Those confounding Real Estate gods are at it again!
Let’s review the past year, be apprised of new policy announcements, and look at some suggestions for 2018.
2017 saw marketplace frenzy in the first part: There was little inventory, buyers frantic, agents creating bidding wars, prices escalating, tension, anxiety and instability. The government responded to an overheated market by imposing Ontario’s 15% Non-resident Speculation Tax, and two hikes in interest rates.
January 2018 is again feeling the arrival of new government regulations intent on mortgage tightening. The new OSFI* rule is a stress test which evaluates whether buyers will be able to cope with their mortgages in the long term. It requires that borrowers prove that they will still be able afford their mortgage payments when interest rates are raised (eg. If you are ready to put 20% down on a 1M home now, will you be able to cope with a 3% increase on an $800,000 mortgage in 2 years?). Those who are self-employed will have the hardest time proving their eligibility. Since the stress test was already in effect for homes in which the down payment was less than 20%, some lenders were following the regulation even in December. The Bank of Canada suggests that this OSFI rule could disqualify 10% of prospective home buyers with big down payments.
The repercussions could effect a very rocky beginning to the New Year. Buyers might be more inclined to go for entry-level houses, put more money down, accept riskier loans, or delay buying altogether which could result in an upswing in the rental market. Buyers will undoubtedly look for alternative, unregulated lenders like credit unions and private mortgage lenders. With the stress test eating into the buying power of the most stretched borrowers and the likely hike in interest rates in the early part of 2018, most experts predict a 10% price decline. The Canadian Home Builders’ Association has forecast that the rule changes combined with other recent housing-sector policy reforms could reduce total house transactions by 10 to 15%.
An overview of data in the Annex for the last 3 months of 2017 deserves comment in terms of efficacy in pricing. Out of 65 examples of activity in the marketplace, 18 either expired or were terminated because vendors changed their minds about selling altogether, or wanted their property to be reintroduced to the marketplace at a lowered asking price. Those that were sold were sold quickly, (within days!) either for asking price or relatively close and above (of course, they were the typical, but by no means commonplace, gems of Victorian character found in the Annex). Those listings of equally admired and sought-after homes that were withdrawn, were, unfortunately for the seller, overpriced and out of touch with the reality of the marketplace in the last quarter of the year.
All in all, the Annex did extremely well in 2017 with outstanding home sales on streets such as Madison, Bedford, Huron, and Hazelton.
Words of Advice
If you are a seller, be realistic in your asking price. Make sure that your property is priced appropriately to be effective. It is the marketplace that determines its value.
If you are a buyer who is faced with the problem of not being able to close, do as much as you can to salvage the deal. (As a broker, I saw how the vicissitudes of the market stung some buyers. When borrowing was easy, some buyers -against advice- settled on a very long closing. By the end of the year when they had not managed to sell their own homes or lost credibility with their lenders, their deals fell through.) Keep the deal alive: Try to extend the closing date.
The seller might choose to sell the property and is allowed to use your deposit to defray the difference between the original agreed price and the next buyer’s price. To avoid this, you, the buyer, can find an eligible buyer to take over the sale, the deal itself may be salvaged by way of an assignment, an agreement by which a secondary buyer takes over the first buyer’s rights and closes the transaction instead. The hitch here is how can you “show” the home if it is not your property? It is clearly crucial that your lawyer maintain close communication with the seller and/or the seller’s lawyer. Always be upfront and transparent.
BTW: Real estate lawyers are a good resource for finding private lenders.
The reality is that there is a limit, after all, to our land supply. Chief economist Benjamin Tal advises: “Buy when you are financially ready ((((since prices will climb in coming years)))).”
To all Annex readers, may I wish you a happy, healthy New Year and may the
Real Estate gods be kind to all of us in 2018!
*OSFI – Office of the Superintendent of Financial Institutions