Thursday, July 20, 2017

Review: Bank of Canada Raises Interest Rates

Unless you were on vacation last week, you probably saw the news that the Bank of Canada increased interest rates.  A lot of commentary has followed the move with everyone sharing their opinion on the matter and what it means for the real estate market.  Today we are going to share our take

What should I know about what the Bank of Canada did last week?
The Bank of Canada raised its overnight lending rate from 0.5% to 0.75% last week.  This overnight rate determines the rate at which banks lend money to each other on a regular basis.  This affects the bank’s cost of funds and since the banks lend to consumers based on a spread, this would lead to increased borrowing costs.  This is the first interest rate increase in seven years.

Why did the Bank of Canada raise interest rates?
The bank has 2 mandates:

1. To ensure the economy is operating as close as possible to full employment.
2. To ensure inflation is operating within an acceptable range (generally 1-3% annually).

The bank cited a strengthening economy and expectations for higher inflation as two primary reasons for the increase.  Another reason is that the Bank of Canada acts mindfully based on how the U.S. Federal Reserve acts. The U.S. has increased interest rates three times already this year!  Lastly, the Bank of Canada is concerned about runaway house prices in large markets such as Toronto and Vancouver; they want to reign in speculation and increased borrowing.

What does the interest rate increase mean for me?
The Big Banks in Canada set a prime lending rate based on their cost of funds.  For the last few years, this rate has been set at 2.7%.  Lots of borrowing products, including variable rate mortgages and home equity lines of credit, are based on a discount or premium based on the prime rate (ie. prime -0.50%).  Therefore, rates on variable rate mortgages and other products tied to prime rates will increase as a result.  In fact, the big banks had all increased their prime rate from 2.7% to 2.95% within 24 hours of Bank of Canada decision.  Fixed rate mortgages or loans (being fixed) will not see a change.

How will this interest rate increase affect the real estate market?
When looking at the big picture, this interest rate increase is very small.  Lets use an example to illustrate:

  • The current average home price in Canada is approximately $500,000
  • Suppose your mortgage is based on 80% loan to value or $400,000
  • Let's say your variable mortgage is based on the previous prime rate of 2.7%
  • Now your prime rate is set to increase to 2.95%
  • The amortization period is 25 years
  • Your previous payment was $1831.95/mth.  Your new payment is $1882.73/mth.  An increase of approximately $50/mth.

While $50 extra isn’t fun, we don’t see it breaking the bank in the big picture.  When people think about interest rate increases, they think about rates rising to historical averages of 7-10%.  We are nowhere near this.  It would take a long succession of interest rate increases for interest rates to really affect the market.

Before the rate increase, sales in markets like Toronto were pulling back on the heels of a proposed 15% foreign buyers tax.  Add chatter of increasing rates and all of the sudden people are sitting on the sidelines.  This seems to be more of a perception issue with people reading the headline news.  Prices were already sky high and speculators are pulling back.  It's doubtful that the extra 0.25% on borrowing costs is suddenly making it unaffordable for qualified buyers who were in the market looking already.

In our home market of Windsor, Ontario, with an average price of $267,000, the affordability is very good and therefore this interest rate increase shouldn’t affect demand too much.  Using the same example above, adjusted for our lower prices, we are talking about an increased payment of $27/mth.  Interest rates are still bouncing off a historical bottom and have a long way to go before affecting affordability.

What are your thoughts on this interest rate increase?

Tuesday, July 11, 2017

REVIEW: Ontario Proposing Ban Of Real Estate Agents “Double Ending” Transactions

Over the last few blog posts, we have discussed the Liberal government’s 16-point housing plan they released in the spring.  The centrepiece of it? A 15 percent foreign buyers tax and expanded rent controls.  Another plank was reviewing the rules for real estate agents to ensure consumers are fairly represented.

The government has now published several proposals for changes to real estate agent rules and penalties and is seeking public consultation on them.  One of the proposals is to ban — with some limited exceptions — salespeople from representing both the buyer and seller or more than one potential buyer in a trade.  Today we are going to discuss what you need to know about double ending and how banning it will affect your future real estate transactions.

What is Double Ending?
Double ending is a term used to describe when the Listing Agent for a property represents both the Seller and the Buyer in a transaction.

What should I know about Double Ending?
Double ending usually occurs when a Buyer doesn’t work with an agent and searches for properties on their own.  Once they find a property, they deal directly with the Listing Agent.

In the above situation, the seller is being represented by the listing agent by their listing agreement.  They would call this an agency relationship.  The buyer is only dealing with this agent because it is his listing.  In this instance, the relationship is called Buyer Customer Service.  It would be considered agency if the Buyer had enlisted the same Agent to find them a property, and most likely signed a buyer representation agreement.

Most of the time, these double ending situations arise from the former, where a Buyer without an Agent deals directly the Listing Agent.  The later example would be rare.  

Why is the government concerned about Double Ending?
This is a pretty straightforward one.  They are taking the position that it is pretty hard to work in both the Seller’s and Buyer’s best interests, at the same time, given that their interests are directly opposed.  It’s more difficult to maintain confidentiality as well when representing both parties.  Its easy to see how this could be abused in the wrong hands.

What does this mean for me on my next real estate transaction?
If this proposal is passed, when buying your next listed property, you would be required to hire your own realtor, more than likely under a buyer representation agreement.  This would mean there would be agency relationships on both sides of the transaction and in theory both parties interests should be protected.  Our guess is that there will be some exceptions to the rules but we will have to see how it plays out.

What are your thoughts on double ending?  Have you had a double ending experience in your real estate travels?

Wednesday, July 5, 2017

Real Estate Insider: 2017 Summer Report

Welcome back, real estate readers! We are going to be adding a new monthly series to our blog. In addition to interesting real estate blogs, we'll be including helpful articles and subjects we think you'll benefit from reading. Last month, we found a treasure trove of insider info we just can't help but share.

Worrying about your credit score? Make it a thing of the past! CIBC is set to launch an easy-access platform for all clients to check their credit scores whenever they want, indicating the importance of everyone being comfortable and up to date with their financial situation. >>
How much do you know about your condominium’s governance? After investigating some questionable practices in downtown Toronto, this article gives tips on what you should be doing to ensure that your condo is well-managed. >>
Are we digging ourselves into a deeper hole with the Foreign Buyers Tax? The Montreal Economic Institute says that public decision makers are “missing the mark” and that this tax will do the opposite of what it was imposed to do. >>
Trying to halt the train! Chief economist at the Canadian Real Estate Association says Torontonians should prepare for a possible tax on speculative home purchases to try and stop outrageous house prices, but will it work? >>
What goes up, must come down. Home sales dropped 6.2% from April to May 2017, signifying the largest drop since August 2012. This could possibly mean the market is beginning to balance itself out once again. >>
Is your house under seven years old? Make sure you know about the new home warranty program in Ontario and the changes coming! >>
Could the legalization of cannabis affect the real estate business? Who should be responsible for all the costs and risks associated with growing marijuana plants? This commentary discusses some of the legal implications that could come with the industry. >>
Risk big, win big. With interest rates set to rise, are variable rate mortgages worth the risk? Locking in your mortgage rate now might be the way to go for the more cautious homeowner. >>
Canada has a historically moderate financial situation. In the wake of the recent housing boom, learn how the economy is protected with policies like the Foreign Buyers Tax to ensure Canada’s economy is safe now and in the future. >>

We hope you enjoy our findings -- happy summer and happy reading!

Friday, June 16, 2017

Ontario Fair Housing Plan – Takeaways For Windsor-Essex Real Estate Market

The Ontario Fair Housing Plan has now been around for almost 2 months.  The effects are starting to show in the GTA with month over month sales dropping 25%+.  In our last blog we reviewed the highlights of the plan and what you needed to know.  This post we are going to be discussing those highlights and specifically how they affect our home market of Windsor-Essex.

A 15% Foreign Buyers Tax In The GTA
This tax doesn’t apply to our market and only applies to the GTA area.  A large percentage of these foreign buyers were investors and this additional cost will make investing in the GTA less attractive.  With sales down since being introduced, it’s obvious these investors are pulling back.  This should lead to investors looking away from the GTA, naturally coming south where the tax doesn’t apply and their dollar goes much further.  These additional investors will only add fuel to the fire for local investment property demand and could push cap rates even lower.  Residential demand should also get an added boost.

Expanding Rent Controls
With a vacancy rate below 3% in the area, there has been upward pressure on market rents.  These rent controls will affect the functioning of this market and should ultimately lead to a lower supply of rental units pushing down the vacancy rate.  This effect will be seen in all markets in Ontario.

Changes To The Landlord Tenant Act
These tenant-friendly changes should also lead tenants to stay longer in their units when combined with the expanded rent controls.  Turnover should be lower for landlords.  This would tend to lower vacancy rates as well.  These effects will also be seen across Ontario.

Vacant Home Tax
We don’t see much evidence of vacant homes being bought by foreigners in our market.  This is more of a Toronto/Vancouver problem that shouldn’t have much effect in our area. We don’t see The City Of Windsor legislating something like this at the present time.

Levelling Property Tax Levels For New Multi-Residential Buildings
This should help the economics of building rental units, but combined with enhanced rent controls this might be nullified.  The low vacancy rate is supportive but further incentives from the City might be needed to encourage these new rental units.

Those are our local takeaways from the Ontario Fair Housing Plan.  What are yours?

Monday, May 29, 2017

REVIEW: Ontario Fair Housing Plan – What You Need To Know

Housing is all the rage in our province these days.  Everyone is talking about it.  Markets are at all-time highs and there seems to be no end in sight.  It has also become extremely unaffordable in markets like the Greater Toronto Area (GTA).  Naturally, the governing Liberal party has decided to do something about it.  Last month they introduced a comprehensive package of measures to stabilize the market called the Ontario Fair Housing Plan.  Today, we are going to review some these measures.

A 15% Foreign Buyers Tax In The GTA
This is the big one you probably saw in all the headlines.  Essentially, they are imposing a 15% non-resident speculation tax on the price of homes in the Greater Golden Horseshoe Area of Ontario.  The tax will apply to individuals who are not citizens or permanent residents of Canada and foreign corporations.  This will only apply to single family homes (or condominiums), and not to multifamily, agricultural land, or commercial/industrial property.  It will also not apply to the rest of Ontario (including our hometown of Windsor).

Expanding Rent Controls
Previously, rent control only applied to rental units built before 1991 in Ontario, but this will no longer be the case.  The allowable rent increases will be at the rate posted in annual provincial rent increase guidelines and run in-line with the Consumer Price Index (CPI) rate (also referred to as inflation).  These increases will also be capped at 2.5% per year.  For example, if you had a rental unit that was tenanted, when you come up to the 1 year anniversary date from your lease, you will only be allowed to increase the rent by this provincial guideline rate (say 2%).  So if you charged $1000/month, you could increase the rent to a maximum of $1020/month.

Changes To The Landlord Tenant Act
The Landlord Tenant Act is the legislation that governs the relationship between Landlords and Tenants in Ontario.  These changes to the Act will include developing a standard lease in multiple languages, tightening provisions for “Landlord’s own use” evictions, ensuring tenants are adequately compensated if asked to vacate under this rule, and technical changes at the Landlord-Tenant Board.  Landlords will no longer be able to use their own leases with their own clauses and will need to use this standard lease that is being introduced.  The tightening of "Landlord's own use" evictions will make it more difficult for Landlords to evict Tenants when they claim to need the unit for themselves or an immediate family member.  This has been used in the past in questionable manners at times to get around rent controls.

Vacant Home Tax
Introducing legislation that would empower municipalities to impose a tax on vacant homes to encourage property owners to sell or rent unoccupied units.  This is pretty self-explanatory with the hopes of stopping speculation and to increase supply of properties for sale and for rent.

Levelling Property Tax Levels For New Multi-Residential Buildings
Ensuring that property tax for new multi-residential apartment buildings is charged at a rate similar to residential properties.  High property taxes on apartment buildings lead to higher rents for tenants and also make it less economical for developers to build new rental supply.  This measure hopes to encourage more rental unit developments.

Those are the big measures to take away from the Ontario Fair Housing Plan.  Next week, we are going to talk about some of the takeaways from these measures as they affect our local market.  What are your thoughts on these measures?

Friday, May 12, 2017

GUEST BLOG: A Day in the Life of a Lawyer

Today we have a guest blogger! Continuing on with the theme of "a day in the life of", we have another professional that realtors often work with - a lawyer. Lyndsey Lalovich, an associate with the Willis Law Firm (and my Sister), is going to take us through a typical day.

Ever wondered what a day in the life of a corporate lawyer would look like?

I am a lawyer with Willis Business Law, a new, cutting edge business law firm, located in the heart of downtown Windsor at 1 Riverside Dr. W. Around here, they call me the “closer”. I am the lead associate lawyer on all our firm's transactional work, overseeing all aspects of a deal and going the extra mile to ensure timely completion of deliverables.

So what does a day in the life of a transactional lawyer look like? While no day looks quite the same in this field, below is a snapshot of my day!

7:00am – Rise & Shine! Hearty breakfast and morning news.

8:00am – En route to the office, Willis Business Law, to start another day.

8:30am – The calm before the storm. Catch up on emails and get organized for the day.

9:00am – Join Willis Business Law’s founding partner, William Willis, for a meeting with clients in the beautiful boardroom at Willis Business Law to discuss a proposed commercial real estate purchase. Complex factors related to the transaction made the face-to-face effective to strategize the best approach.

10:00am – Return calls and emails.

11:00am – Time to put my head down and do some work! Prepare closing agenda for an upcoming commercial acquisition and work with our corporate and real estate clerks to get the package of closing documents prepared.

12:00pm – Networking lunch! Relationship building is key in this career. One of the best parts of working downtown is our close vicinity to our referral sources and, of course, the great restaurants!

1:15pm – More emails.

2:00pm – Signing with client for a commercial financing transaction. Once the client leaves, the pressure is on! Our team needs to get the signed documents to the other lawyer as fast as we can to ensure there is no hold up in the closing of the transaction. With our experienced clerks, we have it down to a science!

3:00pm – Uh oh... Residential real estate closing gone sideways. Various phone calls (and emails of course) with the other lawyer and our client to get the issues resolved.

4:00pm – Wrap up work projects for the day. Have I mentioned responding to emails? Much like other fields, nowadays email is the primary mode of communication for lawyers. At Willis Business Law we try our best to maintain a 24 hour response time on emails, even if we are just responding to let the client know we will look into their inquiry and get back to them. This means a significant percentage of my day is spent sitting in front of this computer keeping up with my inbox!

6:30pm – Head home for some dinner with the hubby.

7:30pm – Gym time. After sitting at a computer for most of the day it’s especially important to stay active in the evenings!

9:00pm – Wind down. Watch some Big Brother Canada while treating ourselves to protein pancakes!

10:00pm – Get a head start on preparing for tomorrow’s work day and, you guessed it, respond to emails.

11:00pm – Lights out!

So there you have it folks. Thanks for participating Lyndsey. Contact her for all your business law needs. You can find more info about her and the firm at Thanks for reading!

Thursday, April 13, 2017

A Day in the Life of A Real Estate Agent

Have you ever wondered what a typical day looks like for a realtor?  Well I have bad news for you… no days in our industry are typical!  Depending on the day we could have a whole range of things going on.  You never know when your appointments could all cancel and you're left waiting around for a document to get signed or for a call back from another professional.  Sometimes you'll wake up thinking the day will be quiet, but by 10am it has completely flipped flopped and the rest of your day is totally booked.

A typical day just doesn't exist. But here is an example of a recent work day I (Russel) had so you can peer into the life of a real estate agent!

8am – Breakfast (most important meal of the day) and answer some emails.

9am – Out the door ready for the day.

9:30am – Inspection out at a waterfront property in the County.

12pm – Drive back into Town and return calls in the car (over Bluetooth of course).

12:30pm – Business lunch Downtown.

1:30pm – Meet photographer for photos for new industrial property that we listed this week.

2pm – Tenant comes to view same property that was just listed this week.

3pm – Back to the office to do some follow ups and work on an appraisal for a property we are being asked to submit a listing proposal on next week.  Return more phone calls and respond to emails. Set up appointments for tomorrow.  Eat a snack (Daryl's Bar).

5pm – Meet tenant to view office unit we have listed.

6pm – Head home.  Return some more calls.  Appointments finished for the day.

6:30pm – Dinner at home.

7pm – Gym time.  Need it to stay fit and healthy.  Productivity and sleep quality slip without it.

8:30pm – Return Home.  Protein shake while reviewing new listings that came up that day.

9pm – Finish up appraisal for next week.  Prepare for appointments tomorrow.  Answer more emails.

10:30pm – Netflix and Chill.

11:30pm – Read some non-fiction.  Recent recommendation is Thinking Fast and Slow by Daniel Kahneman.  Reading is very important to keep you mind sharp and it helps me wind down.

Midnight – Lights out!

I didn’t pick the most exciting day but it was pretty busy and varied in scope.  The important thing in this business is to be consistent and work hard everyday.  It is also important to have a good work-life balance so you can keep up your productivity.  We are lucky to have flexibility in our schedules that way.  Is this day in the life different than you would have expected?

Monday, March 27, 2017

2017 Real Estate Trends: Bidding Wars – Part 3

For the last two weeks we've discussed several factors which are leading to the constant bidding wars in our real estate market.  This week we will wrap up the discussion with some factors you might not have thought of.  So without further ado…

Low Vacancy Rates
The Windsor-Essex area’s vacancy rate on rental units dropped to 2.9%, with CMHC’s latest report in the fall.  That is an amazing turnaround from 2008-09 with 12-14% rates.  With this decrease in vacancy comes a decrease in available rental supply and an increase in rental prices.  People in the area considering whether to rent or buy might be disappointed to see the available options for rent on the market and what that rent gets them.  Combine this with low interest rates and it can in many cases make it cheaper to own than rent.  This low rental supply and high rent price dynamic has definitely added to the demand from buyers in our market.

Sticker Shock On New Construction Prices
The cost of new construction in the area has really taken off in the last few years.  Part of that is based on increased demand.  But part of it also comes from increased soft and hard costs including building permits, increased building code, increased import prices due to the low Canadian dollar, etc.  Many people are no longer able to afford a new home so they are forced to settle for finding a suitable resale home, increasing demand of existing homes.  There is also a consideration that resale homes will tend to keep pace with increases in new construction prices, so the relative values don’t get out of whack.

A Period Of Depressed New Construction Before This Cycle
Approximately between the 2007-2011 period, there was a rough patch in the demand for new housing.  The auto industry was teetering on the brink of bankruptcy, unemployment was high and people were leaving the area.  Naturally, there wasn’t much building going on.  Now that things have turned around, the new supply hasn’t been able to keep up with the pent up demand due to that period of under-building.  To give an example, the condo market is extremely tight now for supply.  Hardly any condos were built in the area over the last 10 years.  But during those 10 years the population aged, the millennial segment of the population grew (with their admiration for condos) and the demographics were there for condos to be built.  However due to economic reasons, none were built.  Now we are in a period of catch up where there is a lag of new condo supply to meet that pent up demand.  Let's build some condos!

Upcoming Infrastructure Projects
Smart infrastructure has great spin off for the local economy and people are positioning themselves ahead of what’s to come.  We have some big projects coming to the area.  The new bridge crossing, the accompanying recently completed Herb Gray Parkway, the new Mega Hospital (even if the site is undetermined), the University of Windsor is moving downtown, and a new City Hall, just to name a few.  These sorts of projects if done correctly, increase economic activity and efficiency, lead to increased investment in the area, and trickles down to increased housing demand.  The future looks bright for the foreseeable future on this front.

This exhausts our discussions on the factors leading to bidding wars in our local real estate market.  We hope you found it insightful.  Do you agree or disagree with any of these factors.  Any you feel we missed?

Thursday, March 16, 2017

2017 Real Estate Trends: Bidding Wars – Part 2

Last week we discussed a topic that everyone seems to be talking about: bidding wars.  Some of the cause and effect for these trends are hard to pinpoint.  Today we are going to expand on some of the factors leading to these bidding wars, with some that are less obvious.

Migration To The Area
As explained last week, part of the population growth that is occurring in the area comes from elevated levels of immigration.  The other part of the equation is the people migrating to the area from other parts of Ontario and Canada.  One large drag we had back during the economic downturn was people moving out west for Jobs after being laid off in the auto industry.  With the rebound in the auto industry and the downturn in the oil patch, this trend has reversed.  And not just out west, but from other population centres in Canada as well.

People Choosing Windsor-Essex As A Retirement Destination
As the population of Canada ages with the Baby Boomers, a large segment is hitting or will soon hit the traditional retirement age.  Some of these boomers are choosing to retire in lower cost areas such as ours to boost their retirement balance sheet.  Moving from high priced markets such as Toronto or Vancouver to ours provides a way for them to access the equity in their home and in many cases buy a similar home and put a very significant sum in the bank to fund their retirements.  To add to this, the area boasts some of the best weather, easy access to the US, wineries, and more – all perks to retiring in Windsor-Essex.

Increased Investment From Out-Of-Towners
A lot of real estate investors invest based on economic fundamentals, something our area didn’t have for a long period of time.  That has changed and so has the appetite to invest in our market.  Leading indicators such as economic growth, low unemployment, population growth, new construction, etc. have all been very supportive and investors have followed.  Traditional investor segments of the market, such as multifamily, might be the hottest markets of all.  In fact, the inventory of investment properties is so low its makes it extremely tough for buyers in this market.

Unseasonably Good Weather This Winter
The prognosticators were calling for a brutal winter in our area this year.  Didn’t end up playing out that way (fine by us ).  In fact, people were golfing in February this year in our area!  This balmy weather pulled up some of the traditional spring market activity and definitely added to demand.  This is a seasonal effect but no doubt helped the statistics to start the year.

Those are some additional factors that have resulted in the continued bidding wars.  Next week we will exhaust our analysis to wrap up our thoughts on the subject.  Have you seen any of these factors playing out too?

Thursday, March 9, 2017

2017 Real Estate Trends: Bidding Wars

As spring quickly approaches, the typical peak period housing market activity is almost here.  Only this year it seems to have come early.  The statistics for the first few months of 2017 have been off the charts.  Bidding wars are everywhere and people are asking when will it calm down.  Well today we are going to talk about some of the factors driving these bidding wars and buoyant market activity.

Low Levels of Inventory
It seems month after month the same story emerges.  Sales are up 10%+ and listings are flat to down on a monthly year over year basis.  As this trend continues, each month the increasing sales are eating up more and more inventory and driving down inventory.  We are now at the point where we have very low inventory… not enough houses to go around to meet demand.

Continued Low Interest Rates
Interest rates have been trending down for years and have pretty much held near record low levels for the past year to 18 months.  Today you would be looking at 5 year fixed rates in the 2.5% range and variable as low as 2%.  These low rates make it easier for the buying public to service more debt and afford to pay more for their homes.  This all leads to increased demand from buyers who are willing to pay more for what they want as it is still affordable to them on a monthly basis.

The population is growing and a big part of that influx is coming from immigrants.  The type of immigrants coming to Canada these days have much deeper pockets than previous generations and hold widely held beliefs in the concept of home ownership and hard assets (such as real estate).  This is a large and growing segment of the market, and they also seem to be buying up lots of new construction.

Low Unemployment
Not that many years ago our region had among the highest unemployment rates in Canada.  We have rebounded from 10%+ to as low as 5.2% recently, which is below the Federal and Provincial average.  Manufacturing is booming again, the economy has become more diversified since the downturn, and now when we talk to business owners their biggest complaints are about difficulties in staffing.  What a turnaround it has been and these workers have steady paycheques allowing them to buy larger homes and more of them. Demand increased!

Those are some of the straightforward factors leading to the strength in our local real estate market recently.  Next week, we will continue on with some lesser known factors.  What has your experience been out there this year?

Wednesday, February 22, 2017

2017 Real Estate Trends: Reporting The Sale of Your Principal Residence

It's hard to believe, but it is almost tax time ladies and gents.  In preparation for that, we are going to touch on a new subject to consider, starting with your tax filing this year.  Trivia question: Do you have to report the sale of your personal residence on your tax return (even though any gain from the sale of your personal residence is tax free)?  If you answered yes, you would be right!  Prior to this year you didn’t need to report this but going forward you will.  Today we are going to talk about this subject so you will understand when your accountant brings it up.

What Do I Need to Know About This Rule Change?
As of January 1, 2016, if you sold your principal residence during the tax year, the sale must be reported on the T1 of your income tax return.  Because there is a principle residence exemption in Canada, there is still no tax payable on any capital gain on the sale of your home.  So in most cases it will not affect you.

Why Is CRA Doing This?
They want to improve compliance and administration of the tax system.  Prior to this there were no records of buying and selling of personal residence homes in Canada for its citizens.  This will allow CRA to keep track.

Who Are They Targeting With This Change?
It’s safe to say a lot of people have created wealth by owning real estate in Canada in the last 20 years.  And a lot of that wealth has been created tax free.  Its also safe to say a lot of people have abused the principle residence exemption during this period to make tax free gains.  House flippers, home builders and international investors, to name a few, are the targets of this change.  For example, in the past, a house flipper could purchase a property, live in it for a short period of time (or just claim to live there), renovate, and then sell it for a profit, tax free.  They could repeat this process over and over.  With the reporting of principle residences going forward, this will raise red flags at CRA and this person more than likely will not be able to do this.  They are essentially trying to protect against people making “income” tax free, using the principle residence exemption.

Is There Anything Else I Should Know?
Yes.  There is something called a “deemed disposition” where you don’t actually sell the property but it stops being your principle residence.  Take for example, you lived in a condo as your first home and when you go to upsize to a single family house down the road, you decide to keep the condo and rent it as in investment property.  When you move out of the condo, you have deemed disposition of the condo.  You’ve essentially sold it at market value and bought it back at the same price.  Your principle residence exemption stops on your condo after the deemed disposition and now it applies to your new single family home.  This concept can get confusing sometimes.

As always, since this is a tax matter you should contact your accountant with any questions you may have.  Did you sell your principle residence in 2016?  We’d like to hear how your filing goes with you taxes this year.

Tuesday, February 14, 2017

2017 Real Estate Trends: Sky High Hydro Costs In Ontario

Have you looked at your hydro bill lately?  Did you have sticker shock?  This is a topic that everyone is talking about in Ontario and it doesn’t look like relief will be coming anytime soon.  Naturally, the effects of this rising expense are felt throughout the economy, including the real estate sector.  Today we are going to look at some of the ramifications from a real estate perspective.

Reduced Disposable Income
All things being equal, this increase in utility costs equates to a lower disposable income for workers in the local economy.  This will affect retail sales, which will lower economic growth.  Potential home buyer’s budgets will be more stretched and therefore will lower the amount of money they have available to service mortgage debt, either reducing the value of homes they can afford or completely taking some buyers out of the market.  Therefore, demand will suffer.

More Efficient Homes Becoming Important
The stakes are high in Ontario these days when it comes to energy efficiency.  It is more important and economical to live in an efficient space than ever.  Some of the large, older homes have inherent difficulties in energy efficiency and the costs for utilities in these homes are becoming prohibitive.  Because of this we see a shift to more demand for newer constructed homes that are more energy efficient.  We also see a shift to people building smaller and smartly designed homes to be able to fit in everything they want in less sq ft.  Homeowners with 3,000-4000’+ homes are routinely getting $1000+ utilities bills. With utility rates projected to increase significantly from here, demand for operating these homes could slow as a result.

Renewable Energy Becomes More Economical, Technology Becomes Important
As prices of hydro continue to rise, the economics of the payback on renewable energy get more attractive.  Things like solar energy will look more attractive on a micro basis for consumers.  Technology like smart thermostats and appliances will also be important to conserve energy for the consumer.  Do your research!  As these alternatives become more widely adapted they should also come down in cost.

Increasing Costs to Businesses
As a large input cost to many businesses, hydro is getting to a tipping point in Ontario.  These could affect the future of many businesses in our Province and could lead them to turning to lower cost jurisdictions.  One would also assume the consumer will see prices increase as businesses pass on the additional costs.  This would result in an inflationary period where the consumer consistently get sticker shock.  Time will tell how this all plays out but its safe to say it won’t be positive for the real estate market!

Those are some of the effects we are seeing from rising hydro costs.  What are you seeing?

Monday, February 6, 2017

2017 Real Estate Trends: Government Intervention In The Housing/Mortgage Market

Have you noticed your local real estate market seems to get more attention than it used to?  Whether it be an article in your local newspaper or a conversation at a local dinner party, real estate really seems to be a hot topic.  And why wouldn’t it be?  In many markets, housing prices are at all time highs, inventory is low, and bidding wars are commonplace.  The government and the governing bodies of the real estate market have surely taken note.  Today we are going to talk about some of the policies they have undertaken that could affect the market in 2017.

Foreign Buyer’s Tax
In Vancouver, the city has imposed a foreign buyer’s tax of 15% on foreign buyers of real estate.  This has happened due to complaints of foreign buyers being the majority factor in driving local housing prices into the stratosphere.  This tax has resulted in a slow down in foreign purchases and in the market overall.  Time will tell how these policies play out long term and if they will spread to other cities.

CMHC Increasing Mortgage Insurance Premiums
CMHC is once again increasing the mortgage insurance premiums on buyers with less than 20% down payments.  These increases will take effect in March 2017 and will add (marginally) to the monthly payments of borrowers, decreasing their initial equity in the property.  This type of policy adversely affects the first time home buyer who already has the odds stacked against them in high priced markets.

Government Stress Testing of Mortgage Rates
Last year, the federal government imposed new rules on mortgage qualifications for insured borrowers.  Essentially, any insured borrower must qualify for their mortgage at the banks posted rates.  For those of you that don’t know, posted rates are inflated mortgage interest rates that are advertised at the banks.  For example, at the current time in our market you can easily get a 5 year fixed mortgage rate at 2.5-2.6%, but the bank’s current posted rate is more in the 4.6-4.7% range.  So as a borrower, you need to qualify for your mortgage at the inflated 4.6-4.7% range, which all else equal, means you will qualify for significantly less house than you would’ve otherwise.  The government hopes to slow down the housing market by knocking some buyers out of the market, at least until they have 20%+ down to qualify for non-insured financing.  This policy again will hurt the first time home buyer more than anyone else.

Zoning Regulations Limiting Residential Development
As the first three items try to address the demand side of the housing market, zoning affects the supply of housing.  You can only lower the demand for so long.  As cities grow and expand, housing supply needs to keep pace to allow for a balanced housing market.  Many cities in Canada haven’t been able to add supply to keep up with demand and the supply side of the equation has been a large reason for the increasing prices in many markets.  Red tape, drawn out environmental studies, expensive soft costs for developers and investors have all had negative impacts on new housing development.  This has been spoken about by different levels of governments as an issue that needs to be addressed.  Here’s to hoping.

Those are some of the ways government intervention will affect the market in 2017.  Have any of these changes affected you?

Monday, January 30, 2017

2017 Real Estate Trends: Trump

Did you hear the US has a new president?  Unless you’ve been living under a rock, you’ve no doubt heard about incoming president Donald Trump.  The unlikely victory by the polarizing figure has sparked protests across the US and the world.  No doubt, this a volatile time.  Regardless about how you feel about him and his term as president, there is change coming.  Today, we are going to discuss how some of that change could affect our real estate market.

Disgruntled US Citizens Moving North Of The Border
During the campaign season, you heard over and over from non-republican voters that they would consider moving to Canada if Trump became president.  Although this sounds great, I don’t think we will see a material population of Americans trying to move to Canada.  There are too many logistical issues such as immigration, etc that would prevent it.  Overall we don’t expect to see much impact from this.

Immigrants Choosing Canada Over The US
As two countries with lots to offer immigrants, Canada and the US sometimes battle over the most skilled applicants.  With Trump being viewed unfavourably by much of the world, these cream of the crop immigrants may choose Canada over the US.  This could be good for growth in Canada and therefore our real estate market.

Focusing On The Economy & Jobs
The emphasis on much of the policy Trump is expected to be putting forward centres around jobs and the economy.  He doesn’t really mind if he ruffles feathers in the process of gaining or keeping jobs in the US.  We’ve already seen announcements from different manufacturers about moving jobs back to the US or deciding the keep them there instead of moving to a lower cost jurisdiction.  Most of this rhetoric is aimed at low cost producing countries such as Mexico or China.  Canada is a higher cost producer and has a pretty balanced trade relationship with the US.  Therefore we do not see Canada as a trade target of the Trump Administration.  If we see a resurgence in manufacturing in the US, that could benefit our economy by proximity and inter-country companies building components in both countries, making it mutually beneficial.  As a border town, this could benefit our local manufacturing sector and therefore our real estate market.

General Uncertainty
Markets and companies don’t like uncertainty, which without a doubt, the incoming Trump administration has brought about.  People like to invest in stable economies.  During this period with Trump, Canada could look very attractive as a place to invest for companies and real estate investors.  Our real estate market could benefit from this perceived relative stability.
The times they are a-changing.  Those are some of the takeaways we see from the changing landscape under Trump.  What are your thoughts?

Tuesday, January 24, 2017

More Real Estate & Related Predictions for 2017

Last week we made a few real estate and related predictions about 2017.  This week we will take a crack at a few more.  So without further ado…

New Construction of Rental Units
With the vacancy rate dropping again last year to a minuscule 2.9%, conditions are ripe for new construction of multi-family units.  Very little has been built in our area since the 70s.  Combine that with some incentives being offered, like no development fees in the downtown core area, and investment is sure to show up.

The Residential Vacancy Rate Flattens Out
After topping out north of 15% back in the recession of 2008-09, the local vacancy rate has continued to plummet in the last 7-8 years all the way to 2.9% in 2016.  As the law of small numbers would dictate, additional improvement will be small from here.  Combine that with an increased number of sales of condos and homes to investors and new construction coming online, the supply of rental units should increase to flatten excess demand.

New Construction Of Industrial Space
The vacancy rate for quality industrial space has really plummeted to near zero levels locally.  Suppliers are worried that they don’t have the floor space to produce enough to meet contracts.  The market might finally be ripe for a wave of new buildings being built.  Increases in rent prices are almost at the point to justify new construction costs for landlords.

Office Shows Modest Improvement But Still Too Much Supply
With the local economy being much improved, demand for office space is getting better everyday.  Having said that, there is still too much supply in the market.  We expect to sop up some of that inventory, but not materially so.

Windsor-Essex Real Estate Market Continues to Get Positive Media Exposure
Last year was the first year where local and national media really started to notice the renaissance going on in our local real estate market.  General inquires for real estate are rolling in everyday.  With continued migration, immigration and a buoyant local economy, things look rosy for 2017 and therefore we should see continued positive media.

There are some more predictions for 2017.  Hopefully we get some of them right!  Do you agree or disagree with any of them?

Friday, January 13, 2017

Real Estate & Related Predictions for 2017

Happy new year everyone!  Hope you all had a great holiday season and are rested up for a busy 2017.  While the year is still young, we wanted to consult our crystal ball and take a stab at making some real estate predictions.  Here goes.
Interest Rates Edge (Modestly) Higher
Since interest rates are near all time lows, common sense would dictate that they don’t have anywhere to go but up.  We think this year that happens, albeit in a limited fashion.  With the combination of higher bond yields, and some of the government mandates coming down on the financing industry to curb runaway real estate markets in parts of Canada, this will finally be the year for higher rates.
Buyers Get Multiple Offer Fatigue
During 2016, it seemed like every listing had 5-10 offers on it and bidding wars ensued.  While the market dynamics forcing this are still in place, we feel a segment of the market is growing tired of the constant competition.  This will result in a lesser number of the crazy bidding wars we saw over the past year (hello 31 offers!).
Cap Rates Flatten Out
We remember back 6-7 years ago when obtaining an apartment building with a cap rate of 10%+ was common place.  Those days are long gone and prices have been bid up consistently since then, compressing cap rates.  Today you have a hard time finding an apartment building with a cap rate over 6%.  This dynamic has also been seen in retail plazas, office buildings, and other commercial properties.  We don’t see much more room to run on cap rate compression going forward.
Continued Sticker Shock On New Construction Costs
With new construction going through a boom in the last few years in our local market, builders and related trades are very busy.  Combine that with increased prices for land and imported material costs rising because of the low Canadian dollar, buyers will find their price range won’t get them as much when considering a new build.  We don’t see this subsiding anytime soon and if anything expect further price increases.
New Condo Projects Coming Online to Meet Demand
Build it and they will come.  It wasn’t always this way in our local market, as condo ownership was slow in being generally attractive to buyers.  But times have changed and the condo market may be the tightest of them all.  The market can now support more condo developments and developers will respond to this demand with multiple new projects in our area that we expect to be met with brisk demand.
Those are some of our predictions for 2017.  Time will tell if our crystal ball was right.  What are your predictions?