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158% of List price! Housing market is hot!

3 Ross St Last month a house in Toronto’s west end made headlines when it sold for $200,000 above it’s $639,900 list price.   That’s 131% of the asking price.   Earlier this week, I shared some astonishing sales from the weekend.   Two houses sold for 138% and 129% of  asking price.   Both homes were in the $1,000,000 plus price range.

Yesterday, this house at 3 Ross St, in Toronto was listed for $829,000.   It sold for $1,308,880.  That’s 158% of asking price or $479,880.   This semi-detached house is located in the College and Spadina area of Toronto.  It sits on a 20′ x 116′ lot.

We can debate whether these are sales tactics (you know, list way below market price to attract buyers and create a buying frenzy) or if this means the market has gone crazy.   To me, this just reaffirms my belief that this is a seller’s market.  There is a pent-up demand for housing.   And when the supply is low, higher prices usually follow.

Interesting, yesterday, a report from Tourism Toronto showed in 2103, 9.22million hotel rooms were booked.  Up 2.8% from 2012.   I’m not sure there is a direct correlation between the visitors and house prices but Toronto has certainly become a world-class city.   Maybe our prices reflect that, too?

Your best interest is my only interest.    Like this article?  Share with a friend.   I reply to all questions and I welcome your comments.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

2 sales in GTA this weekend went for 128% and 138% of List price!!

home-prices-up

Wow, who said the housing market was slowing down?   Check this out..  2 sales from this past weekend in Toronto show the market is red hot!

455 Manning St Feb 20-14 sale

This house at 455 Manning St is located in the College and Bathurst area of Toronto.  It was listed for sale at $749,900.   And it sold for whopping $1,035,000 or 138% of list price!   This is a 2.5 storey semi-detached home with a 19′ x 126′ lot.   Wait, it gets better.   The description says, and I quote “Attention Renovators/Investors/Handymen”.   A quick look at pics inside leave much to be desired.   This place is need of some serious home improvements.    All I can say is WOW!

362 Lippincott st feb 22 -14 sale

How about this one at 362 Lippincott Street located in the Bathurst and Bloor area of Toronto.   Listed at $895,001 and selling for $1,150,000.  That’s 128% of list price.   The lot is 17′ x 101′.   This is a 100 yr old semi-detached Victorian with major updates and renos.   It certainly looks nicer than the first.   But selling for 128% of list price?   I’ll repeat myself, WOW!! Continue reading “2 sales in GTA this weekend went for 128% and 138% of List price!!”

Baby Boomers 10 yr real estate retirement plan

Last week, I was asked to comment on BMO’s Retirement Report  which pointed out that more Canadian Baby Boomers are using their home as their retirement fund.  The BMO study shows the baby boomer generation were not downsizing like many experts were thinking.  But instead, they are buying bigger, more expensive homes.   The thinking is that the higher priced homes will grow their retirement fund more quickly and more securely.

Several Financial Experts commented on this study…. mostly offering negative reviews about this retirement strategy….. including BMO… you know, eggs in one basket, diversification, that sort of thing…  there is merit in the statements but I really don’t agree with the negative spin….. Here’s a link to my quotes about the “10 year plan” in The Star.

The 10 year plan has grown in popularity over the last 5 years as we’ve seen the value of our RRSPs or other investment drop in value.   It’s capitalizing on real estate values going up over the long-term.    It’s really simple to understand….

THE 10 YEAR RETIREMENT PLAN

Here’s an example of what one couple did….Let’s say you’re between the ages of 35 and 55.

  • You own a home worth $500k.
  • You have a $300k mortgage., but you can afford to buy a $700k home.
  • Your new mortgage is $500k.
  • You are committed to keeping that home for 10 years….and you can afford the payments..
  • In that 10 years, the goal is to pay down your mortgage by at least half, if not more. (a realistic goal considering the average Canadian pays off their home in 12 to 17 years).
  • if your home goes up by 5% each year, on average (and this is probably a realistic number looking back at historical values), then your home should be worth $1.14million.  
  • the 10 year timeframe is critical… we want to give enough time to live through any up or down real estate market…

Using the example above, in 1o years you should have a mortgage of $350k or less and house worth $1.14millon… that’s $790,000 of equity in your home.   Oh, and it’s all Capital Gains Tax Free….

Does it sound too easy or too good to be true?   It’s really not… take any 10 year period in history…  work out your own stats… This is reality…

By the way, the couple I’m referring to are real… they are actual clients of mine.   They bought their home in 2007 for $850k… They have paid down their mortgage to $300k…this is way ahead of schedule…(the low interest rates have helped)….  The value of their home today is approximately $1.5million.  They have $1.2million in equity today.  They estimate the home will be worth $2million in 5 years…  but even if it isn’t, even if the property is only worth $1.2million 5 years from now, I’d say they’ve done pretty well, wouldn’t you agree?

And for those that prefer stocks and bonds, then stick with those investments…  There isn’t one good strategy…  This plan is less exciting and probably a little boring…  but I like boring when it comes to my money and my retirement…

This plan isn’t for everyone.  You need to be comfortable with debt and understand real estate…. and you need to commit to owning real estate for 10 yrs (it doesn’t have to be the same house.. you can move)…

If you need help with this plan or just want more info to help understand it, give me a call anytime.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

CMHC flawed data? Or is this just a shock value article?

 The Globe and Mail’s Grant Robertson and Tara Perkins wrote a shocking article entitled “Potentially flawed data used by banks and lenders bump up house prices”.   Wow, that headline is sure to get a lot of attention.  I mean that’s a really serious allegation. Let’s continue…

They claim to have documents that quote “confidential statements from banks, appraisers and mortgage insurers show rising worry over the use of a database operated by the Canada Mortgage and Housing Corporation (CMHC). The documents suggest the data are flawed and help push home prices up.”

But keep reading this article… and tell me if you see any substance to this allegation.   The article goes on to explain that CMHC has been using an automated evaluation system called EMILI, since 1996 that can determine house values.   They also say CMHC will order appraisals when they deem necessary.   They even quoted an appraiser that says the system is flawed… So this article must be right… after all, it’s in the Globe and Mail!!

I read this article a few times over, to try and find any real facts to suggest that CMHC is using flawed data….  but I came up empty.   Did they make any mention of how many times the EMILI system was used over the past 16 years?  Or how many instances this system produced a wrong property valuation?  How about how many appraisals were required when EMILI couldn’t support a value?  What about the $$ losses that CMHC has incurred due to incorrect property valuation using EMILI?   NO.. no data provided… Just a reference to some document that raised concerns about the EMILI system.   My guess is that any losses were limited or we would have heard a lot more about it….

Folks, this article is another example the media using shock value to get you reading… This is the type of ‘water cooler talk’ that causes us to panic, to make mistakes.   We tend to flock to the negative… bad news travels faster than good news…it’s human nature.     Last night, when I saw this article, there were 62 comments…. as of this morning, when I wrote this article, there were over 300.

I want you to read these comments.… full of angry people… all celebrating the possible scandal of a flawed property valuation system…  Hooray!  There’s a scam…banks, and homeowners got ripped off!  Let’s celebrate!!… The attitudes were disturbing…  Hey, I want to associate with positive people.. not pessimists…  If this is the audience that the Globe is attracting, then maybe we should rethink where we get our information from.

Sensationalism is a dangerous thing.  Let’s continue to take emotion out of it… Let’s make sure we look at facts and clearly separate our opinions.   Buying a house for personal use or as an investment needs to be given careful consideration.   You’ve heard me say that real estate should be a 7 year investment.   History shows us that this is how long it takes to amortize the expenses involved with buying and selling a home.   It’s also how long it takes to go through an up and down economic cycle.    Real Estate isn’t about making a quick buck.

Interest rates are at historical, all-time lows… Have you seen any articles about this lately?   Not many… but that’s because it’s lost it’s shock value.  This won’t grab your attention. But’s true… and for most of us, it still makes good financial sense to buy a house.

Make decisions based on fact… based on your own personal circumstances… based on what works for you… based on what your goals are…based on professional advice…

As always, I welcome your comments and questions… If you have any questions about mortgages or mortgage related issues, please free to contact me.

Steve Garganis

416 224 0114

steve@mortgagenow.ca

Rent vs Own…which is better?

Rising house prices could make you rethink buying a home.. Could renting be better today?  With the average home price in Toronto around $500k and the National average at $356k, renting might look more attractive.  And for certain situations, like short-term accommodations and retirement living, it does make sense.  But I’m not convinced that renting is right for most of us.

Some simple rules of thumb to remember when buying real estate:

  • you should plan on owning the home for at least 7 years.  This will amortize or spread out any associated expenses with the purchase or sale of your home.
  • buying for investment should be a long term play.. again, 7 years is usually long enough to take us through any economic cycle of ups and downs.
  • forgot buying for a quick flip.  Unless you are a professional renovator with a deep pockets, don’t try to imitate people on HGTV (yes, it’s another 4 letter word we shouldn’t repeat in public).
  • don’t buy at your maximum debt servicing ratios…. stretching yourself thin when interest rates are at record lows isn’t smart.
  • speaking of interest rates…. make sure to qualify yourself with an interest rate of 5.00% or higher.. this is a more realistic rate than today’s 3.09%… just plan for rates to go up… when they do, you’ll be prepared…
  • we won’t get into buying a rental property here… it requires more explanation.. but for many, it’s an even better investment than buying your principal residence… a topic we will discuss at a later date.

Type in Rent vs Own or Rent vs Buy on google, and you’ll find several recent articles on the subject.   This one, from the Financial Post, stood out…. it’s against owning.   The article explains that you will be better off, financially, if you rent…  They even give an online calculator to prove the point…. Okay, let’s take a closer look at this calculator…   Ah, there’s where we have a difference of opinion…. Their calculator assumes you can earn an annual 7.00% Return on Investment outside of Real Estate…   And they are using annual house appreciation rate of 2.00%.

Hmmm, how many people have made an average annual return of 7.00% in stocks, bond, mutual funds over the past 5, 10, 15 or 20 years???   Most the people I know are still looking to match the stock market highs of 2000 or recover their investments from the 2008 crash.    And using a 2.00% annual appreciation rate for real estate?  Come on, let’s get real!   Try typing in more realistic numbers like 5.00% investment return and 5.00% house appreciation and see what you get…   And that 5.00% investment return is being generous.    Real Estate becomes the winning choice…

We also have to factor in the intangibles.   Not having to worry about moving because your landlord is selling… and not having to move the kids…. and just plain pride of ownership… There is something to be said for owning your home..  People tend to care a little more about the home they own.

Here’s another article from the Globe and Mail that isn’t against owning but is advocating you save up a larger down payment.   I like the philosophy.   Wait and save… but don’t wait for house prices to go down… that just hasn’t worked… Timing the market is always a tough thing to do…So even if house prices fall over the next few years, you’ll probably end up spending more on your mortgage as these record low interest rates are expected to go up over the next few years..    Here’s a calculator I found through The Star’s Moneyville.   I typed in some numbers using today’s averages… rents, house price, mortgage rate, inflation rate, etc…. the results showed buying would save you over $400,000 over a 25 year period.    Try it out.. see how it would fit your situation.

Let me know when I can help.

Steve Garganis steve@mortgagenow.ca

416 224 0114

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