Toronto Condo and Real Estate Blog

Confusion caused by new report pegging it at 4.08%

Anthony Reinhart and Jennifer Lewington - Globe and Mail

It’s a small amount, really: the price of a 20-pack of Glad Easy-Tie Garbage Bags or a tube of GE Silicone Sealant for Masonry (Grey) at Canadian Tire.

Larger is the sense of confusion emanating from Toronto City Hall over an apparent $7.19 discrepancy in the proposed property tax increase for homeowners this year.

In January, city finance officials introduced a 2008 budget that called for a 3.75% increase in residential taxes. Late this week, however, that figure appeared to rise to 4.08%, due to the city’s multiyear program to shift more of the property tax burden to homes and away from businesses.

The higher figure, contained in a report this week, would have meant the owner of an average home worth $365,468 would pay $87.89 more in tax this year, or $7.19 more than the promised 3.75% tax hike will produce.

The city’s budget chief, Councillor Shelley Carroll (Don Valley East), was taken aback by the 4.08% figure as she read the report from Joe Pennachetti, the city’s chief financial officer, late Wednesday night.

After the offending number surfaced in a news report yesterday, Ms. Carroll said she will push her council colleagues to stick to the 3.75% increase, while still proceeding with this year’s business-to-residential burden shift.

To pay for it, she will propose taking nearly $5-million out of surplus funds, which were substantially higher than forecast this year.

“I’m going to be moving a motion for an offsetting adjustment to make sure that a pure, simple 3.75% is the tax increase,” she said in an interview yesterday.

“I have been adamant throughout the budget process, in interacting with councillors who make requests for new expenditures on behalf of their residents, that I’m not prepared to say the number four. I’m just not going to do it.”

Ms. Carroll’s vehemence comes as Mayor David Miller nurses wounds from a politically draining battle over new city taxes, new garbage collection fees and rising user fees for recreation.

As it is, critics have assailed Mr. Miller because the 2008 tax increase is above inflation. And it is at odds with his promise to keep the increase “in line” with cost-of-living growth.

Asked why the tax-shift amount hadn’t been factored into the budget before the 3.75% increase was announced, Ms. Carroll said the amount was much larger than usual this year because “we’ve created a new small business class for whom we’re making the shift more quickly.”

To avoid a similar headache in the future, she said she will suggest procedural changes to ensure the tax-shift amount is determined earlier in the process, before proposed tax increases are announced.

Council’s executive committee will consider the new tax rates on Tuesday. Council is expected to vote on the entire $8.2-billion budget early next month.

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

Toronto, Ottawa Condo Markets Remain Strong Yet Accessible Opportunities for First-Time Homebuyers

Condos will continue to offer solid opportunities for first-time homebuyers trying to enter the market and looking for accessible, affordable housing, according to new data released today by Genworth Financial Canada, a subsidiary of Genworth Financial, Inc.

Genworth’s Winter 2008 Metropolitan Condominium Outlook reports that local condo resale prices in Ontario’s two largest cities, Toronto and Ottawa, will post average annual increases of 3.2% and 3% respectively from 2008 to 2012.

Toronto’s average condo price will rise from $236,351 in 2008 to $268,488 by 2012, while Ottawa’s condo prices are expected to climb from $188,276 in 2008 to $215,231 by 2012.

In Toronto, the average price of a condo jumped 7.6% in 2007, but price appreciation is forecast to slow to 2.9% this year before rising more rapidly toward the end of the decade, providing a strong opportunity for first-time buyers this year.

“Condominiums continue to fill the demand for relatively affordable housing that is accessible to first-time buyers, particularly in Toronto,” said Peter Vukanovich, president of Genworth Financial Canada. “With prices of detached homes forecast to exceed $459,000 on average throughout the province – and in most Toronto neighbourhoods well above $500,000 – condos remain attractive options and provide a good homeownership entry point in Ontario’s two largest cities.”

Cranes will dot the skies over Toronto this year. Condo starts are forecast to increase by 28.3% to 11,883 units, leading the country and overtaking 2007 leader Vancouver, where 8,688 units are projected for 2008.

The Toronto surge follows a decline in starts of more than 30% last year to 9,261 units. That ‘see-saw’ market effect will even out through 2012, with condo starts in the city forecast to increase by 8.8% annually over the next four years, peaking at more than 16,600 units in 2012.

Ottawa condo starts will remain virtually flat this year at a projected 1,057 units, and are forecast to remain at about 1,000 starts per year through 2012.

The Genworth report, produced with the Conference Board of Canada, concludes that “recently elevated volumes suggest condos are becoming entrenched in most communities,” and that certainly is the case in Toronto and Ottawa.

“The Toronto and Ottawa condo markets remain a good opportunity for first-time buyers. The slower rate of price appreciation in 2008 will benefit first-time buyers looking to get into the market, and the availability of innovative mortgage solutions makes that first-time purchase more accessible and affordable than ever,” said Vukanovich.

“This report underscores the solid value condominiums in Toronto and Ottawa offer to first-time buyers looking to get a foothold in Canada’s robust housing market. A condo offers an affordable opportunity to begin to build equity in a home of your own,” said Jim Murphy, President and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

The Winter 2008 Metropolitan Condominium Outlook reviewed resale condo markets in Quebec City, Montreal, Ottawa, Toronto, Calgary, Edmonton, Vancouver and Victoria. All eight markets registered moderate price growth in 2007 and are forecast to continue to have moderate growth this year and through 2012.

About Genworth Financial Canada:
Genworth Financial Canada, The Homeownership Company, works with lenders, mortgage brokers, real estate agents and builders to make homeownership more affordable and accessible throughout Canada. The company combines global experience in mortgage insurance with technological and service leadership to deliver innovation to the mortgage marketplace.

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

What is mortgage insurance, also known as mortgage default insurance?
* In Canada, mortgage insurance is required under federal financial services law for those homebuyers making less than a 20 per cent down payment on a property.
* It is not life or disability insurance. Mortgage insurance transfers the risk of default from the lender to the mortgage insurer.
* Mortgage insurance opens the door to homeownership for borrowers with low down payment mortgages.
* Mortgage insurance enables borrowers to receive the same low mortgage interest rates as buyers with down payments of 20 per cent or greater.
* Lenders arrange mortgage insurance on the homebuyers’ behalf.
* Genworth Financial Canada and CMHC provide the majority of mortgage insurance in Canada.
* More information on mortgage insurance is available at www.genworth.ca

“High Ratio” mortgages
* “High ratio” mortgages, sometimes referred to as “low-down payment” mortgages, are those where the buyer has less than a 20 per cent down payment.
* The previous threshold was a 25 per cent down payment. Federal legislation recently reduced it to 20 per cent.
* High ratio mortgages comprise almost half of the Canadian mortgage market, or approximately 450,000 mortgages in 2006.
* 95 per cent of Canadian high ratio mortgages are “prime” mortgages.

“Sub-prime” mortgages
* These mortgages, more common in the United States, are not the same as a high ratio mortgage.
* A “sub-prime” mortgage is a mortgage to an individual who has recently experienced significant credit problems.
* It is not based on the purchaser’s down payment nor is it based on the purchaser’s employment type.
* “Sub-prime” mortgages represent about 5 per cent or less of the Canadian mortgage market. They comprise about 20 per cent of the U.S. market.

Option ARMs (Adjustable Rate Mortgage) in the U.S. sub-prime market
* The Canadian mortgage market does not offer Option ARMs, as has been the case in the U.S. sub-prime market.
* Option ARMs involve a considerable payment variation based on changes in the interest rate. The introductory rate on an Option ARM can rise a maximum of 6 percentage points, meaning that a buyer with a starting rate of 6 percent could end up with a mortgage rate of 12 percent.

Benefits of an insured high ratio mortgage
* Many first-time homebuyers rely on high ratio mortgages, which allow consumers to build equity in a home sooner.
* An insured high ratio mortgage is the least expensive way for new homeowners to enter the market – eliminating the need for an up-front investment of a 20 per cent down payment or greater.
* If homebuyers are able to make a larger down payment, they may still choose a high ratio mortgage, which will enable them to consider utilizing the unused down payment amount for immediate home improvements, an education fund or other investments.
* Mortgage default insurance works by transferring the homeowner’s risk of default from the lender to the mortgage insurer. This benefits homebuyers by allowing them to obtain loans at lower interest rates than would otherwise be charged if lenders retained the risk of default.
* The portability feature on mortgage insurance allows homeowners to transfer their original insured mortgage to a new property resulting in significant savings to the homeowner by avoiding the cost of a new mortgage insurance premium.

Genworth Financial Canada
* Genworth Financial Canada, The Homeownership Company, (www.genworth.ca) works with lenders, mortgage brokers, real estate agents and builders to make homeownership more affordable and accessible throughout Canada.
* The company combines global experience in mortgage insurance with technological and service leadership to deliver innovation to the mortgage marketplace.

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