August 2022 Toronto Market Watch

High Borrowing Cost Impacting GTA Real Estate Market, Bank of Canada Increases Policy Interest Rates By 0.75%, Rent Soar By Double Digits Annual Increase

It is noted that the August home sales is about 34% less compared to August 2021 but the average selling price still has a slight increase of 0.9% compared last year. The sales-to-new-listings ratio in August 2022 is 53% which is comparatively higher than the consecutive previous 4 months and is similar to the ratio of 55% in March 2022. 50%+ represents a more balanced market.

On 7 September 2022, the Bank of Canada announced to raise further the interest rate by 0.75% to help flight inflation. The decline of sales transactions has reflected the effect of higher borrowing cost to temporarily preclude the home buying of some households and investors.

“275,000 new permanent residents have arrived in Canada till July 2022” said Sean Fraser, Minister for Immigration, Canada In addition, 349,000 new work permits were issued during the same period of time. Further 360,000 study permit applications have been finalized so far in 2022.

In the detached house segment, the sold price over 2M is the third highest number of sales in August similar to the range of $900,000 – $999,999. It may indicate that some serious home buyers prefer paying the temporary high borrowing cost to get the reasonable purchase deals rather than high selling prices with strong competitions later.

In the condo apartment segment, the lower sold price ranges between $500,000 to $699,999 are the highest number of sales. These buyers who are most likely the first time buyers or investors can reduce the impact on high borrowing costs and can mitigate the risk in the future.

“Now, buyers are experiencing more negotiating power and motivated sellers are adapting to the more recent market conditions” said CEO and Broker of Record at Zoocasa. The property prices still depend on the local dynamic and neighbourhood.

Toronto condominium apartment rental market keeps to heat up during the summer vacation, resulting in extremely strong upward pressure on average rents. A shortage of rental supply becomes very undesirable situation caused by the rapid population growth of new immigrants and international students back in Toronto.

As per TRREB Q2 2022 Condo Apartment rental market report, the vacancy rate is less than 1% in most major municipal cities and the average rent for 1 bedroom reached $2,269 as at June 2022.

According to Rentals.ca August report, the average rent in Toronto is increased to $2,694, up by 24.2% :

– 1 Bedroom $2,329; 2 Bedroom $3,266

During this critical situation, the investors in particular of holding the brand new units are benefited from this upward rental to cover the extra interest payments

Housing starts decline almost 3% in August, amid concerns about supply

A recent report from the CMHC concluded that the country would need to build 3.5 million new homes by 2030 to reduce its shortfall and improve affordability. Canada is averaging only 200,000 to 300,000 new units per year. In addition, the Federal Government continues to welcome 1.2M+ new immigrants between 2021 to 2023. Housing crisis is a long term major problem!

/by

Can students get a mortgage in Canada?

For most post-secondary students, just getting by financially while passing classes is more than enough to occupy their time, however, everyone’s circumstances are different. There may be a time when you find yourself enrolled as a student and interested in buying a home.

Maybe you are a mature student who chose to go back to school at an older age after saving some money, or you received a significant amount of money through a gift or inheritance, or maybe you just worked really hard (and got incredibly lucky) with a job or investment.

On the other hand, many people have graduated but still have the dreaded student loan debts to contend with. This too will make buying a home a bit more complicated, but not impossible.

Being a student can be a demanding occupation, and it will make the home buying and home-owning process a bit more complicated. However, it can be done!

In this article, we will cover everything you need to know about buying a home as a student, or with student debt.

Students can get mortgages in Canada
The first thing to know is that in Canada there is no hard law that would prevent a university or college student from buying a home or getting a mortgage. But, just because you can doesn’t mean it will be easy. Getting a mortgage will depend a lot on if lenders are willing to provide you with funds, and this will be your biggest barrier as a student.

Can international students buy houses?
In general international students can get a mortgage in Canada. In fact, even with the new foreign buyers ban coming into effect soon, an exemption is made for international students. The only difficulty may be in working with your bank in your home country to verify income and international credit history.

How being a student can affect your mortgage approval
There are many ways that being a student can affect your mortgage approval.

The first is the fact that most students tend not to have a lot of money, so having enough for a down payment will be tough. Assuming you do have enough for a down payment, there are still other factors that will affect your qualification.

For example, students tend to be younger, and may not have had the time yet to develop a strong credit history. This will be a big factor in your bank’s approval process, so make sure you have a strong credit score if you want your best shot.

Another factor is income. You may have a down payment amount through a gift or inheritance, but you will also need to keep up with regular payments.

This naturally means you will need a pretty high income. The issue is that it can be hard to maintain a job that pays enough to cover your mortgage while also keeping up with your studies. While owning a home would be nice, you should not buy a home at the expense of your academic performance if that is something you also value.

Finally, a lot of students take loans to cover their tuition and other education costs. This will affect your ability to buy a home, but we will cover this more in-depth in a bit.

How being a student can affect homeownership
Assuming you are able to buy a house as a student, you may still face some challenges as a homeowner.

As we mentioned before, homes can be costly, and keeping up with not just your mortgage but also any necessary maintenance and other home costs can be difficult if you can’t commit to your job full time.

Another factor is that home improvements and maintenance can take a lot of time, which can be in conflict with your education. What will you do when you need to make an urgent home repair in the middle of your stressful exam season?

You may also choose to rent out the home you live in, and this can necessitate even more work through finding tenants and keeping up with their needs.

Benefits to owning a home as a student
On the other hand, there are many benefits to owning a home as a student.

If you choose to live in the home you purchase, you won’t need to worry about tracking down a student rental property. And you won’t need to deal with the sometimes questionable quality found at such rentals. Also, you won’t have to worry about a landlord or roommate affecting your living situation.

Also, you will have the benefit of simply owning a home! That means you have a reliable place to stay, study, and get a head start on your life outside of school.

On the other hand, if you choose to rent out your property, this can help to offset the costs of owning it as a student. Getting extra pocket money through rental income will depend a lot on your ability to cash flow a property, which is not viable in every market. However, you can offset a lot of the cost of the mortgage, which can help you build equity to grow a larger rental portfolio, or just to have a lot of your home paid off if you choose to stop renting after you’d graduate.

Can I get a mortgage with student loan debt?
Even once you’ve moved on from school, you may still have some student loans remaining by the time you are interested in buying a house. This is concerning because a mortgage is debt just like student loans, and your lenders will not let you take on more debt than you can afford. This can affect how much of a mortgage loan you are able to borrow.

The conventional approach is to pay off as much existing debt as possible before buying a home. After all, if you can save enough for a down payment, you could easily save enough to pay off student debts. This will also help you to get the best mortgage possible and alleviate some financial stress.

Not everyone’s priorities are the same though, and some people will prefer to buy a home before paying off student debts. If you choose to go that way, here’s what you need to know.

Understanding your debt to income ratio
Your lender will look at two key debt ratios when approving you for a mortgage. One is your Gross Debt Service Ratio (GDS), which represents the ratio of your income to the cost of your housing. This generally won’t be affected by student loans.

The other ratio is your Total Debt Service Ratio (TDS), which represents the ratio of your income to all of your debt service requirements, such as housing, credit card debt, student debt, and more. This is where your student debt will come into play.

Most lenders will not let you get a mortgage with a TDS greater than 44%. If your loan payments are too high, or your income is too low, you will not be able to qualify.

On the other hand, making your monthly student loan payments regularly can help to improve your credit score and establish a credit history which will actually help in getting approved for a mortgage.

Figuring out if you are qualified
If you are in doubt, there are some ways you can figure out if your mortgage plans are viable. For one, you can try for pre-approval with a lender and learn the hard way whether or not you are ready to buy. You may also choose to talk to a mortgage broker, who can help to tell you if you will be able to get a mortgage and help you to find mortgage lenders that will be best for you.

 

When it comes to borrowing a mortgage with higher than average debt, it may be a good option to work with an alternative mortgage lender. These lenders often have looser terms than the big banks and may be more willing to find a solution for a borrower with high debt. Again, your mortgage broker can help you negotiate a good deal in this situation.

Investment real estate with student loan debt
While it is generally advised to pay off your debts before you buy a home, this may not necessarily be the case if you are buying for investment purposes. For example, if you have enough money to either pay off your debts or purchase a rental property, depending on your cash flow potential it may actually be a better financial move to go for the rental. The reason is that if you are able to make more money from rental income than you would incur on interest from your debt, you will ultimately be earning money.

Conclusion
There is nothing that would strictly prevent a student or someone with student loan debt from getting a mortgage in Canada. Ultimately, the primary concern of any mortgage lender is how financially capable you are of keeping up with mortgage payments.

If you have a high income, a good credit score, a decent down payment, and not too many other debts, you should be able to qualify for a mortgage. If you are lacking in some of these areas, you may be able to qualify with an alternative lender. Otherwise, it may be best to wait until you are more financially stable, or consider other options like a rent-to-own home or a co-signer.

/by

How to Avoid Paying Unnecessary HST

The federal government announced back in May that all assignments will be subject to a 13% HST tax in Ontario.

This tax has also been applied, but we used to have specific workarounds – but as of May 7th, those workarounds no longer apply.

What does this mean for you?

You pay HST on the deposits plus an additional 13% on the increase in home value once the assignment is complete.

For example, if you purchased your home for $600,000 but then sell it for $800,000, you’ll need to pay an additional 13% on the $200,000 profit you made.

So, how can I help you save?

There are some key deductions you can make along the way to reduce the amount of HST you owe.

Since May, our clients have saved between 15% & 20% following these guidelines.

You can SAVE MONEY by claiming HST on your closing expenses, such as:

  • realtor’s commission
  • lawyer fees
  • other assignment-related expenses, such as staging or upgrades you’ve done on the property.

You see, the CRA will be after your money pretty quickly if you’re not careful. They’ll charge HST on what we pay for goods sold, which means it’s important to deduct that from everything else throughout the process, so there isn’t too much left over when all is said and done!

In this case, we will deduct the HST tax from what you pay them upfront to cover the cost of goods sold, which will partly offset the deductions throughout it all.

/by
,

Bank of Canada announces another big rate hike

The Bank of Canada has increased its benchmark rate by 0.75%, marking a fifth consecutive hike in its latest effort to get surging price growth under control.

The central bank’s move is its first three-quarter-basis-point jump of 2022, bringing its trendsetting policy rate to 3.25% – a full three percentage points above the rock-bottom level it occupied from the beginning of the COVID-19 pandemic to March of this year.

Still, the increase was also a smaller hike than that contained in the Bank’s previous announcement, with that July 13 decision seeing an unexpected 1% jump to combat inflation that has been spiking ever upwards in recent months.

The Bank’s announcement means that the benchmark rate is now above the so-called neutral rate, the level at which economic growth is neither boosted nor constrained, which is currently between 2% and 3%.

The Bank of Canada has increased its benchmark rate by 0.75%, marking a fifth consecutive hike in its latest effort to get surging price growth under control.

The central bank’s move is its first three-quarter-basis-point jump of 2022, bringing its trendsetting policy rate to 3.25% – a full three percentage points above the rock-bottom level it occupied from the beginning of the COVID-19 pandemic to March of this year.

Still, the increase was also a smaller hike than that contained in the Bank’s previous announcement, with that July 13 decision seeing an unexpected 1% jump to combat inflation that has been spiking ever upwards in recent months.

The Bank’s announcement means that the benchmark rate is now above the so-called neutral rate, the level at which economic growth is neither boosted nor constrained, which is currently between 2% and 3%.

/by

More GTA homebuyers turning to private lenders. Here’s what you need to know

With a housing market that’s pricing out many in the Greater Toronto Area and stricter mortgage rules in Canada, private lending is becoming more popular among those looking to secure loans to buy a home — but experts warn there are risks involved.

The value and number of mortgages funded by alternative and private lenders have increased in the past five years, according to the Financial Services Regulatory Authority of Ontario (FSRA), an independent regulatory agency created to improve consumer and pension plan beneficiary protections in Ontario and regulates sectors, including mortgage brokers, loan and trust companies and credit unions.

The agency says the value of mortgages by private and alternative lenders has increased from $13 billion in 2019 to $22.4 billion in 2021 and the number of mortgages rose from 30,435 in 2019 to 36,568 in 2021.

In 2019, t​he ​total value of mortgages brokered ​by licensed brokers in Ontario ​was $139.5​ billion, which means that private lenders accounted for 9.3 per cent of mortgages in the province.​ ​That share of the market rose to 11.6 in 2021, as the overall value of mortgages brokered in Ontario increased to $193 billion that year.​

Zahra Marani, managing partner for real estate and private lending with Marani Law LLP, says her law firm has seen private lending become an increasingly popular option, especially among clients who are looking to refinance a mortgage.

“I’m seeing people who certainly would have been at the bank not so long ago who just have no choice but to turn to private lending,” Marani said.

“Not only are we seeing an increase in the need for private funds, we’re also seeing an increase in the rates that are being agreed upon by the borrowers and lenders and the brokers, because it’s costing more to borrow at the banks.”

For prospective homebuyers, there are two ways to get a mortgage: the traditional financial institutions, like banks and credit unions; and private or alternative mortgages, which are offered by investment corporations or mortgage finance companies.

So why are people turning to the latter?

Antoinette Leung, head of the FSRA’s Financial Institutions and Mortgage Brokerage Conduct, says the demand for private mortgages has increased in large part due to the current housing market.

Leung says more stringent underwriting guidelines by federally regulated financial institutions, as well as self-employed individuals who may not have a steady income, have also been a factor in turning people away from traditional mortgages to private lending options.

“These are quite well established lenders with sophisticated processes [who] have experience with underwriting all the way down to individuals who may have extra money to invest,” Leung said.

Bank of Canada hikes rate to 2.5%. Here’s what it means for you

 

“So, you really have a range and we’re seeing an increase over the last few years.”

The reason? An alternative mortgage lender has different lending criteria than big banks and could provide a way to get a loan when an individual doesn’t meet the requirements for a conventional mortgage.

But going with a private lender comes with risk as well. Experts say the rates can be higher, and customers need to do more due diligence about who they’re borrowing from.

A CBC News investigation this week revealed Paradise Developments Inc. — a licensed developer building homes in GTA communities — has been trying to prevent a number of individuals and companies from collecting deposits for homes in its developments.

The unlicensed and unregistered companies identified were also claiming they could offer 30-year private mortgages with interest rates as low as 2.75 per cent and low down payments — something Marani, the real estate lawyer, says “has red flags all over.”

Consumers should beware of fees, penalties
The FSRA found consumer protection concerns in private mortgage examinations, in particular with those who may be more financially vulnerable and could be taken advantage of in these transactions.

The agency says mortgage agents should know the financial needs, circumstances, goals and expectations of their clients — both borrowers and private lenders.

Leung says consumers should beware of fees and penalties when entering into a private mortgage agreement.

Marcel Ghazouli, a licensed mortgage broker with Premiere Mortgage Centre, says he’s also noticing more clients borrow from private lenders often at sharply higher interest rates than would be available through a bank.

“It has picked up as of late as rates have been increasing and also due to the after effects of the pandemic, whether that’s life changes related to work, health [or] family issues,” Ghazouli said.

Ghazouli says private lending, which is typically short-term loans that can be anywhere from a year to 18 months, are designed to “bridge the gap between one scenario and the next,” such as moving from a private lender back to a more traditional institution, such as a bank.

“What many people don’t realize is that these private mortgages don’t automatically renew once they’re up for renewal,” he said.

“The lender can impose a renewal fee. So that’s something that should be asked and clarified during the process so that they know what they’re up against.”

Qualification for mortgages ‘a concern’

In July, the Toronto Regional Real Estate Board (TRREB) revealed overall sales fell 47 per cent from the same time last year.

“Over the last couple of months, we’ve seen historic increases in mortgage rates and we’ve [also] seen rates increase quite dramatically,” said TRREB president Kevin Crigger in an interview with CBC Toronto.

The board said sales in July, which amounted to 4,912, were almost half the 9,339 homes sold the same time last year.

Crigger said while he personally hasn’t seen a large amount of clients turning to private lenders, “qualification definitely is a concern for some and people are qualifying for less,” as the mortgage stress test continues to increase along with interest rates.

/by