Friday, December 19, 2008

Should I Sell My House Now? Toronto Real Estate

House Price Predictions for 2009

Why is the mood so pessimistic?

Blame it on a succession of downbeat surveys highlighting the extent of the market’s slowdown. Buyers’ confidence is subsiding under pressure from more expensive borrowing, although prices are still on a par with last year and in some neighbourhoods actually higher than a year ago. Toronto Real Estate Board data showed Toronto prices falling by 3.0 per cent in October, further in November, although there was an overall decline in Canada of almost 10.0 per cent.

This is all very sudden isn’t it?

No one should be surprised that the market’s previous giddy growth is stalling. This was widely forecast last Christmas as the inevitable consequence of the strain imposed on household budgets by higher interest rates, particularly for those whose discounted fixed rate mortgage deals were due to come to an end. It’s all about affordability: prices have risen faster than earnings for 11 of the past 12 years, according to CMHC. Mortgage repayments now account for more than 50 per cent of the average first-time buyer’s take home pay. The market’s temperature cooled in parts of Toronto in the spring, but increased in Mississauga. The Miller Tax?

Are we in for a crash?

Correction would probably be a more appropriate description. Stagnation-not slump - appears to lie ahead. No respected commentator currently believes there will be a repeat of the crash of the late 1980s which was the result of a shock upward move in interest rates and higher unemployment. The slowdown of 2008 could feel more like the doldrums of 2005 when the number of homes bought and sold fell. A drop in the market’s temperature makes people feel hesitant to move. Suddenly homes are for nesting not investing. Get ready for the trend to cocoon.

Are some locations more vulnerable?

Slightly less desirable neighbourhoods populated by those who have been priced out of a nearby more respected areas tend to fall out of favour when the market is more depressed. There are also concerns about lower value properties (that is under $500,000) as the prospective purchasers of these homes could find it harder to get mortgages even if they are prepared to overextend themselves.

But are house prices in West Toronto and Etobicoke going to carry on as normal?

Revised Incomes mean there could be fewer bidders for properties between $1 million and $2 million, but it looks as though international buyers will continue their love affair with more expensive metropolitan homes and downtown condos, with many opting for large condos in Downtown Toronto and Yorkville. Canada continues to be a safe haven for foreign investment.

Won’t the American sub-prime scandal make things worse?

Opinions remain divided as to whether the repercussions of the sub-prime scandal - which has exacerbated America’s serious housing market slowdown – will stifle consumer spending and thus continuing in a recession. If this does come to pass, the pain will be spread everywhere, But, there is conviction that the US economy will contrive to brush off its cares and woes and muddle through, especially in the post election honeymoon. (Auto Makers will not be allowed to fail. They may be restructured.) The credit crunch produced by the sub-prime fallout – which made banks reluctant to lend to each other and brought to the light the 50 Billion stock Market Ponzi Scheme - may also make them reluctant to lend to you. Recently lenders (mortgage officers) have commented it is difficult to obtain financing even for those with no mortgage on an existing property because of the FINTRAC compliance rules.

And why is that?

Most banks have suffered losses on their holdings of sub-prime mortgage debt. As Mervyn King, Governor of the Bank of England, warned this week, they will repair this by being less generous. Anyone needing a loan of 95 per cent or more of a property value, or aspiring to borrow five times their income should prepare for disappointment because mortgages sold to US homebuyers with poor credit records were parcelled up and sold on to institutions worldwide as supposedly secure investments. Those investors who are buying with 20 % as a downpayment and are buying below market values; with careful risk analysis, will reap huge rewards. Canada's practice is much safer in that the mortgages advanced are held here and fully insured by the Government of Canada via CMHC.

If you are a CNN watcher, they televise and sensationalize entire neighbourhoods that are vacant and abandoned with streets upon streets with For Sale signs. We do not (have not) see that in Canada.

Should I rethink taking out a loan to invest in rental income property?

Investor loans may be harder to get. Meanwhile, smaller developments in city centres, such as Humber Bay Shore condos, or condos along the subway line (major transit corridors) that may be oversupplied with condos could be seen as vulnerable parts of the market. This does not mean prospects are poor for all real estate condo investments. Many amateur landlords are long-term investors and not overindebted; they are also enjoying rising rents with demand for rented accommodation at its highest for five years. Tenants are either prospective purchasers waiting for weaker prices, or first-time buyers priced out of the market. The current vacancy factors are at 2.2% and appear to be declining further.

I need to sell as I have a new job elsewhere. Any hints?

David Pylyp, Re/Max Realty Specialists Inc., an agent, recommends that you attempt to take an objective view of your property’s desirability. “Even in a difficult market, a fantastic property can get a good price, but there is less enthusiasm for a lower quality house. If your house presses all the right buttons, you can be confidant about the price; but if it doesn’t then you have to set the price by relation to comparable properties that are also available.”

Does all this mean bargains for first-time buyers?

Despite the lending squeeze, it’s still possible to get a mortgage if you have a deposit saved. But unless you are expecting a pay rise soon, you may still struggle to afford the monthly repayments.

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