CMHC issues ‘red warning’ amid high house prices in B.C., Ontario

Canada’s housing agency has issued a red warning for the country’s real estate market amid concerns about high prices in British Columbia and Ontario.

“For Canada as a whole, the growth in house prices remains elevated. After adjusting for inflation, house prices climbed 11 per cent in the second quarter of 2016 from a year ago,” Canada Mortgage and Housing Corp. said in a new report. “In combination with the existing evidence of overvaluation, the overall assessment for Canada is thus raised from moderate to strong evidence of problematic conditions.”

Evan Siddall, the federal Crown corporation’s chief executive officer, said last week that CMHC would be issuing the red alert – confirmed Wednesday in the agency’s housing market assessment.

Under CMHC’s overall risk ratings of 15 metropolitan markets, it moved Hamilton from moderate (yellow warning) to strong (red warning) risk of problems.

The agency maintained its overall red warnings for Vancouver, Toronto, Calgary, Saskatoon and Regina, meaning there are now six regions displaying “strong evidence of problematic conditions,” with the addition of Hamilton.

“Price growth remains elevated in Vancouver and continues to strengthen in Victoria, Abbotsford and Kelowna,” CMHC said. “The growth in house prices continues in Toronto and is spreading to more adjacent cities.”

Four metropolitan markets are continuing to have moderate risks (Edmonton, Winnipeg, Montreal and Quebec City) while five others are deemed a low risk for problematic conditions (Victoria, Ottawa, Halifax, Moncton and St. John’s).

“To reflect continuing overvaluation, and the widespread price growth in British Columbia and Ontario, the overall level of evidence for problematic conditions in the housing market across Canada is raised to strong,” the federal agency said.

The agency looks at four key signs of concern: “Overheating, price acceleration, overvaluation and overbuilding.”

In a separate report on the country’s housing outlook, CMHC expects the range for average prices for various types of housing will increase nationally next year and in 2018. The average price for all types of residential properties is forecast to be from $473,400 to $495,000 this year.

The range next year is predicted to be from $483,600 to $507,800, and in 2018, from $497,700 to $525,100 on the Multiple Listing Service.

British Columbia and Ontario “constitute about two-thirds of all national resales, and therefore have led the national MLS price trajectory,” CMHC said.

“Average MLS home prices will continue increasing, but at a slower pace for Ontario and British Columbia in 2017 and 2018, than in 2016, partly because of a compositional effect from lower sales at the high end of the market. Other provinces should experience a relatively stable and positive growth over the forecast horizon.”

Housing starts in Canada could slip slightly next year and dip again in 2018.

Courtesy: The Globe And Mail

Record high housing prices could spur further B.C. sales slide

Real estate prices in the Vancouver region have gone up too much too quickly, creating conditions ripe for sharp declines, the author of a report on the country’s most expensive real estate market says.

“Prices have accelerated sharply, especially at the beginning of 2016, and many more people were priced out of the market,” Marc Pinsonneault, senior economist at National Bank of Canada, said in an interview. “Prices were overshooting.”

The Teranet-National Bank House Price Index, which tracks overall change in price for various housing types, last month reached a record 249.53 (which means prices have climbed almost 150 per cent since June, 2005) in the region, but could fall 10 per cent over a 12-month period, Mr. Pinsonneault said. For all housing types, that would bring the broad index back to where it was in April.

Within that index, the value of detached houses could tumble 20 per cent over a 12-month period, likely to begin in late 2016, Mr. Pinsonneault estimates. For detached houses, it roughly translates into values that could retreat to levels last seen in October, 2015.

Sales of detached houses, condos and townhouses have been falling in the region since peaking at a record high in March of this year.

Several measures have combined to dampen sales activity, including the B.C. government’s new luxury tax on properties in the province that sell for more than $2-million. That tax took effect in February.

The provincial government also implemented a 15-per-cent tax on foreign home buyers in the Vancouver region, effective Aug. 2, although it is unclear how much of the sales decrease since is due to the tax. Another factor to consider is the impact of the federal government’s decision to tighten mortgage lending rules effective Oct. 17.

The Teranet-National Bank House Price Index for the Vancouver region has gained 24 per cent over the past year, despite the recent sales slowdown.

The index shows pricing trends based on a large sample of the sales of properties registered at the land titles office.

“The index prices are different than average prices,” Mr. Pinsonneault said.

The real estate industry’s benchmark prices, which represent the sale of typical properties, remain strong. The benchmark price for detached homes sold last month in Greater Vancouver hit a record $1.58-million – 33.7 per cent higher than in September, 2015.

But with fewer high-end properties selling, that has dragged down the average price for detached houses sold in Greater Vancouver, compared with the spring. Last month, the price for detached houses sold in the region averaged $1.53-million, down 15.7 per cent from April, according to the Real Estate Board of Greater Vancouver.

By contrast, the Teranet-National Bank House Price Index has continued to roar ahead in the region this year. “The reason the sharp drop in sales has yet to translate into [an index] price decline is that the resale market remained tight despite the drop in sales,” Mr. Pinsonneault wrote.

He said it is unclear whether a significant number of foreign buyers are shifting their attention to the Greater Toronto Area.

“China’s anti-corruption campaign is suspected of crimping the flow of capital from that country,” he said in his report, which notes that both the Vancouver and Toronto metropolitan markets are at risk of experiencing price declines in 2017.

The GTA faces a 3-per-cent overall drop its home price index next year, especially with condos expected to be plentiful in supply, Mr. Pinsonneault said. He believes the anticipated price decrease for detached houses in the GTA will likely be in line with his overall forecast.

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Ottawa proposes sweeping changes to spread mortgage risks

Ottawa has unveiled plans to introduce a deductible into Canada’s taxpayer-back mortgage insurance system, a move that could force the country’s financial institutions to shoulder more of the risks of the hot housing market.

The proposal to require risk sharing for mortgage lenders, outlined in a paper put out by the Department of Finance on Friday, represents the first step in what could be the most significant retrenchment of the country’s mortgage insurance program since the system was set up in 1954.

It comes as the federal government has been under mounting pressure, both domestically and internationally, to tackle rising household debt levels in Canada as well as soaring home prices in Toronto and Vancouver.

“Experiences in other countries have shown that high household indebtedness can exacerbate an adverse economic event, leading to negative impacts on borrowers, lenders, and the economy,” federal officials wrote in their consultation paper. “A high level of public sector involvement, for example through government guarantees of mortgage loans, may dampen market signals and lead to excessive risk taking.”

Under Canada’s current mortgage insurance system, taxpayers shoulder virtually all of the costs of mortgages that default, paying lenders for lost principal and interest, as well as for the costs of foreclosing on a property, such as legal fees and property maintenance.

Financial institutions are on the hook for little, if any, of the costs of dealing with defaulted mortgages. Taxpayers guarantee 100 per cent of the costs of mortgages insured by Canada Mortgage and Housing Corp. and 90 per cent of the costs of CMHC’s private sector competitors.

According to government figures, 56 per cent of the roughly $1.4-trillion in outstanding mortgage debt in Canada is insured, although that share has been declining in recent years owing to several rounds of rule tightening by Ottawa since the 2008 financial crisis.

CMHC controls little more than half the market, with $523-billion in total outstanding insured mortgages as of the second quarter.

Genworth MI Canada Inc.’s share was roughly 32 per cent of total mortgage insurance premiums as of last year, while Canada Guaranty Mortgage Insurance Co. had an 11-per-cent market share, according to estimates from rating agency DBRS Ltd.

The government’s consultation paper lays out two scenarios for risk sharing that would see lenders absorb between 5 and 10 per cent of the total outstanding value of a defaulted mortgage. Ottawa is also proposing to implement the deductible in the form of a fee for lenders. Mortgage insurers would continue to pay out 100 per cent of mortgage default claims, but then charge lenders a fee based on the total value of mortgages on their books that default in a given quarter. That structure would protect CMHC’s $426-billion mortgage-backed securities programs.

Ottawa has been quietly studying the idea of risk sharing since CMHC chief executive officer Evan Siddall first raised it shortly after taking the helm of the Crown corporation in 2014. But the release of the consultation paper marks the start of formal negotiations with industry that will run until Feb. 28.

Financial institutions declined to comment on the government’s proposal on Friday. In a statement, the Canadian Bankers Association said that it is “looking forward to engaging constructively with the government during the consultation process.”

However, when Ottawa introduced the idea of lender risk sharing earlier this month, the CBA warned of “negative side effects,” setting up what could be a heated exchange between Ottawa and lenders, who say that they already share risks associated with the housing market.

Half of the portfolios of the bigger banks consist of uninsured mortgages. Those that are insured, the banks point out, come with significant costs related to underwriting and management. Since mortgage defaults will likely hit other products, such as auto loans and credit cards, which aren’t insured, banks say they already have a strong incentive to lend appropriately.

Privately, however, the majority of Canada’s biggest banks have started to embrace the idea of some form of risk sharing, admitting they’ve felt more pressure to scrutinize their portfolios and to play ball with a new Liberal government that is more prone to intervention than its Conservative predecessor.

Risk sharing represents a more significant problem for the country’s non-bank lenders, whose funding relies more heavily on selling insured mortgages to investors through CMHC’s mortgage-backed securities programs.

In a paper put out in December, the Credit Union Central of Canada warned that a deductible on mortgage insurance could be a major blow to its industry, which controls roughly 15 per cent of the mortgage market.

“If a deductible is significant, the likely impact will be increases in mortgage credit costs for consumers and a reduction in mortgage credit availability for some aspiring home buyers,” the trade association wrote. “The impact of these changes will be most significant for lower-income Canadians, Canadians living in rural/remote regions, or in areas with a fragile economic base.”

Ottawa estimates the measures would add 20 to 30 basis points to lenders’ mortgage costs, although mortgage insurance premiums would likely fall, meaning consumers are unlikely to face sharply higher costs for insured mortgages. (A basis point is 1/100th of a percentage point.)

Any risk-sharing plan would apply only to new mortgages and would be rolled out gradually, needing as long as 20 years to fully take effect, the government said.


How the rules have changed

Canada’s housing rules have been revamped six times since 2008.

1. October, 2008: Ottawa reduces the maximum amortization period to 35 years, effectively killing the 40-year mortgage; introduces a 5-per-cent minimum down payment and tightens loan documentation standards.

2. April, 2010: The government clarifies debt-servicing standards, limits refinancing to a maximum of 90 per cent of the property value and imposes a minimum 20-per-cent down payment on investment properties that are not occupied by the owner.

3. March-April, 2011: The government reduces the maximum amortization period to 30 years, limits refinancing to a maximum of 85 per cent of the property value and withdraws government guarantees on low loan-to-value non-amortizing secured lines of credit.

4. July, 2012: Reduces the maximum amortization period to 25 years, limits refinancing to a maximum of 80 per cent of the property value, imposes a maximum total debt service ratio of 44 per cent, a maximum gross debt service ratio of 39 per cent and introduces a maximum purchase price of less than $1-million.

5. February, 2016: Imposes a minimum down payment of 10 per cent for the portion of a house priced above $500,000.

6. October-November, 2016: New stress tests ensure that the debt-servicing standards for all insured mortgages must meet either the mortgage contract rate or the Bank of Canada conventional five-year posted mortgage rate (whichever is higher). As well, eligibility criteria for high- and low-ratio insured mortgages will be standardized.

Source: Department of Finance

— David Berman

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Millennial home buyers willing to pay the price to avoid long commutes, survey indicates

A recent survey from TD Canada Trust reveals that millennials are willing to spend more money on a home in order to live closer to work. But that isn’t the only factor for home buyers aged 18 through 34, most of whom are entering the real-estate market for the first time.

Forty-eight per cent of millennial respondents to the TD survey said they would spend more on a home to commute less, as compared to just 34 per cent of Canadians as a whole.

TD conducted the survey of more than 6,000 respondents 18 and older. The report was then broken down into a subgroup of nearly 1,800 millennials.

“While living close to work has many benefits, purchasing a home in an expensive urban city can come at a price,” says Pat Giles, associate vice-president of real-estate secured lending at TD.

Sixty-eight per cent of the survey respondents admit they would be willing to move into a smaller house than they initially desired, while 80 per cent say they would sacrifice amenities or compromise on their top choice of neighbourhood.

Corbin Seligman, a sales representative at Harvey Kalles Real Estate Ltd. in Toronto, says his younger clients are thinking just as much about where they spend their leisure time as they are about where they work.

“At the same time, they want to work in a place they enjoy as well,” he explains. “Everyone wants to work downtown, live downtown, play downtown – at least in my experience.”

The average home price in Toronto is more than $700,000, and in Vancouver it’s $1.4-million. Millennials are compromising on a variety of things to still live in the city and have shortened commutes, according to the study.

Mr. Seligman says “uniqueness” is another important factor for the under-35 crowd when choosing their first property.

“If they’re single and looking for their first condo, they might be just looking for a one-bedroom in an area that’s cool. They don’t want a cookie-cutter box in the sky that’s the same as thousands of other units,” he says.

“If they’re looking for a house, often they don’t want to do a lot of work. There are some people that are an exception to that, but they want, generally, something that’s move-in ready because they don’t have the time to dedicate to a renovation.”

A 2016 Bank of Montreal report said 76 per cent of millennial renters are hoping to buy a home within the next five years. But affordability is a major concern for those first-time buyers.

“In the 1980s and 1990s, older homes on large suburban lots were affordable options for younger buyers. Now, those properties have become relatively scarce and attract premium prices, leaving condos and townhouses as the new affordable options,” explains Robert Kavcic, a senior economist of BMO Nesbitt Burns Inc.

A 27-year-old condo owner, who works in the media industry but spoke on the condition of anonymity, said he and his wife (a schoolteacher) initially looked at homes in their area – they live in Oakville, Ont. – but “simply couldn’t compete in the market.”

“We were scraping the bottom of the barrel and looking at houses that had a lot of problems simply because they were the only ones we could potentially afford,” he says.

He and his wife put in an offer on a home, but it sold for more than $100,000 over their offer. They ended up moving into a condo that was still in their desired neighbourhood, close to both their workplaces.

“A major consideration for us was that we didn’t want to own more than one vehicle. Both our jobs are located fairly close together, but our schedules don’t line up and sharing a longer commute wasn’t going to work,” he says.

High-rise condos are going up at a rapid pace in both downtown cores and other urban areas, which make them attractive to the millennial home buyer.

But as the old adage goes: location, location, location.

“It’s important to know what trade-offs you’re willing to make based on what you can afford and where you are willing to live,” says Mr. Giles. “If an urban location is paramount, then saving for a large down payment is important. If you can accept a larger commute time, you may actually be able to afford more ‘you only live once’ moments, like vacations, over time.”

Courtesy: The Globe And Mail

Ottawa’s new housing rules: who’s exempt, who’s not

After sowing confusion with its housing reforms, Ottawa has provided more guidance about which buyers will be exempt from the stricter mortgage requirements.

The new rules, which went into effect Monday, have created panic among some prospective homeowners. Many received conflicting advice from realtors, lenders and brokers about whether they would have to qualify for a mortgage at higher rates than what is offered by most banks.

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CMHC’s ‘red’ alert: Surging home prices spread to suburbs

Hot markets in Vancouver and Toronto are causing home prices to rise in nearby areas, prompting Canada’s housing agency to issue a red alert about the country’s real estate sector as a whole.

Canada Mortgage and Housing Corp. chief executive officer Evan Siddall said in an interview the agency’s “red” warning means that there is a strong risk of problems on the horizon. Ottawa uses CMHC analyses to guide its policies for the housing industry.

“We’re observing the spillover effects in the central markets of Vancouver and Toronto, affecting nearby markets. In Toronto, it’s affecting Hamilton and Oshawa. Outside of Vancouver, it’s places like Richmond and the Fraser Valley. You’re seeing price acceleration,” Mr. Siddall said. “At the nationwide level, the evidence of problematic conditions has become high – that’s what red means. It’s not predicting a crash.”

The problems include not just rising prices, but overvaluation.

CMHC will boost the risk rating in its overall assessment of the country’s residential market to “strong” from “moderate” when it issues a new report on Oct. 26.

Mr. Siddall first disclosed CMHC’s decision to issue the red alert on Monday in The Globe and Mail. CMHC’s new warning has been months in the making. The agency rates 15 metropolitan markets as weak (green), moderate (yellow) or strong (red) based on risk signals.

Earlier this month, federal Finance Minister Bill Morneau announced measures to tighten mortgage rules, such as a new standard for gauging whether buyers can handle an eventual increase in interest rates.

Those changes took effect on Monday.

“If people can just save a bit more money and have a bit more equity in their homes, that would be safer,” Mr. Siddall said. “A 5-per-cent down payment means you don’t have a lot of cushion on the downside.”

The federal government’s decision to tighten lending rules will reduce demand from prospective home buyers, the real estate industry argues. “The government has taken away the punch bowl, the party is coming to an end,” Vancouver real estate agent Steve Saretsky said in an e-mail to his clients.

Matthieu Arseneau, senior economist at National Bank Financial Inc., said the authorized lending limit for certain types of insured mortgages (fixed five-year term, for example) could fall by 17 per cent because of Ottawa’s measures. He estimates that 7 per cent of home sales could be affected by Ottawa’s efforts to curb risk in the housing market.

Mr. Siddall said he understands the concerns that some buyers can no longer take out mortgages as large as in the past, but such consumers will benefit in the long term from Ottawa’s “stress test” that uses the Bank of Canada’s higher posted interest rate to determine who qualifies for an insured mortgage.

“We’re not spiking the punch bowl,” Mr. Siddall said. “If we’re making it easy for people to borrow money to buy a house, we’re creating demand, which is only pushing the price higher.”

Ottawa also closed tax loopholes used by some foreign buyers, effective on Oct. 3.

In July, CMHC increased its warning for Canada as a whole from weak to moderate. The Vancouver region has come under increased scrutiny this year.

The federal Crown corporation changed its quarterly risk rating on the Vancouver area to moderate in April and to strong in July.

CMHC also saw Calgary, Saskatoon, Regina and Toronto as housing markets that showed strong signs in July of problems looming.

“The housing industry continues to do the heavy lifting for the Canadian economy. I worry that policy makers are looking at what they are doing in isolation. We could end up doing more harm to the most important industry in the country,” said Phil Soper, chief executive officer of real estate firm Royal LePage.

Some industry observers have been sounding the alarm for more than a year about what they view as overheated housing markets in Canada, and the federal agency is the latest to do so. “CMHC is an important voice. Maybe they are late, but is it that important that they are late? No,” Mr. Soper said. “Where CMHC could do more or be helpful is the collection of information such as the influence of non-Canadian and non-resident home buyers.”

B.C. Finance Minister Mike de Jong said “others will have to decide” whether CMHC’s warning shows his government took too long to cool the housing market in British Columbia. Mr. de Jong said B.C. enacted a tax on foreign buyers after it began collecting data that showed they were involved in about one in every 10 Metro Vancouver home sales earlier this summer.

“I think the average citizen would say, ‘Well, why the hell weren’t you collecting this basic data for some time?’ Fair enough, we weren’t. It stopped in the 1990s some time,” he told The Globe and Mail’s editorial board on Monday. “We proceeded to begin collecting that data and when we were in the position to make decisions on the basis of at least a subset of information that was reliable, we did so.”

The B.C. government announced a 15-per-cent tax on purchases by foreign home buyers in the Vancouver area, effective Aug. 2.

“Low affordability and the likely reduction of international capital inflows in the wake of the transfer tax finally end the steep appreciation that started in 2013,” economic forecaster Moody’s Analytics said in a new report, predicting that prices will fall next year for detached houses in the Vancouver region.

Moody’s, which uses data from the Brookfield RPS House Price Indices, envisages a price drop in 2017 of less than 3 per cent for detached houses but cautions a steeper decline is possible.

Rating agency DBRS Ltd. said low interest rates, steady immigration and limited housing supply are among the numerous influences over real estate prices, and there aren’t any simple solutions to improve affordability. “The stream of new government measures introduced this year are expected to contribute to cooling down the market and reducing risks to taxpayers, lenders, investors and to households themselves, although they might be detrimental to economic expansion,” DBRS cautions.

With a report from Mike Hager

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Desperation drives some home buyers to gamble on a fixer-upper

When David Boyles and his wife, Caitlin, bought their first home last month, they took a risk.

The couple had been house-hunting in downtown Toronto for a year, but hadn’t yet managed to land a deal.

“We had made about 20 or 25 offers [on other houses] in that time span. Lots of big surprises. We’d be aggressive, we’d go in at $150,000 over [the list price] and get blown out of the water. We wouldn’t even be close,” says Mr. Boyles, 30.

It was getting frustrating, he says, because prices were going up every week, “enough that you’re worried about getting priced out entirely,” he says.

Then on a Saturday last month, they looked at a new listing – a three-bedroom, two-storey home in the Bloor and Dufferin neighbourhood, an increasingly buzzworthy Toronto area in the city’s west end. From its appearance, the home clearly needed work, says Mr. Boyles. It was at least 50 years old and hadn’t been recently renovated or “staged” to sell. As well, the buyer hadn’t provided a home inspection.

“You could tell it had good bones, but you could also see you would need to replace the roof. Definitely not the most up-to-date finishes,” he says. “We didn’t really think it would be the one we ended up buying because we knew, inspection or no inspection, it was going to be a lot of work.”

They put in an offer on another, more updated house the following Tuesday – losing out by $200,000 in a 20-buyer bidding war. After that, the rundown, three-bedroom started looking a lot more attractive. There wasn’t much time to consider further – the seller was taking offers the next day – but the couple decided to take the leap of faith.

“We said, we know there’s no home inspection, we know what we could be potentially getting into, but here’s our offer, less than what we’d offered for other houses, under the idea that if we get it for this price, we will still have money left over to do some renovations right away,” says Mr. Boyles.

With four other bids in play, they got the house for about $100,000 less than they had offered on other properties. Mr. Boyles says that after the sale, they’ve been able to inspect the house further and have found happy surprises, including updated electrical work and good hardwood under the aging carpet.

“It really worked out in the end and we couldn’t be happier,” he says. “But no doubt, when we bought it, we had some sleepless nights.”

Pressure to buy

Buying a fixer-upper can be a nerve-racking proposition for would-be homeowners worried about ending up with an endless money pit. But in a market as hot and as competitive as Toronto’s, buying a house that needs work is often the only way to land a deal. A record number of homes were sold in the Greater Toronto Area in August, at an average price of $700,000 (an increase of 17.7 per cent from the same month last year). Detached homes in the City of Toronto proper cost on average of $1.2-million (up 18.3 per cent from last year).

This buying frenzy has meant that bidding wars and “bully” offers – when a buyer submits an aggressive price before the scheduled offer day – happen frequently. Consequently, buyers are often willing to rush in with a bid on less-than-optimal properties without having a chance to conduct a home inspection or thoroughly examine the property, says John Pasalis, broker owner of Realosophy Realty in Toronto.

“It’s been common for some time because there’s so much anxiety in the market,” says Mr. Pasalis. “It’s beyond not getting home inspections, it’s like they see a house, they like it and they make an offer in an hour.”

He says that rushing to buy is a function of the current state of the market. Because multiple offers are so common, sellers are unlikely to accept any conditions on the sale and bully offers just heighten the fear buyers have of missing out.

“If you’re waiting a week until the offer date, you have time to do some homework and think about it, go back a second time. It’s usually in these bully offer situations, people can’t do that,” says Mr. Pasalis.

“Even if you’re not the buyer who’s making the bully offer, you’re going to get the call from your agent at 7 p.m. [saying]: ‘Someone’s made a bully offer, do you want to offer as well?’ And you need to make a split-second decision, yes or no.”

Brendan Powell, broker with BREL Team/Sage Real Estate (and Mr. Boyles’ real-estate agent), notes that even though some buyers forgo home inspections, the risks are usually mitigated by the sellers doing their own home inspection prior to putting it up for sale.

“Now that we’ve had a seller’s market for a while, to increase the chance of having multiple offers, the seller is often doing the home inspections,” he says. “It’s in the seller’s best interest to give the buyer’s comfort and say, ‘We’re not hiding anything, we’re laying everything on the table.’”

There can be a risk, though, notes Mr. Powell, because the inspector isn’t accountable to the buyer.

“The way I say it to my buyers is, the risk is much lower if the home inspection is a reputable company that I know,” he says. “It gives me comfort to say, this is a big company, a professional inspector, they would have a lot to lose if they were anything but fair.”

Mr. Powell says he always recommends clients get a home inspection before offer day in order to get insight into the property, but if there isn’t time to get your own inspector in, he suggests bringing in friends with construction or contracting experience to give it a look-over during the walkthrough.

Inspections in decline

Tara Valley, president of Toronto’s Environmental Services Group, says she’s definitely seen a drop in home inspections in recent years. “Our residential clientele has dropped off significantly in the last few years because the interest rates are so low and people just want to get into the market.”

Old homes can hide surprises even if they are renovated, she says, and she’s seen some doozies.

“One house, they did a brand-new kitchen reno and everything seemed to be redone, but they never insulated the walls. It doesn’t matter how long you run your oven, you’re never going to be warm in there,” she says. “And who wants to tear out a brand new kitchen?”

In terms of her red flags, Ms. Valley says that deteriorating brick foundations in older homes can mean trouble, as well as houses that have poor grades, no weeping tile or extensions that drain into the neighbour’s foundation. Moisture is always a red flag, she adds.

“You’re buying a 100-year-old house, so nobody out there is saying, ‘I’m selling my house, I’m going to waterproof it for the next guy,’” she says.

Mark Weisleder is a Toronto lawyer, author and speaker for the real-estate industry with He has received calls from buyers who didn’t get a home inspection, including one who ended up with a mould problem that will likely cost thousands of dollars to remediate.

“Right after closing, they walked in and they smelled mould,” he says. “It turns out the windows were open when the sellers showed the house, but apparently, because all the windows were shut when they came in after closing, they noticed it.”

While the buyers might be able to sue the seller for concealing the mould, it’s a problem most buyers won’t want to face, notes Mr. Weisleder. “An inspector right away would have caught the problem,” he notes.

At the same time, Mr. Weisleder appreciates that there is a great deal of pressure to make an offer without an inspection these days. In addition, paying $500 per inspection can add up if you end up losing bidding wars and having to make multiple offers.

Mr. Boyles says that he definitely learned a lot during his year of fruitless house-hunting through working with home inspectors and Mr. Powell, the real estate agent.

Though he and his wife hadn’t originally planned on buying a fixer-upper, he says that now they know they got a good one, they are sleeping easily.

“It’s still going to take a lot of work, but we’re ready for it,” he says. “We get to put our own touch on it.”

Courtesy: The Globe And Mail

Ottawa’s housing stress test is needed, CMHC head says

Ottawa’s new standard for gauging whether borrowers can handle higher interest rates to buy homes is necessary to prevent damaging the broader economy, says the head of Canada’s housing agency.

Evan Siddall, chief executive officer of Canada Mortgage and Housing Corp., said he is concerned about warning signs in the country’s housing market, especially in the Vancouver region and Greater Toronto Area.

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CMHC to issue first ‘red’ warning for Canada’s housing market

Canada’s housing agency is raising the alarm over the country’s real estate sector, warning about a strong risk of problems on the horizon.

Canada Mortgage and Housing Corp. will increase the risk rating in its overall assessment of the country’s residential market to “strong” from “moderate” when it issues a new report on Oct. 26.

“CMHC has recently observed spillover effects from Vancouver and Toronto into nearby markets,” CMHC chief executive officer . “These factors will be reflected in our forthcoming Housing Market Assessment on Oct. 26. They will cause us to issue our first ’red’ warning for the Canadian housing market as a whole.”

CMHC’s decision to issue the red alert has been months in the making. Under the agency’s analysis that looks for “evidence of problematic conditions,” it rates 15 metropolitan markets based on weak (green), moderate (yellow) or strong (red) risk signals.

Earlier this month, federal Finance Minister Bill Morneau announced measures to tighten mortgage rules. Ottawa is also closing tax loopholes used by some foreign buyers.

“High levels of indebtedness coupled with elevated house prices are often followed by economic contractions,” Mr. Siddall said. “We expect Mr. Morneau’s actions therefore to support our economy. Seen this way, the resulting delay in when people can purchase their first home, or their decision to buy a smaller home, rent or stay put is rather a small price to pay.”

In July, CMHC increased its warning for Canada as a whole from weak to moderate. The Vancouver region has come under increased scrutiny this year.

“A ‘stress test’ using the higher Bank of Canada posted rate must now be used to underwrite guaranteed mortgages. This measure will help offset the highly stimulative effect of low interest rates,” Mr. Siddall said.

The federal Crown corporation changed its quarterly rating on the Vancouver area to moderate in April and to strong in July.

CMHC also saw Calgary, Saskatoon, Regina and Toronto as housing markets that showed strong signs in July of problems looming. Five markets were seen as having moderate risks (Edmonton, Winnipeg, Hamilton, Montreal and Quebec City) while five others were deemed weak for problematic conditions (Victoria, Ottawa, Halifax, Moncton and St. John’s).

The federal agency looks at four key areas of concern: “Overheating, price acceleration, overvaluation and overbuilding.” It cautioned in July that the country’s residential markets as a whole already displayed strong signs of being overvalued.

“House prices across Canada remain higher than levels consistent with personal disposable income, population growth and other fundamental factors,” CMHC said in July. It added that the risk of problematic conditions would increase “if the acceleration in prices intensifies in Ontario and British Columbia so as to outweigh challenges in the oil-dependent provinces.”

The B.C. government announced a 15-per-cent tax on purchases by foreign home buyers in the Vancouver region, effective Aug. 2.

Property sales last month in Greater Vancouver dropped 32.6 per cent from a year earlier, as the housing market adjusts to the impact from the B.C. tax on home buyers in the Vancouver area who are not Canadian citizens or permanent residents.

By contrast, residential sales in the Greater Toronto Area jumped 21.5 per cent in September, compared with the same month last year.

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Courtesy: The Globe And Mail