James Metcalfe's Keep in Touch Real Estate Market Update Aug 2013
for more detailed GTA statistics: JAMESMETCALFE.INFO
James Metcalfe BROKER
www.OurHomeToronto.com | Service@OurHomeToronto.com
REAL ESTATE UPDATE
Royal LePage Real Estate Services Ltd.
Johnston & Daniel Division, Brokerage
477 Mount Pleasant Rd., Toronto, ON M4S 2L9
Total unit volume through the TorontoMLS® system in July was
8,544 - which represented a whopping 16% increase versus
July 2012 sales of 7,338 residential properties. This was the best
July sales result since 2009 and was the third best July result
on record. The strong sales performance can be attributed to the
re-emergence of ﬁrst-time buyers into the market. This crucial
market segment was negatively impacted by stricter mortgage
guidelines for government-insured mortgages, which became
effective in July 2012. The re-emergence of ﬁrst-time buyers is
crucial since it creates a ripple effect through the entire market.
Actual segment volume performance was as follows: single-
detached (+20%), semi-detached (+26%), townhomes (+9%)
and condo apartments (+11%).
The average price of a GTA resale home in July was $513,246
- a healthy 8% increase versus the July 2012 average price
of $475,523. Price growth occurred across all key market
segments but was mainly apparent in the low-rise portions of
the market. Actual segment price performance was as follows:
single-detached (+8%), semi-detached (+9%), townhomes
(+7%) and condo apartments (+3%). Months of inventory for
low-rise homes remains near record lows, which suggests that
conditions may be increasingly be moving to “seller market”
status for the balance of 2013. An increase in listings in 2014
would lead to more balanced market conditions and a slower
pace of price growth next year, albeit still likely above the rate
GTA AVERAGE RESALE PRICE
8 9 10 11 12
GTA Resale Home Sales
MARJAN MAY SEP NOVJUL
GTA RESALE HOME SALES
8 9 10 11 12
sale Home Sales
MARJAN MAY SEP NOVJUL
STRONG VOLUME AND PRICE GROWTH IN JULY
In the wake of widespread flooding in Toronto last month, I’ve had
a number of phone calls and emails from people trying to sell their
properties. They ask about their legal obligation to advise the buyers
of a flood which occurred after the signing of a purchase and sale
agreement, but prior to closing.
That was the exact issue which came before Ontario’s Divisional
Court this past May.
Don and Louise Beauchamp decided to sell their property on
Gardenvale Crescent, in London, back in 2007. After inspecting the
property, Adam and Olga Soboczynski submitted an offer which was
prepared by an agent who was a friend of the Beauchamps - the
sellers of the home.The offer was accepted with a price of $290,000.
Before the offer conditions were waived, the sellers delivered to the
buyers a Seller Property Information Statement (SPIS) which was
provided to them by the agent. The form is published by the Ontario
Real Estate Association (OREA).
Regular readers of this column know that I am a staunch critic of this
form, which has been responsible for about 225 reported Canadian
court cases since 1997. The dispute between the Beauchamps and
the Soboczynskis has now been added to the list, which is growing
at the rate of about one case a month.
In the SPIS, the Beauchamps stated the property was not subject to
flooding and they were not aware of any moisture or water problems.
At the bottom, the form states that the sellers will disclose any
“important changes” to the buyers before closing.
After receiving a favourable home inspection report, the buyers
waived the conditions making the offer firm and binding.
Nine days before closing in January, 2008, water entered the
basement. The Beauchamps dried out the wet rug and replaced the
The transaction closed as scheduled without disclosure of the flood
to the buyers. Three weeks later, the basement flooded again and
the buyers cleaned up at their own expense. Later in 2008, the new
owners learned of the January flood. They felt that the sellers had
misrepresented the water issues and started a lawsuit.
At trial, deputy judge Anthony Little found that the Beauchamps did
not disclose the January flood because they honestly believed it was
a one-off occurrence. He ruled that the SPIS did not form part of the
purchase agreement, and dismissed the case.
In April, 2013, the Soboczynskis appealed to a three-judge Divisional
Court panel. Writing for the court in May, Justice Thea Herman
referred to a half dozen previous decisions on the SPIS, and ruled
that the trial judge was in error on the issue of pre-closing disclosure
of the flood.
Based on the wording of the SPIS, the court held that the sellers
should have advised the buyers of the pre-closing flood. The flood
was an “important change” to the information provided in the SPIS.
The Beauchamps were ordered to pay $25,000 to the buyers for
Several lessons emerge from this case:
• Sellers are liable for misrepresentation, even if the
misrepresentation is innocent.
• If there was no SPIS form in this case, the sellers would probably
have not have been ruled responsible.
• Whether sellers have to disclose a pre-closing flood which
caused no damage, in the absence of an SPIS, remains an open
Clearly the SPIS form causes more litigation than it prevents.
This article was contributed by Bob Aaron, a Toronto-based real estate lawyer. Please visit him at www.aaron.ca
SPIS FORM CAN CAUSE PROBLEMS FOR SELLERS
MORTGAGE INTERESTTAX DEDUCTIBILITY
A mortgage is often the largest debt people incur. The stress
associated with its size often sets people on a mission of trying to
pay it off as quickly as possible. While not without merit, this goal
is often a previous generation’s well intended guidance that actually
lacks financial wisdom and often has negative results.
Advice is one thing that is freely given away, but watch that you take
only what is worth having. Statistics Canada tells us that 10% of the
population control over 50% of the wealth. A publication by Fraser
Smith, called “The Smith Manoeuvre,” provides instructions and
quantitative proof showing the benefit to re-think paying down the
mortgage, and to re-consider debt’s place in a financial plan.
The concept is quite simple; borrowing to invest in non-registered
assets, unlike borrowing for a family home, allows interest to be tax
deductible (according to CRA – providing there is an expectation of
profit). According to Canada Revenue Agency, rules governing interest
deductibility for investing are set out in IT-533 Interest Deductibility
and Related Issues – October 31, 2003 and represents the most
current reference at the time of writing.
The change in reason for borrowing lowers after-tax borrowing costs
as the interest creates a refund at your marginal tax rate. At a 40%
tax rate interest cost is 40% less. To put this in perspective, a 5%
mortgage becomes 3% after interest deduction. As an investor, if the
after tax rate of return exceeds 3% you are getting rich with someone
Each mortgage payment is a blended portion of principal and interest
– interest incurred to borrow for the home (not tax deductible), and
principal that is paying off the total mortgage balance outstanding.
At the start, a mortgage payment goes mostly to interest and less to
principal – this reverses over time. As the mortgage is paid down the
home equity can be re-borrowed to invest. Using the equity to invest,
the interest on this borrowing is tax deductible and unlike unused
home equity, able to grow and compound.
The homeowner who puts $100,000 of equity into an income
producing asset with an ‘expectation’ of profit can write off the
associated interest cost. At a 40% tax rate the investor’s real
cost to borrow is actually 60% of the face rate of interest as a
result. At the 3.00% prime rate of today the real cost to borrow is
1.80% (60% of 3.00%). In other words, to be gaining the after
tax return need only be above 1.80%. While interest rates vary,
the long run probability for gain is clearly strong with numerous
investments. As Fraser Smith points out, since the house is the
security, the investment portfolio is free and clear and provides
liquidity if ever required along the way.
Using home equity responsibly is a powerful tool for asset
accumulation. While you may always have a mortgage – a
six figure mortgage with a seven figure investment account
gives little concern. Advice on this strategy can be found at
www.smithman.net. While what you owe is important, what you are
worth after tax is what ultimately fulfills most financial goals.
This article was contributed by Calum Ross, a Toronto-based mortgage consultant. Please visit him at www.calumross.caom