how and when tenants must pay their rent, how they may enjoy the property (i.e. noise levels, etc), how to serve notices concerning changes to
the rental agreement, and what responsibilities the landlord has for the property (e.g. snow removal at main entrance, etc.). Do your research before deciding to proceed with the addition
of a basement apartment. The Ontario Rental Housing Tribunal is a great source of information, both for tenants and landlords.
I've been in the multi-residential rental business all my life, and as always, you can call me any time if you have questions or concerns. I'd love to hear from you.
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Now that the HST has been implemented, most people are slowly starting to realize it's not as bad as some people originally feared. The worst hit has been to the sale of newly constructed homes, as they were
previously only taxed with the GST. That's an extra 8% to the price of any newly constructed home. I'm very curious to see the market data for new home sales (and construction starts) in July, but
we'll have to wait a few weeks for that information. Keep in mind that the federal and provincial governments are still offering incentives for first-time buyers buying a newly constructed property,
so you may be eligible for a full or partial refund of the HST. Call me if you'd like more details on those incentives, or see my last newsletter where I discussed
the issue in greater detail.
Resales by comparison are a great value, which was generally true anyway even before the HST. HST doesn't apply to resale homes, but it still applies to many services associated with buying
a home. Buyers of resales should expect to pay HST on services like their lawyers fees, real estate agents commission, moving expenses, and any construction or renovation required in the new home.
Previously, these services only included the GST, so buyers are now faced with an additional 8% tax on those services.
I did some quick math to figure out how much the HST would cost a typical
client selling a $500,000 home, using the typical services mentioned earlier, and I came up with a total figure around $3,000. Now I know we'd all rather have that money in our pockets, but when we're
talking about selling or buying a property for half a million dollars, that $3,000 hardly measures up to the hype ascribed to it by the local media. At the end of the day, the HST amounts to
yet another kick in the teeth to an overly taxed people, but it's probably not the end of the world. Probably.
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This publication, or any part thereof, may not be reproduced or transmitted in any form by any means without the express written permission of Steven Switzer in each specific instance.
The material in this document has been prepared by Steven Switzer based on his experience in the Real Estate market.
The information is believed to be accurate at the time of preparation; however, no responsibility can be taken for errors or omissions. Any advice contained herein is of a general
nature and should not be relied upon unless confirmed with Steven Switzer. Steven Switzer makes no representation about the accuracy, completeness or suitability of the material represented
herein for the particular purpose of any reader.
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