Market Media Monday for July 8, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ GTA home sales down 16% in June despite interest rate cut: TRREB ]
The Toronto Regional Real Estate Board says home sales in June declined 16.4 per cent from last year, with many potential buyers staying on the sidelines despite the highly anticipated Bank of Canada interest rate cut.

[ Bank of Canada Rate Cut In July Less Likely, But Can’t Be Ruled Out: BMO ]
Canadian inflation is demonstrating it can be a lot stickier than the central bank expected. Last week’s CPI report showed annual growth accelerated, reversing some of the Bank of Canada (BoC) progress on taming inflation. The move sharply lowered the odds of the BoC making another cut later this month, but there’s still a chance, according to BMO.

[ Canadian Mortgage Borrowers To Reduce Consumption Even After Rate Cuts: BoC ]
Canada’s sharp and unexpected rate hikes will continue to produce damage, even after rate cuts. A new staff research note from the Bank of Canada (BoC) shows the overnight rate is much higher than initially anticipated, reducing consumption for mortgage borrowers since the climb began in 2022. Rates are now being slashed and providing relief, but reduced consumption is seen through 2027.

[ Should you get a 30-year mortgage? ]
Signing a 30-year mortgage in Canada can be an attractive option for some home buyers in the face of relentless real estate prices and historically high interest rates. Specifically first-time home buyers and those now renewing their mortgages.

[ Over 100 Hamilton tenants face threat of eviction as landlord starts listing townhouses for sale ]
The for sale sign in front of Heather Mulryan's Hamilton townhouse is a constant source of dread. The 41-year-old single mom of two boys has rented her home on Hamilton's Mountain for 14 years but said she received a surprise letter from her landlord, DiCenzo Management, in April. The letter, delivered to all tenants, said the landlord will be selling the 36 units on Anna Capri Drive — and Mulryan's was among the first on the market.

Market Media Monday for July 1, 2024

A curated list of recent headlines relevant to real estate in Canada, with short excerpts. Click each headline link to read the full article on the source site.

[ Mortgage Professionals Canada Survey: Mortgage Anxiety vs. Ownership Confidence ]
On June 11, 2024, Mortgage Professionals Canada (MPC) released the results of their Semi-Annual State of the Housing Market Report. This survey highlights growing anxiety among mortgage consumers, especially about the financial implications of renewing mortgages at potentially higher interest rates.

[ A Third of Canadian First-Time Homebuyers Need 6-Figure “Gifts”: CIBC ]
Canadian first-time buyers require a little, okay—a lottle help from friends and family. Nearly a third (31%) of first-time buyers needed a gift to help buy a home in the bank’s 2024 YTD data. That’s up from 20% back in 2015, which seemed high back then. 

[ Canadian Mortgage Arrears Rate To Rise 50% In 2024: Fitch ]
Canada’s mortgages in arrears are expected to see a sharp increase after the recent record low. The arrears rate is forecast to rise to 0.25% to 0.3% by the end of the year. If it hits the high end, the rate will have climbed 50% from the end of last year, and doubled the record low also in 2023. 

[ Canadian GDP On Track To Outperform, Weakness Confined To Housing ]
Canada’s economy might be stronger than expected according to this week’s data. Statistics Canada (Stat Can) data shows real gross domestic product (GDP) grew in April. Even with preliminary numbers showing growth stalling in May, output is still set to outperform the central bank’s expectations. Most weakness is contained to just a few sectors, including housing—which is providing a drag despite increased state-stimulus. 

[ Why hundreds of thousands of people are leaving the city for other parts of Canada ]
Toronto once reliably lost about 20,000 more people to other cities in Canada than it lured in from around the country. But in 2017, that number doubled to 40,000. And then it doubled again. In the past two years, 220,000 more Canadians have abandoned Ontario’s capital than arrived.

[ Interest rate cuts won't fix Canada's housing affordability crisis ]
Since interest rates began to rise in early 2022, housing affordability in Canada has worsened. And while the Bank of Canada’s recent and expected rate cuts may improve affordability, a review from Desjardins Economic Studies concluded that a return to pre-pandemic levels is unlikely.

#TerminologyTuesday: Co-op

In your real estate browsing, you might come across an occasional listing that looks like a lot like a condo, but is described as a "co-op"..  just what is that?

Well, first off, it's not a condo. With a condo, an owner legally owns their unit and it is registered in the land titles system the same as any other piece of property you might buy. The rest of the property (hallways, elevator, etc, in an apartment condo) is called "common element" and is owned and taken care of by the condominium corporation.  As a condo owner with share in that corporation, all the 'common element' is essentially owned together by all the owners, and maintenance is paid for through the monthly fees.

Community ownership

Co-ops are an earlier community-ownership option that predates the laws that allowed the development of condominiums and the registration of condo unit ownership in land titles.  In a co-op, the entire property is owned by the co-op corporation and an owner owns SHARES in that corporation - not the physical property itself - which allow use of the unit as part of those shares' rights.

Otherwise, co-ops operate on a day-to-day basis in a similar fashion to condos. There is a board of directors responsible for the management and maintenance, and monthly fees that pay for that. Legal requirements around management of co-ops are not quite the same: management may be done almost entirely by the co-op board of directors, whereas a condo should have a professional and licensed condominium management company. This means that quality of management can easily vary from building to building.  But, as long as management is well-run, this is not a significant concern.

Financing

One of the biggest practical differences from a real estate market perspective is that the type of ownership greatly affects the financing that is available. Because you are not buying a property that will be registered in the land title system, you will not be able to get a mortgage when buying a co-op. Yes, you read that correctly, no mortgage. 

There are some financial institutions that will offer financing in a share purchase agreement format, but the amount you can get will be significantly less. With the one I am familiar with, you can only get 40% loan-to-value. This means if you buy a co-op at $300,000, your loan will only be $120,000 maximum. You have to come up with the other $180,000 yourself.  With a condominium and a mortgage, you can usually get at least 80% loan-to-value (depending on income qualification, appraisal, etc, of course).

The other option for buying a co-op is all cash, whether your own savings or borrowed from somewhere else like a line of credit or family member.

Occupancy Rights

Some other factors that are important to understand about co-ops is that the shares bring a right to occupancy in a specific unit, but those rights are not unlimited.  

For one thing, many co-ops require approval of a new buyer by the co-op board. In theory, this shouldn't be a problem if the buyers are financially stable enough to buy the co-op, but it is at least a step in the sale process that needs to be taken care of.

Another important factor is that occupancy is granted to the owner who owns the shares and their family, and no one else. So in general, co-op units can not be rented out to anyone else. This obviously reduces the market interest in it compared to condominium ownership, as most condo can be rented fairly easily.

Affordability

The combination of the factors above generally translates into a lower market price for a co-op compared to an otherwise similar condominium. When it's easier to finance and easier to rent, higher prices are more feasible for condos. There is more demand for a condo simply because there are more buyers qualified with the easier financing.  However, if you are going to be a largely cash buyer anyways, a co-op might give you more bang for you buck, and possibly less competition depending on the market.  

As always, make sure you're working with professionals and do your due diligence. With that, a co-op just might be the right fit for your needs.

Remember to turn off your outdoor taps for winter

Do you turn off your outdoor water taps and drain them before winter?  If you don't, you can get lucky for a time, but you may suddenly find yourself sending out an SOS like this one I once saw on Facebook:

"OMG - outside tap blew up and water is spewing everywhere & flooding towards house!! I DON'T know where shut off valve is!!"

If you've ever frozen a bottle of water and noticed how the bottle has bulged, you understand to some extent why this happens. Unlike many liquids that shrink in volume when frozen, water actually expands in volume, causing the bottle to bulge - or break if it is inflexible material like glass. 

When this happens inside plumbing, the push of the water expanding as it freezes into ice can burst a pipe. In the example above, my friend was lucky that the burst was outside the house and the water was spewing into the yard. They were also lucky that it happened while they were home or it could have still flooded back into the house, but it would have been much worse if the freeze had occurred a bit further into the pipe because water would have been flooding directly into their basement.

Frozen pipes are always a nuisance and can happen where plumbing is running on or close to exterior walls, but outdoor taps are especially risky because by their nature they extend beyond the interior of the house and are exposed to the outdoor temperatures.

Winter has been mild so far but that has to change at some point.. So, if you haven't already, go figure out where the shutoff valves are for your outdoor taps and turn them off, then open the taps outside to drain any water still inside (and confirm they are off).

The truth about open houses

Do open houses work?

Yes and no.  

Nice and clear, right?  Okay, let me rephrase the question:

Will an open house sell your house?

They certainly can, but realistically it's not very likely.

An open house is open to all, so there is no commitment or real connection to an agent required.  Anyone can show up, and there is a feeling of anonymity.  Because of this open-ended nature of open house attendance, you get a lot of nosy neighbours, as well as "tire-kickers" who may be serious about buying but are still some months away from being ready and are just checking out the market.

So why do agents do open houses?   Good question.  

Real estate agents are still happy to do them because they do work -- for them. 

They can be a great business-building opportunity for the real estate agent.  While some visitors may just be Fred down the street coming to see how the Smiths are living, many people coming through open houses are legitimate buyers, whether current or in the near future.  If these buyers are not working with a buyers' agent, it is an opportunity for the listing agent doing the open house to connect with them and possibly become their agent, whether they buy your particular house or not. *

Of course, while they do sometimes provide a better opportunity for the agent to find new buyer clients than to actually sell your house, they do have the potential to get a lot of potential buyers through in a short and convenient time span.  Personally, I won't push open houses on clients who dislike them, but I am also quite willing to invest the time & effort if they would like me to do one.  As the old saying goes, it doesn't hurt to try.

* As a little side-note:  I remember one company suggesting in their marketing materials that such cross-selling is a negative of the traditional real estate industry.  Please understand that I am not saying that here. In fact, I would suggest such cross-selling, whether from an open house or an email through the MLS® system, is actually a huge benefit of being listed with a full service agent.  While your agent may show your house and sell the buyer a different property up the street, the agent up the street may also show their listing but sell your property instead.  The MLS® system gives you a huge sales force consisting of all local real estate agents in the field. 

Selling difficult or "impossible" properties

Whenever possible, the ideal situation is for the seller to fix any problems that may be outstanding on a property. But there are times when it may not be financially feasible for any number of reasons. It is not the end of the world to list a property for sale with issues, but there are two important things a seller must do if they expect to sell at a proper price and in a reasonable length of time.

First is to make sure you are pricing appropriately for the condition of the property. If a buyer can get a similar property at the same price with absolutely no work to do, you’re going to have a hard time competing in the marketplace. Buyers will expect a lower price if they’re going to have to put in time and money to fix things up, especially if they’re significant items like an old roof or leaky basement.

The second very important step, which actually helps with pricing, is to get written quotes from qualified contractors for any major issues. But besides giving you solid numbers to use for deductions from asking price, a written quote will give comfort to buyers and remove the fear of the unknown – what a seller may “know” to be a $2000 repair can easily be blown up into a $20,000 (or more) repair in the buyers’ minds. Written quotes remove the question marks and replace them with solid figures.

RAHB AREA SALES INCREASE AS PRICES MODERATE IN AUGUST

Hamilton, ON (September 2, 2022) – The REALTORS® Association of Hamilton-Burlington (RAHB) reported 906 sales of residential properties within the RAHB market area through the Multiple Listing Service® (MLS®) System in August 2022. The number of sales were up by 11.7 per cent from July 2022 and down by 24.2 per cent compared to August 2021. There were 1,641 new listings in August 2022, which was down 8 per cent from July 2022, and compared to August 2021, there was an increase in listings of 20 per cent. The average sale price for residential properties across the RAHB market area was $858,405, down 2.3 per cent from July 2022, and up 2 per cent compared to August 2021. There were 2.6 months of inventory* in August 2022 compared to 3.1 months in July 2022.

[ Read the full release and stats ]

*Months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity.