Archive for April, 2019
Canadian homes need greater protection from the wind damage caused by natural disasters.
That’s the message from the Institute for Catastrophic Loss Reduction (ICLR) which is calling for a new national standard for wind resilience to mitigate damage to residential and small buildings.
"Protecting residential structures will be aided by measures that have the biggest impact on structural safety," said Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction. "For example, roofs are particularly vulnerable to the impacts of high wind. Keeping roofs sound and well-connected to walls helps reduce structural failure and property damage, like that associated with intrusion of water."
Roofs; walls and upper and lower storey connections; anchoring of the building to the foundation; and additional construction details such as garage doors; are the main categories that need to be focused on, the ICLR says.
It highlights the impact of wind damage in a new report, including that suffered during the windstorm in southern Ontario and Quebec; and the tornadoes in the National Capital Region. These 2018 natural disasters caused near-$1 billion in insured losses.
Standardization is important
Chantal Guay, CEO of the Standards Council of Canada says that standardization is an important tool to protect Canadian communities from extreme weather.
"New guidance in this area is a much-needed enhancement to the infrastructure and building safety toolbox," said Guay. "By collaborating with ICLR and SCC accredited standards development organizations, we are setting a foundation for a new national standard that will help protect Canadians and their homes during extreme weather events," he said.
by Steve Randall
26 Apr 2019
The self-employed are among the growing number of Canadians turning to private lenders in order to obtain a mortgage.
While many prospective homeowners are driven to alternate lenders because of government-mandated stress tests and poor credit scores, the self-employed often have additional burdens to overcome in proving their income.
"There's more and more people seeking private loans than ever before and that's a direct result of government making it more and more difficult to qualify,'' says Dan Caird, a mortgage agent with Dominion Lending Centres.
According to the Bank of Canada, private lenders have doubled their share of the mortgage market since 2015, accounting for eight per cent of Canadian mortgages in 2018, and an even greater share in the hot real estate market of Toronto.
These lenders are less concerned about income and more focused on the property's value in case they have to foreclose. The tradeoff is higher interest rates and fees.
Still, the option can be helpful for the self-employed who expense as much as they can in order to reduce their taxable income and who have a strategy to beef up their credit score with a goal of returning to a traditional lender.
Caird said it's usually more financially advantageous to “expense the heck out your business'' and show less income.
"Sure you're going to pay a half a per cent, a per cent, sometimes two to three per cent 1/8more 3/8 on your mortgage but …they usually end up coming out ahead by claiming less income and just paying a bit more on the mortgage,'' he said in an interview.
However, the writeoffs make it harder for lenders to obtain the 35 to 44 per cent debt-to-income ratio sought by traditional lenders.
Proving a sufficient track record of income to qualify for a mortgage can be the biggest challenge for people who work for themselves.
"Assuming a self-employed borrower had great credit and ample equity, we used to be able to simply state their income to the bank and show a notice of assessment to prove no taxes owing,'' said Robert McLister, found of mortgage news website RateSpy.com
"Those days are long gone.''
The government now wants verifiable proof of true earnings while the stress test makes the hurdle even higher by requiring almost 20 per cent more provable income to qualify for the same mortgage available in 2017, he said.
That has pushed more people to alternate lenders.
"Self-employed mortgages without traditional proof of income are a different animal from your cookie cutter AAA bank mortgage,'' McLister added.
The Canada Mortgage and Housing Corp. is trying to ease the paperwork required to obtain mortgage loan insurance, said Carla Staresina, vice-president risk management, strategy and products.
It introduced changes last October that suggest additional factors lenders could consider if the borrower has been operating their business for less than two years, including having sufficient cash reserves, predictable earnings, acquisition of an established business and previous training and education. It is also encouraging acceptance of a broader ranger of documents.
"Our aspiration really is to make sure everyone in Canada has a home they can afford and that meets their needs,'' Staresina said from Ottawa.
"We know self-employed Canadians make up about 15 per cent of Canada's labour force and so we want to make sure that any difficulty that they have in qualifying for a mortgage is mitigated and that we've got some options for them.''
McLister said the program will help “at the margins,'' particularly those who recently started a business or bought an established operation.
Caird said there's been some other steps in the right direction. He pointed to a new product from the Bank of Nova Scotia that allows incorporated companies to use retained earnings in the business to help applicants qualify.
Genworth Canada and Canada Guaranty also have programs to help self-employed borrowers, but require the business be open for at least two years.
The mortgage broker's task is to convince lenders that the borrower is a good credit risk by adding back specific deducted expenses to net income to improve the debt-to-income calculation, said Caird.
While having a sound credit history is very helpful, mortgages can still be obtained for those with less-than-stellar records, for a cost.
Three essentials for borrowers are to have up-to-date taxes, be organized and consult a mortgage broker long before the mortgage is required.
"If your taxes aren't up to date it's going to be next to impossible to get a lender to give you a mortgage at any sort of reasonable rate or term.''
by Ross Marowits Canadian Press:
25 Apr 2019
Editor's note: Originally brought to our attention by this article appearing in Real Estate Professional Magazine
… bankruptcy fears remain!
Canadian households might have let out a sigh of relief at the Bank of Canada’s decision to hold its trend-setting interest rate at 1.75% earlier this week, but fears of financial instability remain.
Around 35% of Canadians said that another interest rate hike will push them towards bankruptcy, according to a recent analysis by MNP Ltd.
Moreover, around 48% said that they are just $200 or less each month away from financial insolvency. Over a quarter (26%) lamented that they basically have no elbow room by month’s end, already unable to earn enough to cover bills and debt payments as it is.
This downward trend in optimism, which MNP said has been going on since September 2018, has been aggravated by increases in interest rates. The insolvency practice added that Canadians’ debt sentiments are at their lowest point ever since tracking began.
“Canadians appear to be maxed out with no real plan for paying back what they have borrowed. This raises many alarming questions about how and if consumer debt will be repaid, particularly if conditions deteriorate or interest rates rise,” MNP Ltd. president Grant Bazian said.
Canadian households’ perception of their finances has also fallen to a new low. Over half (54%) of the MNP respondents indicated considerable anxiety about their ability to repay debts, while a similar proportion (47%) admitted that they would fall in financial trouble if interest rates increase further.
“When there is this little room in the household budget, people can easily get trapped in an endless cycle of debt,” Bazian warned. “This isn’t simply a matter of people living beyond their means. The reality is that too many households simply cannot make ends meet, however hard they try.”
“Credit has become inextricably woven into Canadian household budgets. A whole industry has grown up around making that happen, from payday lenders to credit card companies, to buy-now-pay-later retail offers. Paying down debt or saving for the future is seen as more of a luxury than a necessity.”
by Ephraim Vecina
25 Apr 2019
Innumerable delays on construction sites throughout Ontario add onto builders’ overhead costs, which consumers ultimately pay for.
The question, then, becomes: What is causing the delays?
“Every day, we have delays on our sites, “said Eugene Filice, Great Gulf’s vice president of construction, “because there’s never enough man power to complete what you should be able to in the course of a day.”
While it’s difficult to quantify, Filice reckons that all the delays add an additional two months of construction for high-rise developments. Although a painfully slow bureaucratic approvals process is well documented, little attention is paid to the fact that, not only is there already a shortage of skilled trades workers, a substantial number of them are slated for retirement over the coming decade.
“There are 91,000 skilled construction workers in Ontario that are set to retire, and migration to the Greater Toronto Area is about 100,000 every year, and we’re not going to be able to meet that demand,” said Filice, adding that the problem has become particularly pronounced over the last five years.
“We don’t see the younger generation getting into the trades, which is strange because those who work in the trades are very fulfilled and satisfied with the work they do.”
Indeed, a study undertaken by the Residential Construction Council of Ontario confirms that job satisfaction among construction trades is high. Despite there being some stigma associated with the job, RESCON reports that, on a scale of one to 10, nearly two-thirds rated their job satisfaction between eight and 10, with the average score coming in at 7.9.
The study also determined that nearly two-thirds of skilled trades workers would strongly recommend the profession to a young person, and 81% enjoy a sense of financial security. There are also intangibles associated with the job, like camaraderie and feelings of satisfaction derived from working towards shared goals as a team.
However, the worker scarcity is persistent and the delays Filice alluded to could conceivably make the cost of housing in a city like Toronto even more expensive and beyond reach than it already is. Richard Lyall, president of RESCON, says that a recruitment campaign is well underway to reverse the trend.
“Unfortunately, the average age of a Canadian apprentice is 27 years old. To overcome this, influencers must become better informed about the benefits of construction careers, which are lucrative and highly satisfying, so that we can continue to tell the stories of young people thriving in this industry, like in the Job Talks video series.”
The report, which also looked at behavioural economics principles, will be used to boost awareness about the skilled trades among guidance councillors and educators. Given that the existing labour shortage comes at a time when Queen’s Park and Ottawa are likely to commit more money to infrastructure projects, there will be no shortage of work for tradesmen and tradeswomen.
by Neil Sharma
April 09, 2019
Average residential property values nationwide are likely to remain relatively static for the rest of 2019, according to Royal LePage.
In the latest edition of its House Price Survey released last week, Royal LePage noted that the average home price in Canada grew by just 2.7% annually during the first quarter to reach $621,575.
Royal LePage warned that this might indicate a spring market with relatively static pricing, as the gains are markedly lower than what is considered the long-term norm of approximately 5%.
Going into Q2 2019, the national aggregate home price is expected to tick up by just 1.0%, and an ongoing global economic downturn strongly implies that the rest of the year is far less likely to bring with it further growth.
“We are expecting this to be a sluggish year overall in Canada’s residential real estate market, with the hangover from the 2018 market correction and weaker economic growth acting as a drag on home price appreciation, balanced by lower for longer interest rates,” Royal LePage president and CEO Phil Soper said.
However, the prospects are considerably more positive beyond the immediate horizon.
“Canada is certainly affected by negative global macroeconomic trends, yet full-time job creation in our country is very strong, and full-time employment turns renters into buyers,” Soper stated. “The medium-term outlook for housing remains very positive.”
Moreover, the sluggish growth will actually be a boon for young professionals and just-started households.
“This slowdown gives buyers, and first-time buyers in particular, an opportunity to buy real estate in our country’s largest cities,” Soper added.
by Ephraim Vecina
09 Apr 2019
The Ontario Real Estate Association is lobbying the provincial government to proscribe bully offers and enhance professional standards in an industry that does little to punish misbehaving agents.
“It’s about time,” said Rachel Hammer, team lead at Royal LePage Team Hammer & Associates. “I believe very strongly that one of the things we’re lacking in our industry is proper policing and enforcement.”
One reason Hammer believes the Real Estate Council of Ontario doesn’t punish unscrupulous sales agents is because there are no mechanisms in place to protect the identity of the person lodging the complaint.
“In order to file a complaint with RECO, you have to identify yourself. Well, we all work together in the same city and voicing a complaint that way puts a lot of people at risk, with regards to their business, which I believe is why a lot of people don’t speak up when they should. We have RECO there to do that, but the question is why don’t they properly police the industry.”
Hammer and innumerable other agents may finally get their wish.
“We’re looking for tougher enforcement,” said OREA’s Karen Cox. “Our regulator, the Real Estate Council of Ontario, should have the authority to proactively investigate the few bad offenders we have and kick them out if they break the rules in our profession. It would modernize the legislation governing the real estate profession, raise the professional standards, and it would be better for buyers and sellers.”
In addition to stricter penalties for untoward agents, OREA wants the Doug Ford government to revisit the 17-year-old Real Estate and Business Brokers Act and amend it to reflect the modern world. The association provided 28 recommendations, which include protecting consumers from unlicensed operators, better education, and an end to bully offers.
“We’re asking not to allow bully offers or pre-emptive offers to create more fairness in the home buying process,” said Cox. “It doesn’t mean it’s the best offer the seller will receive. They don’t know that because they haven’t received offers from interested parties and that really frustrates buyers because they haven’t had a chance to participate and that’s why we’ve recommended ending bully offers.”
However, while Hammer is glad to see OREA lobbying to remove bad apples, she doesn’t feel the same way about the association’s bid to have bully offers proscribed.
“Ultimately, our role as a realtor is to always do what our client instructs us, and if our client instructs us to present them an offer, then it’s our responsibility to do so,” said Hammer. “The question is, where’s the problem with the bully offer? In a seller’s market where there’s very little inventory, putting in a bully offer can be quite strategic to get our client, the buyer, what they’re looking for, which is the purchase of a home. I don’t believe any changes targeting bully offers will change the professionalism in the industry.”
Moreover, Hammer says that sellers can ignore bully offers if they wish.
“The current OREA form for seller directions and offer presentation allows realtors to explain to sellers their options to choose the right offer presentation they would prefer,” she said. “The no conveyance of offers option allows the seller not to even consider bully offers.”
by Neil Sharma
10 Apr 2019
A court case decided last month emphasizes the risks of using a Seller Property Information Statement. It also illuminates the risks of having the same agent act for both the buyer and seller.
In July 2014, Aden and Shirley Bowman bought a house from Alma and Shelley Emond. The Emonds are mother and daughter.
The house — built in 1976 by Alma’s husband — was a 1,200-square-foot, single-storey building with five bedrooms, one bath and a full basement. The sale price was $180,000 and the Emonds took a vendor-take-back mortgage for 95 per cent of the purchase price.
Their real estate agent acted as the agent for both buyers and sellers. Shelley Emond told her about historical roof leaks but not that in 2013, and again in 2014, she had painted over ceiling stains resulting from the roof leaks.
At the agent’s request, the Emonds completed a Seller Property Information Statement (SPIS). For many years in this column I have been a strong advocate against the use of this checklist-type form. It is difficult to think of any other single form — except perhaps the marriage licence — which has spawned so much litigation, and has produced so much money for litigation lawyers.
In the SPIS form, the Emonds stated that they were not aware of any structural problems, moisture or water problems. They also stated that they had carried out repairs to known roof leakage issues and that there was no unrepaired damage.
Aden Bowman testified at trial that he never saw the SPIS until it was produced during preparation for the resulting litigation. Although the same agent was representing both parties, she did not review the document with the Bowmans.
Two weeks after closing, Aden Bowman began renovations and discovered historical water infiltration and mould growth throughout the wall and floor cavities of the home. When removing the fireplace because it did not comply with the provincial fire code, Aden discovered rotting wall structure and more mould.
The Bowmans sued the agent, her company, the Emonds and the home inspector. Before trial, the buyers and sellers reached an out-of-court settlement called a Perringer Agreement, and the case continued against the home inspector, the agent, and her company.
In his decision last month, Justice Guy DiTomaso ruled that the agent was negligent and breached her duty to the Bowmans by failing to ask probing questions of the sellers and failing to explain the SPIS document to the buyers. He also found that a number of the Emonds’ SPIS answers were incorrect.
The judge ruled that Alma and Shelley Emond were liable for 30 per cent of the buyers’ damages, and that the agent and her company were responsible for 70 per cent of the damages. The judge found that the inspector conducted a detailed verbal and written report, and dismissed the case against him.
In finding that the home was uninhabitable due to extensive mould and water damage, Justice DiTomaso assessed the plaintiffs’ damages at a total of $450,215 — all of this on a house that sold for $180,000.
Posted On: Friday, March 29, 2019
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at email@example.com, phone 416-364-9366 or fax 416-364-3818.
The federal budget appears to have missed a golden opportunity to address housing shortages in key markets that contribute to Canadians’ affordability challenges, and may even have amplified them.
“They’re all about increasing demand for housing without doing much to increase supply, and you don’t need to be an economist to know that if you increase demand without increasing supply, you’ll end up with higher house prices, which is the oppose of the intention,” said Sherry Cooper, Dominion Lending Centres’ chief economist.
Zoning bylaws have long been identified as a major reason housing delivery in Toronto and Vancouver cannot keep up with demand, and rather than address that issue, Cooper says the budget instead misses the mark.
“The government could have done things to increase supply, like changing the rules around zoning and the Greenbelt to open up more land,” she said. “They could even subsidize housing construction or eliminate some of the red tape and other delays in construction. There are other things that could have been done to incentivize the construction of new housing.”
Other housing measures included in the budget left much to be desired—namely answers. Through the First-Time Home Buyer Incentive, the Canada Mortgage and Housing Corporation will provide first-time buyers with up to 10% of the purchase price of new build, and 5% of a resale, but whether it’s through an equity position in the property or an interest-free loan is unclear.
“This is an important distinction because if the government is taking an equity position in a home, the amount that the homeowner would have to pay would grow as the value of the home increases,” said James Laird, president of CanWise Financial.
If that home enjoys equity surge, will CMHC be entitled to as much as a tenth?
“It may well be that you pay off 10% or 5% of the sale price as opposed to the purchase price, so we don’t know the details yet, but one needs to consider whether you’re also sharing appreciation—the equity you have in your home—when you sell it. Or, for that matter, even a loss.”
The RRSP Home Buyers’ Plan increased the maximum withdrawal amount to $35,000 from $25,000, but it has to be repaid within 15 years with one-fifteenth monthly payments. That makes Davelle Morrison chary.
“I generally recommend clients who don’t have to use an RRSP not to,” said the Bosley Real Estate broker. “The last thing first-time buyers need, between all their debt payments, is another monthly obligation.”
There was much speculation leading up to the budget announcement that 30-year amortizations would be reintroduced, but that didn’t happen. By reducing monthly mortgage payments, Morrison believes it would have been the single most helpful initiative the government could have introduced to help first-time homebuyers.
“Bringing amortizations would allow a first-time buyer—or any buyer—to spend less money each month,” she said, adding that the First-Time Home Buyer Incentive is negligible in markets like Toronto and Vancouver. “If you’re going to save up that 5% in a smaller market where it’s cheaper, you could just as easily do it yourself. What they’ve done is complicated when they could have just increased the amortization period.”
by Neil Sharma
21 Mar 2019
The federal government has pledged to tackle “snow washing”—the process by which Canadian real estate is used to launder money.
“This issue was identified as a real priority—it has become a priority for my government,” Bill Blair, Canada’s federal minister for organized crime reduction, told Bloomberg. “We recognize and acknowledge the impact that this criminal activity—money laundering—has had on British Columbia, on the affordability of housing, and on the integrity of our financial institutions.”
Last month, a study by Transparency International Canada, Canadians for Tax Fairness and Publish What You Pay Canada revealed that, since 2008, $28.4 billion worth of housing in Toronto alone was purchased anonymously through private entities, $9.8b of which in cash. The study drew upon 1.4 million homes to reach its conclusion.
“Canada’s lack of beneficial ownership transparency makes our entire country an attractive destination for money laundering,” read the report. The scale of Canadian real estate’s money laundering problem does not surprise Erica Mary Smith, broker of record and co-founder of Stomp Realty in Toronto. She first noticed it about a decade ago when she worked in-house for a builder.
“It was around 2008 or 2009 that it started to take off,” she said. “We would have foreign buyers all the time who would try to buy under a different name. You’d never meet them. Sometimes the money would just come through and we’d have the feeling that it isn’t being done the proper way, but it’s hard to prove. They try to use certain IDs or are evasive when it comes to supplying certain things. Builders went through this a long time ago with black market money coming from overseas for the purpose of being cleaned through properties. That’s why RECO brought in the forms.”
However, measures introduced, like Receipt of Funds and Individual Identification Forms, have done little to curb untoward activity in the real estate market. Smith noted that a hot market like Toronto’s, where there are frequently multiple offers on properties, is the perfect way to launder large sums of money. “Million dollar condos sell every day and if people are laundering money, all they have to do is find a multiple offer scenario,” she said. “A bully offer will come in but everyone is none the wiser because there are eight offers on the property and they just think the buyer really wants the property. The higher the offer, the more money they clean.”
by Neil Sharma
31 Mar 2019