SEPTEMBER 2010. Greater Toronto Realtors reported 6,232 sales through the Multiple Listing Service (MLS) in August 2010. This represented a 22 per cent decrease compared to the 8,035 sales recorded during the same period in 2009. New listings decreased by one per cent year-over-year to 10,488.

"The prospect of interest rate hikes and new mortgage lending rules prompted some households to purchase a home sooner than they otherwise would have this year. The result has been a larger than normal dip in sales over the summer months. With this said, it is important to recognize that sales on the year were eight per cent higher than in 2009," said Toronto Real Estate Board President Bill Johnston.

The average price for August transactions was $411,012 – up six per cent compared to the average of $387,921 reported in August 2009.

"Market conditions have remained tight enough to support higher home prices in comparison to last year. Under current mortgage lending standards, a household earning the average income in the GTA can comfortably afford the mortgage payments on an average priced home. Market conditions and the affordability picture would have to change dramatically before a sustained drop in the average selling price would take place," said Jason Mercer, TREB's Senior Manager of Market Analysis. (Source: Toronto Real Estate Board)

Canada’s housing market may be slowing down markedly, but it will not go into a “free fall,” says a report by the Conference Board of Canada. “Canada’s housing market is due for a pause,” Mario Lefebvre, Director for Municipal Studies for the economic think tank, said in the report made public earlier this month. “In all likelihood, the next few months will not be the best in history for Canada’s resale and new housing markets.”

Lefebvre said there is a likelihood that Canada will see a pause in price growth, “with possible marginal declines in a few markets.” A new harmonized sales tax in Ontario and British Columbia, lower consumer confidence because of the European debt crisis, and a jobless recovery in the U.S. are having an impact on housing sales in Canada, said the board.

On Wednesday, the Bank of Canada also raised its key overnight lending rate by 25 basis points, as expected, to 1 per cent. It is the third consecutive hike since June, as the era of ultra-cheap money for housing is coming to an end. “The Canadian housing market has generally been booming for about a decade now and the Conference Board of Canada has long claimed that at one point in time, the market would have to come back to normal levels of activity. This is what’s happening right now,” said Lefebvre.

That slowdown is being reflected in the pace of Canadian building activity. Building permit figures released Wednesday show a 3.3 per cent decline in July over June, to $6.4 billion, according to Statistics Canada. The result was a decrease in both the residential and non-residential sectors as developers cool their heels during the economic uncertainty.

Despite the dip, Canadian fundamentals remain sound, argues the Conference Board. “Contrary to the United States, this country’s labour market has rebounded from last year’s recession. Interest rates, while rising slowly, remain low. The market will pause – but it will not nosedive.”

The report says despite large declines in sales over the last several months, existing home prices continue to grow. “This is because while sales did decline significantly, they are coming off incredibly high levels in most markets - levels that were not sustainable.”

The Toronto market meanwhile, bucked the national trend in building permits. Permits were up by 5.4 per cent to $1.05 billion in July over June thanks to confidence in the residential sector. The non-residential sector representing commercial, office and industrial space saw a decline in permits. “As we continue through the third quarter, we expect residential building permit activity to continue to decelerate,” said Brian Bethune, chief economist for Canada for IHS Global Insight.

“A slowing down of the residential sector will persist primarily in Ontario and British Columbia due to the implementation of the HST.” (Source: The Toronto Star)

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So much for the housing market being crushed by rising interest rates. The Bank of Canada cranked up its trendsetting overnight rate for the third time in four months and the impact will be felt by a wide range of borrowers. But home buyers? Not so much. True, the central bank’s increase of one-quarter of a percentage point has already been applied by the major banks to their prime lending rate. That in turn means variable rate mortgages, plus lines of credit, are now a quarter-point more expensive.

But there are two trends that offset higher carrying costs for variable rate mortgages. One is that fixed rate mortgages, notably in the popular five-year term, have been coming down in recent weeks and are now as low as 3.59 per cent. The other trend is a return to previous levels of discounting in variable rate mortgages. With their usual dexterity, the banks used the financial panic of 2008 and early 2009 to ram through higher lending costs on a variety of products, including variable rate mortgages. Now, some of these rate hikes are being unwound.

MorCan Direct, a Toronto mortgage broker, notes that pricing on variable rate mortgages has over the past 20 months fallen from prime plus a full percentage point to prime minus as much as 0.65 to 0.8 of a point. The level of competition in the mortgage market suggests that by next year we’ll see banks offering their best pre-crisis deal on variable rate mortgages – prime minus 1 percentage point.

Wherever variable rate mortgages end up, it’s clear that pricing trends in the marketplace are offsetting the Bank of Canada’s rate moves to some extent.

On the fixed rate side, there have been at least four rounds of rate cuts by the big banks since the end of May. Last week, Bank of Montreal lowered its special five-year rate to 3.59 per cent from 3.79 per cent (note: this rate applies only to 25-year mortgages and offers limited pre-payment privileges). Back in May, discounted five-year mortgages went for something like 4.7 per cent.

Lenders price fixed rate mortgages off the yield on Government of Canada bonds, not the Bank of Canada’s overnight rate. Bond prices have been rising lately, which means yields have fallen because the two move in opposite directions. Things get a bit weird here because good times for bonds have lately coincided with bad times for the economy. And yet, the Bank of Canada is confident enough about the economy to have raised rates repeatedly.

Craig Alexander, chief economist at Toronto-Dominion Bank, explains that trading in Canadian bonds is heavily influenced by what’s happening in the U.S. market. Down there, of course, there’s a lot of worry about a return to recession – the dreaded double dip.

The Canadian economy has slowed, too, and nowhere more markedly than the housing market. This was widely predicted many months ago, but ironically it was rising interest rates that were supposed to drive the decline. Mr. Alexander said rising rates have had only a very small negative impact on house prices. More important factors have been a rise in the inventory of homes for sale, a rush to buy in 2009 and early 2010 when rates were at rock bottom, and the expectation that rates would rise. Today, he sees rates as being supportive of housing. “Rates are remarkably low by historical standards. People get so hung up on the direction of interest rates. The level matters.”

Rates will increase from here, but Mr. Alexander doesn’t seem them as a major problem for housing. “The fact that rates are low and likely to rise at only a gradual pace in the next 18 months suggests you really aren’t going to get a major correction in the housing market,” he said. “What you’re going to get is a period of softening, some declines in sales and a modest correction in housing prices. But after such a strong run, you could expect that.”

Interested in variable rate mortgages even though they’re captive to the Bank of Canada’s rate moves? MorCan Direct suggests starting with a one-year closed mortgage, which you may be able to get for as little as 2.44 per cent. In a year, you can jump into a variable rate mortgage.

Variable rate mortgages could be more costly then, but pricing pressure might just get you a prime-minus-1 deal. (Source: The Globe and Mail)

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How is my assessment determined? A non-profit agency called the Municipal Property Assessment Corporation (MPAC) assesses your property based on the price it would likely fetch if you put it up for sale. MPAC tracks real estate sales by neighbourhood and may reduce the assessment depending on location.

How is the tax rate set? Your city or town council sets a tax rate through the annual budgeting process. The regional council, if there is one, also sets a tax rate. Finally, the provincial government sets a tax rate for education. The three rates are added together.

I think my assessment is unfair. First, you should call MPAC at 1-866-296-6722. You can ask MPAC to send you a list of the assessment on properties similar to yours and you can also send MPAC a list of properties you think are comparable. You can do this on the MPAC website. If you still think you’re over assessed, you can make a “request for reconsideration,” an informal process in which you state your case in writing, and MPAC tries to respond within 60 days.

I’m still not happy. You have one further avenue, which is appealing to the Assessment Review Board, a tribunal independent of MPAC. This is a more formal process involving a hearing before a board member. You must pay a fee of $75. You must have already been through the “request for reconsideration” process, and must file your appeal within 90 days of the mailing date of your request for reconsideration decision. (Source: The Toronto Star)