Is media responsible for increased home sales, just the same way it was responsible for setting the whole nation on fire with recession? I have read a few positive (though cautionary) articles in the media in the past few weeks.

My personal observation of the market is that there is no doubt quite a flurry of activity in the GTA. Homes in 300-325K in Brampton are flying off the shelf/MLS in less than a week (though not over asking). In mississauga, there is brisk sale for under 375K and Condos are doing well too. However, I too am not predicting that the worst is over.

Anyway, here is another http://finance.sympatico.msn.ca/investing/deirdremcmurdy/article.aspx?cp-documentid=19252832 to a report on MSN.


Despite downturn, Canadians still focused on home ownership
Times may be uncertain, but owning your house is hardwired.


By Deirdre McMurdy
April 18, 2009
At lunch with my mother the other day, she fretted about the state of her investment income.

When I suggested she and my father sell their large, rambling house and move into something smaller, she earnestly explained that it couldn't happen.

Her explanation? They have four large sofas and an enormous antique armoire in their home. In other words, engrained habits and entitlements still dictate behaviour to a significant extent - even in the midst of an economic downturn.

It's precisely the sort of phenomenon that makes it such a thankless task to be an economist. Whatever conclusions you might try to extrapolate from the hard data at hand, you can't always count on a rational response to it. Especially when it comes to real estate, our hard-wired territorial instincts make home ownership deeply resonant and hard to relinquish.

Take, for example, the first tender sprouts of evidence that the Canadian real estate market is still alive. Despite all the miserable economic forecasts, the Canadian Real Estate Board reported a 10.3 per cent gain in re-sale activity in February and another seven per cent gain in March.

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Obviously, based on the prevailing gusts of uncertainty, that shouldn't be the case. And it's not like anyone needs to be reminded that the whole mess we're in has its genesis in the residential real estate market and its financing.

But you pretty much can't lose if you bet on the reality that some aspects of consumer behaviour are deeply rooted in our primordial past. There is something about spring and the return of fine weather that makes us take a fresh interest in buying a new home. And it's arguably something that we've done since the days when we lived in caves and sought new and brighter ones after a long winter.

More on the economy:
Live off the land -- in the city
Tax relief for older workers
The U.S. recession gets personal
Albertans cut back on frills during hard times
Inflation alert: Investors should be aware of rising prices
Blog: Is now really the best time to buy a domestic car?
It's also worth considering that while the employment market is still wobbly and consumer confidence has lost some of its brass, there is a nascent sense of relief that after such a long time of over-heating and over-extension, we may be in a more balanced place these days. After all, did we really expect that house prices could continue their frantic annual growth of 10 per cent (which they posted from 2002 to 2007) indefinitely?

Tighter credit for both businesses and individuals may have quenched the pace of deal-making and acquisition, but the increased scrutiny and required justification for every purchase - whether it's a corporate asset or a new silk scarf - exerts a reassuring discipline that's been lacking for several years.

Another result of a tougher climate for credit is that it may well have a positive effect on innovation and ingenuity. Just as the legendary chef Julia Child used to exhort people to stop "squawking" about high food prices and just learn how to cook, that advice is as relevant for corporate CEOs as it is for individuals: having to plan ahead and stretch a dollar just a bit further can often trump instant gratification.

* Check us out on Facebook

By that same measure, there's no question that a cooling down period in real estate markets isn't altogether negative. In 2000, the cost of carrying a five-year, fixed-rate standard mortgage (25 per cent down payment and 25-year amortization) consumed 22 per cent of the income of an average Canadian family. By 2007, that had increased to 34 per cent.

Homeownership is one of those deeply-entrenched, core desires that ensure a certain resilience of demand - especially at a time when interest rates are touching historic lows and are expected to ease even further. Although unemployment numbers have risen steadily to eight per cent - the highest level in seven years - the pace of job loss appears to be slowing slightly.

Another development worth noting in terms of gauging confidence is that national stock markets have started trading more on their own relative merits rather than automatically moving in lock-step with one another. That's read as a sign that investors are starting to move away from panic mode and are starting to look at fundamental, underlying values once again.

Now if only my mother could grasp the fundamental value of shedding a sofa - or three.

-----------------------------------------------------------------
Rajeev Narula, Broker, REALTOR®
ACE TEAM REALTY INC., Brokerage
10 Kingsbridge Garden Circle, Suite 704
(Opp Square One - HWY10/403)
Mississauga, ON L5R 3K6
Bus: 1-888-355-3155 Ext. 300
Fax: 1-888-443-3155
Email:
Web: http://www.RAJEEV.ca" rel="nofollow">LINK

If you bought the average home today, using a 5% down, 35 year amortization mortgage, locked in for 5 years at 3.69%, you'd be taking on about $500,000 in debt. This debt will actually cost you more like $1.15 million by the time you're finished paying it off, but that's a whole other issue. What concerns me most, is what this level of debt looks like in five year's time.

Total loan principle: $500,000
Monthly payment: $2120
Principle paid: $38,420
Interest paid: $88,844
Principle outstanding at term end: $461579


The price of your home will not have appreciated at all in this next five year period.

You may have $38K in equity in your home and just enjoyed the lowest interest rates you will ever pay. Interest rates have increased incrementally over time to something closer to a historical average in the range of six to eight percent. Here's what you could be facing when you go to renew your mortgage:

6%
Monthly payment: $2762
7%
Monthly payment: $3066
8%
Monthly payment: $3380

How many families buying today do you know that could handle a jump in monthly payment of anywhere between $600 and $1200 per month? And if this happens, many of these families will be forced to sell their homes. With $38K in equity, they have few options. REALTOR fees will eat half of that $38K. The market won't be "booming" in an interest rate environment like that, that's for sure, especially if prices have remained high. Wages haven't kept up, neither have rents. It could be a dangerous recipe.

I believe, as do many of the readers here, that we're going to see prices drop another 15% or so. If we're right, then the scenario above is really dire as some lenders won't renew mortgages on underwater properties and homeowners may face cash calls.

Let's run some hypothetical numbers based on two more assumptions: prices drop 15% from today's average and interest rates climb 2% over the next two years. Because of the purchase price savings, a buyer is more able to put 10% down and go with a 30 year amortization at 5.69% instead of 35 year amortization. Here's what that looks like:

Total loan principle: $400,000
Monthly payment: $2318
Principle paid: $29,204
Interest paid: $109,876
Principle outstanding at term end: $370,795

The renewal amount is $100K less though (as was the purchase price in this assumption), and that makes a significant difference to a family's ability to continue to afford their own home:

6%
Monthly payment: $2210
7%
Monthly payment: $2460
8%
Monthly payment: $2712

Hi Rahul_Singh,

The title of this post was "What is Fueling home sales in GTA". I don't believe you have first hand knowledge of the ground realities here. . The purpose of this Topic on the forum was to elict discussion on this particular subject. Your response to it has nothing to do with it and you have already mentioned similar rant in other posts. Do you actually have to "hijack" to every post in the Real Estate section in the same "mode" and digress from the main subject all the time?

Nevertheless, let us take your hypothetical situation: Any family who takes 500K plus mortgage must be making a minimum 170K annually, meaning 14K a month pre taxes or 9K post tax. If their mortgage payment jumps from 2200 to 3000 per month after 5 years (by which time their income too would have gone up as well), I don't think that will be much of an issue to them. (I firmly believe that anyone in that income bracket would be smart enough to work on projections). I find it wierd that while the home prices drop by 15%, the mortgage rate increases over two fold in your hypothesis...(oh! you only use numbers to work the way you want).

Now consider the same family were to rent instead of buying. If they were to live in the same home over 500K in price, their monthly rent will be between 2750 - 3000 here in Mississauga and may be more in Toronto. I worked out the numbers and believe me, I included every bit of money spent while buying (lawyer fee, inspection, land transfer tax, CMHC insurance 2.75%,) and selling (Lawyer fee, RE commission@ 5% + GST), the buyer will still walk away with over 25K in hand if they sell the home for only 4% over their purchase price (1% per year increase).

My request to you is to please pay attention to the topic and stick to it while responding.

-----------------------------------------------------------------
Rajeev Narula, Broker, REALTOR®
ACE TEAM REALTY INC., Brokerage
10 Kingsbridge Garden Circle, Suite 704
(Opp Square One - HWY10/403)
Mississauga, ON L5R 3K6
Bus: 1-888-355-3155 Ext. 300
Fax: 1-888-443-3155
Email:
Web: http://www.RAJEEV.ca" rel="nofollow">LINK

Funny that this real estate expert does not know the difference between principal and "principle". Not a typographical error, but repeated several times in the post.
Time and again this gentleman carries nothing but bad news, has this penchant to make everything gloomy and is the prophet of doom.

I am sure there are others who feel that negativity in every post from this expert!

Quote:

---

Originally posted by Rajeev Narula

Is media responsible for increased home sales, just the same way it was responsible for setting the whole nation on fire with recession? I have read a few positive (though cautionary) articles in the media in the past few weeks.

My personal observation of the market is that there is no doubt quite a flurry of activity in the GTA. Homes in 300-325K in Brampton are flying off the shelf/MLS in less than a week (though not over asking). In mississauga, there is brisk sale for under 375K and Condos are doing well too. However, I too am not predicting that the worst is over.

Anyway, here is another http://finance.sympatico.msn.ca/investing/deirdremcmurdy/article.aspx?cp-documentid=19252832 to a report on MSN.


Despite downturn, Canadians still focused on home ownership
Times may be uncertain, but owning your house is hardwired.


By Deirdre McMurdy
April 18, 2009
At lunch with my mother the other day, she fretted about the state of her investment income.

When I suggested she and my father sell their large, rambling house and move into something smaller, she earnestly explained that it couldn't happen.

Her explanation? They have four large sofas and an enormous antique armoire in their home. In other words, engrained habits and entitlements still dictate behaviour to a significant extent - even in the midst of an economic downturn.

It's precisely the sort of phenomenon that makes it such a thankless task to be an economist. Whatever conclusions you might try to extrapolate from the hard data at hand, you can't always count on a rational response to it. Especially when it comes to real estate, our hard-wired territorial instincts make home ownership deeply resonant and hard to relinquish.

Take, for example, the first tender sprouts of evidence that the Canadian real estate market is still alive. Despite all the miserable economic forecasts, the Canadian Real Estate Board reported a 10.3 per cent gain in re-sale activity in February and another seven per cent gain in March.

* Follow us on Twitter

Obviously, based on the prevailing gusts of uncertainty, that shouldn't be the case. And it's not like anyone needs to be reminded that the whole mess we're in has its genesis in the residential real estate market and its financing.

But you pretty much can't lose if you bet on the reality that some aspects of consumer behaviour are deeply rooted in our primordial past. There is something about spring and the return of fine weather that makes us take a fresh interest in buying a new home. And it's arguably something that we've done since the days when we lived in caves and sought new and brighter ones after a long winter.

More on the economy:
Live off the land -- in the city
Tax relief for older workers
The U.S. recession gets personal
Albertans cut back on frills during hard times
Inflation alert: Investors should be aware of rising prices
Blog: Is now really the best time to buy a domestic car?
It's also worth considering that while the employment market is still wobbly and consumer confidence has lost some of its brass, there is a nascent sense of relief that after such a long time of over-heating and over-extension, we may be in a more balanced place these days. After all, did we really expect that house prices could continue their frantic annual growth of 10 per cent (which they posted from 2002 to 2007) indefinitely?

Tighter credit for both businesses and individuals may have quenched the pace of deal-making and acquisition, but the increased scrutiny and required justification for every purchase - whether it's a corporate asset or a new silk scarf - exerts a reassuring discipline that's been lacking for several years.

Another result of a tougher climate for credit is that it may well have a positive effect on innovation and ingenuity. Just as the legendary chef Julia Child used to exhort people to stop "squawking" about high food prices and just learn how to cook, that advice is as relevant for corporate CEOs as it is for individuals: having to plan ahead and stretch a dollar just a bit further can often trump instant gratification.

* Check us out on Facebook

By that same measure, there's no question that a cooling down period in real estate markets isn't altogether negative. In 2000, the cost of carrying a five-year, fixed-rate standard mortgage (25 per cent down payment and 25-year amortization) consumed 22 per cent of the income of an average Canadian family. By 2007, that had increased to 34 per cent.

Homeownership is one of those deeply-entrenched, core desires that ensure a certain resilience of demand - especially at a time when interest rates are touching historic lows and are expected to ease even further. Although unemployment numbers have risen steadily to eight per cent - the highest level in seven years - the pace of job loss appears to be slowing slightly.

Another development worth noting in terms of gauging confidence is that national stock markets have started trading more on their own relative merits rather than automatically moving in lock-step with one another. That's read as a sign that investors are starting to move away from panic mode and are starting to look at fundamental, underlying values once again.

Now if only my mother could grasp the fundamental value of shedding a sofa - or three.

---

Yes. I fully agree with Rajeev. last week, I went to see few houses in Brampton ( Open House on Weekend). Every house, I visited was getting lot of people coming to see House. Effect of recessession nowhere to be seen atleast in Brmpton Real Estate Market. If you do not believe me, go to any open house in Brampton & see for yourself.

-----------------------------------------------------------------
Driller the thriller

Quote:

---

Originally posted by Rajeev Narula
I find it wierd that while the home prices drop by 15%, the mortgage rate increases over two fold in your hypothesis...(oh! you only use numbers to work the way you want).

---

-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"