Andre Smit's Real Estate Round-up
Wednesday Feb 17th, 2021Share
So the hot real estate seller's market has continued unabated into 2021. To illustrate this, recently a 20 year old, freehold, 1,400 square foot, 3 bedroom, 2.5 bathroom, single garage, unfinished basement townhouse in West Oakville, which was listed for $677k, sold in 1 week for $960k, after receiving 62 offers! In this market, as a realtor, you have to have quite a few tricks up your sleeve, in order to secure your buying clients a sought after home. Over the years, I have managed to develop a successful working framework for my clients.
According to sales data released by the Canadian Real Estate Association last week, Canadian home buyers are now facing the tightest market on record! New listings were down 13% from December. As a result, Canada now only has 1.9 months of housing inventory available, the lowest such reading on record. Continued low mortgage interest rates and increased demand for bigger living spaces, has pushed Canada's housing market year on year average price increases to never before seen heights!
According to the Toronto Real Estate Board, (the largest in Canada), compared to January last year, total new listings were up by 20%, while total actual physical sales were up by a whopping 52%. This increased activity resulted in the average price for all homes, increasing by 15% from the same month, the year before. The average days that listings spent on the market, (days on market), before selling, has decreased from 27 days to 24 days, or 26%, for the same period.
Average detached house prices have increased by 31% and physical sales by 34%, compared to January, 2020. The number of total new listings decreased by 2%, for the same period. However, active listings decreased by 40% from the same month, a year ago. The days on market, decreased by 38% for the same period.
Condominium apartment average prices however, decreased by 5% over the same month, a year before. As a result, new listings skyrocketed by 50% in the same period! It also took 52% longer to sell an apartment in January, 2021. This underlines the previously mentioned fact, that most buyers are looking for bigger living spaces, as more and more people are now working from home.
Considering all the above, I want to direct my attention to the plight of first time home buyers. Most young Canadians or new immigrants, have a desire to invest in their own home, but lack the knowledge to navigate the tricky, and often rocky, but ultimately rewarding, road to owning their own home. Whether you are currently renting, or taking advantage of your parents’ hospitality, buying your own home, definitely makes financial sense in the medium to long term.
The first question to answer is - where do I want to live? Things to consider are bus / train transit routes, highway access, school availability, shopping / recreational facilities, proximity to friends / family etc. At this stage, it is prudent to contact a reputable, experienced and empathetic realtor, (look no further!), to assist you in the next phases.
Together with your realtor, you need to investigate what you can afford. Your realtor should, at this stage, also involve the services of a good mortgage broker. During this initial consultation, you will be able to decide what type of dwelling you can afford, and when you will be able to start visiting prospective properties.
As a general guide, I include the following approximate values associated with different types of properties, depending on areas:
Apartments - $400,000 - $600,000
Row townhouses - $500,000 - $850,000
Semi-detached houses - $600,000 - $900,000
Detached houses - $700,000+
The above values are dependent on location, size and age of property. You also need to understand the difference between condominium vs freehold ownership. In a condominium type ownership, you own your defined unit in a building, as well as, in most cases, a storage locker and a parking space. As well as this, you also mostly, have the right of use, of for example, a fitness facility, elevators, outside gardens and walkways, swimming pool, party room and visitors' parking. In addition, your outside maintenance, water, building insurance, parking, and in some cases, heating, is paid for by the condominium corporation. For all of this, you normally pay a monthly condominium fee of $300 - $1,000. Freehold ownership conveys upon the owner the right to, complete and full ownership of the total property, and the obligation to maintain this property in it's entirety. Most apartments and row townhouses are owned as condominiums, while detached and semi-detached homes are normally freehold owned.
Normally banks require a down payment of at least 20% of the value of the property, but in Canada, one can purchase a property with a down payment of as little as 5%, of the value of the property. Any such mortgages are classified as high ratio mortgages, and have to be insured through the Canada Mortgage & Housing Corporation, which is a state owned corporation. This insurance premium varies between 2.40% - 4.00% of the mortgage amount, provided you are not self employed. You do not have to pay this upfront, as it is added onto the final mortgage total. If you opt for a high ratio mortgage, your mortgage term cannot be higher that 25 years.
To qualify for any mortgage from a financial institution, you need to prove that the following costs do not constitute more than 40 % of your total monthly gross income:
Monthly Mortgage Payments
Monthly Heating Costs
50% of Monthly Condominium Fee , if applicable
If you have any other committed monthly debt payments, then these payments need to be added to the above, and this total cost cannot exceed 43% of your total monthly gross income. If you and your spouse or partner, are buying the property together, then you can use your joint monthly income in the above equations.
To illustrate the above, I will use some actual figures:
Price of condominium - $400,000
Down payment (5%) - $20,000
High ratio mortgage premium - $15,200
Mortgage amount - $395,200
Monthly mortgage payment (25 year fixed at 2% for 5 years) - $1,673
Monthly condominium fee - $400
Monthly heating cost - $150
Monthly Property Taxes - $125
Under the current stress test rules for mortgages, buyers have to use an interest rate of 2 percentage points, above what the financial institution currently offers them for their mortgage. On this basis, the mortgage interest rate to be used in the earnings calculation increases to 4% per annum, or $2,078 per month
Monthly joint gross earnings required - $ 6,380 (assuming no other monthly committed debt repayments)
So in the above case, you would have to jointly earn at least $ 76,560 per year, before any deductions, in order to qualify for the required mortgage.
In addition, you would also have to make the following once off payments, prior to the closing date:
Deposit +- $5,000 or 5% of the negotiated price, (paid at time of making the offer, but deducted from the above down payment requirement)
Home inspection fee - $400 - $500, (can normally be dispensed with, when acquiring a condominium)
Lawyer's fee - $1,200 plus the following, paid to the lawyer just prior to the closing date
Property Registration fee - $150
Title insurance - $420
PST on mortgage insurance premium - $1,216
Any seller's prepayments regarding property taxes, utilities and water tank rentals etc.
Land Transfer Tax - $4,475
First time buyer, Land Transfer Tax rebate is $4,000. So, in effect, only $475 will be payable on this property.
So, prior to making a firm offer, you should have at least $9,000 available, to cover the above costs.
It is also a good idea to work with a mortgage broker or financial institution, to get a letter confirming your pre-approval up to a certain amount, for the purchase of a property. Together with your realtor, you can then set the parameters for your property search, and start visiting the appropriate properties, found through your realtor's search mechanism.
It is important to make a short list of properties you liked, together with your reasons, so that you can re-visit them, prior to making an offer. Your realtor will be able to assist you, in objectively comparing the different properties, before making an offer.
Once the offer is finalized, you have to pay the deposit within 24 hours, and the offer is normally made conditional upon you arranging finance within 5 working days, having the home inspected by a professional home inspector and you accepting his report, within 5 working days, and in the case of a condominium, your lawyer having the opportunity to inspect and approve, a status certificate obtained by the seller from the condominium management company, within 5-10 working days. A status certificate shows whether the seller is up to date with the condominium fees, and whether there are any other potential future known expenses, like outstanding legal obligations, or any additional assessments for large capital expenses. If you cannot arrange the financing, or the home inspection report and, or the status certificate is not acceptable to you, you can terminate the offer or re-negotiate the price in terms of the status certificate or inspection. If you terminate the offer for any of these reasons, the deposit is paid back to you in full, without any deduction.
Once all the conditions have been met, your realtor will notify the seller, and the purchase and sale agreement will be finalized. Your lawyer will then begin drawing up all the required documents and ask you to visit him to sign them, and pay the required fees, just prior to the closing date. On the closing date, you will be able to collect the keys to your new home from your lawyer, in the late afternoon.
In the meantime, after the deal is finalized, you will have to arrange for movers, or to rent a trailer, enough boxes to pack all your loose belongings into, transfer or set up any utilities, internet access, cable / satellite TV, home telephone, new schools for your children, and the re-direction of any incoming mail via Canada Post.
All that is then left to do after your move, is to unpack all your boxes, and enjoy your new home.
If you have bad credit, earn undocumented income, are self employed or new to Canada, without an official credit score, you can still buy a home! This system is called “rent to own”. So, instead of just renting and paying off your landlord’s mortgage indefinitely, you can start accumulating your own down payment, and over a 2-5 year period, prepare to buy the current home that you are renting from your current landlord / investor. I have now partnered with a reputable company in this space, called Clover Properties, and this is how they work:
The prospective tenant / buyer (TB), will need the following:
- 5% down payment
- home inspection cost ($400-$500)
The prospective TBs are checked out by Clover Properties, to ensure that they can cover the monthly rental, utilities, condo fees, property maintenance and savings amount, which is used to ensure that the TBs will have a sufficient down payment at the end of the rental period, in order to qualify for a mortgage, and to take over the ownership at that time.
Once Clover Properties have vetted the TBs, they are given a budget purchase price and monthly total rental. The rental period is then established, (normally 2-5 years). The TBs together with their realtor, then search to find their preferred home. Once found, Clover Properties introduce the investor to the realtor, and a purchase deal is negotiated. The TBs sign the rental agreement, pay the 5% down payment and home inspection fee, and then move into their new home. At this time, the final end of rental term sales price, is finalized.
So, the TBs are able to purchase a home of their choice, in their preferred area, and know at the outset, what their monthly home expenses are going to be, as well as what their final purchase price will be.
Clover Properties have already helped over 300 families own their own homes, after renting to own, with a 93% success rate.
If you are interested in finding out more about this great alternative home ownership program, please contact me at anytime!
SMIT's TIP OF THE MONTH
Inspect your roof for winter damage. Try using binoculars to look for loose, broken or missing shingles. Pay special attention to valleys, as these areas normally deteriorate at an accelerated rate. In some instances, patching badly worn areas, may extend your roof shingle life by 2-3 years.
If you, your family or friends, have any real estate questions, or indeed, require the services of a great realtor, please call me anytime, at 416-898-2852. Remember, that I run a referral cash payment scheme, for any referrals, that result in a completed buy or sell transaction, with me!
Stay warm, and watch out for slippery, icy walkways!