May/June 2010 Edition: Toronto Real Estate Market Views
MAGDA MO’S PREFERRED CLIENT NEWSLETTER MAY/JUNE 2010
Sizzling April reSAle mArket
A total of 10,898 sales were recorded through the GTA Multiple The average single family home selling price in April surged to
Listing Service® in April, while a total of 20,683 new listings $437,600, which is 13% ahead of the April 2009 average selling
came onto the market during the month. Both sales volume price of $385,641, and which also set an all-time record resale
and new listings established new all-time records for the price for the GTA for any month. Despite the very high average
month of April. In fact, the sales figure was up an astounding price, the spike in new listings helped restore some balance to
34% versus April 2009; while the new listings figure was up the market with active listings strengthening to 22,951. This
an even more substantial 59% versus April 2009. Buyers were figure is pretty much in line with the year ago active listings
clearly being motivated by current affordability and by the number of 23,515 and does indeed demonstrate a direction
spectre of rising rates, while sellers were being motivated by toward increased market balance. However days on market
the strong market and by price growth. Excellent weather for April remained very low at 21 days, down a full 16 days
throughout the month of April was another a positive factor from the April 2009 figure of 37 days.
GTA RESALE HOME SALES (UNITS SOLD) - APRIL GTA RESALE HOME SALES (AVERAGE PRICE) - APRIL
8,000 9,000 10,000 11,000 $360,000 $380,000 $400,000 $420,000 $440,000
Magda Mo Sales Representative
firstname.lastname@example.org | www.magdamo.com
‘Stated Income’ borrowing guideline changes
The borrowing guidelines for insured Stated Income Here is an outline of the changes that, as of April 9th 2010,
Programs underwent some major changes last month were implemented on Stated Income applications which
along with other measures designed to ensure a higher pass through CMHC as an “insured” mortgage:
level of mortgage creditworthiness in Canada.
1. Down payment: Those who are purchasing a home,
The changes were announced by CMHC (also known as and who have applications classified as a Stated Income
Canada Mortgage and Housing Corporation). The CMHC application, are now required to put down 10% rather than
changes, as well as those announced by Finance Minister the 5% minimum required previously.
Jim Flaherty which also became effective last month, are
2. Tenure: Those who have been working in the same
all attempts to help cool off the heated housing market
business for greater than three years, are not eligible for the
which is now being driven by record-low interest rates.
Stated Income program and therefore those in this category
More importantly, these new measures were judged to
would have to provide proof of their income, for example, a
be required in order to protect borrowers from taking on
Notice of Assessment.
more debt than they can afford, especially as a series of
interest rate hikes are imminent. While Canada still allows 3. Documents: Documents are being requested and
Stated Income programs, they are becoming very rare in the viewed by the lender to help determine the length of self-
U.S. The massive number of defaults and foreclosures employment which was not always requested previously.
reported by the U.S. after the 2008 credit crisis were The documents a lender may ask for include a business
attributed mostly to Stated Income programs that were license, proof of GST registration, articles of incorporation
used to place under-qualified borrowers into mortgage (if incorporated).
loans that they simply could not afford.
4. Commission: Those who are collecting commission are
While Canadian lenders can continue to use the Stated no longer be eligible for the Stated Income program.
Income programs, which are customized for commissioned
and self-employed borrowers, CMHC will now be scrutinizing 5. Limits: A re-finance will be limited to 85% loan-to-value
these applications using much tighter underwriting criteria. instead of the current limit of 90% used today.
What exactly does Stated Income mean? It is important to mention that these program changes
only affect those mortgages that are insured by CMHC.
Stated Income means exactly that. When a mortgage Therefore, those mortgages that are not CMHC insured,
application is created, for a self-employed or commissioned could be reviewed differently from lender to lender and
applicant, and the entire income amount is not verifiable in each lender would specify their underwriting criteria on a
traditional documents (for example a Notice of Assessment), case-by-case basis.
the applicant may apply under the Stated Income program
Adapted from an article contributed by Elizabeth Blair, a Mortgage Consultant
in order to allow an income adjustment to help qualify with Mortgage Edge. Visit her online at: www.missmortgage.ca
them for a home purchase or re-finance.
Buyers overpay builder for estimated taxes
In 2005, Stuart signed an agreement to purchase a
But that’s not the end of the overcharge. Prior to final
condominium unit for $326,900 in an upscale 20-storey closing, Stuart was in possession of his unit for almost six
project not far from the Annex area in Toronto. months paying interim occupancy fees. Those fees include
estimated taxes based on the builder’s calculations. As
He was able to take possession of his unit early in 2008
part of his occupancy fees, Stuart paid taxes of $330.83 a
and final closing occurred on Aug. 12, 2008. On Stuart’s
month to the builder, according to the builder’s estimate
closing, as with every other real estate transaction, the
of $3,970 for the year. Using the real tax bill of $2,107.92,
seller’s lawyer prepared what’s known as a statement of
Stuart should only have paid $175.66 a month for taxes
adjustments. The statement is used to calculate the unpaid
during the occupancy period, rather than $330.83. He was
balance of the purchase price due on closing. In addition, it
therefore overpaying $155.17 a month.
allocates adjustable items like tax bills between the parties
as of the closing date. As a result, Stuart overpaid the builder an additional $931 or
so in interim occupancy fees, making his total overpayment
As set out in the purchase agreement, the builder adjusted
to the builder $1,651. If this amount is a reasonable average
2008 taxes with Stuart (and the other 215 owners) on the
for all the units in the building, the total amount of tax
assumption that it would pay all of the taxes for the year of
“overestimates” by the builder came to around $350,000.
closing when the bills were issued. On this basis, the builder
would be responsible for 222 days of taxes (to Aug. 12), and The issue still has not been resolved. Stuart may have to file
Stuart would be responsible for the remaining 143 days of a claim with his title insurer, the same one recommended by
the year. the builder for use by all purchasers in the project.
But since the actual 2008 tax bills were unknown at the time Based on my experience in handling transactions like
of closing, the builder estimated the taxes and adjusted with Stuart’s, as many as half of all condominium builders use
the purchasers on the assumption that the taxes had been the same method of overestimating taxes, while the other
(or would be) paid. half arrange it so there is no overcharge at all.
On the builder’s closing statement of adjustments, the 2008 In general, I have no objection to builders charging
taxes were estimated at $3,970. But when the city finally purchasers whatever they want for the condominium units
issued the 2008 tax bill in January 2010, it came in at only and for any additional closing costs, as long as the charges
$2,107.92. As a result, the builder had over-estimated the are clearly disclosed up front. This way, a purchaser can
2008 tax bill by a staggering $1,862.08. choose whether or not to pay the costs or walk away from
Recalculating the tax bill as of Aug. 12, 2008 meant that
on closing Stuart had overpaid $720.20 for his portion of What I find very troubling, however, is builders who take
the year. If everyone in the building was overcharged $720 advantage of issues like estimated taxes to scoop large
on closing, the windfall to the builder would be about amounts from purchasers – presumably expecting that they
$155,500, minus any refunds it had to pay out to those may not have to account for some or all of it.
buyers who were sharp enough to calculate and claim the
This article was contributed by Bob Aaron, a prominent Toronto real estate
overpayment – or who had their lawyers do it for them.
lawyer. Visit him online at: www.aaron.ca