Toronto Condo and Real Estate Blog

By Roma Luciw - Globe and Mail

Canadians have dodged the severe credit woes gripping the U.S., where the collapse of the mortgage market has triggered rising delinquency and foreclosure rates and left households saddled with debt, says a report from CIBC World Markets.

The author’s report, CIBC senior economist Benjamin Tal, maintains that the credit crunch has not affected the Canadian household credit market in a significant way. And although he expects the U.S. economic downturn will spill across the border and curb consumer spending, Canada will escape the bulk of the carnage.

“It would be naive to assume that the Canadian consumer will totally escape this U.S. credit crunch and weakening American economy, especially in Ontario and Quebec,” Mr. Tal said in an interview. “But it is a question of degree. The likelihood of a consumer-led recession in Canada is very, very remote at this point, because consumers did not get into the same kind of trouble as in the U.S.”

In his mind, the reasons for Canada’s more solid credit situation is twofold. “First of all, the Bank of Canada has been very active in cutting interest rates, which has eliminated some of the damage coming from the credit crunch,” Mr. Tal said. “So, if you are a regular person with relatively reasonable risk profile, you probably don’t feel the credit squeeze because the rates have not changed in a significant way.”

The other reason is that in the U.S., the kind of high-risk borrowing that characterized the subprime mortgage market made up a significant portion of the credit landscape. In Canada, that type of borrowing was small and has had only a marginal impact on the overall housing market and consumer credit situation.

To date, Canada’s mortgage market has stayed defiantly healthy, with the pace of growth in overall residential mortgages outstanding rising by 13% last year, up from 10% growth in 2006, the CIBC report said. Furthermore, data suggest that activity levels remain “very strong” in the first two months of 2008, a direct contrast to the sharp downturn in the United States.

But with economic growth and the housing market set to cool from last year’s strong levels, Mr. Tal expects that the overall growth in mortgages outstanding in 2008 will be roughly 8% to 9%.

The U.S. is in the throes of the first consumer-led recession since 1992, Mr. Tal said. The collapse of the housing market, which has been an extremely important factor for the U.S. economy and consumer spending, and the falling stock market are both lowering the wealth effect.

At the same time, the “quality of borrowing in Canada has stayed much better than in the U.S.,” Mr. Tal said.

The arrears rate on mortgages in Canada, which is still “extremely low” at 0.26%, is also forecast to trend higher in the next year. However, a strong jobs market will underpin the economy so that the rate will likely remain low by historical standards, Mr. Tal said.

There has been a rebound in both direct loans and personal lines of credit recently. Overall growth in consumer credit remains strong, rising nearly 11% in 2007, with personal lines of credit dominating growth, the report said. It noted, however, that delinquency rates in the direct loans portfolio are starting to show a “modest” tick higher.

“When adjusted for inflation, credit growth during this cycle was not as strong as in previous cycles,” Mr. Tal said in the report. “This means that any softening in the pace of household borrowing in 2008 will not be as dramatic as in the past.”

Canadian households are juggling higher levels of debt. Overall debt rose 3% in the fourth quarter of 2007 while personal disposable income climbed 1.6%.

The recent drop in stock markets, combined with a slower pace of increase in home valuations, led the debt-to-asset ratio to climb in the fourth quarter of 2007 to 17.1%, its first increase since early 2006, the CIBC report said. Over the past year, the debt-to-income ratio in Canada edged up from 122% to 130%.

“At the same time, the debt service ratio, as measured by debt interest payments as a share of disposable income is still about 30 basis points higher than it was in 2006,” Mr. Tal said. “With widening credit spreads offsetting the declines in both prime and government bond rates, debt interest payment will remain relatively stable over the next few months.”

The number of consumer bankruptcies, which climbed by a mere 1% during the year ending January 2008, is forecast to pick up by as much as 5% this year as the slowing U.S. economy impacts growth in Canada, according to the CIBC report.

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By James Rusk - Globe and Mail

Fights involving condo owners and condo boards are one of the most rapidly growing areas of law in Canada, a Toronto lawyer who specializes in condominium law said yesterday.

“We’re at a situation now where I said: If they stop developing now, we’d still be busier than ever. But they are not. It is just unbelievable the kind of situations that come up,” Marko Djurdevac of the law firm of Deacon Spears Fedson & Montizambert said in an interview.

Mr. Djurdevac, who edits a newsletter on condominium law, said that the disputes can range from issues such as the three p’s - people, parking and pets - to matters such as fights over finances and repairs.

Since they are about people’s homes, the battles are often quite fierce and quite emotional. “In a condo, it is communal, and it is a highly political environment. People are very serious about everything that is going on, no matter how insignificant it may seem to a third-party observer,” he said.

Often condo corporations find themselves in court, fighting owners who do not understand either the limits on what they can do with their property or the line between personal property and common elements shared by all owners.

For instance, he once had to seek a court order preventing a townhouse owner who ran a construction company from keeping a commercial cement mixer in his garage and a construction truck in the common driveway.

As condominium law has evolved, provinces have sought ways to keep the disputes out of court, he noted.

Since 2001, Ontario law, borrowing from an earlier provision in British Columbia law, requires most disputes to go through a mandatory mediation-arbitration process before getting to court, and most provinces have similar rules, he said.

The exceptions to the arbitration process are cases involving a breach of the provincial condominium law itself, but judges have been clamping down on what they think are frivolous attempts to avoid arbitration, he said.

Even though the law prohibits an owner from damaging the common property of the condo corporation, he said, a judge refused to hear a suit brought by a condo corporation against an owner whose dog was urinating on lawns and flower beds and referred the case to arbitration.

On the other hand, he had a case where the courts moved quickly to issue a court order against a property owner with a history of mental problems who was setting fires in her unit.

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By Jeff Gray - Globe and Mail

In an effort to change the Byzantine process in which homeowners must engage to appeal their property tax assessments, the Ontario government plans to put the onus on the assessment agency to prove its case when a taxpayer appeals.

Yesterday’s provincial budget promises new legislation - as recommended in a critical report by the province’s ombudsman two years ago - to put the burden of proof on the Municipal Property Assessment Corp., instead of on homeowners.

The move comes in addition to a new property tax grant for low- and middle-income senior citizens that is meant to help them stay in their homes as property taxes rise. In addition to existing tax credits, the new grant would see eligible seniors, depending on their incomes, get a maximum additional $250 in 2009, and $500 in 2010.

“This will help keep seniors in their homes,” said Finance Minister Dwight Duncan, citing rising property taxes that are forcing some on fixed incomes to sell their houses.

The government also promises other changes to the appeal process, meant to make it “more streamlined and transparent,” including a new, free-of-charge first phase to resolve disputes in an “informal manner.”

Provincial officials are also working on ways to get MPAC to share more information with taxpayers, the budget document said.

The new rules are supposed to be in place for 2009.

Progressive Conservative Leader John Tory dismissed the moves yesterday.

“The onus should always have been on MPAC and on the government,” Mr. Tory said.

“Citizens should not be put in the position where they have to prove themselves or make their case to the government.”

He said the government should implement all of the ombudsman’s recommendations on changes to MPAC, not just one.

Mr. Tory said a Conservative government would bring in a 5% cap on property-tax assessment increases, instead of phasing in increases as the McGuinty government started doing in 2007: “That just means people will lose their homes over a longer period of time. We would have provided permanent, real, lasting protection for people.”

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Contact the Jeffrey Team for more information - 416-388-1960