GTA home sales were down 32% in February compared with this time last year, but prices appear to be stabilizing, according to the Toronto Real Estate Board.

Toronto Real Estate Board Members reported 4,120 sales in February 2009 compared to 6,015 sales recorded in February 2008. The average home price was $361,305 last month compared to $382,048 during the same month last year.

“A considerable number of transactions continued to take place in February 2009. Motivated buyers and sellers, who were aware that market conditions changed over the past few months, were able to negotiate transactions acceptable to both parties,” said Toronto Real Estate Board President Maureen O’Neill.

On a month-over-month basis, sales and average price were above January levels of 2,670 and $343,632 respectively. The housing market is seasonal. Traditionally, in the first half of every year, sales and average price climb to their highest levels in late spring before trending lower from July onward.

“While the economic downturn has had an impact, the GTA housing market is resting on a solid foundation. Current home prices and mortgage rates suggest that GTA homes have become more affordable on average,” according to Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “A greater number of home buyers could take advantage of this affordability once their positioning in the economy becomes more certain.”

Typically the spring real estate market tends to experience more activity and with the Canadian economy experiencing a period of low mortgage rates and strong immigration, this trend could continue. According to Statistics Canada, Canada welcomed 247,202 permanent residents in 2008, 70,000 more than in 1998, and well within the government’s planned range of 240,000 to 265,000 new permanent residents for 2009.

The Toronto Real Estate Board President pointed out that Greater Toronto Real Estate Agents are an integral part of the real estate transaction process. “TREB Members are uniquely positioned to help home buyers and sellers adapt to changing market conditions,” added Ms. O’Neill. “In addition, TREB continues to advocate public policies that do not threaten affordability but support home ownership in the GTA such as lower taxation and less regulation.”

Greater Toronto Realtors are passionate about their work. They adhere to a strict Code of Ethics and share a state-of-the-art Multiple Listing Service. Serving over 28,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada’s largest real estate board.

Phil Soper, president and chief executive officer of Brookfield Real Estate Services, said rookies are the largest category of buyers in the Toronto real estate market, accounting for close to 70% of all transactions at the height of the housing boom.

However, they’ve been scared away in droves by the economic downturn, which was led in part by record foreclosure rates in the United States as homeowners defaulted on their mortgage debt.

Such a lack of first-time buyers can grind the real estate market to a halt, Mr. Soper told the Bank of Nova Scotia annual real estate outlook conference.

“When new buyers stop entering the market, it’s like sand in the gears,” he said.

Although Canada has managed to duck the severity of the housing crisis in the U.S., the 10-year boom that saw housing prices soar, particularly in the Western provinces, ended abruptly last year.

Canadian housing starts — the number of new residential construction projects — were down to 211,056 in 2008, about 8% lower than an average of almost 230,000 in the period from 2004 to 2007. Resale activity fell by 17% in 2008 but home prices only dipped by one per cent, according to Scotiabank.

But Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said all of this news is working to create a buyers’ market. And although young buyers are likely keeping an eye on the job market before they rush into buying a home, conditions are improving, she said.

“Certainly the softening we’ve seen in prices, the increase in listings, is giving first-time buyers more choice,” Ms. Warren said.

“We have seen some deterioration in affordability in recent years as home prices continued to rise, and I think that began to pinch a lot of first-time buyers. Hopefully when we see some relief on prices, more choice, less bidding wars, we’ll see more interest coming back.”

Comment: While prices have only really dropped about 5% in Toronto over the past year (and February 2009 prices are up over January 2009), the main benefit to buyers is increased selection. And with some lenders offering 5-year fixed mortgages for less than 4%, this is the time to buy!

And even though most first-time buyers — generally in their late 20s or early 30s — tend to have much more debt than their parents did, Mr. Soper said they’re also much more “real-estate savvy” than the generations that came before them.

“If you think of the traditionalists, the older people who went through very different economic times, they’re very, very conservative about mortgages and debt as it relates to housing,” Mr. Soper said. “Today’s first-time buyers view this as just a natural way to get into the market.”

He added that young prospective buyers also tend to be much more confident about their future, less financially dependent on one job and one company, and less concerned about the recession than their parents.

This confidence has combined with lower housing prices, better government incentives and less risk to make the real estate market more appealing to first-time buyers, Mr. Soper said.

Ms. Warren added that the demographic of first-time buyers is growing as the children of baby boomers reach the age where they begin to consider entering the housing market.

“The baby ‘echo’ boomers that are now just graduating university, going out on their own… will be an increasingly important demographic behind the pickup in some sales,” Ms. Warren said.

She added that new immigrants will also be an important driver of home sales in the coming years as Canada’s population growth becomes increasingly reliant on those born elsewhere.

Source: Kristine Owram, The Canadian Press

While we shouldn’t turn a blind eye to what’s happening around our world, we shouldn’t allow ourselves to become gripped by fear while waiting to see if things are going to get worse.

Pierre Duguay, Bank of Canada’s deputy governor, is warning Canadians not to get spooked by “irrational fear” over the economy and says there’s a risk of overstating the global crisis.

Duguay says Canada should be prepared to hear a string of alarming economic news in the next few months. But that doesn’t mean we should panic.

And he says that justifies a “sense of urgency” in putting the federal government’s stimulus spending to work in the economy quickly.

Our government, reacting to economic woes, indicated they would introduce a stimulus package to help stir up activity across our provinces.

The Conservative government proposed spending $40 billion over two years to stimulate the economy, but no money will start to flow until April at the earliest. What? We need stimulus now!

Finance Minister Jim Flaherty has called for a free hand in spending $3 billion of the stimulus starting April 1, but opposition parties are asking for some oversight.

Duguay says it’s important to get the stimulus moving “so people can see recovery is coming and not have to worry about the future.”

The Bank of Canada has already stepped up to the challenge with their recent rate cut, and fortunately, the major banks quickly responded with their own reductions in interest rates.

As of the date of this story, my clients have access to the lowest rate in Canada! 3.5% for a five year, fixed/closed mortgage! An unbelievable opportunity to take advantage of a great rate before both housing prices and interest rates start to climb again… and they will!

Visit my website at http://www.BlairArmstrong.com or call 416-301-0222 for more information.

The central bank did what virtually every private sector economist advised it to do Tuesday morning, slashing the trend-setting overnight rate to 0.5 per cent, uncharted territory.But bank governor Mark Carney, who was criticized for being overly rosy in his outlook for the economy in January, now says that even at such unheard-of lows, the stimulus provided by traditional monetary policy is likely not enough.

And he said the bank now sees recovery coming later than it had projected, possibly in early 2010.

“Given the low level of the target for the overnight rate, the bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing,” Carney wrote in a statement of his rate decision.

The central banker does not give example of specific measures, but the language implies he is considering buying back government bonds and other forms of credit from chartered banks in order to provide more liquidity in money markets.

Canada’s major banks appeared ready to play ball with Carney: shortly after the announcement, Royal Bank, Bank of Montreal and announced that they would cut their prime rates in step with the central bank.

The reference to non-traditional monetary measures confirms that Carney knows he has exhausted interest rate cuts as a means of stimulating the economy out of a deepening and increasingly stubborn recession.

There is only limited advantage in taking rates to zero – something few economists counsel. As well, the central bank has already slashed the overnight rate from 4.5 per cent 15 months ago to 0.5 per cent with limited impact.

As former Conservative cabinet minister and economist Doug Peters wrote last week: “Interest rates that count, such as interbank lending rates, mortgage lending rates, bank commercial lending rates, are all unusually high, especially considering that inflation is also very close to zero.”

The other surprise is that although Carney said recently he is unlikely to revise his controversial January forecast until the next Monetary Policy Report in late April, he does just that in the brief statement.

“The outlook for the global economy has continued to deteriorate since the bank’s January… update, with weaker-than-expected activity in major economies.”

“National accounts date for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January.”

Carney said potential delays in stabilizing the global financial system, along with low consumer confidence and larger hit on household wealth, “could mean that the output gap will not begin to close until early 2010.”

In January, Carney had forecast the economy to start growing by an annualized two per cent in the third quarter of this year, and to record an average growth of 3.8 per cent next year.

Tuesday’s statement does not officially alter the forecast, but strongly implies that both this year’s 1.2 per cent contraction will be worse and that the recession may last until next year.

On Monday, Statistics Canada reported that Canada’s gross domestic product had retreated by 3.4 per cent – more than the bank’s expectation of a 2.3 per cent fall-back – and economists were for the first time calling Carney’s prediction of a whopping 4.8 per cent contraction during this first quarter of 2009 optimistic.

Carney also forecast that inflation will likely be lower than expected this year.

SOURCE: TheStar, Julian Beltrame, THE CANADIAN PRESS

“While sales have been lower, the housing sector remains one of the pillars of the GTA economy,” said Toronto Real Estate Board President Maureen O’Neill. “Each existing home transaction generates, on average, more than $33,000 in spin-off spending on renovations and other housing-related items. This spin-off spending translates into jobs.”

“The City of Toronto needs to do its part to encourage homeownership by reducing the tax burden on existing and potential home owners,” said TREB President Maureen O’Neill. “To this end, Greater Toronto real estate agents are calling on the City to roll back the municipal land transfer tax. We presented our views to the City’s Budget Committee yesterday.”

The average home price in the GTA was $364,748 compared to $385,735 in mid-month February last year.

“It is interesting to note that while the average price was down, the annual rate of price decline slowed compared to the previous four months,” according to Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “If this trend continues into the spring, it could point towards average home prices leveling off between $360,000 and $370,000.”

Comment: For the first time in months, February 2009 compared to February 2008 is going to be the true test. This month, we aren’t comparing to previous months where there was abnormally high activity due to buyers who were trying to avoid a new tax. This month,  we’re FINALLY comparing apples to apples… and guess what …we are seeing very little difference.

Like me, fellow realtors are sharing the same setiment… the sky is NOT falling, the market is NOT collapsing. We are currently looking at only a minor 5% price drop… a drop that occurs over the past 12 months, comparing the beginning of February 2008 with the first have of February 2009. That is less than 0.05% per month. Or 0.0001% per day. So what, you say? Consider this… the stock market dropped 30-50% in only 3 months, in comparison.

Read this carefully. IMPORTANT: All the indicators suggest we are pretty much at the bottom now, so if you are thinking of buying, the next few months are going to be the best time. Once consumer confidence returns with the nice weather, everything will stabilize, interests rate will start to climb again, and we might even see prices edge upwards again. Visit my website, www.BlairArmstrong.com … send me a note or call me – let’s talk about finding your next home before the interest rates start to climb along side housing prices! ~Blair

For more information, contact Blair Armstrong at 416-301-0222

SOURCE: Toronto Real Estate Board

Rates on mortgages have fallen a lot in the past several months, prompting many people to ask about renegotiating in order to cut costs. “The bulk of my business today is people breaking their mortgages,” said Jim Tourloukis, a mortgage broker with Advent Mortgage Services in Markham, Ont.

The problem in breaking a mortgage is the penalty that lenders charge. Banks typically have two ways to calculate the penalty and recently they’ve switched to the more expensive one.

A little context may help you gauge how annoyed you should be about this. With a recession and global financial crisis hurting their revenues, the banks have been pushing up interest rates on lines of credit, charging more in service fees and adjusting credit card rules to extract more money from clients. Mortgage penalties are somewhat different in that they’re mainly influenced by what’s happening with interest rates.

It’s boilerplate in mortgage contracts for penalties associated with breaking a loan to be set at the greater of three months’ interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates.

Mr. Tourloukis explained that three months’ interest was the typical penalty until rates began to fall hard in the past couple of months. Now, the so-called interest rate differential, or IRD, is the larger penalty.

“The spread between the client’s rate and what banks can lend money for now has grown dramatically,” he said.

If you have any thoughts of breaking your mortgage, get on it today. If mortgage rates fall further, and they could ease a little bit more, then interest rate differentials will grow in size and cost you more.

Mortgage brokers say breaking your mortgage is worth some thought if your current rate is in the low 5-per-cent range or more. Mr. Tourloukis said he’s been renegotiating five-year, fixed-rate mortgages at 3.99 per cent for clients who several months ago signed up for similar loans at 5.79 per cent. Other mortgage brokers are showing five-year rates in the low 4-per-cent range.

The first step in breaking a mortgage: Ask your lender what your penalty would be. There’s no standardized calculation of penalties, so your number will depend on your lender’s own policies and personal circumstances like the amount you’ve borrowed and the number of years left on your mortgage.

In some cases, breaking your mortgage just won’t make sense because of the steep IRD amount. “If you have a lot of time left on your term, it could be deadly,” said Vince Gaetano, vice-president at Monster Mortgage in Toronto.

Practices vary widely among banks, but one method for calculating the IRD is to compare a client’s original rate against the posted rate for the term that corresponds with the remaining time left on the mortgage. Example: You’re two years into a five-year mortgage, so your IRD would be calculated using the current posted three-year rate.

Once you know your penalty, ask your lender to show you how much interest you’d save by renegotiating with the best possible current rate. If the penalty overwhelms the potential savings, then you have a couple of options beyond giving up.

One is to try and negotiate the penalty lower, or have it eliminated altogether. Mr. Tourloukis said lenders have the discretion to help clients out this way.

Another is to chop the amount of money you owe on your mortgage, thereby reducing the penalty for breaking the loan. The way to do this is to take advantage of the prepayment privileges built into most mortgages.

For example, you might be allowed to prepay as much as 20 per cent of your outstanding balance in a year without incurring any charges. Make this lump-sum payment and then get a quote on the penalty to break your newly shrunken mortgage.

There are a couple of strategies to look at if you’d benefit from breaking your mortgage but can’t afford the penalty charge.

One is to take the cost and add it to your mortgage balance. In some cases you’ll still end up paying less interest than if you stayed with your current mortgage.

Another possibility is a blend and extend, where you jump into a new mortgage that blends your existing rate with the lower current rate and extends your term by a few years. There’s no penalty charged in a blend and extend, but you won’t save as much as you would if you paid the penalty and got the best possible current interest rate.

“If you want the better rate, you have to come up with the cash,” Mr. Gaetano said.

SOURCE: Globe & Mail, Rob Carrick