“Move or Improve”: Weighing the Benefits of Renovating

July 24, 2009 --Tom Lebour is President of the Toronto Real Estate Board. These are exciting times for the Greater Toronto Area resale housing market. Last month, 10,955 properties changed hands, making it the best June on record. While many GTA residents have capitalized on low mortgage rates to make their next move, this year’s federal tax incentive has motivated others to renovate instead. If you are a homeowner, eventually you may have to decide whether to renovate or move on. There are many factors you should consider when weighing both options.The most significant consideration of course, is cost. When you undertake a renovation, costs can escalate due to a number of variables. As well, bear in mind that if you are planning to renovate, the project has to make economic sense. You might really want sparkling granite countertops and radiant floor heating, but consider whether these improvements are advisable in your current location.If after renovations are complete, the value of your home is no longer in line with the value of other properties in the area, it could affect your return on the investment. In other words, if the cost of your renovation outweighs the market value it will add to your home, the wiser decision could be to simply move on.The Appraisal Institute of Canada provides information for renovation planning and not surprisingly, fix-ups to kitchens, bathrooms and paint are the best options, returning up to 100 per cent of your investment. Its recent study showed that energy efficient upgrades, like windows and heating systems, have an average recovery rate of 61 per cent.If you are working towards a greener home though, some of the costs can be offset by a number of government programs.Natural Resources Canada for example, provides a grant to homeowners who undertake renovations that improve the energy efficiency rating of their homes. An EnerGuide for Houses evaluation must be performed prior and subsequent to renovations to determine the change in the home’s rating. Grants are $750 on average, but vary based on the amount by which the home’s energy rating improves as a result of renovations.As well, the federal government’s 2009 Home Renovation Tax Credit provides a 15 per cent credit that can be claimed on a portion of eligible fix-ups between $1,000 and $10,000, a credit of up to $1,350. Another federal government initiative, the Residential Rehabilitation Assistance Program provides financial assistance on renovations that bring housing up to basic health and safety standards, to a maximum loan of $16,000 in the Toronto area.The Ontario government offers a $500 rebate when you replace an inefficient central air conditioner with an ENERGYSTAR® certified system, and a $50 rebate when you have your central air conditioner tuned up by a registered participating contractor. There is also a $75 rebate on the supply and installation of programmable thermostats. The City of Toronto’s WaterSaver Program offers residents $60 cash back plus a chance to win $2500 when they buy eligible high-efficiency washers, and various municipalities, including Toronto, have implemented Residential Toilet Replacement programs, offering cash incentives to replace units with selected water-efficient models.Before you undertake any renovations though, it’s important to recognize the magnitude of inconvenience you will experience. Consider that moving into a home can be accomplished in about 60 days while major renovations can take up to a year. You can choose to live through the chaos or rent elsewhere, adding to your overall costs. When you are confronted by changing needs, the most cost-effective choice is often to move on.

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“Weathering the Storm”: GTA market is holding it’s own in tough times

July 17, 2009 --Tom Lebour, President, Toronto Real Estate Board-- In last week’s article I explained that the Toronto Real Estate Board (TREB) recorded a record 10,955 sales in June. We also experienced the first annual average price increase since August 2008, with the average price rising two per cent to almost $404,000. This week, I want to talk about why the Greater Toronto Area housing market has remained resilient over the past year and also why we should continue to see steady growth in the housing market over the longer term.So, how is it possible that during a recession we saw record existing home sales last month? TREB’s Senior Manager of Market Analysis, Jason Mercer, points to affordability: “With prices leveling off, mortgage rates at or near historic lows and earnings continuing to grow, the average home became more affordable for the average household this Spring.” Mercer also suggested that “many households were in a holding pattern during the winter months, waiting to see how they would be positioned during these slower economic times. Moving into the spring, households confident in their employment situation moved quickly to take advantage of heightened affordability.” Last week a report released by RBC confirmed that affordability improved over the last quarter in the GTA.Low mortgage rates have clearly been a factor in keeping the housing market buoyant. This is in stark contrast to the recessions we experienced in the early 1980s and early 1990s, when home buyers were faced with double-digit mortgage rates. According to Mercer, “the Bank of Canada kept inflation in check over the past decade, so they had room to aggressively drop interest rates to help stimulate economic recovery. This wasn’t an option in previous recessions.”Home ownership will continue to be a wise long-term investment in the GTA because of our steady population growth. This region is the single greatest beneficiary of immigration into Canada. According to Statistics Canada, the GTA has the highest percentage of foreign-born population compared to all other major metropolitan areas around the world. Newcomers have been attracted by the diversity the GTA offers: certainly ethnic and cultural diversity, but also diversity in terms of jobs. Over the long term, people have been able to find employment in almost every sector of the economy. This means that this region is attractive to people from many different walks of life with many different skill sets. At the end of the day, all of these people require a place to live. Some of these newcomers will purchase a home right away; others may rent or live with family or friends before purchasing a home at some point in the future.When we think about the health of the GTA housing market, we have to take a short and long-term view. We may not experience record sales or price growth this year. But, when we look back on 2009, we will definitely be able to say that the region’s housing market fared very well in the midst of a global economic slow-down. The housing market follows cycles over the short-term, but if we look forward not one or two years, but instead a decade or more, the future looks very bright indeed. Steady population growth will prompt sustainable long-term growth in sales and home values.
Tom Lebour is President of the Toronto Real Estate Board, a professional association that represents 28,000 REALTORS® in the Greater Toronto Area.

GTA Resale Housing Market Posts Best June on Record

Market Watch...July 6, 2009 -- In June 2009, Greater Toronto REALTORS® reported a record 10,955 sales, up 27 per cent from June 2008. The seasonally adjusted annual rate of sales in June was 100,700.1“The record result in June is testament to the fundamentally sound housing market in the GTA,” said TREB President Tom Lebour. “An increasing number of households have been confident in purchasing a home in the region’s affordable and diverse resale housing market.”The average price for June transactions was $403,972 – up by two per cent compared to the same month last year.“The re-emergence of seller’s market conditions has exerted upward pressure on home prices,” explained Jason Mercer, TREB’s Senior Manager of Market Analysis. “Look for sales to remain high relative to listings in the second half of the year. This will keep home prices growing.”1Seasonally adjusting TREB MLS® data removes recurring seasonal trends observed each year. For example, MLS® sales are highest in late spring each year and lowest in the winter months. Removing the recurring seasonality, allows for the analysis of a meaningful trend reflecting actual changes in market conditions. By multiplying the monthly seasonally-adjusted figure by 12, creating an annual rate, we can compare how the current month relates to historical annual figures.
Median Price
In June the median price was $345,000, from the $335,250 recorded during June of 2008.

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