4 1

for more detailed GTA statistics: JAMESMETCALFE.INFO

416-931-4161James 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

AUGUST 2013

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 fi rst-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 fi rst-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 of infl ation.

GTA AVERAGE RESALE PRICE8 9 10 11 12

GTA Resale Home Sales

MARJAN MAY SEP NOVJUL

201320122011$540,000

$560,000

$420,000

$440,000

$460,000

$480,000

$500,000

$520,000

GTA RESALE HOME SALES8 9 10 11 12

GTA Resale Home Sales

MARJAN MAY SEP NOVJUL

3,000

1,500

4,500

6,000

7,500

9,000

10,500

12,000201320122011

STRONG VOLUME AND PRICE GROWTH IN JULY

According to a recently released BMO (Bank of Montreal) study, one in fi ve fi rst-time buyers say that last year’s mortgage rule tightening made them wait longer to buy. This is precisely what the Department of Finance intended since their stated goal in making these changes was to “cool” a potentially overheating real estate market. Their concern was that Canadian household debt was reaching serious levels and that, at some point, that reality would have serious consequences for the economy as a whole.

Having said this, it is very interesting to note that, despite fewer fi rst-time home buyers in the market, average prices in many markets across Canada keep on making record highs. The bottom line is that it is very diffi cult to kill housing demand with an abundance of sub-3% mortgage rates.

Of course, the other part of the equation is supply. Although many observers expected that new listings would be fl ooding the market in 2013 with all the talk of an impending housing bubble, that simply did not happen. In fact, national inventories

of houses available for sale have been consistently dropping for the past several months. It’s very good to see that, at least in this instance, that the power of the media did not set up a negative self-fulfi lling prophesy.

All in all, we have been seeing a relatively balanced market with forces infl uencing both demand and supply counteracting each other in an orderly fashion. Over the long-term, a balanced market is always the best kind of market to have since it protects both buyers and sellers in equal proportions.

The BMO study also revealed that the average price fi rst-time buyers expect to pay for their home was $300,000 and that their average down payment was expected to be $48,000 (wow sounds like some parents may be involved!).

As usual, your referrals are both highly valued and much appreciated. Until next time, take care!

t

MORTGAGE INTEREST TAX DEDUCTIBILITY

3

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 underpad. 

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 negligent misrepresentation. 

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 question. 

Clearly the SPIS form causes more litigation than it prevents.

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 else’s money.

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 Bob Aaron, a Toronto-based real estate lawyer. Please visit him at www.aaron.ca

SPIS FORM CAN CAUSE PROBLEMS FOR SELLERS

2

LegaLLyspeaking

This article was contributed by Calum Ross, a Toronto-based mortgage consultant. Please visit him at www.calumross.caom

peRsOnaLFinanCe

t

MORTGAGE INTEREST TAX DEDUCTIBILITY

3

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 underpad. 

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 negligent misrepresentation. 

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 question. 

Clearly the SPIS form causes more litigation than it prevents.

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 else’s money.

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 Bob Aaron, a Toronto-based real estate lawyer. Please visit him at www.aaron.ca

SPIS FORM CAN CAUSE PROBLEMS FOR SELLERS

2

LegaLLyspeaking

This article was contributed by Calum Ross, a Toronto-based mortgage consultant. Please visit him at www.calumross.caom

peRsOnaLFinanCe

4 1

James Metcalfe BROKER

416-931-4161 www.OurHomeToronto.com | Service@OurHomeToronto.com

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 © 2013 Mission Response Inc. 416.236.0543 All Rights Reserved. K0191

“YOUR REFERRALS ARE SINCERELY APPRECIATED! THANK YOU!”

Royal LePage Real Estate Services Ltd.Johnston & Daniel Division, Brokerage

477 Mount Pleasant Rd., Toronto, ON M4S 2L9

AUGUST 2013

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 fi rst-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 fi rst-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 of infl ation.

GTA AVERAGE RESALE PRICE8 9 10 11 12

GTA Resale Home Sales

MARJAN MAY SEP NOVJUL

201320122011$540,000

$560,000

$420,000

$440,000

$460,000

$480,000

$500,000

$520,000

GTA RESALE HOME SALES8 9 10 11 12

GTA Resale Home Sales

MARJAN MAY SEP NOVJUL

3,000

1,500

4,500

6,000

7,500

9,000

10,500

12,000201320122011

STRONG VOLUME AND PRICE GROWTH IN JULY

According to a recently released BMO (Bank of Montreal) study, one in fi ve fi rst-time buyers say that last year’s mortgage rule tightening made them wait longer to buy. This is precisely what the Department of Finance intended since their stated goal in making these changes was to “cool” a potentially overheating real estate market. Their concern was that Canadian household debt was reaching serious levels and that, at some point, that reality would have serious consequences for the economy as a whole.

Having said this, it is very interesting to note that, despite fewer fi rst-time home buyers in the market, average prices in many markets across Canada keep on making record highs. The bottom line is that it is very diffi cult to kill housing demand with an abundance of sub-3% mortgage rates.

Of course, the other part of the equation is supply. Although many observers expected that new listings would be fl ooding the market in 2013 with all the talk of an impending housing bubble, that simply did not happen. In fact, national inventories

of houses available for sale have been consistently dropping for the past several months. It’s very good to see that, at least in this instance, that the power of the media did not set up a negative self-fulfi lling prophesy.

All in all, we have been seeing a relatively balanced market with forces infl uencing both demand and supply counteracting each other in an orderly fashion. Over the long-term, a balanced market is always the best kind of market to have since it protects both buyers and sellers in equal proportions.

The BMO study also revealed that the average price fi rst-time buyers expect to pay for their home was $300,000 and that their average down payment was expected to be $48,000 (wow sounds like some parents may be involved!).

As usual, your referrals are both highly valued and much appreciated. Until next time, take care!

“A common mistake that people make when trying to design something completely foolproof was to underestimate the ingenuity of complete fools.” – Douglas Adams

“Golf is a game in which you yell ‘fore’, shoot six, and write down fi ve.” – Paul Harvey

“I can resist everything except temptation.” – Oscar Wilde

“There is no psychiatrist in the world like a puppy licking your face.” – Ben Williams