Another day, another warning about the state of Canada’s two hottest housing markets.

On June 9th, the Bank of Canada delivered a warning that the continuous rise in house prices in Toronto and Vancouver is becoming unsustainable, outpacing the local economy when it comes to job creation, immigration and income growth.

At a news conference in Ottawa, Governor Stephen Poloz says the central bank is seeing evidence that the markets are being fuelled by self-reinforcing expectations that the trend is going to continue, but these circumstances could actually lead to a decline in prices.

The semi-annual assessment on the state of Canada’s financial stability revealed that there are a number of vulnerabilities on the table, including greater imbalances in regional housing markets and a rise in household debt – both bigger than they were six months ago. These vulnerabilities has the central bank saying that the risk of a decline is possible, although they can’t predict where the actual numbers will go.

A Red Hot Six Months in Toronto, Vancouver

Many prospective homeowners waiting for prices to dip may have thought – and hoped – this would have happened by now, but it’s only become more unaffordable for a lot of these individuals and families. Year-over-year growth in the greater Vancouver area hit 30 per cent in May, while prices in Toronto climbed five per cent between December 2015 and May 2016. This can partially be attributed to foreign demand – although the bank says this type of activity is hard to measure.

The rest of the country isn’t seeing the same type of growth, revealing huge imbalances in regional markets.

What Does this Mean for the Greater Economy?

Poloz says the risk of a trigger such as a recession remains low, but that risk has still increased since the Bank of Canada’s last assessment in December. He says while there are no sudden changes within the country’s housing market, the evidence that we’re heading into risky territory continues to accumulate.

Prior to the BoC’s semi-annual assessment, Federal Finance Minister Bill Morneau announced that Ottawa would start to thoroughly examine the country’s real estate markets to find out what the government would have to do to make sure the majority of Canadians could still afford to buy homes. He also said it plans to examine if foreign buyers really are causing the markets to soar. No announcement was made, though, about how the government will go about this process or what measures it will take.

What Does this Mean for You?

The greater picture hasn’t changed much from six months ago, Poloz said, because greater vulnerabilities in the average Canadian household are being balanced out with ongoing economic recovery. There’s no indication that interest rates will rise when the Bank of Canada has its next meeting in July, although there is still some speculation that we could see a cut. As for a real estate market collapse, the central bank says that’s highly unlikely and what happened in the U.S. in 2007 is not going to repeat itself on the Canadian side of the border.

For the time being, buyers are best keeping their eye on the housing market and taking advantage of low interest rates – if they can find a property that fits within their budget and needs. It’s a bit easier for prospective buyers who don’t live in or near Vancouver or Toronto.

Regardless of the price of your dream home, it’s necessary to get pre-approved for a mortgage prior to beginning your search or making an offer. It’s also helpful for you to write down and budget for different scenarios in the event that interest rates either rise or drop. The more financially prepared you are, the better off you will be when you finally do find the perfect property.

Have your eye on the perfect abode? Get a mortgage that’s affordable and meets your needs. Compare the best rates today!

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While no one has yet invented a functioning crystal ball capable of predicting the future, economists often crunch the numbers on unemployment rates, new housing starts, inflation, interest rates and other key figures to make educated guesses at what the near future has in store for the housing market. Here’s a rundown of what the experts expect for 2017, plus a look at some new trends in home construction and renovations.

Bank of Canada and Interest Rates

On September 7, the Bank of Canada made its regular interest rate announcement, leaving things unchanged at 0.5 per cent for the overnight rate – where it has been since July 2015.

The bank cited a “weaker than expected” U.S. economy and a shrinking Canadian economy in the first half of the year as reasons for maintaining the status quo. However, the BoC projects “a substantial rebound in the second half of this year,” indicating a potential rate hike down the road.

The next BoC interest rate announcement is scheduled for October 19. Potential buyers who don’t already have a rate locked in with their lender may want to have a conversation with their broker prior to that date, or before the next scheduled announcement on December 7 to ensure they get in ahead of any rate hikes.

The Big Banks’ Take on the Housing Market

In the September 2016 Canadian Housing Health Check, RBC Economics’ analysts predict that, at a national level, “there is a low probability of a wide-spread and steep downturn in Canada’s housing market in the next 12 months.” That said, they do highlight overheating concerns in Vancouver and Toronto, and the ongoing downturn in the energy sector as cause for concern in the Calgary market.

Also last month, Scotiabank’s Adrienne Warren released her Housing News Flash. While acknowledging that real estate remains a seller’s market in many regions, Warren sees “signs of softening” nationwide, with “cooling […] most evident in Greater Vancouver”. She cites B.C.’s new tax on foreign buyers as seeming to have the government’s desired effect of slowing things down.

Even the Canadian Real Estate Association has acknowledged that the Vancouver market has “braked more abruptly than anticipated.” In short, first-time buyers in Toronto and Vancouver may want to hold off for the short-term in anticipation of slightly better market conditions from the buyer’s perspective, down the line.

Also read: The Battle for High Priced Homes Continues in Toronto and Vancouver

The Trump Card

The seemingly never-ending U.S. election cycle will finally wrap up on election day, Tuesday, Nov. 8. The result could have major implications for the global economy, with everyone from the New York Times and the Economist magazine to former Republican presidential nominee Mitt Romney and Barbara Bush – wife and mother to former Republican presidents expressing their concerns about both candidates running for president.

If Trump wins and follows through on pulling out of various trade treaties and implement new tariffs and restrictions on trade, the economic forecasters will likely have to go back to the drawing board.

Three Hot Design Trends for 2017

Let’s lighten the mood now and go over what we can expect in the home design department:

Home Automation: The next big thing in home renovations appears to be home automation. Already, many homeowners can adjust their thermostats, monitor home security systems and remotely open doors via apps on their phones. But so-called “smart homes” will also soon feature appliances that you can start from afar, or can contact the manufacturer directly to diagnose service issues.

Tiny Houses: With the cost of housing continuing to soar, many builders and would-be buyers are thinking small. Smaller houses, that is. From DIY cabins, to prefab manufacturers fashioning houses out of old shipping containers, a smaller footprint will increasingly become a way for buyers to get their foot in the door. The trend has also extended to condos; for example, the Smart House condo project currently under construction in Toronto has units that are as small as 289-sq.ft.

Colour Confident: Every year, paint manufacturers consult with interior designs and other trendsetters to find out what the hottest colours will be in the coming year. Of course, the main goal is to sell more paint and make sure they have plenty of supply in stock.

Related Read: Do It Yourself Home Renovations: Tips for Cost-Effective DIY

CIL predicts that in 2017, homeowners will opt for soft, mellow shades of violet, grey, sand, terracotta, mustard and grey-green. Meanwhile, SICO predicts a lot of colour-contrasts. “Energetic brights sit next to muted midtones; classic reds and blues bump into mixed blue-greens and green-yellows; and clean colours join greyed ones,” said brand manager Geneviève Paiement in a press release. Finally, DULUX has chosen Starry Sky Purple, which is described as “a midtone greyed-off violet,” as its colour of the year for 2017.

Is buying a home in your plans for 2017? Don’t forget to get pre-approved for a mortgage prior to starting your search. Compare the best fixed and variable mortgage rates today!

The post A Look-Ahead to Canadian Housing Trends for 2017 appeared first on MoneyWise.

If you’ve just closed on a brand new home, you may automatically plan on selling your current residence as you prepare for your fresh start. After all, many buyers may see owning two properties as unaffordable or simply too difficult or stressful. But whether you live in one of the country’s hottest housing markets or you’re located in a downward market, there may be plenty of benefits to holding on to your current place and turning it into an investment property.

In Toronto, the average selling price for all home types combined came in at $762,975 last month – up more than 21 per cent from October 2015.  Meantime, in Calgary, October’s average price came in at $462,101 – a mere 0.99 per cent increase year over year. Though different in price point, both scenarios lend themselves to keeping two properties – one to use as your principal residence and the other to rent out to tenants.

Related read: The costs of buying a home

Why Does this Strategy Work?

For a market like Toronto’s, rental condos and homes are in high demand. Many would-be buyers have been forced out of the market because they simply can’t afford it. And now, the brand-new mortgage rules introduced last month make it harder for homebuyers to secure a mortgage with less than 20 per cent down. Therefore, it’s getting more and more difficult for buyers just to get a foot in the door.

Also read: The new mortgage rules: one month later

In a slower market such as Calgary’s, renting your current property bides your time until the market appreciates and you can sell for a significantly higher price than you bought it for. This strategy is of even greater importance if the value of the property has gone down over that time because it allows you to wait out the tide.

Ultimately whether you’re in Toronto or Calgary, the best case scenario when hanging onto your home is that it drastically goes up in price. And that’s still the reality in hot markets, where the value of some homes has increased by close to 50 per cent in just a few years’ time. It’s not guaranteed but it’s certainly worth betting on – if you can afford it.

Additionally, you may reap some short term savings from not selling your home. Real estate transaction costs are now removed from the equation, as well as other costs associated with the process such as cleaning and staging.

Is This the Right Move for Me?

Of course, it all depends on your budget and how much wiggle room you have. Up until a few months ago, owning two properties was an option available to more Canadians. However, now buyers are facing the aforementioned new mortgage rules and resulting fixed and variable mortgage rate hikes at some of the big five banks.

Taking this into consideration, if having an investment property is still of interest, it’s important to be aware of the pattern in your local real estate market at the current time and match it with your own timeline. For example, if you live in Vancouver and plan to hold onto your home for a period of three to six months – putting it on Airbnb in the meantime – keep in mind it may become increasingly difficult to sell later on based on the present conditions of plummeting sales figures.

If the local conditions are right for an investment property, you must ensure you are currently cash-flow positive. You’ll also want to factor in a jump in interest rates to make sure you have all your bases covered.

Also read: RBC second of the big banks to hike mortgage rates

Then, consider the real reason why you’d like to hold onto your current property. If it’s simply based on convenience or emotional attachment, remember that tenants may not only alter the look and feel of the home, but there is always a risk of property damage.

Furthermore, not every home makes a good investment property. Some require a great deal of work in order to meet municipal regulations and stay current – and that’s extra money that you may not have. You’ll also have to factor in capital gains tax costs down the road if and when you do decide to sell one of your properties.

You’re more likely to reap the benefits if the mortgage on your current property has been paid off in full, or there’s a large price differential between your current and new home – such as moving up from a one-bedroom condo to a three-bedroom home. Personally, if I think about the purchase price of my tiny condominium in 2013 versus what I would have to pay for a detached home in the same area now, it would make perfect sense to keep my unit and rent it out once I move to a larger place. However, my building – like many others – strictly forbids Airbnb which means I couldn’t rent it out for extra income on a short-term basis.

In the End …

The decision to sell or hold onto your current residence after you move out all depends on your comfort level. Even if you have positive cash flow and all the conditions are ripe, it’s still a big undertaking to keep an investment property and it’s not for everyone. But if you’re ready to take a risk and all your finances in order, it could be the best decision you ever make.

The post Is Holding onto Your Old Property When You Buy New a Good Idea? appeared first on MoneyWise.

A recent report suggests it might be time to put the “foreign buyer blame game” to rest in Toronto.  According to the Toronto Real Estate Board (TREB), foreign homebuyers made up less than five per cent of home purchases in the Greater Toronto Area (GTA) in 2016. This figure further validates a report by the Canada Mortgage and Housing Corporation (CMHC), which found that foreigners made up a “miniscule” amount of homeowners in the condo market. The report also pointed out that the majority of these foreign buyers purchased a home as their primary residence or for family members to live in, and not just as an investment property.

The possibility of a special tax being placed on foreign buyers in Toronto – similar to the tax recently introduced in British Columbia – has been a concern for quite some time. However, if the number of foreign buyers in the GTA remains low, a tax is presumed to have minimal impact on the market and house prices.

This has led many to wonder, if this group only made up a small percentage of overall buyers, who is driving house prices?

It may not be a specific “who” – but many “whats”:

What #1: First-time buyers

The TREB report reveals that first-time buyers made a solid portion (51 per cent) of homes sales in the GTA last year. And if favourable conditions like the low interest rate environment sustain, this trend may not change any time soon. Whether it’s motivated by fear of missing out or just a simple eagerness to get into the market, first-time buyers are a group that cannot be ignored in the Canadian housing narrative.

What #2: Population growth

According to a recent report by the Ontario Ministry of Finance, the GTA population is expected to increase by 2.8 million people between 2015 and 2041. As the region population rapidly grows, there will be an increasing demand for homes. And despite surging home prices, the current low interest rates and new policies by the Ontario government (such as the increase to Land Transfer Tax refund), has only made it easier for first-time buyers to enter the housing market.

What #3: Lack of supply

The hot housing market in the GTA and the previously noted factors have already enticed many to venture into home ownership over the past few years. Going forward, this results in a lack of supply of quality homes to meet the demand. With fewer options on the table, competition increases, bidding wars become the norm, and prices will contrinue to inflate.

What #4: A caveat

Before we shift our focus away from the foreign buyer blame game, we need to keep in mind that trends from the past don’t always tell us the direction of the market in the future. Metro Vancouver’s foreign buyer tax was introduced in August 2016, and we have yet to see a full year’s impact on the market. Moreover, data collected in 2016 prior to the foreign buyer tax showed similar trends in Vancouver with only four per cent of housing transactions stemming from foreign buyers. Since the tax was implemented, however, we have seen house prices decline in that area – signalling that the impact of that four per cent was more significant than it seemed at the time.

What does this all mean at the end of the day? The GTA housing market and its surging prices are being driven by a plethora of factors and to pinpoint one of those factors may not provide a full-proof “solution” to help bring prices under control. A mix of the right policies and natural economic forces over time may be the only way to slow down the housing market in Canada – and that will include zeroing in on more than just foreign buyers.

The post What is Causing House Prices to Rise in Toronto? appeared first on MoneyWise.

It’s no secret that Toronto’s real estate market is rising at an alarming rate. Just in the month of March, it was announced that the average home price increased by 33.4 per cent, year-over-year.

The average price for a detached home in Toronto currently sits at $1.21 million.

In response, Toronto Mayor John Tory, Federal Finance Minister Bill Morneau, and Ontario Finance Minister Charles Sousa agreed to meet this past Tuesday to discuss how the government can intervene in this hell fire of a housing market in the Greater Toronto Area.

After the meeting, the government figures agreed not to place anymore housing measures that would further increase housing demand in Toronto, with promise of cooling measures being implemented soon.

And today, we’ve learned of those new measures.

Ontario Premier Kathleen Wynne spoke at a media event this morning in one of Toronto’s fastest-growing neighbourhoods, Liberty Village, to announce 16 official measures being placed to slow down the rapidly rising market.

Three of the most-anticipated measures included a rent cap, a vacant property tax, and a foreign buyers tax modelled after the one recently introduced in Vancouver’s red-hot market.

Premier Wynne outlined the following initiatives:

• A 15 per cent tax on home purchases by non-resident foreigners in Toronto and the Greater Golden Horseshoe. It should be noted that this new tax will not apply to new immigrants; only those who intend to just speculate and “never set foot in Ontario.”
• Giving Toronto and other municipalities the ability to introduce a vacant home tax, in hopes of pushing owners to sell or rent unoccupied units.
• A ban on flipping pre-construction units by investors and speculators.
• A review of the rules governing the conduct of real estate agents.

Some measures also placed a huge focus on increasing housing supply, most specifically rental units:

• Expanding the province’s existing rent control system to cover all tenants. Current rent control only protects those who live in buildings built before 1991 from substantial rent increases. Rent hikes will now be limited to the rate of inflation, which sat at two per cent back in February. But landlords can apply for exemption if they can prove that they’ve made considerable property amendments, therefore, increasing the value of the building and units.
• A standardized lease document for all tenants.
• A$125-million, five-year program that involves a development cost rebate to encourage builders to develop more rental housing.
• A move to identify provincially-owned surplus lands that could be used for affordable and rental housing development.

“When young people can’t afford their own apartment or can’t imagine ever owning their own home, we know we have a problem,” Wynne said this morning. “And when the rising cost of housing is making more and more people insecure about their future, and about their quality of life in Ontario, we know we have to act.”

Though the Toronto real estate market has been of most concern, Wynne says the issue extends beyond the GTA and plans to apply similar initiatives throughout the Golden Horseshoe area.

The post Foreign Buyer Tax, Rent Control Announced to Cool Hell Fire of a GTA Housing Market appeared first on MoneyWise.

Last month we reported that Canadian real estate sales slipped slightly, yet prices had increased. The Canadian Real Estate Association (CREA) just released their May numbers and let’s just say things have escalated quickly.

The Toronto region saw sales drop 25.3 per cent from April to May. Nationally, there was a 6.2 per cent decline – the largest month-to-month drop in five years.

Why did this drop happen? It could be that the Ontario government’s 16-point Fair Housing Plan played a role. It’s likely many sellers were looking to cash out quickly so they listed their homes, while the 15 per cent tax on foreign buyers in Ontario may have scared off some potential buyers.

The current real estate trend in Canada

You’ve likely noticed that trends can change quite quickly in the Canadian housing market. As I write this post, the real estate market across the country appears to be cooling, but prices have yet to drop. Nationally, prices were actually up 4.3 per cent compared to a year ago, as the average price of homes sold in May 2017 was $530,304.

However, the increases reported are based on year-over-year numbers. In comparison to April 2017, prices in the Toronto region, for example, were down seven per cent, from $919,614 to $863,910.

Alternative lenders increase their interest rates

Ever since the Ontario Securities Commission (OSC) claimed that brokers falsified information on mortgage loan applications submitted to Home Capital Group, we’ve started to see a snowball effect on other alternative lenders.

Home Capital has already sold off many of their mortgages, and most recently, the lender announced an agreement to sell a commercial mortgage portfolio valued at around $1.2 billion. Now, the company is accepting fewer new applicants to help balance the books, and many brokers are opting to steer clients towards other lenders. That being said, with Home Capital out of play, other alternate lenders have seen a huge boost in applications.

However, since these lenders don’t have unlimited dollars to fund mortgages, they can be pickier about who they lend to. With this strong demand and limited supply, alternate lenders have recently increased their rates by up to 150 basis points (1.5 per cent). That’s a pretty significant increase considering alternate lenders already charge more than traditional lenders, at around three to five per cent for mortgages.

CREA makes forecast updates

Over in British Columbia, prices have returned to levels similar to the ones they sat at before the B.C. government introduced a foreign buyers tax. In other words, the tax appears to have only caused a minor blip.

As a result, the CREA has changed its forecast for overall sales in the province in 2017, from a 12.2 per cent decline as predicted in its first quarter forecast, to a nine per cent decline.

The measures introduced by Queen’s Park also caused the CREA to revise its annual forecast, as it’s now expecting a 2.1 per cent decline in sales for 2017 in Ontario, compared to the 2.7 per cent it reported back in January.

Nationally, the group is expecting a 1.5 per cent decline in sales for 2017.

These updates may sound like good news to consumers, but it arguably creates more confusion. The new CREA numbers are based on recent changes in the market, but as we’ve seen, the Canadian housing market can change really quickly.

All of these headlines can be a bit of a distraction at times. But, as usual, if you’re planning on buying a home, make sure the numbers in front of you (like the price and the mortgage rate) make sense and agree with your budget.

The post Canada Housing Market Update: Sales Drop, Some Mortgage Rates Increase appeared first on MoneyWise.

Over the last few months, the real estate market in Canada has seen a few changes. Recent data now shows the average selling price of a Canadian home dropped by 0.3 per cent in the past year. It may not seem like much of a difference, especially to those who have been waiting for the market to cool and stabilize, but it’s the first yearly decline since 2013.

It’s too early to determine if real estate is truly trending downwards, but it’s a significant milestone nonetheless. According to the Canadian Real Estate Association (CREA), the average price of a Canadian home sold on the multiple listing service (MLS) in July was $478,696. If you compare that number to the national average sales price of $504,458 in June, you’re looking at a five per cent drop month-over-month – a much more significant decline. This is also the third month in a row that we’ve seen a decline in national prices.

But what would the numbers be if we took out Toronto and Vancouver? If you remove Canada’s two hottest markets from the equation, national home prices would average $381,297. This is actually a five per cent increase in comparison to last year when prices averaged at $363,858.

It seems like the major cities can be to blame for upwardly skewing the national average price. Though these markets have seen a dip in prices month-over-month as well, they remain highly active and expensive.

For example, the average selling price of all homes in the Greater Toronto Area was $746,218 in July, up five per cent from a year ago. However, it was also the third consecutive monthly decline since April, when the average price was $920,791.

Why are sales decreasing?

CREA also reported a 2.1 per cent decrease in the number of national sales in July when compared to June 2017, and a 12 per cent decrease in sales year-over-year. That being said, there may be a few reasons as to why we’ve seen sales drop in comparison to last year, when prices were still increasing.

Last month, the Bank of Canada raised its key interest rate by 25 basis points (0.25 per cent).

The July rate hike would have increased carrying costs for potential homeowners and may have caused some to delay their purchasing decision. These players may find themselves sitting on the sidelines for a while since interest rates are also expected to rise again before the year ends.

The hike in July was widely expected as well, so it is possible that many people locked in their rate and made offers before the formal announcement, likely around the end of June.

In Ontario, specifically, new regulations on real estate may also explain why sales are decreasing. Back in April, the Ontario Government introduced the Ontario Fair Housing Plan, which implemented new rules – including a 15 per cent tax on foreign buyers – meant to tackle affordability for renters and buyers, and ultimately stabilize the market. Prices and sales have slowed down since April, but we’ve seen less of a decline every month, which may imply that things are starting to bottom out.

Has the real estate bubble burst? Barry’s opinion…

While there is no way to predict what’s going to happen in the real estate market, so far we’ve just seen a soft landing. Sales have dropped a fair amount, but prices haven’t followed as much. You could say we’re looking at a standoff between buyers who are waiting for prices to drop and sellers who may still be expecting record sales prices. Who will blink first is anyone’s guess, so for the time being, we’ll just have to rely on data.

If we’re looking at things nationally, prices are actually pretty balanced. It’s the prices in Toronto and Vancouver that have kept the national average so high. It’s fair to say these two markets are incredibly hot in comparison to the rest of the country, even though we’ve seen slight changes in prices and sales there as well.

Remember, British Columbia introduced a foreign buyer’s tax in 2016 and immediately saw sales and prices drop. Many believed it was the start of a housing correction in Vancouver, however, six months later, prices were back to their historic highs. This has many wondering if Toronto will follow a similar path.

Although prices haven’t dropped very much, there’s no doubt that market conditions have changed. There hasn’t been as many bidding wars or bully offers lately, which is good news for buyers. For serious sellers, however, it’s best to price your home at fair market value to see if any offers are made. Remember, in the end, it comes down to affordability so don’t forget to check current mortgage rates so you can price your home or budget for your new home accordingly.

The post Housing Market Update: National Home Prices, Sales Fall Again appeared first on MoneyWise.

Sales stats over the last few months may indicate that the Toronto real estate market is taking a breather. The average price of a home in Toronto has fallen 19 per cent since peaking in April, before the announcement of Ontario’s Housing Plan. Since then, many homebuyers have chosen to sit on the sidelines – similar to the reaction Vancouver’s market experienced when its provincial government first introduced a foreign buyers tax back in 2016.

And with the real estate market slowing down in the GTA, it’s become a lot more common for buyers to change their minds in the midst of closing a deal. For example, let’s say you bought at the peak of the market in April, but the appraisal value from your lender came in lower than expected. You now may not have the funds to close and as a result, consider turning down the deal.

But before you decide to walk away, experts advise considering the consequences. One B.C. couple recently learned the penalties of walking away the hard way – in this case, the sellers sued the buyers for $360,000 and won.

The consequences of backing out of your offer

As a buyer, it’s imperative to remember that an offer is a legal contract. By walking away from it, you’re leaving yourself open to numerous consequences, including losing your initial down payment deposit, and even being sued.

If a buyer is unable to complete the transaction after putting in an offer, they may be liable for much more than their deposit. In the instance that the deal does not close and the home sells to another purchaser for less than the original purchase price, the seller is within their rights to sue the original purchaser for the difference in the sale prices of the two deals.

For example, if you agreed to purchase a home for $500,000 but backed out of the deal before closing, and the seller ended up getting another buyer to close for $450,000, you may be on the hook for the $50,000 difference, on top of your down payment.

“The purchaser is also responsible for any other losses or damages incurred by the seller as a result of the deal not closing,” warns Shannon Durno, a real estate lawyer at Durno & Shea. “What’s even more alarming is that a purchaser’s inability to close their transaction can cause a chain reaction that can spill over into other real estate deals.”

If the seller of a home is not able to carry out the purchase of their next home as a result of their purchaser’s inability to close, the purchaser of their current home may be liable for losses from that transaction as well.

It’s a difficult decision to make, but if you’re considering walking away from an offer, bear in mind there are options to avoid getting sued into the stone age.

How to protect yourself if your lender gave you a low appraisal value

Situation: you put in an offer on a home, but your lender’s appraisal value on your current home comes in lower than you expected and you don’t have the extra funds to carry out your offer.

“The purchaser in these cases will have to make up the shortfall out of pocket, which of course can be problematic,” says Durno.

Durno recommends making offers conditional on financing, though, in most cases, appraisals are completed long after the financing condition has been waived. Otherwise, purchasers can also try to negotiate with the seller.

“The purchaser can try to negotiate a release of all or part of their deposit in exchange for a full and final mutual release to avoid being sued,” says Durno. “Often times, a purchaser will also make a request to the seller to extend the timeline of their deal to allow them to arrange for alternative financing options, possibly from a private lender. Private lenders will charge much higher interest rates than a bank but this is often times much less expensive than being sued for the deal not closing. However, in granting an extension the seller will often require a further deposit and their costs covered for the delay.”

Durno also mentions that “Vendor Take-Back” mortgages are also making a comeback. So if you’re a buyer, it doesn’t hurt to ask. Under this arrangement, the sellers would lend you the funds to help facilitate the purchase of the property in the event that you can’t afford it yourself.

As a last resort you can try to negotiate a lower purchase price with the sellers. Durno has seen a few instances over the past few months where buyers have successfully negotiated lower prices.

How to protect yourself if your property sells for less

It’s common to purchase prior to selling your existing property, but if it sells for less than anticipated or even worse, not at all, you can find yourself in a predicament.

One way to handle this type of situation is through bridge financing, but you can only do this if you have a firm sale on your current property, and this can lead to other issues.

“Often times, clients that expected to have a 20 per cent down payment from their own home sale, now require an insured mortgage,” says Fred Babbie, a mortgage broker at Safebridge Financial Group.

Homebuyers who put less than 20 per cent down usually require mortgage insurance. Their loan would also be subjected to qualification rules based on the higher-posted rate, which could make getting qualified for a mortgage harder for some.

Another solution to having two properties on your hands would be to turn one into a rental property. In this scenario, you could refinance your current property to obtain down payment funds for the new purchase. However, this is really just an option if you have the capacity to carry both properties.

Finally, private financing solutions are available as a last resort, but this will depend on your ability to support this debt.

–

The housing market can be a hard thing to predict. But if you’ve found yourself in a predicament that requires you to withdraw your offer, it’s best to consider all your options before making a final decision. Speak to a financial advisor to avoid problems that could carry on a lot longer than you expected.

The post Walking Away from Your Offer on a Home? Know the Consequences appeared first on MoneyWise.

After a slowdown earlier in the year, real estate is seemingly on the rise, if only slightly. According to the Canadian Real Estate Association (CREA), there was an increase in the number of homes sold in September. This is the second month in a row where sales have increased month-over-month. However, when you look at sales year-over-year, there was an 11 per cent decline. Notably, home sales in the Greater Toronto Area were down 35 per cent in September compared to this time last year.

Despite the overall sales decline, prices continue to slowly rise. The national average price for homes sold in September was just over $487,000 – a 2.8 per cent increase in comparison to last year.

This price increase was led by Vancouver and Toronto, where the average selling prices were $1,046,982 and $775,546 respectively. However, if you remove those two markets from equation, the national average drops down to $374,500.

Recent interest rate hike had no affect… yet

In case you missed it, the Bank of Canada announced another interest rate increase of 25 basis points on Sept. 6. The overnight rate now sits at one per cent. Although another rate increase was somewhat expected, it was a bit surprising that it came so soon, considering there was an increase in July as well.

The July increase was possibly responsible in part for the dip in sales over the summer. And while potential buyers may be on the watch for how this increase will affect the market, they’ll likely have to wait a few more weeks to see.

The rate increase was announced at the beginning of September, but it is unlikely it would have affected the recent sales numbers as most buyers would have likely already locked in their rates with a pre-approval.

Personally, I don’t believe we will face another rate hike anytime soon, but in the event of such, it’s safe to say another rate increase could price more Canadians out of the housing market.

Though sales numbers have gone down, the demand for real estate still seems to be thriving, and the number of listed homes has increased nationally. Following three consecutive monthly declines, the number of newly listed homes rebounded by almost five per cent in September, mainly due to a jump in new supply in the GTA.

Canadians willing to overspend for housing

In the face of rising home prices, it seems most Canadian home buyers are willing to overshoot their budget. According to a new home buyer survey from TD, 56 per cent of respondents would be willing to go over their budget by up to $50,000.

Ironically, 57 per cent of homeowners surveyed said they were confident about what they could afford, yet 97 per cent admitted they wish they had factored in other costs associated with owning a home before purchasing.

When budgeting for a home, it’s important for potential homeowners to look at more than just the monthly mortgage payment, and take other expenses into account such as property taxes and maintenance fees. These costs can drastically change how much one can actually afford.

The TD survey also found that those surveyed were worried about rising interest rates (58 per cent), hidden costs of home ownership (50 per cent), being house poor (49 per cent), and the ability to afford monthly mortgage payments (30 per cent).

Indeed, there are worries about affordability and rising interest rates, and housing prices have yet to fall in any significant manner. But keep in mind that the September results are a very small sample size and we’re yet to see notable variances in the market – if any – due to recent rate hikes.

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Three months into 2018, it seems like the Canadian housing market is down again with sales volume dropping 16.9 per cent in February compared to this time last year. According to the Canadian Real Estate Association (CREA), there was also a 6.5 per cent drop compared to January, which is the biggest decline in nearly five years.

This shouldn’t be a huge surprise since the Office of the Superintendent of Financial Institutions (OSFI) introduced tighter mortgage rules effective January 2018. As a result, some homeowners rushed to make their purchase before the new rules took effect, which is why there was a lot of sales activity leading to the end of 2017.

National prices on the decline

When looking across the country, the average price of homes sold fell five per cent from one year ago to $494,000. If you remove the hot markets of the Greater Vancouver and Greater Toronto, then prices would fall another $112,000 – averaging at $382,000.

“Sales activity is down in many, but not all, housing markets compared to the end of last year, and varies depending on price range, location and property type. All real estate is local” said CREA President Andrew Peck in the CREA’s monthly housing stats announcement.

Despite the decline in sales, the MLS Home Price Index still rose by 6.9 per cent year-over-year, which means Canadian real estate prices are still seeing gains; they’ve just been moving at a much slower pace compared to recent years.

Amount of available homes for sale is up

In the Greater Toronto and Vancouver areas, there’s definitely still a supply issue, but overall, the CREA reports that home listings were up 8.1 per cent in February compared to the 20 per cent drop we saw in January. Although this news is positive, the numbers are still down compared to every month in 2017 with the exception of January 2017.

Still, three quarters of the Canadian market is still relatively balanced. Inventory available is currently sitting at 5.3 months – this refers to how long it would take to for all available homes to be sold. In addition, housing stock is still at its highest level in over two years.

Whether you’re a first time home buyer or buying your second, third or fourth home, it pays to compare mortgage rates with RateSupermarket.ca. With prices on the decline and more homes on the market, now is the time to look into getting the best rate for your dream home.

The market sees mixed numbers across the country

Trends across the country appear to be varied. Montreal has seen growth of 6.1 per cent while the GTA saw a modest 3.2 per cent gain. Sales in the Vancouver area saw a continued decline since 2016, but there were also small drops in Regina and Saskatoon at 4.8 and 3.8 per cent, respectively.

“Momentum for home sales activity going into the second quarter is also likely to weighed down by housing market uncertainty in BC, where new housing policies were introduced toward the end of February” said Gregory Klump, CREA’s Chief Economist in the announcement.

Recent announcements may have affected sales

As mentioned earlier, new mortgage rules introduced by OSFI came into play on Jan. 1. Borrowers that have an uninsured mortgage must now pass the stress test at the Bank of Canada’s five-year benchmark rate which is currently sitting at 5.15 per cent or 200 basis points above their current contracted mortgage rate.

This change effectively reduces the amount of mortgage you would qualify for, and in knowing that, it seems as if people moved up their home purchase before the end of 2017, which likely explains the slowing in sales during the first two months of 2018.

In addition, the Bank of Canada increased its key interest rate to 1.25 per cent back in January which further reduced affordability. This was the third hike since last summer, which has effectively priced some people out of the market, though the Bank maintained rates at its last announcement on March 7.

When the next Bank of Canada announcement comes out on April 18, we’ll get a better picture of how the Canadian economy is performing.

The post National Housing Update: Why Prices are Declining and What to Expect for 2018 appeared first on MoneyWise.