Tag Archives: first-time buyers

In 2018, these homes will sell the fastest

With reduced buying power next year, expect house hunters to scoop up everything under $500,000.

Paul D’Abruzzo, an investment advisor with Rockstar Real Estate, says that while most people will qualify for less money on their mortgages, they won’t be completely shut out of the market. They will simply adjust their demands.

“If somebody was preapproved for $500,000, their new approval will be $400-450,000, so they will lose 10-20% of their preapproval amount,” he told CREW. “It won’t shut people out, it will just move them lower. If some were on the brink of getting approved, you’ll lose some there, but lower-priced properties will do very, very well.”

In Toronto, that will put single-family detached homes even further out of the reach than they are now, but the popularity of condos will keep soaring.

“In Toronto, with everybody’s sightline coming down, condos will be the most popular,” said D’Abruzzo. “In the GTA, like Mississauga or Vaughan, it will be condos and maybe townhouses.”

Single-family detached homes will become difficult, but not impossible, to afford. The Greater Toronto Area’s fringes still have moderately priced detached houses for sale, and even with the new mortgage rules, that won’t change.

“In Hamilton, Kitchener and St. Catharines, $400,000 gets you a detached home,” he said, “so you’ll see a continued trend of population spreading out into the horseshoe.”

According to D’Abruzzo, 2018 will not be kind to sellers—at least not through the first few months—but he recommends being patient.

“Right now, people are trying to get their places sold before the mortgage rules kick in,” he said. “Next year, inventory will be crap in January and February. If anyone is scared or fearful and waiting to sell their house, patience is the solution right now. Just wait and see, because nobody knows for sure what it will be like.”

Akshay Dev, a sales agent with REMAX Realty One, echoed that wait-and-see approach. While nobody will miss out because of too much time on the sidelines, Dev says Toronto’s chronic housing shortage will continue working in sellers’ favour next year.

“Whatever correction was needed is done, and in the spring we should see the market picking up and being strong,” he said. “In the Toronto area, there’s a huge shortage of housing, so it’s still going to be a seller’s market, but I don’t expect crazy bidding wars. Sellers will still get the prices they’re expecting.”

Contrary to popular belief, first-time buyers won’t have trouble purchasing starter homes, especially because cheaper abodes will be in high demand. However, they might live in those homes longer than the historical average.

“Historically, we’ve seen that when people graduate from their first buying experience, it takes anywhere from three to five years to move into the next level of housing, but it may become five to seven years with new rules,” said Dev.

Source: Canada Real Estate Magazine – by Neil Sharma 8 Dec 2017
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Top dollar: How high can you go?

Affordability is a major concern for today’s aspiring first-time homebuyers. In hot real estate markets like the Greater Toronto and Greater Vancouver regions, however, the desire for affordability can be challenged by the competitive fervour caused by escalating prices and bidding wars. As anyone who has researched homeownership in these markets knows, it’s easy to feel the pressure to bid higher than you’d like.

Resist the urge. It’s important to go house hunting with a firm price range in mind. If something is outside of your budget, it’s not affordable – period. A successful home purchase isn’t about beating out 20 other offers; it’s about sealing the deal on a home you can afford, with money left over each month after your mortgage is paid, to cover your other expenses, savings and a little bit of fun, too.

It’s a tall order, but there is a formula to help you find that sweet spot.

FIND YOUR RIGHT PRICE

Lenders and mortgage insurers look at two debt service ratios when qualifying you for a mortgage (and mortgage insurance, which you will need if you make a down payment of less than 20 per cent the cost of the home).

  • Gross debt service (GDS)
    The carrying costs of your home, such as mortgage payments, taxes, heating, etc., relative to your income.
  • Total debt service (TDS)
    Home carrying costs (mortgage payments, taxes, heating, etc.) plus your debt payments (credit cards, student loans, car loans, etc.), again relative to your income.

The highest allowable GDS ratio is 39 per cent, and the highest allowable TDS ratio is 44 per cent.

Want a shortcut to determining affordability? Use Genworth.ca’s “What Can I Afford?” online mortgage calculator. Input your income, current monthly debt payments and other details for an instant result that shows how much mortgage you can comfortably afford. (Note: For the interest rate, be sure to input the Bank of Canada’s conventional five-year mortgage rate, as that is what lenders use when determining GDS and TDS.)

DOWN PAYMENT STRATEGIES

Once you know how much mortgage you can manage, limit your house hunt to homes that keep you in that price range. That way, you won’t panic or find yourself in financial trouble if interest rates go up in the future.

 

You can buy “more house” for the same total mortgage if you have a larger down payment. Saving aggressively is one way to do that. Pair that with other strategies, such as the following:

  • Borrowing money from your RRSP under the government’s Home Buyers’ Plan.
  • Asking family for help via gifts or loans. (Don’t be embarrassed: 23 per cent of respondents in the 2017 Genworth Canada First-Time Homeownership Study say they’d do it!)
  • Taking on a side gig or second job.
  • Gulp! Moving back home with your parents so you can save on rent.

LOCATION, LOCATION, LOCATION

The other way to end up with a smaller mortgage is to buy a less pricey house. Fixer-uppers help, but the most dramatic payoff may come from expanding your search to a wider radius.

Consider buying in a nearby city or suburb that you can commute to work from. Or blaze new ground by moving farther afield in search of a new home and new adventures – with the spare cash to enjoy them both!

Source: HomeOwnership.ca 

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What the new mortgage rules mean for homebuyers

mortgage math

Today, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).

The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. “The main effect will be felt by first-time buyers,” says James Laird, co-founder of Ratehub.ca. “No matter how much money they put down as a down payment, they will have to pass the stress test.” The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.

MoneySense asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family’s bottom line. Here’s what they found:

SCENARIO 1: Bank of Canada five-year benchmark qualifying rate

In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89%
They can now afford $570,970
A difference of $155,969 (less 21.45%)

SCENARIO 2: 200 basis points above contractual rate

In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.

Under new rules, they need to qualify at 5.09%
They can now afford $559,896
A difference of $146,796 (less 20.77%)

If a first-time homebuyer doesn’t pass the new stress test, they have three options, says Laird. “They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,” says Laird. The stress test will be done at the time of refinancing as well, with one exception. “If on renewal you stay with your existing lender, then you don’t have to pass the stress test again,” says Laird. “However, if you change lenders at mortgage renewal time, you may have to pass the stress test but it’s not crystal clear now if this will be the case for those switching mortgage lenders.”

So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.

But whatever you do, if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. “This shouldn’t be something that shocks you partway through the home-buying process,” says Laird.

And finally, do your own research and run the numbers on your own family’s income numbers. You can use Ratehub.ca’s free online mortgage affordability calculator to calculate the impact of the mortgage stress test on your home affordability.

Source; MoneySense.ca – by   

 

 

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Is it cheaper to buy a house than a condo in the GTA? This expert thinks so

While many first-time buyers look to condos as a relatively affordable option, one Toronto housing market expert says that it is actually less expensive to buy a low-rise home in the GTA.

According to Realosophy Brokerage co-founder John Pasalis, when you control for the size difference between low-rise and condos in the GTA, condos are more expensive per-square-foot.

In the Maple neighbourhood of Vaughan a 1,385 square-foot rowhouse costs $685,000, while a condo of a similar size in the area would likely cost $684 per-square-foot, or $947,000. It’s just one example of a price difference that can be seen across markets in the GTA.

Pasalis believes that this discrepancy in prices can be chalked up, in part, to investor demand.

“The majority of new condominium construction is driven by investor demand — not demand from families,” he writes in a recent blog post. “Investors are willing to pay much more (on a per-square-foot basis) than end users are.”

Pasalis says that investors prefer smaller units, which typically have a better return on investment, which means that developers are creating units that are too small for families, at prices they cannot afford.

“When developers are pricing a unit, they’re thinking to themselves, why would I charge this much when I can get this much?” Pasalis tells BuzzBuzzNews. “And those prices don’t make sense for a two- to three-bedroom unit, which is likely why we’re not seeing as many of those units being built [in the GTA.]”

In order for a condo to be good-value-for-money for a young GTA family, Pasalis says that low-rise prices would have to increase at a much faster rate than they currently are.

“The rate of appreciation for low-rise homes in the 905 region isn’t going to be very high in 2018,” says Pasalis. “So I don’t see this trend changing in the next year or so.”

While Pasalis admits that for families with a budget of $400,000 or less, a condo may be the only option for homeownership, he says that those with one of $700,000 or more should consider their options.

“They can choose to buy a two-bedroom 1,000 square-foot condo in Maple for that price, or a three bedroom 1,385 square-foot row house with a finished basement and backyard. For most, it’s a pretty simple choice,” he says.

Source: BuzzBuzzHome.com –  

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In it for the right reasons: Rent-To-Own

Source: MortgageBrokerNews.ca – by Neil Sharma 16 Oct 2017
A Calgary-based social enterprise that helps families attain homeownership using the rent-to-own model has arrived in the GTA, where affordability has reached crisis level.

Homeowners Now purchases homes its clients choose, rents it to them, and then gives them exclusive rights to purchase it if they choose at the conclusion of the agreement’s terms. According to Dale Monette, Homeowners
Now’s managing director, the organization works on its clients’ behalf to help them save for eventual ownership and augment their credit scores.

“Our mission is to help as many Canadians get into homeownership as possible by using the rent-to-own transaction structure, which allows them to rent a property for a certain amount of time with the option to buy at the end, kind of like leasing a car,” he said, adding that the company did its due diligence before entering the Toronto market, where its services are badly needed.

Homeowners Now is partnered with the North American Private Assets Corporation (NAPAC), which provides financing. NAPAC is regularly approached by real estate investors who use similar rent-to-own structures, but regularly turns them down. However, it approached Homeowners Now because it believes that the nascent company – which was registered in 2015 but investing with this structure since 2011 – is in it for the right reasons.
Moreover, Homeowners Now has a 100% success rate in helping renters achieve homeownership.

“NAPAC got in touch with us,” said Monette. “They’ve been approached by two dozen rent-to-own companies over the years, but they noticed these companies weren’t in it for the right reasons. We mostly deal with people who don’t have major credit issues – although we deal with them too – and that have good incomes but need that extra boost. Most of the time they’re young families.”

Entrepreneurs are particularly maligned by the current mortgage rules, and Monette says they also comprise part of Homeowners Now’s clientele.

But families for whom money is precarious receive particular care and attention by Homeowners Now. Monette recounted a story in which a client’s gas bill was mixed up and unpaid for to no fault of their own. Homeowners Now stepped in and lent them around $2,500 interest-free to be repaid in 25 installments. Another client had a broken dishwasher, washer and dryer, and Homeowners Now granted them half of the money to replace the appliances.

“Because we’re a social enterprise, whenever a client gets into strife, we help,” continued Monette. “If this client misses a rent payment, they default, but we genuinely want to help.”

GTA residents, specifically, could benefit from this rent-to-own structure. Homeowners Now only entered the market a month ago, but it already has three clients and about 75 applicants. Its goal is to oversee 15 projects a month by the end of 2018.

“What we’re seeing in the Greater Golden Horseshoe is a lot of people are moving further out while a lot of newcomers are arriving,” said Monette. “A lot of people might only have $15-20,000 in savings and that usually falls short of a down payment. There’s a huge need for individuals to get into the market as quickly as possible before being priced out of the market.”

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Larger mortgages a by-product of income growth, low interest rates

Larger mortgages a by-product of income growth, low interest rates

A prolonged regime of low-interest rates along with a steady trend of rising incomes have more than doubled the amount that Canadians are able to borrow for their home purchases, according to the latest report by a public policy think-tank.

In its newest study titled “Interest Rates and Mortgage Borrowing Power in Canada”, the Fraser Institute stated that from 2000 and 2016, interest rates decreased from 7.0 to 2.7 per cent, while household income rose by 53 per cent nationwide. These developments have increased the maximum size of mortgage homebuyers can qualify for by 53 per cent.

In turn, these trends might have contributed to the prevailing environment of elevated housing prices in metropolitan markets nationwide.

“Increased borrowing power, brought about by falling interest rates and rising incomes, is potentially the most overlooked and least understood factor influencing home prices across Canada,” Fraser Institute president Niels Veldhuis said.

Mortgage-borrowing power in Calgary increased by a staggering 161 per cent, the greatest nationwide. Meanwhile, Vancouver saw a 118-per-cent growth in this metric. Montreal posted 115 per cent, and Toronto saw a 100-per-cent rise.

“This increase in borrowing power — in simple terms — means that an average Canadian family, dedicating the same share of their income to monthly mortgage payments, can afford a mortgage that’s more than twice as big now as it would have been in 2000,” Veldhuis explained.

Interested parties can access the full study here.

 

Source: MortgageBrokerNews.ca by Ephraim Vecina

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As uncertainty sets in, Toronto homeowners are cashing out

A pedestrian walks between homes for sale in the Leslieville neighborhood of Toronto, Ontario, Canada, on Saturday, March 4, 2017. In Toronto prospective buyers have found themselves in bidding wars, due in part to the largest price surge in almost 30 years and coupled with an ever tightening inventory supply. (Mark Sommerfeld/Bloomberg/Getty Images): A pedestrian walks between homes for sale in the Leslieville neighborhood of Toronto, Ontario, Canada, on Saturday, March 4, 2017. (Mark Sommerfeld/Bloomberg/Getty Images)

TORONTO – Sarah Blakely recalls feeling some trepidation when she and her husband shelled out more than $300,000 for a modest 1 1/2-storey house in a less-desirable part of Toronto.

Seven years later, they found themselves on the right side of a hot housing market, with values tripling in a ‘hood suddenly considered up-and-coming for young families seeking detached homes.

They recently sold that renovated three-bedroom for more than $1 million and now expect to live mortgage-free in a four-bedroom purchase in their hometown of Ottawa.

The 34-year-old says it made sense to cash out of a city that was draining their finances, energy and family time.

“My husband and I saw an opportunity to take advantage of the recent gains in real estate and to move to a less expensive city to live mortgage-free, support our savings for retirement and also to be closer to family,” says Blakely, whose new home has nearly twice the square footage.

And they may have taken action at just the right time.

Blakely’s real estate agent Josie Stern says the market appears to be cooling, and doubts Blakely could fetch that same jackpot sale today.

“A little bit of air has been let out of the bubble,” she says.

Many buyers and sellers are waiting to see what will come of Tuesday’s scheduled meeting between Finance Minister Bill Morneau, Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory, who are expected to discuss ways to rein in Toronto’s hot housing market.

Meanwhile, the Ontario government is promising to announce affordability measures soon.

Stern says some buyers are delaying their purchase in anticipation of possible fixes.

“Buyers have been in such a stressful situation for so long that now they think somebody is going to save them and they’re waiting,” says Stern. “They’ve dug their heels in, they’re tired of competition and then there’s those that are still proceeding, but there’s been quite a big pullback from buyers.”

Sellers who’ve bought new homes are rushing to list their old property, she adds, but many are not getting the high bids seen a month ago.

The Toronto market has been astonishing, with the average sale in the Greater Toronto Area skyrocketing last month to $916,567. That’s up 33.2 per cent from a year ago.

With strong demand and limited supply, it wasn’t uncommon for bidding wars to result in sales hundreds of thousands of dollars above asking. And a lot of those sellers took those dollars out of the Greater Toronto Area where they can get more acreage, less congestion and still pocket a fair bit of cash.

“We’re finding that a lot of people are leaving the city,” says Stern, who estimates that about a third of her 35 sales this year involved sellers either downsizing to condos or moving to more affordable markets.

“It’s empty-nesters, it’s (couples with) babies, it’s all kinds of people that are doing this.”

Toronto skyline (Shutterstock)© Used with permission of / © Rogers Media Inc. 2017. Toronto skyline (Shutterstock)

Even with a new uncertainty in the air, it’s still a seller’s market, she adds.

One of her biggest sales was a $2-million listing that went $575,000 over asking in February. The sellers moved to the commuter city of Burlington, Ont.

They’re joining buyers priced out of the Toronto market who have gone looking for cheaper housing in smaller communities across the Golden Horseshoe, spurring other sales spikes in the region – Hamilton-Burlington homes jumped 22.6 per cent during the first two months of 2017 compared to a year earlier.

Still other buyers are looking farther afield.

Remember that relatively inexpensive Nova Scotia mansion that dominated Facebook last month?

Real estate agent Wanda Graves of Eastern Valley Real Estate says it’s sparked more inquiries from Ontario, Manitoba, Alberta and B.C. house hunters suddenly hip to Eastern Canada’s charms.

Nova Scotia sellers are taking notice, and are marketing to out-of-province buyers now considered increasingly likely to make an offer.

“They know that there are buyers out there and now it’s, ‘How do we reach them?”’ says Graves.

Before selling for $455,000, the mansion in Newport Landing, N.S., drew more than one million views on her company’s website and 36,000 shares on Facebook.

It’s a story Vancouver real estate agent Melissa Wu knows well.

Years of record-setting sales saw Vancouver homeowners cash out for smaller markets with more space.

But that changed after the B.C. government introduced a 15 per cent foreign buyers’ tax last summer, which Wu says especially soured interest in west Vancouver luxury homes priced at more than $4 million.

Detached homes in the $1-million to $2-million range in east Vancouver are doing well and still notching close to record highs, says Wu.

Her recent sales included a $2-million get for a century-old home owned by a retired couple. Their plan is to downsize to an older condo costing less than $500,000. The rest of the proceeds will go to their kids and retirement fund.

She says the sale was a record high for the neighbourhood, but it took an agonizing three weeks to secure – longer than it would have last year, she says.

She advises Toronto homeowners thinking of selling to take advantage while they can.

“There’s always a shift coming in,” she says of this hot market. “Sell before it corrects.”

Stern would like to see a crackdown on real estate speculators in Toronto, citing one buyer who bought 15 properties in the last two years.

And she cautions those tempted to cash out that there’s always a risk the market won’t co-operate.

“People have been asking themselves that question since the year 2000: Should I sell? Should I cash out?

“And there have been people who have cashed out and have regretted it because they’ve seen what the market has (done) – they’ve never been able to rebuy the houses that they’ve sold.”

 

Source: MSN Money

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