Andre Smit's Real Estate Round-up

Hi Folks,

I would like to take this opportunity, to thank my clients for their continued support and referrals. With their unwavering support, I managed to have another great year! My commitment to my clients, remains that I will ensure that you continue to receive my personalized, professional, world class service, at all times. In my business, you will never just be a statistic!

The actual sales to new listings ratio has moved up drastically from 51% in November, to 72% in December, putting us theoretically in a hot seller's market! However, the extremely low sales and low number of new listings in December, is currently making a mockery of this ratio! However, there is no doubt that we are moving into a sellers' market.

Te Bank of Canada, is expected to drop it's overnight lending rate at the end of January by another .25 of a percentage point. The consensus is that interest rates will bottom out by the middle of the year at around 3 – 3.25%.

In my February round up, I will detail the expectations for the real estate market in 2025.

For investor landlords and tenants, the Ontario government announced that landlords will be able to increase rentals in 2025 by a maximum of 2.5%

According to the Toronto Real Estate Board, (the largest in Canada), compared to December last year, total new listings were up by 12.7%, while total actual physical sales were down by 2.5%. This resulted in the average price of all homes decreasing by 1.6% over the same period last year. The average days that listings spent on the market, (days on market), before selling, has increased from 32 days to 36 days, or 12.5%, for the same period.

Average detached house prices have decreased by 1.3% and physical sales have decreased by 6.4%, compared to December, 2023. The number of total new listings increased by 18.7%, for the same period. The days on market, increased by 16% for the same period, up to 36 days.

Condominium apartment physical sales increased by 1.7% and average prices decreased by 0.1% for the same month, a year before. New listings were up by 18.4% in the same period. Consequently, it also took a 14% longer time to sell an apartment in December, 2024. There is still a glut of apartment supply, especially in Toronto.

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 - $600,000 - $800,000

Row townhouses - $750,000 - $1,000,000

Semi-detached houses - $850,000 - $1,200,000

Detached houses - $1,200,000+

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. In addition to 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. As well, 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 $500 - $1,000.

Freehold ownership on the other hand 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. All apartments and most 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 longer that 30 years, or the purchase price cannot be higher than $1.5 million.

To qualify for any mortgage from a financial institution, you need to prove that the following costs do not constitute more than 42 % of your total monthly gross income:

• Monthly Mortgage Payments

• Monthly Heating Costs

• 50% of Monthly Condominium Fee , if applicable

• Property Taxes

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 46% 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 - $600,000

Down payment (5%) - $30,000

High ratio mortgage premium - $22,800

Mortgage amount - $592,800

Monthly mortgage payment (30 year fixed at 4% for 5 years) - $2,820

Monthly condominium fee - $500

Monthly heating cost - $150

Monthly Property Taxes - $250

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 6% per annum, or $3,560 per month

Joint gross earnings required - $10,030, / month, (assuming no other monthly committed debt repayments)

So in the above case, you would have to jointly earn at least $120,400 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 – minimum of $5,000 or a maximum of 5% of the negotiated price, (paid at time of making the offer, but deducted from the above down payment requirement)

Home inspection fee - $500 - $650, (can normally be dispensed with, when acquiring a condominium)

Lawyer's fee - $1,500 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 - $1,824

Any seller's prepayments regarding property taxes, utilities and water tank rentals etc.

Provincial Land Transfer Tax - $8,475

However, if you are making your purchase in the city of Toronto, you also have to pay a city Land Transfer Tax equal to the provincial tax!

First time buyer, Land Transfer Tax rebate is $4,000. So, in effect, only $4,475 net, will be payable on this property.

So, prior to making a firm offer, you should have at least $15,000 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 internet 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 your offer is accepted, 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's agent, 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, or get the code to the lockbox containing the front door key, normally 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 (if required), 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 ($500-$650)

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 800 families own their own homes, after renting to own, with a 96% 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

Check your roof for hot spots, where snow has melted faster than on the rest of the roof. This would indicate areas of possible heat loss. You may then have to add insulation in the area between the roof and the ceiling, where these spots occur. Adding insulation and sealing around vents, will also help minimize heat and energy loss. Don't forget to stock up on driveway salt / ice melt pellets and winter windshield washer fluid.

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.

Stay warm and safe,

Kind regards,

André