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Notable News of the Week: April 20, 2012

This is your weekly mortgage and housing news update. There were plenty of headlines covering the Toronto housing market and most of it carried a negative tone, which doesn’t reflect well for Canada’s biggest market.

Toronto Housing Market

The adjective that most people use to describe the Toronto housing market is heated. This is especially true for the condo market which continues to see the average price increase while the average unit size decreases. Plus, the glutton of new construction in the pipeline leads to fears of massive over-supply, which have many experts calling for a condo market crash.

The Financial Post believes Toronto’s overheated market is unsustainable because the rest of Canada has been experiencing home price moderation, whereas home buyers in Toronto continue to over-spend for their properties. Over the past year, only Toronto has shown price gains (%) in double-digit territory at 10.5%. TD Bank believes Canadian home prices are 10-15% above a sustainable level.

Rundown of the numbers:

  • 20%  The number that the Toronto market accounts for within the Canadian housing market
  • 36.1% The jump in new mutli-family home construction (mostly condos) from Q1 2011 to Q1            2012
  • $360,892 The average price of a condo in Downtown Toronto
  • 17%  Percentage of Torontonians willing to pay more than $600/month in condo fees

‘The Donald’ himself made an appearance in Hogtown (that’s Trump, not Duck) to officially cut the ribbon for his Trump International Hotel and Residences tower in downtown.  The Toronto Star has reported over a dozen investors are refusing to pay the final closing costs and assume ownership of their units, claiming these investments no longer make financial sense.

Charts, graphs and maps, oh my…

The CBC created a map of home prices movement across Canada from February to March. The biggest loss occurred in Vancouver, which experienced a price drop of almost $100,000 ($823,749 down to $730,998). Oddly enough, the biggest gain also happened in British Columbia in the city of Victoria, which saw an increase of $24,270 (from $488,357 to $512,627).

Not to be outdone, The Globe and Mail released graphs which chart home sales across Canada from March 2011 to March 2012. Once again, Vancouver showed massive declines in home sales which plummeted close to 30%. Meanwhile, Toronto, Ottawa and Montreal posted year-over-year gains in the number of units sold and average home price.

Mortgage news

Did the mortgage wars backfire? There are concerns that buyers aren’t getting the full financing they need to purchase their home. This is due to lenders appraising homes below the purchase price as a means to protect themselves from over-valuing a property. Over-valued homes can result from a bidding war, which is more commonplace in today’s environment. The result is banks offering to finance at a much lower amount than what the buyer needs, leaving the buyer with a shortfall of cash to cover the cost of their home.

Nova Scotia is proposing new legislation to tighten the mortgage brokering industry. The new act would require all mortgage brokers to meet industry training requirements to become licensed to operate in the province. Currently, Nova Scotia only requires mortgage brokers to pay a licensing fee after passing a background check.

According to BMO Economics, The Bank of Canada may raise interest rates by January 2013. Macleans then forecast what the monthly payments on a $300,000 mortgage would look like. It revealed the home owner would have to pay an extra $366/month in interest charges.