Real Estate Bubble?

I believe it is everyone’s right to have a safe and affordable home to raise a family.  The reality in today’s economy is quite the opposite.  I see people making desperate decisions to buy a home out of their price range for fear that they won’t be able to afford anything similar if they wait.  They are maximizing their credit cards, borrowing more from parents and cutting back on certain activities for their children just to make ends meet.

I had recently quoted Benjamin Tal, Chief Economist with CIBC World Markets, who spoke of a generation that is going to “inherit inequality”.  I won’t even attempt to explore the depth of the subject, but suffice it to say that there is a growing demand for rental units.  Just yesterday, I had a client that is selling her home because she can’t afford to live in it.  Yes, she intends to bank the little amount of equity she will get out of selling her home and rent.  I see this trend more and more.

The implication of what Tal was saying is that if you are not a homeowner now that you may not likely be a homeowner in the near future given the trend of skyrocketing home prices.  And, today’s Globe and Mail article about Ontario pushing Ottawa for some form of tax on speculative buyers or increasing the capital gains tax is a sign that governments recognize the seriousness of the problem.

Just think, you have people buying properties based on speculation of profiting, low inventory of homes on the market and first-time home buyers trying to get into the market.  How does a first-time home buyer compete with an investor with very few homes for sale?

Don’t get me wrong.  I don’t criticize investors.  After all, they have children for whom they want to provide a home and ensure a financial nest egg for themselves.  I get it.  But, if average people can’t afford to buy their own home and must turn to renting, that will put a corresponding strain on all levels of government, primarily provincial and municipal, to provide affordable housing.  It is a storm brewing like no other.

Ironically, I know that builders are in tune with this growing demand for rental housing units and have already started building a mix of condominiums and rental apartments.  The only issue is that market pricing remains an issue because demand is growing for good rental units.

My question is whether all levels of government can create a unified strategy in concert with builders whereby builders have the right incentives to build affordable rental units for growing families?  A grand idea perhaps, but if it works, would this not be a more cost-effective alternative to managing government deficits and pressure to keep increasing tax revenues?  Just saying……

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Burlington, Hamilton, Milton, Mississauga, Guelph

Housing Market Real Estate Sales

The other day, I heard a report on CBC that housing sales are down an overall 3%, primarily due to the B.C. housing market.  Although this is a very busy time for real estate deals, the number of deals our office is handling is leveling off compared to the same time last year.

In my unqualified opinion, housing prices are not declining.  Instead, they are stabilizing which means that the gross competition and bidding wars experienced in the recent past are now tailing off.  As an aside, two months ago, I was successful in having CMHC reverse a refusal to extend coverage by presenting them with a 3^rd party valuation substantiating the fair market value at $80,000 over the list.  This saved the deal and ensured that the client did not lose their $10,000 deposit.

The new reality is that the recent boom and fierce competition has helped many, who held onto their home, to increase their equity intended for retirement.  Good for you and good for the many that got into the housing market before the boom.

Interest rates?  Again, in my unqualified opinion, I don’t see a large shift over the next 24 months.  Interest rates are tied to multiple economic factors but the simplest I see is that our economy is still transitioning to the new reality of high tech – we are not entirely there yet.  In fact, I have a lot to say about this growth area but that is for politicians and economists to solve.  I enjoy leaving this for “nice” dinner conversation.

Happy owning!

Karmel Sakran

Buying a home? Talk to a Real Estate Lawyer »

Burlington, Hamilton, Milton, Mississauga, Guelph

Buying Selling in the Real Estate Market from a lawyers perspective

Homes are selling incredibly fast and often selling above list price. The reason seems clear…low inventory of homes for sale and many more buyers. Bidding wars are now the norm.

I have heard from many realtors that the strategy is to list the home on Friday, schedule a Sunday open house and accept offers on Monday.

People knowingly present an offer they feel will beat other offers. I have one client that is frustrated for being out bid on 4 different homes. Yet, I have a seller client that received 18 offers on her home and accepted an offer $70,000.00 over list price with offers still coming in.

And because of the bidding wars, banks are now insisting on obtaining an appraisal of the property where in the past they relied on the Purchase and Sale Agreement as satisfactory proof of the fair market price. After all, banks want to verify the fair market value of the property as part of their due diligence and determining what they perceive as the true loan to value ratio.

If the lender bank determines that the property requires insurance from the Canada Mortgage and Housing Corporation, the lender bank will submit the lending application to CMHC who, in turn, will review the application for approval.  If CMHC has any concern, CMHC will request their own appraisal to satisfy themselves as to the overall risk.  CMHC performs this on a case by case basis and their underwriter will ultimately decide whether to extend CMHC insurance coverage.

I have two simple questions. Are the current bidding wars a self-correcting mechanism to adjust home prices up to their true fair market value? Or, are home buyers going to regret overpaying for their new homes?

Home ownership is great, but at what cost?

Article written by Karmel Sakran

Readers may contact Karmel Sakran at 905-639-1222 ext. 224

Buying or selling a home? Talk to a Real Estate Lawyer »

Burlington, Hamilton, Milton, Mississauga, Guelph