Sizzling April reSAle mArketA total of 10,898 sales were recorded through the GTA Multiple Listing Service® in April, while a total of 20,683 new listings came onto the market during the month. Both sales volume and new listings established new all-time records for the month of April. In fact, the sales figure was up an astounding 34% versus April 2009; while the new listings figure was up an even more substantial 59% versus April 2009. Buyers were clearly being motivated by current affordability and by the spectre of rising rates, while sellers were being motivated by the strong market and by price growth. Excellent weather throughout the month of April was another a positive factor worth noting.

The average single family home selling price in April surged to $437,600, which is 13% ahead of the April 2009 average selling price of $385,641, and which also set an all-time record resale price for the GTA for any month. Despite the very high average price, the spike in new listings helped restore some balance to the market with active listings strengthening to 22,951. This figure is pretty much in line with the year ago active listings number of 23,515 and does indeed demonstrate a direction toward increased market balance. However days on market for April remained very low at 21 days, down a full 16 days from the April 2009 figure of 37 days.

GTA RESALE HOME SALES (UNITS SOLD) - APRIL

8,000 9,000 10,000 11,000

2010

2009

2008

2007

GTA RESALE HOME SALES (AVERAGE PRICE) - APRIL

$360,000 $380,000 $400,000 $420,000 $440,000

2010

2009

2008

2007

MAY/JUNE 2010MarketViews

Magda Mo Sales Representative

416-483-8000

sales@magdamo.com | www.magdamo.com

MAGDA MO’S PREFERRED CLIENT NEWSLETTER

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The borrowing guidelines for insured Stated Income Programs underwent some major changes last month along with other measures designed to ensure a higher level of mortgage creditworthiness in Canada.

The changes were announced by CMHC (also known as Canada Mortgage and Housing Corporation). The CMHC changes, as well as those announced by Finance Minister Jim Flaherty which also became effective last month, are all attempts to help cool off the heated housing market which is now being driven by record-low interest rates. More importantly, these new measures were judged to be required in order to protect borrowers from taking on more debt than they can afford, especially as a series of interest rate hikes are imminent. While Canada still allows Stated Income programs, they are becoming very rare in the U.S. The massive number of defaults and foreclosures reported by the U.S. after the 2008 credit crisis were attributed mostly to Stated Income programs that were used to place under-qualified borrowers into mortgage loans that they simply could not afford.

While Canadian lenders can continue to use the Stated Income programs, which are customized for commissioned and self-employed borrowers, CMHC will now be scrutinizing these applications using much tighter underwriting criteria.

What exactly does Stated Income mean?

Stated Income means exactly that. When a mortgage application is created, for a self-employed or commissioned applicant, and the entire income amount is not verifiable in traditional documents (for example a Notice of Assessment), the applicant may apply under the Stated Income program in order to allow an income adjustment to help qualify them for a home purchase or re-finance.

Here is an outline of the changes that, as of April 9th 2010, were implemented on Stated Income applications which pass through CMHC as an “insured” mortgage:

1. Down payment: Those who are purchasing a home, and who have applications classified as a Stated Income application, are now required to put down 10% rather than the 5% minimum required previously.

2. Tenure: Those who have been working in the same business for greater than three years, are not eligible for the Stated Income program and therefore those in this category would have to provide proof of their income, for example, a Notice of Assessment.

3. Documents: Documents are being requested and viewed by the lender to help determine the length of self-employment which was not always requested previously. The documents a lender may ask for include a business license, proof of GST registration, articles of incorporation (if incorporated).

4. Commission: Those who are collecting commission are no longer be eligible for the Stated Income program.

5. Limits: A re-finance will be limited to 85% loan-to-value instead of the current limit of 90% used today.

It is important to mention that these program changes only affect those mortgages that are insured by CMHC. Therefore, those mortgages that are not CMHC insured, could be reviewed differently from lender to lender and each lender would specify their underwriting criteria on a case-by-case basis.

Adapted from an article contributed by Elizabeth Blair, a Mortgage Consultant with Mortgage Edge. Visit her online at: www.missmortgage.ca

PersonalFinance

‘Stated Income’ borrowing guideline changes

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In 2005, Stuart signed an agreement to purchase a condominium unit for $326,900 in an upscale 20-storey project not far from the Annex area in Toronto.

He was able to take possession of his unit early in 2008 and final closing occurred on Aug. 12, 2008. On Stuart’s closing, as with every other real estate transaction, the seller’s lawyer prepared what’s known as a statement of adjustments. The statement is used to calculate the unpaid balance of the purchase price due on closing. In addition, it allocates adjustable items like tax bills between the parties as of the closing date.

As set out in the purchase agreement, the builder adjusted 2008 taxes with Stuart (and the other 215 owners) on the assumption that it would pay all of the taxes for the year of closing when the bills were issued. On this basis, the builder would be responsible for 222 days of taxes (to Aug. 12), and Stuart would be responsible for the remaining 143 days of the year.

But since the actual 2008 tax bills were unknown at the time of closing, the builder estimated the taxes and adjusted with the purchasers on the assumption that the taxes had been (or would be) paid.

On the builder’s closing statement of adjustments, the 2008 taxes were estimated at $3,970. But when the city finally issued the 2008 tax bill in January 2010, it came in at only $2,107.92. As a result, the builder had over-estimated the 2008 tax bill by a staggering $1,862.08.

Recalculating the tax bill as of Aug. 12, 2008 meant that on closing Stuart had overpaid $720.20 for his portion of the year. If everyone in the building was overcharged $720 on closing, the windfall to the builder would be about $155,500, minus any refunds it had to pay out to those buyers who were sharp enough to calculate and claim the overpayment – or who had their lawyers do it for them.

But that’s not the end of the overcharge. Prior to final closing, Stuart was in possession of his unit for almost six months paying interim occupancy fees. Those fees include estimated taxes based on the builder’s calculations. As part of his occupancy fees, Stuart paid taxes of $330.83 a month to the builder, according to the builder’s estimate of $3,970 for the year. Using the real tax bill of $2,107.92, Stuart should only have paid $175.66 a month for taxes during the occupancy period, rather than $330.83. He was therefore overpaying $155.17 a month.

As a result, Stuart overpaid the builder an additional $931 or so in interim occupancy fees, making his total overpayment to the builder $1,651. If this amount is a reasonable average for all the units in the building, the total amount of tax “overestimates” by the builder came to around $350,000.

The issue still has not been resolved. Stuart may have to file a claim with his title insurer, the same one recommended by the builder for use by all purchasers in the project.

Based on my experience in handling transactions like Stuart’s, as many as half of all condominium builders use the same method of overestimating taxes, while the other half arrange it so there is no overcharge at all.

In general, I have no objection to builders charging purchasers whatever they want for the condominium units and for any additional closing costs, as long as the charges are clearly disclosed up front. This way, a purchaser can choose whether or not to pay the costs or walk away from the deal.

What I find very troubling, however, is builders who take advantage of issues like estimated taxes to scoop large amounts from purchasers – presumably expecting that they may not have to account for some or all of it.

This article was contributed by Bob Aaron, a prominent Toronto real estate

lawyer. Visit him online at: www.aaron.ca

Buyers overpay builder for estimated taxes

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Legally Speaking

“We don’t like their sound, and guitar music is on the way out.” - Decca Recording Co. rejecting the Beatles, 1962.

“It will be years -- not in my time -- before a woman will become Prime Minister.” - Margaret Thatcher, 1974.

“Who the hell wants to hear actors talk?” - H. M. Warner, Warner Brothers, 1927.

“I see no good reasons why the views given in this volume should shock the religious sensibilities of anyone.” - Charles Darwin, The Origin Of Species, 1869.

Thinking of a renovation project this summer? The Appraisal Institute of Canada offers an online guide (called RENOVA) which helps homeowners calculate the average return on their investment in a renovation project.

Choose “bathroom renovation” and plug in an expenditure of, say, $30,000 into the online calculator and RENOVA niftily tallies a 75 to 100 per cent return. This translates to an added $22,500 to $30,000 on the resale value of your home. Kitchens also rank well up the list with a similar 75 to 100 per cent payback.

Conversely swimming pools, home theatre rooms and interlocking brick driveways yield only 25 to 50 per cent. The payback for installing central air conditioning ranges widely, from 25 to 75 per cent. Putting in a skylight may turn out to be a waste of cash, with the estimated return varying from zilch to 25 per cent at the most.

Of course, low-cost improvements that make your home

look better are always a good idea. Painting, new wallpaper, and items like new rugs and curtains help to brighten and improve the look of a home, and add value to your house if they are done close to the time of sale.

In addition, investments in more efficient use of energy are always very sensible. Oil, gas, and hydro costs are continually going up and becoming more of a concern when people are looking to buy a home. You can definitely make your home more energy efficient as an investment in its value. Some government programs are in place which help defray the costs of these projects. Also, consider buying appliances that waste less energy.

As we head closer to the warmer months, I’d like to wish you a fabulous summer! As usual, your client referrals are both highly valued and much appreciated. Until next time, take care!

In accordance with PIPEDA, to be removed from this mailing list please e-mail or phone this request to the REALTOR® Not intended to solicit buyers or sellers currently under contract with a broker. The information and opinions contained in this newsletter are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for damages resulting from using the published information. This newsletter is provided with the understanding that it does not render legal, accounting or other professional advice. Statistics are courtesy of the Toronto Real Estate Board. Copyright © 2010 Mission Response Inc. 416.236.0543 All Rights Reserved. D114

Magda Mo Sales Representative

416-483-8000

sales@magdamo.com | www.magdamo.com

Sutton Group Bayview Realty Inc., Brokerage 1820 Bayview Avenue, Toronto, ON M4G 4G7

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