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Real Estate

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Rising interest rates continued to hit the Greater Toronto Area real estate market in January as the composite benchmark price tumbled 14.2 per cent and home sales fell 44.6 per cent from the same month a year ago.

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On a month-over-month basis, figures released by the Toronto Regional Real Estate Board on Feb. 3 show the GTA’s composite benchmark price fell by 0.23 per cent to $1,078,900 from $1,081,400 a month earlier while the average price of homes sold dropped to $1,066,668 from $1,099,125. Property sales barely moved in January 2023 compared to December 2022 with 3,110 and 3,100 sales reported, respectively – an increase of 0.32 per cent month over month.

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New listings, meanwhile, were down 3.69 per cent to 7,688 from 7,983 in January 2022. The board noted that although the Bank of Canada’s overnight rate increased in January, longer term interest rates have declined, suggesting some relief may be in store when it comes to affordability.

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Along with changing borrowing trends, Mercer believes that interest rate hikes are likely on hold for the foreseeable future, something that could stoke demand.

“The Bank of Canada has suggested that we’re going to see no further rate hikes as we move through 2023,” Mercer said in an interview. “I think it may prompt some homebuyers who are kind of on the sidelines waiting to see which direction things are gonna go to start moving back into the marketplace, particularly in the second half of this year.”

While January’s rate hike means that current variable rate holders will be coughing up more money each month, the BoC’s decision to pause could mean mortgage rates have peaked, Mercer said.

“I think more importantly, when you think about the market over the medium to long term, it does signal that your rate hikes are going to be at least on pause or perhaps even done for this cycle,” Mercer said. “You’re actually starting to see your medium-term rates and five-year fixed mortgages start to trend lower and so I think from a homebuyer’s perspective, it gives them a little bit more certainty about where borrowing costs are going to be.”

TRREB’s data shows that the largest year-over-year sales decline occurred in the condominium sector at 52.7 per cent from a year ago. At the same time, detached homes saw the largest average price decline — dropping 23 per cent since January 2022.

None of the housing types recorded by TRREB saw gains in sales or average prices over the month of January 2023.
• Email: shcampbell@postmedia.com

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‘The disinflationary process has started,’ says Jerome Powell

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U.S. Federal Reserve chair Jerome Powell only had to say one word in his Feb. 1 news conference to raise hopes that mortgage rates in Canada may be heading lower.

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“We can now say, I think for the first time, that the disinflationary process has started,” Powell said following the Fed’s decision to hike its benchmark rate by 25 basis points to 4.75 per cent on Wednesday afternoon.

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The key word — “disinflation” — was all markets needed. Stocks soared and bond yields tumbled as markets around the world anticipated that the Fed’s hiking cycle would end sooner rather than later, and might even kick into reverse, as the inflationary threat abates.

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Mortgage strategist Robert McLister noted in a Mortgage Logic newsletter Thursday morning that Canadian five-year yields — a market closely traced in the setting of mortgage rates — quickly shed 10 basis points after Powell’s comments.

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“That’s exactly what Canada’s mortgage market needs if there’s any hope of lower fixed rates by spring,” McLister wrote.

While he said it was too soon to see Wednesday’s decline show up in mortgages, he noted that sliding bond yields over the past three months have already been tugging down five-year fixed rates.

McLister said it would likely take longer than usual for those falling yields to work their way into mortgage rates given the current macroeconomic environment, as banks pocket some of the improvement to buttress against downside risks.

“As we head into recession, lenders will keep their spreads wider than usual to account for perceived risk and other factors,” he said by email. “They may have to deal with higher default rates, less liquidity in funding markets, and more rate volatility (which increases hedging costs).”

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He said short-term fixed rates will edge down as the Bank of Canada comes closer to cutting rates, while variable rates won’t drop “materially” until a cut becomes official.

And he added that there is no doubt markets expect rates to come down.

“If you looked at the bond market, specifically things like overnight index swaps, forward rates and futures, there’s no question that financial markets expect lower rates by the end of this year,” he said.

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“As we speak, markets expect five-year bond yields — a key driver of five-year fixed rates — to be 42 bps (basis points) lower in 12 months.”

The Federal Reserve chair’s comments were interpreted as dovish even though he also indicated more rate increases were coming, and that cuts were unlikely this year.

Last week, the Bank of Canada lifted its key policy rate 25 basis points to 4.5 per cent, but signalled that it would pause future hikes to give higher rates a chance to percolate through the economy.

• Email: shcampbell@postmedia.com

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Montrealers, on average, earn significantly less than Torontonians

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The Canadian residential real estate market last year was marked by contrasting trends: housing sales and prices declined, but demand for rental housing rose and rents rapidly increased across the country, with even steeper increases in more desirable cities and communities, according to Canada Mortgage and Housing Corp. (CMHC) data.

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Simply put, rental market dynamics are not uniform, with shelter costs for renter households relatively low in many Quebec cities, but much higher in the suburbs near Toronto, according to a recent report using 2021 census data by Point2.

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Other housing market surveys also consistently show that cities in Quebec have some of the lowest rents in Canada. This has led some to advise those struggling with higher rents to relocate to places with cheaper rents.

But before you start planning to relocate to take advantage of cheaper rental abodes, one must ponder why rents are lower in Quebec. Some suggest renters there have more protections, such as stricter rent control and other renter-supportive regulations. Others say distinct preferences and tastes have resulted in a higher proportion of rental households in Quebec than in the rest of Canada.

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The most apparent differentiator we found, however, was income.

Montrealers, on average, earn significantly less than Torontonians. The average after-tax household income in Montreal was $69,600 in 2020 compared to $96,000 in Toronto, according to the latest census.

These income disparities account for some of the rent differences between the two cities. And it’s not just the rents: housing prices are also significantly lower in Montreal compared to Toronto and other cities with higher incomes.

Oakville, Ont., stood out in the Point2 report as being the most expensive city for renter households. They paid, on average, $2,146 each month in shelter costs (rents and other related expenses). In comparison, renters in Trois-Rivières, Que., paid just $676.

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If the incomes in the two cities were similar, we would also recommend Ontarians look eastward. But incomes are drastically different. The average after-tax household income in Oakville is $136,600, more than twice that in Trois-Rivières.

The difference in incomes is just the beginning. A comparison of cities in Quebec and Ontario reveals noticeable differences in demographics and housing stock. For example, housing in Oakville is, on average, much larger in size than in Montreal. Consider that 31 per cent of the dwellings in Montreal have just one bedroom compared to less than seven per cent in Oakville.

Similarly, 46 per cent of the housing stock in Oakville had four or more bedrooms compared to just eight per cent in Montreal. Even in the City of Toronto, 17 per cent of the dwellings boasted four or more bedrooms.

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Housing typology is another differentiator that helps explain the differences in dwelling sizes. A mere seven per cent of housing in Montreal is of the single-family, detached type compared to 59 per cent in Oakville and 23 per cent in Toronto.

Dwellings in Quebec are relatively older than those in Ontario or Alberta, too: 77 per cent of the dwellings in Montreal were built before 1991, while more than half of the housing stock in Oakville and Calgary did not even exist in 1990.

The household structures also differ. More than two in five households in Montreal comprised single-person households compared to less than one in five in Oakville and one in three in Toronto.

So there you have it. Cheaper rents are where single-earner households earn significantly less on average and live in smaller-sized homes. Yet, many rental housing advocates ignore all other differences and attribute rent differences to rent control and other regulations.

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Causality is a much bigger cross to bear in empirical analysis. But if one believes that rent controls and other housing restrictions are responsible for lower rents, could the same also contribute to the smaller dwelling sizes and lack of sufficient newer family-oriented dwellings?

Housing costs are an essential determinant of where people live. Even more critical is where one can find a job or career that offers opportunities for growth and stability. Places that provide such growth opportunities and family-friendly housing are often more expensive.

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The responsibility lies with government to provide non-market housing options for those whose earnings do not allow for market rents. Forcing private landlords to subsidize the entire housing rental market is an attempt to pass on governmental responsibilities to others. Unfortunately, abdicating the state’s obligations has not worked in the past and is unlikely to work in the future.

Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.

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You are unable to catch up on missed payments, experts say

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By Julie Cazzin with Brenda Hiscock

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Q: Help. I borrowed $15,000 from my registered retirement savings plan (RRSP) under the Home Buyers’ Plan (HBP) and have missed three years’ worth of repayments. What should I do now? And what penalties will I have incurred, if any? – Robert

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FP Answers: Robert, let’s look at how the HBP program works in general, and then address your question. The federal government’s plan allows you to use up to $35,000 of your RRSP savings ($70,000 for a couple) to help finance a down payment on a home for yourself or a related person with a disability. To be eligible for the program, you must meet the following criteria:

You must be considered a first-time homebuyer (you are considered a first-time homebuyer if, in the prior four-year period, you did not occupy a home that you owned, or one that your current spouse or common-law partner owned);

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You must have a written agreement to buy or build a qualifying home;

You must be a resident of Canada when you withdraw funds from your RRSPs under the HBP and until a qualifying home is bought or built;

And you must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it (additional criteria need to be met if the home is being built for a disabled person).

In all cases, if you have previously participated in the HBP, you may be able to do so again if your repayable HBP balance on Jan. 1 of the year of the withdrawal is zero and you meet all other HBP eligibility conditions.

Once you have determined that you qualify for the program, you can withdraw a single amount or make a series of withdrawals in the same calendar year. However, you cannot withdraw more than $35,000 per person/spouse.

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Also, your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year. This is a very important point as some people mistakenly believe they can contribute to the RRSP, get the tax deduction and immediately withdraw the funds for the HBP. That is not the case.

To withdraw funds from your RRSPs under the HBP, fill out Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. The withdrawal is not taxable if you repay it within a 15-year period. The payback amount is at least a 15th per year of the amount you withdrew from your RRSP.

Your repayment period starts the second year after the year you first withdrew funds from your RRSP for the HBP. For example, if you withdrew funds in 2022, your first year of repayment will be 2024.

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Robert, you have missed three years of HBP repayments and are concerned about penalties. In this case, it’s simple. If you do not make the annual repayment to your RRSP, you must include it as RRSP income on your income tax return. The amount you include is the minimum amount you must repay as shown on your Home Buyers’ Plan statement of account. Your HBP balance will be reduced accordingly.

The “penalty” is extra taxable income on your return for the three years the repayments were not made. You are unable to catch up on missed payments.

In future years, Robert, there is no real benefit in making extra repayments beyond that required when you make your annual repayment, since you are better off claiming any extra contributions as deductions (yielding a tax refund) rather than paying down your HBP balance quicker.

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If your RRSP deduction limit for the repayment year is zero, you can still contribute to your RRSP and designate the amount you contributed as a repayment under the HBP. These are not considered RRSP contributions. Therefore, you cannot claim a deduction for these amounts on your taxes.

For upcoming new homebuyers, it will be important to also consider the Tax-Free First Home Savings Account (FHSA). Starting in 2023, FHSAs will be available to Canadian residents who are 18 years old or older and have not owned a home in the year the account is opened or the preceding four calendar years.

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The annual tax-deductible contribution limit will be $8,000, up to a lifetime contribution maximum of $40,000. Unused contribution room up to $8,000 can be carried forward, and the plan must be closed after 15 years.

Funds withdrawn to make a qualifying home purchase are not subject to tax. Any funds not used towards a home purchase can be transferred to an RRSP or registered retirement income fund (RRIF) penalty free and tax deferred, without impacting the taxpayer’s contribution room. Withdrawals for other purposes will be taxable.

The major difference between the two plans is that there is no requirement to repay the FHSA. But you can use the HBP and the FHSA program when you purchase your first home.

Brenda Hiscock is a fee-only, advice-only certified financial planner (CFP) at Objective Financial Partners Inc. in Toronto. She does not sell any financial products whatsoever. She can be reached at bhiscock@objectivecfp.com.

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Provincially regulated credit unions aren’t bound by OSFI’s mortgage stress test and homeowners have taken notice

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There’s a multi-million-dollar corner of Canada’s financial system where a stringent “stress test” imposed by the Office of the Superintendent of Financial Services was never adopted. It’s already attracting homeowners seeking an easier path to qualify for a mortgage amid rising interest rates and it’s poised to grow further as the spectre of even tougher mortgage qualification rules threaten to push bank loans out of reach for homebuyers.

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Provincially regulated credit unions such as Meridian and DUCA are not bound by federal rules, and can choose whether or not to apply OSFI’s strictest qualifying standards for uninsured mortgages, subject to any rules adopted by their provincial regulators. 

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While the credit union sector has chosen not to widely promote so-called “contract-rate qualification” mortgages — where borrowers are assessed based on actual interest rate they will pay rather than OSFI’s stress test — figures released by Canadian Credit Union Association show the lenders have been steadily picking up business, growing their mortgage books by 4.1 per cent in the second quarter and two per cent in the third quarter of 2022.

Rob McLister, a mortgage analyst and strategist, estimates that hundreds of millions of dollars’ worth of mortgages have been underwritten using contract-rate qualification.

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“Speaking with (executives) at some of these credit unions, the message is that they’ve seen considerable growth in products like contract-rate qualification mortgages,” McLister said. “But that growth is coming off a small base because it’s a small market to begin with.”

Whether the credit unions decide to press their advantage, especially if additional measures tighten lending standards for the banks, remains to be seen.

Those new measures, proposed by the federal banking regulator in January in a consultation aimed at addressing the impact of rising rates on households already steeped in debt, could add even more onerous loan-to-income and debt-service coverage restrictions to the existing stress test. Since 2018, OSFI rules have pegged the qualifying rate for an uninsured mortgage at the greater of the contract rate plus two per cent, or 5.25 per cent.

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Bank and office towers in Toronto's financial district.
Bank and office towers in Toronto’s financial district. Photo by Peter J. Thompson/National Post

Any of the individual proposed additional measures would limit buying power for would-be homeowners, said McLister, who suggested some borrowers “will most definitely gravitate to credit unions that don’t adopt OSFI’s guidelines.”

Most credit unions in Canada are regulated in a distinct provincial and territorial system parallel to Canada’s big banks. There is much alignment, but also regional differences including the amount of deposit insurance on chequing and savings accounts. In 2012, the federal government paved the way for credit unions to expand beyond provincial borders to become federal financial institutions, but there was very little uptake.

Some credit unions and their regulators have mirrored OSFI’s most stringent mortgage qualification standards to date. However, others such as Meridian, the country’s second-largest credit union, still offer a contract-rate qualification mortgage with terms that were in place before OSFI updated its stress test in 2018.

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“We offer contract-rate qualification mortgages in some instances,” said Teresa Pagnutti, senior manager of public relations at the St. Catharines, Ont.-based Meridian.

Like all the credit union’s lending programs, such loans are extended based on a “holistic and prudent review” including assessing a customer’s cash flow and borrowing capacity, she added.

Meridian offers contract-rate qualification mortgages.
Meridian offers contract-rate qualification mortgages. Photo by Peter J. Thompson/National Post

Meridian tells prospective buyers on its website that, as a credit union, it is “more flexible than banks when it comes to approving mortgages” and can help those who wouldn’t pass the federal stress test buy their dream homes by taking “income appreciation” and accelerated payment options into account.

Last year’s gains in mortgage volumes in the credit union segment of the market came as interest rates began to rise following an extended period of ultra-low rates.

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The Bank of Canada announced three hikes to its key overnight rate in the second quarter of 2022, lifting it to 1.5 per cent before a monster 100-basis-point increase in July. By the end of the year, rates had climbed further, reaching 4.25 per cent, and the central bank announced another 25-basis-point hike on Jan. 25, 2023.

The credit unions’ gains were achieved even as the number of homes bought and sold was falling. Transactions in July, for example, came in 29.3 per cent below activity in July 2021, according to the Canadian Real Estate Association (CREA). Sales were down in roughly three-quarters of all local markets, led by large cities and their surrounding areas including Toronto, Vancouver and Calgary.

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For those struggling to afford a home with interest rates well above where they sat for many years — even as house prices cool — going the route of a contract-rate qualification mortgage could be appealing.

Credit unions have added new mortgage customers even as the number of homes bought and sold fell.
Credit unions have added new mortgage customers even as the number of homes bought and sold fell. Photo by Paul Morden/The Observer

McLister said the contract-rate qualification formula alone gives a borrower between five and 11 per cent more buying power, depending on the lender and term and assuming a 30-year amortization.

His ballpark estimate that the size of the market is in the hundreds of millions of dollars, which he called “conservative,” is based on total annual mortgage originations at credit unions and the percentage of volume coming from contract-rate qualification mortgages, as extrapolated from data at a sample of credit unions. Though it’s a considerable amount of money, he noted that it represents a small corner of the roughly $450 billion in new mortgages underwritten each year.

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Still, it’s a segment of the market that has drawn the attention of analysts at credit rating agency DBRS Morningstar. In a Jan. 10 report, they highlighted the differences at credit unions across Canada when it comes to adoption of OSFI’s strict mortgage underwriting guidelines.

DBRS noted that while most credit unions have underwriting practices that “emulate the spirit” of OSFI’s original stress test from 2012, some of them — notably in British Columbia and Ontario — have not updated the more “rigorous” test adopted in 2018.

Provincial regulators in Alberta and Saskatchewan, on the other hand, did follow the more rigorous test in OSFI’s guideline B-20 for credit unions in those provinces, a stance the DBRS analysts said they viewed “positively.”

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Russ Courtney, a senior media relations officer at the Financial Services Regulatory Authority of Ontario, which regulates credit unions in Canada’s largest province, said the act that governs the member-owned financial co-operatives does not require prescriptive interest rate stress testing in residential mortgage underwriting. Instead, credit unions can determine the type of stress testing that is most appropriate for their individual mortgages and mortgage portfolios.

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“As such, each institution has its own approach, reflecting what is most appropriate for the characteristics of their residential mortgage business,” Courtney said, adding that FSRA closely monitors and assesses the activity and risk profiles of credit unions and performs its own internal stress tests on credit union mortgage portfolios.

He said the provincial regulator has not seen what it considers to be a “material” increase in the volume of residential mortgage business activity or in the risk profile of Ontario credit unions.

One reason for the muted uptake might be that, as the DBRS report noted, even credit unions that do not use OSFI’s strictest qualifying standard as a general rule must do so for some home loans if they hope to use mortgage securitizations as a source of funding available through programs available through the Canada Mortgage and Housing Corporation (CMHC).

Another factor that could be keeping a lid on the shift to credit unions is that few broker-channel lenders offer mortgages underwritten at the qualifying rate and the public is largely unaware they exist, according to McLister.

“Only a small percentage (of credit unions that offer them) promote contract-rate qualifying publicly or to third parties” such as brokers, McLister said.

• Email: bshecter@nationalpost.com | Twitter:

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Be cautious before entering into an agreement to chip away at your home equity

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By Sandra Fry

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Are you running out of retirement savings? Do you have a lot of debt, but your monthly income is too low to afford the payments? Or maybe you own your own home and want to access the equity. If you’re 55 or older, a reverse mortgage might seem like an attractive option.

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As with every financial choice, however, it’s important to carefully weigh the pros and cons of a reverse mortgage before entering into an agreement against your future home equity.

A reverse mortgage is a loan that allows you to access the equity in your principal residence without having to sell it and without having to make payments until you move out, sell the home or the last borrower passes away. There are two lenders in Canada who provide reverse mortgages: HomeEquity Bank offers the Canadian Home Income Plan (CHIP) while Equitable Bank offers reverse mortgages in a limited number of cities.

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Once granted, a reverse mortgage can provide a one-time lump sum of money, ongoing smaller amounts to top up monthly income from other sources, or a combination of both. It could be a good way for senior homeowners to age in place if they don’t have the income to support traditional mortgage or home equity line-of-credit payments.

The income derived from accessing your home’s equity is not taxable, so it will not impact your Old Age Security (OAS), Guaranteed Income Supplement (GIS) or any other income-tested benefit. You may also use the money for anything you desire, such as a trip, renovations, payments on non-mortgage debt (for example, credit cards or car loans) or medical expenses.

If all this sounds too good to be true, it might be.

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There are lending criteria that might make a reverse mortgage less accessible than a traditional one. Along with the 55-plus age requirement for all borrowers, everyone on title of the property must be listed on the application. The reverse mortgage can only be for a maximum of 55 per cent of your home’s current value and any loans, lines of credit or mortgages that are secured by your home must be paid off before the reverse mortgage is granted. Depending on your loan agreement, the lender may allow you to pay those secured debts off with the proceeds of the reverse mortgage. You must also keep up to date with maintenance, insurance and property tax payments.

Interest rates are typically higher than those on a conventional mortgage because the lender is gambling on the future value of your home. In terms of upfront costs, you will need to pay for an appraisal, as well as application and legal fees. A lender may insist you obtain independent legal advice before it grants the loan. And a prepayment penalty typically applies if you pay the mortgage off within the first three to five years.

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The biggest risk with a reverse mortgage is that the interest compounds and chips away at your equity. If you’re counting on using that equity to pay for medical costs or living in a senior’s care facility one day, passing it on to your heirs or leaving a financial legacy in your community, there might be much less money left over than you need depending on market conditions at the time your home is sold.

Holding onto your home and renting it out is also not possible once it has a reverse mortgage registered against it. And after the final owner passes away, the estate could have to pay the reverse mortgage off before the estate is settled.

If you or an older friend or relative is struggling and considering a reverse mortgage, it’s important to consider all your options before making a commitment. Look into whether a conventional mortgage or home equity line of credit is feasible. If the goal is to generate income with the home, meet with a tax professional to understand what that means for your overall financial picture.

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If maintaining the home has become unaffordable or unmanageable, selling it and downsizing might be an option. I often point out to seniors who believe they can’t afford to live elsewhere that renting can be a cost-effective option because their mortgage is paid off. The money they get from selling their home can be invested and/or used to fund living expenses elsewhere. There are tax implications with investment income, so seek sound advice before choosing this option.

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Due to the potential drawbacks of a reverse mortgage, it’s worth discussing all options with your loved ones and appropriate professionals while you’re in good health and of sound mind. A non-profit credit counsellor can help point you in the right direction if you’re not sure where to start.

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Be cautious before entering into an agreement to chip away at your home equity. Your loved ones may even be able to help you safeguard your equity while they share the costs, taking over ownership at a time that’s beneficial for them. Your home might then truly be lending a hand.

Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 26 years.

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Ivanhoé Cambridge’s Jonathan Pearce on how landlords are handling the post-pandemic reality and more

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On Jan. 4, Ivanhoé Cambridge announced that it had signed Fox News and News Corp. two separate long-term leases in what it billed as the largest Manhattan lease agreement in three years. In the wake of the deal, The Financial Post’s Shantaé Campbell asked the Montreal-based real estate firm’s EVP for leasing and development, Jonathan Pearce, by email about some trends in the commercial real estate space and how landlords were handling the post-pandemic reality.

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FP: Are real estate firms looking to lock in their anchor tenants given uncertainty in the market? 

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Jonathan Pearce: It is not a one-size-fits-all situation. Demand for well located, transit oriented, new construction and highly amenitized buildings remains extremely strong in most Canadian and U.S. markets and these types of assets continue to outperform and see strong leasing activity. There has been a material “flight to quality” trend at play for several years now, which has definitely been accelerated by the pandemic. More and more tenants are seeking to have a highly amenitized and experiential workplace in newer buildings with the highest sustainability certifications and state-of-the-art building systems and HVAC. This is seen as a way to attract and retain talent, encourage an immersive corporate culture experience, deliver flexible workspaces to support activity-based functions, and “earn the commute.”

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The same is not the case for older commodity buildings that are perhaps in secondary locations and/or in need of updating and upgrading — these ‘donor’ buildings will struggle in a more uncertain market as tenant users seek to differentiate themselves. The flight to quality will exacerbate the challenges that face B and C Class buildings, forcing them to re-invent themselves, compete more on price or to even be considered for alternate uses.

FP: Is it normal to extend a lease a few years in advance? 

JP: This very much depends. A number of factors will enter into a tenant and landlord’s decision making in this regard. On the tenant side, usually what drives the timing are such considerations as lease expiry date, size of space needed, amount of suitable options available in the marketplace, budget, the re-usability of the space for the tenant (i.e. the existing investment a tenant may have spent on leasehold improvements and/or infrastructure) and whether the user is planning to make a significant investment or upgrade to their premises (they will want to ensure they have adequate remaining lease term to warrant the investment and to amortize the cost of the leasehold improvements). On the ownership side, it more pertains to quality of asset, competitive set, occupancy level in a particular asset (meaning a landlord with high vacancy will likely be more “defensive” in its efforts to extend its tenants vs. a landlord of an asset that is well leased that may decide not to transact in a more volatile market), and of course overall market conditions.

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FP: Do tenants have a little more leverage than usual to ask for upgrades to a property?

JP: Again, that’s not a one-size-fits-all question. This really depends on the asset, its vacancy/occupancy profile, and how it fits within the overall competitive set in terms of location, quality, amenities and of course tenant demand. Generally, owners of the best, newer, and well leased assets have seen far less of a tenant leverage impact than perhaps owners of commodity projects. Some landlords of the best projects (such as Ivanhoé’s CIBC SQUARE) actually saw overall attainable economic terms improve/increase during the pandemic, as even though overall demand might be lower, demand for the best and newest projects actually increased.

FP: Is there a sense that landlords are biting the bullet and agreeing to investing in upgrades now, as a result?

JP: Definitely a sense that this is occurring as a general statement. CapEx investments in upgrades are very evident, especially in older or commodity buildings that need to make upgrades to stay relevant and be able to compete for tenants who are becoming increasingly discerning in terms of wanting workplaces that are flexible, experiential, amenitized and differentiated.

• Email: shcampbell@postmedia.com

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Home prices in Canada’s biggest markets ended 2022 well below the soaring peaks posted earlier in the year

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Home prices in Canada’s biggest markets ended 2022 well below the soaring peaks posted earlier in the year. Now the question is: How much further do they have to fall?

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According to local real estate boards, the composite benchmark price for a home in the Greater Toronto Area (GTA) peaked at $1,370,000 in March of 2022, while homes in Vancouver topped out at $1,374,500 in April and Calgary homes hit a high of $546,000 in May.

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When comparing each region’s peak against December’s benchmark price results, Toronto, Vancouver and Calgary have dropped by 21 per cent, 19 per cent and nearly five per cent, respectively.

In all cases, the declines commenced after the Bank of Canada began to raise interest rates in March — whether prices continue to fall in 2023 may depend as much on the path of interest rates as anything else.

BMO chief economist Douglas Porter, for one, projects that high interest rates will continue to pummel the housing market in 2023, predicting home prices slip another 12 per cent and sales fall another 15 per cent.

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“We don’t look for rate relief until 2024,” he said in a Dec. 23 note to clients.

For other industry experts, the consensus seems to be that home prices will slide in 2023, but that a bottom might be in sight.

We don’t look for rate relief until 2024

Douglas Porter

They reason that the anticipated demand for housing from the record number of immigrants expected to settle in the nation’s major housing markets — in addition to interest from buyers who have been waiting for lower prices — will offer support.

“If we don’t see a meaningful shift upwards in terms of supply then that would start to exert upward pressure on prices once again,” Toronto Regional Real Estate Board (TRREB) chief market analyst Jason Mercer said in an interview.

In June, The Canada Mortgage and Housing Corporation (CMHC) concluded that the country would need to build 3.5 million new homes by 2030 to reduce its shortfall and improve affordability — but follow-up research found that there will only be enough labour to increase the number of starts in four major provinces — Ontario, Québec, B.C. and Alberta — by 30 to 50 per cent.

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Porter said he believes it will be “impossible” for governments to deliver the number of housing starts they’ve promised in the coming years.

Right at Home Realty CEO John Lusink, meanwhile, said that although sales and supply were down in 2022, he sees things picking up in the GTA in the spring.

“It’s been quiet but I will tell you, these agents are all talking about listing clients who are getting ready to put properties on the market in the spring,” Lusink said.

We will continue to feel the impact of higher borrowing costs

John DiMichele

Full year data on Toronto’s housing market was released by TRREB early Thursday.

It showed there were 152,873 new listings reported through TRREB’s MLS system in 2022 — an 8.2 per cent decline compared to 166,600 new listings in 2021. Home sales, at 75,140 units, did not fair any better, down 38.2 per cent from 2021’s record of 121,639 units.

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The average price of a home sold over the course of the year checked in at $1,189,850 — about 8.6 per cent above the average selling price in 2021 — but those gains were largely attributable to strength early in the year.

On a month-over-month basis, December’s composite benchmark price was down just 0.77 per cent to $1,081,400 from $1,089,800 in November, though the average selling price was down 9.28 per cent.

Sales also showed a glimmer of hope, increasing by 1.1 per cent despite being down 48 per cent from December 2021.

TRREB CEO John DiMichele said that there are two opposing forces buffeting the housing market.

“On the one hand, we will continue to feel the impact of higher borrowing costs. On the other hand, record levels of immigration will support demand for ownership and rental housing, while we struggle to come to terms with a housing and infrastructure deficit in the Greater Golden Horseshoe,” DiMichele said in the report.

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Figures for Montreal were also released Thursday. The Quebec Professional Association of Real Estate Brokers said home sales in Montreal in December fell 39 per cent from a year earlier to a level not seen in December since 2014.


  1. Toronto housing market ends year with a whimper with benchmark prices down 8.9%

  2. A condo building under construction surrounded by houses in Vancouver, B.C.

    Metro Vancouver home sales slumped 34% in 2022, year-end figures show

  3. The Calgary skyline is seen from behind some houses in Bridgeland.

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The real estate organization said sales for the month amounted to 2,232 and contributed to a 2022 sales total of 21,371, 20 per cent below 2021.

The board said it’s typical for December to bring fewer sales and new listings, but the 2,359 properties that hit the Montreal market last month was a level not seen since 2002.

New listings in the month represented a seven per cent decline from the year before, but 2022 still saw two per cent more new properties on the market than in 2021.

Median prices for single-family homes fell three per cent from the year before to $510,000, while condos edged down one per cent to $375,000 and plexes sank six per cent to $690,000.

— With additional reporting from the Canadian Press

• Email: shcampbell@postmedia.com

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Toronto’s housing market ended 2022 with a whimper, with sales off nearly 50 per cent from last December and benchmark and average selling prices down 8.9 per cent and 9.2 per cent, respectively, from a year ago.

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While data released Thursday by the Toronto Regional Real Estate Board showed the average price of a home sold over the course of the year checked in at $1,189,850 — about 8.6 per cent above the average selling price in 2021 — those gains were largely attributable to strength early in the year. As inflation peaked and the Bank of Canada turned up the heat on interest rates, home prices in the region began slipping back to the million-dollar mark.

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“Following a very strong start to the year, home sales trended lower in the spring and summer of 2022,” said new Toronto Regional Real Estate Board (TRREB) president Paul Baron in the report.

“As aggressive Bank of Canada interest rate hikes further hampered housing affordability with no relief from the Office of Superintendent of Financial Institutions (OSFI) mortgage stress test or other mortgage lending guidelines including amortization periods, home selling prices adjusted downward to mitigate the impact of higher mortgage rates.”

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However, there were signs the market adjustment may be coming to an end, Baron said, as home prices began levelling off in the late summer.

Much like other competitive Canadian markets, new home listings were also down in 2022 year over year. There were 152,873 new listings reported through TRREB’s MLS system — accounting for an 8.2 per cent decline compared to 166,600 new listings in 2021. Home sales, at 75,140 units, did not fare any better, down 38.2 per cent from 2021’s record of 121,639 units.

“While home sales and prices dominated the headlines in 2022, the supply of new listings continued to be an issue as well,” TRREB chief market analyst Jason Mercer said in the report.

Mercer said the listings shortage helped explain why price declines slowed to end the year.

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On a month-over-month basis, December’s composite benchmark price was down just 0.77 per cent to $1,081,400 from $1,089,800 in November, though the average selling price was down 9.28 per cent.

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  2. The Calgary skyline is seen from behind some houses in Bridgeland.

    Calgary housing inventory hits 10-year low as sales slide to end year

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Sales also showed a glimmer of hope, increasing by 1.1 per cent despite being down 48 per cent from December 2021.

TRREB CEO John DiMichele says there are two opposing forces buffeting the housing market.

“On the one hand, we will continue to feel the impact of higher borrowing costs. On the other hand, record levels of immigration will support demand for ownership and rental housing, while we struggle to come to terms with a housing and infrastructure deficit in the Greater Golden Horseshoe,” DiMichele said in the report.

• Email: shcampbell@postmedia.com

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Vancouver home sales dropped by more than 34 per cent in 2022 and benchmark prices ended the year down by 3.3 per cent according to year-end figures released Wednesday by the Real Estate Board of Greater Vancouver.

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For the year, sales checked in at 28,903 units compared to 43,999 units in 2021 while the composite benchmark price for all residential properties in Metro Vancouver ended the year at $1,114,300.

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On a month-over-month basis, the December benchmark price was down 1.5 per cent from November while sales were down nearly 20 per cent to 1,295 units. Sales were less than half the level recorded in December 2021.

The year ended with a sales-to-active-listings ratio for all property types of 17.5 per cent. That level would normally be indicative of a buyers’ markets, but with the shortage of property listings the playing field took on unique characteristics in December.

“It’s kind of an interesting dynamic right now,” Lis said in an interview. “Even though the ratio listings would suggest we’re in buyers’ market territory, there’s still quite historically low inventory levels right now that it makes it a bit of a challenging situation for buyers out there.”

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Buyers in the detached market were especially affected by the challenges caused by interest rate hikes and rising borrowing costs, Lis said.

“It does seem like the detached market has been a little bit more sensitive to the rate hikes that we’ve seen — it’s obviously at a higher price so the borrowing costs are obviously going to be a lot higher on that kind of product.”

Detached homes saw the largest decline out of all home types at 53.3 per cent in December 2022.

Despite this, Lis believes there is still demand in the market from people looking for affordable options.

“When you start looking at the condo market or even the townhome market, things actually are a little bit stronger there because those are what we think of as being affordable price points,” Lis said. “There’s still quite a bit of demand in the market for people looking for something affordable in these regions.”

• Email: shcampbell@postmedia.com

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