The CMHC Improvements Program — Making Toronto Real Estate More Affordable for Home Buyers
CMHC Helps Buyers Transform Fixer-Uppers into the Homes of their Dreams.
It wasn’t long ago when a home that “may need a little TLC” was enough to make a homebuyer turn the other way. Now, in Toronto’s tight market, where affordability is a growing concern for home buyers, even homes in dire need of repair and renovation are stirring up bidding wars.
CMHC’s Improvements Program, (formerly known as the Purchase Plus Improvements Program) is a little-known option that qualified buyers can take advantage to improve their odds of affording a fixer-upper. How does it work? The program allows you to tack the cost of renovations to the overall purchase of the home and include it in their mortgage loan amount. Qualified buyers have that ability to borrow up to 10 per cent of the estimated value of the home after renovations.
To give you a better idea of how the program works, let’s say you’re interested in purchasing a home listed at $650,000. The home has great bones, however, would require renovations to the kitchen and washrooms. It’s estimated that this home’s value, once improved would have a market value of $700,000. As a result of the estimated increase, you can borrow up to 10 per cent, or $70,000 of the new value. This is a great program for first-time buyers who would otherwise be unable to afford renovations because the majority of their money was used toward a down payment.
To qualify for the program, borrowers must provide a quote from a contractor and submit it to the CMHC and their mortgage lender before closing on the house. In order for the CMHC and lender to approve the amount, your Agreement to Purchase must include the condition that states you would like a contractor to perform an inspection of the home. Once approved, the amount will be added to the mortgage loan. Upon closing, the improvement amount is forwarded to your lawyer who is authorized to release the funds when the proposed renovations are complete. Because buyers do not have immediate access to the funds, it is recommended they open an unsecured line of credit in the interim.
There are a few provisos that buyers need to keep in mind—things that are not permanently affixed to the structure of the home, such as appliances are not covered under the program. Additionally, the CMHC would not approve a renovation that would convert a section of the home into a separate apartment.
For new homebuyers, the Improvements Program is a fantastic opportunity to build up thousands in equity instead of purchasing a more costly renovated home—and transform that fixer-upper into a dream home.
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In an announcement made by Toronto Real Estate Board President Mark McLean last week, GTA REALTORS® reported 7,385 home sales through TREB’s MLS® System in November 2015 – a 14 per cent increase compared to November 2014 and a record number for November sales to date.
Toronto’s real estate market saw 96,401 sales for the first eleven months of this year. There is no doubt that 2015 will go down in history as a year Toronto real estate made the record books. High housing prices, the number of homes sold, and benchmark indexes as well as a low number of active listings, average days on market and the amount of square footage you get for a dollar–not to mention the value of the Canadian Dollar itself. However, as the year winds down, people are turning their focus away from the red-hot real estate market and putting themselves in gear for the holiday season.
Credit: Toronto Real Estate Board
December is often an interesting month in for the Toronto real estate market–sometimes, buyers bid to get into the market right before the new year while other years they wait for the fresh listings that often arrive in January. Mr. McLean remains optimistic for December, as well as the upcoming year. With one more month to go until 2016, we’ve still managed to set a record in for home sales in the TREB market area for an entire calendar year (the previous record set in 2007 and reflected all 12 calendar months).
McLean believes the widespread demand for homeownership is a priority for families in the GTA and attributes it to real estate being the best long-term investment. Despite rumours of a housing crash, Toronto continues to prosper and doesn’t seem to show signs of stopping. The other question remains–if there is no crash, will there be a correction? Will the market get out of control?
The federal Department of Finance wants to step in and increase the minimum down payment for a home from 5 per cent to 10 per cent. With stiffer borrowing rules, the market has a better chance of cooling without a drastic crash. An increase will also alleviate the taxpayers exposure to insured default losses and possibly boost sales in the condo market. First time home buyers who are only prepared to put a 5 per cent down payment must either wait until they have twice the amount of money they initially had or settle for a condo. While all these pros sound fantastic for markets like Toronto and Vancouver, other markets in the Country, especially cities that have already experienced losses in the housing market, will suffer. When will these proposed changed come into effect? We can expect the Federal Department of Finance to present the motion for additional 5 per cent on down payments to the Minister of Finance as early as January 2016.
With what seems to be a very small window to decide whether to toss the whole idea of buying a home, borrowers looking to put a smaller down payment on a home should seek the advice of a mortgage professional and reassess their budgets realistically. Increase or not, the New Year is the perfect time for families to analyze their finances to ensure sound decisions in the future.
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As the mercury continues to drop, families across the GTA begin to haul the heavy coats, mitts, toques and scarves out of storage. Preparing our bodies for the harsh Canadian is always a tedious task and a sad reminder of the cold months that lay ahead.
Just like our bodies, our houses need special attention during cold winter months. We all know that heating costs go up this time of year; however, there are steps we can take to save money as well as make our homes more energy efficient. Toronto Property Managers and Landlords, in particular, are faced with challenges, as we might have multiple properties to care for as well as tenants that need to comply with our energy saving initiative.
Some ways to save on energy costs in the winter are simple and require minor changes to habits while others may involve the purchase and installation of energy efficient units.
In Toronto, heating can account for up to 60 per cent of your electricity bill.
The following tips can help save you a lot of money, while not compromising the comfort level in your home.
- Replace your old thermostat with a programmable one to manage your heating automatically. Energy savings will quickly pay for the cost of the thermostat in the first year.
- When we’re sleeping or not home, a lot of energy goes into heating rooms that are not occupied. By setting the thermostat to 18°C when you’re asleep and –20°C when you’re not home, you can reduce heating costs by up to 10 per cent.
- How long have you had your furnace? Take a look at the Annual Fuel Utilization Efficiency (AFUE) rating. The higher the rating, the more efficient the model. If it’s not up to snuff, replace it. You can receive a $250 credit from the Save ONenergy HEATING & COOLING INCENTIVE.
- Once you have an efficient furnace, make sure to maintain it properly. Furnaces that are well-maintained run at full efficiency take less energy to run and can save you heaps on your energy bill. Clean or replace the filter monthly and have it serviced by a licenced HVAC professional once a year.
- Draft space? Air leakage can account for as much as 25 per cent of your total heating costs. By caulking and weatherstripping windows, doors, dryers and other vents, you can decrease air leakage significantly. Even little things like installing insulated plates on electrical outlets can make a big difference.
- Up to 25 per cent of heat loss is through windows. Older houses were with single pane windows, which are ineffective in keeping the warmth in and the cold out. As a temporary solution, plastic window covers can help reduce drafts and can be purchased at most hardware stores. You can replace the windows altogether with Low-E double paned windows. These windows contain argon gas between the panes which acts as a great insulator in both the winter and summer months. Although they can be pricey, they’re worth the investment in the long run.
- Don’t waste heat. Close doors and shut off heat registers when you’re not in the room.
- When you turn on your furnace, do not switch your thermostat to a hotter setting than you need. It will not heat the room any faster.
Increase the amount of insulation in your home to keep it warmer in the winter and cooler in the summer. The attic and basement represent as much as 15 – 30 per cent of your home’s overall heating and cooling losses. Make sure you add attic vents so hot air can escape.
- Let the sun shine in. During the day, keep your curtains open to heat your home naturally.
Whether you’re looking to cut costs in your home or rental property, sharing the vision with your family or tenants can be helpful. Setting habits that fall into your kids daily routine can be fun and will give them a sense of responsibility. As for your tenants, engage in conversation with them through letters, emails, or direct calls. Be sure to ask for their feedback as this will build a stronger relationship with your tenants, and will allow for higher buy-ins in future initiatives.
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Are Mortgage Rates in Canada on the Rise?
In an announcement made last week by Toronto Real Estate Board President Mark McClean, GTA home sales showed the best results on record to date. With 8,804 home sales reported through TREB’s MLS® system, October was a favourable month for Greater Toronto Area REALTORS®.
Additionally, The MLS® Home Price Index (HPI) Composite Benchmark was up by 10.3 per cent year over year in October. Over the same period, the average selling price for all home types combined was up by 7.3 per cent to $630,876. Price growth continued to be driven by the low-rise market segments.
Source: Toronto Real Estate Board
Although sales are robust and predicted to climb in the upcoming year, some believe that the province-wide municipal land transfer tax that the Wynne government plans to introduce could affect the market. When asked their opinions on the new tax, the vast majority of Ontario residents surveyed opposed it.
In mortgage-related news, Stats Canada released new data on the labour force, which showed improvement during the month of October. A total of 44,000 new jobs were created, the majority of which, however, were part-time. There was also a substantial increase in employment in the manufacturing sector, which shows hope for the state of our Loonie. If this trend continues, we could head toward a more sustainable economy. How does this all affect mortgage rates? It is predicted it is less likely that we will experience another cut in the Bank of Canada’s lending rate, and mortgage rates will eventually rise. Last week, five-year fixed mortgage rates increased across the board and range between 2.54% to 2.69%. There is no need to worry, as there is no sign of a significant spike, just a more optimistic outlook for our economy. Another contributing factor to a change in rates is what our neighbours to the south are planning—it’s a matter of time before their rates go up, and inevitably, we must follow suit.
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The Municipal Land Transfer Tax is coming to a town near you, and most likely, your town as well.
The dreaded Municipal Land Transfer Tax (MLTT) might be spreading across Ontario as an additional taxation measure backed by the Liberal Government. This tax will be on top of the existing Provincial Land Transfer Tax (PLTT) levied upon closing a land or property transaction in Ontario. As a buyer, the amount you paid for the land as well as your mortgage or remaining debt related to the purchase of the property are factors that determine the tax payable.
In 2007, Toronto City Council approved the Municipal Land Transfer Tax to the dismay of Realtors® and hopeful residents alike. Currently, Toronto is the only city in the province that levies an additional tax on top of the Provincial Land Transfer Tax. Although the MLTT has caused some homebuyers to consider, properties outside of the city, buyers in Toronto seem to be more accepting of the tax as of late. In a competitive market where the cost of an average detached home is over $1 million, what’s another $15,000 in municipal taxes?
Several Realtors® are up in arms about the possibility of the Liberals moving forward with this decision, as it may have a significant impact on the housing marketing in cities outside of Toronto. Although Toronto’s housing market is robust, during its first five years, the MLTT is said to be responsible for a severe decline in home sales. The Ontario Real Estate Association (OREA) is requesting that the Liberals reconsider giving municipalities the power to levy this tax. Homebuyers in Ontario can expect this new tax to implement as early as next year, and if the Liberals do follow through with the policy change, Ontario will become North America’s most taxed jurisdiction.
As investors, what can we do to prepare for this? Not much, however, we can expect increased competition in housing markets in the surrounding GTA, especially luxury homes in York Region. With the policy change looming near, there is even more incentive to invest in property on the outskirts of Toronto. Do the suburbs suddenly sound more appealing? We think so too.
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This morning, CHMC released its Fourth Quarter report of 2015
Does 2015 CMHC Fourth Quarter Report support promises made by the Liberals?
Members of the media had full plates for the majority of October–Between the Federal election and Post-Season baseball, it’s been difficult to cover much else. Now, with Trudeau’s win and the Blue Jays’ loss, Canadian consumers can set their sights back on the health of our Economy–and the future of the Housing Sector.
This morning, the Canadian Mortgage and Housing Corporation released its Fourth Quarter report, which includes economic forecasts for 2016 and 2017. For those who recall promises made during the 78-day federal campaign, this report may offer some insight on what’s to come in 2016 and 2017. A highlight of the report focused on migration to Ontario, with the increase of new residents expected to outpace other parts of the country. Despite modest movement in recent years, Ontario’s economy is predicted to gain momentum in 2016 and 2017. Improving business conditions and expansion will increase hiring in the province, enabling job growth to rise to 1.6 per cent and 1.3 per cent in 2016 and 2017, as well as the unemployment rate to hover around 6.5 and 6.4 per cent respectively. This is one contributing factor to the appeal Ontario has to migrants, both nationally and internationally.
The CMHC quarterly report could not have been released at a more appropriate time. Following the federal election and Trudeau’s win, we can better gauge what type of action we’ll see in the housing sector. During their campaign, the Liberals focused on the best interests of the middle class; the high-tax battle, maximizing savings, and the accessibility of affordable housing. The high cost of housing in hubs such as Toronto and Vancouver has limited home ownership to those whose incomes far surpass the national average. In response to this issue, the Liberals propose new incentives for first-time homebuyers, including breaks on mortgage policies, as well increased amortization periods. To the discerning consumer, the promises sound more like suggestions, as nothing has been set in stone. Additionally, the Liberals propose to make changes to the Home Buyers’ Plan. Implemented in 1992, the Home Buyers’ Plan (HBP) allows Canadian residents to withdraw up to $25,000 from their RRSPs, tax-free to use toward the down payment of their first home. Participants of the HBP are given 15 years to replenish the amount withdrawn from their RRSPs. Although the withdraw limit isn’t expected to increase, the Liberal party proposes to make the HBP more accessible, by opening up eligibility beyond first-time homebuyers. Although interest rates are forecast to rise, the increase would be slight at worst, and are not expected to have a substantial impact on home buying.
Good news for Investors and Renters
Benefits that are also included in Trudeau’s plans surround the 10-year investment in social housing infrastructure, focusing on affordable housing and facilities dedicated to seniors. The investment will fund new buildings, as well as refurbish existing housing. As an investor, you will experience tax breaks and new capital investments will not be charged GST. This initiative is to encourage the construction of new affordable rental housing, as well as converting other multi-dwelling units and freehold homes into rentals.
It is predicted that high-rise unit ownership and rental demand will continue to be supported by first-time buyers with limited funds, as well an influx of Baby Boomers, who are looking for a maintenance-free lifestyle. Resale housing will remain vigorous over the course of the forecast, with numbers ranging between 193,000 and 225,000 units in 2016, before easing to the range of 175,000 to 220,000 units in 2017. Ontario home prices are predicted to grow, however, at a slower rate than previous years. This is due to a more balanced market, an increase in new listings, and the demand for more cost-effective housing options such as condominiums and townhomes. For Investors looking to expand their portfolios, this report, coupled with the results of the recent election should be kept in consideration when purchasing an income property. With several consumers turning toward more affordable housing options, new condominium and purpose-built rental segment are predicted to be solid investments.
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Photo Credit: Kevin Van Paassen
- 56,000 condos
At the end of 2014, there were more than 56,000 condos under construction in Toronto. That’s far more than what’s being built in other cities with a greater population like Chicago, Los Angeles, or New York. As a comparison, during most of the 1990s the city hovered around 10,000 condo starts.
- Almost 3,000 unsold condo units
In May, CMHC reported 2,837 unsold condo units. An all-time high, the closest we’ve come to that number was in the early 90’s when the condo market was out of control. Despite the high number of unsold units, sales for the fancy high-rise units continue to increase. Condo sales also help stabilize the market by offering an affordable entry point for first-time buyers.
- $1 million average price
In February Toronto reached a milestone that had previously only been reserved for some of the most expensive cities on the planet. The average price for a detached home in the city limits surpassed $1 million. In June, that number increased to $1.052 million. The increase in demand for luxury homes, namely houses sold at $3 million or more has contributed to this number. Buyers have not been discouraged by this, as bidding wars are still very common.
- 50% in five years
In 2010 the average price for a Toronto property (including condos) was hovering around $430,000. In just five years, that average has rocketed up more than 50%, recently almost hitting $650,000.The last time the market moved that quickly was back in the late 1980s, with the average price hitting a peak of $273,000 in 1989. The average value didn’t top $270,000 again until 2004.
- 39,000
The number of sales in the Toronto market has more than tripled since hitting a low of 26,700 transactions in 1990, right after the 1989 bubble popped.That’s created a lot of jobs selling houses. According to the Toronto Real Estate Board, there are currently more than 39,000 realtors currently working in the city. That’s one realtor for every 140 residents.
- 8.9 times
According to Statistics Canada, the average Toronto family earned $72,830 in 2013, the most recent year for which statistics are available. During May 2015, the average price of real estate in the city was $649,599. That puts the price-to-income ratio at an eye-popping 8.9 times, which is a record high.
Sources:
Canadian Mortgage and Housing Corporation http://www.cmhc-schl.gc.ca/
Canadian Newswire: http://www.newswire.ca
The Motley Fool: http://www.fool.ca
Toronto Real Estate Board: http://www.treb.net
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A Look at the Numbers:
1982: Average house price in Canada — $72,500
2015: Average house price in Canada — $439,100
1982: Average five-year fixed mortgage rate (March) — 19.4%
2015: Average five-year fixed mortgage rate (March) — 3.8%
1982: Outstanding residential mortgages — $30-billion
2015: Outstanding residential mortgages — $953-billion
Sources: CREA, Statscan
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Effective today, June 1, 2015, Canada Mortgage and Housing Corporation (CMHC) is increasing mortgage insurance premiums by 15 per cent for homebuyers making less than a 10 per cent down payment.
Mortgage insurance is typically required by lenders if a homebuyer’s down payment is less than 20% of the total purchase price of the home. The insurance is paid by the homeowner and is usually tacked onto their monthly mortgage payments. With the current state of the Toronto real estate market, many home buyers cannot afford a 20 per cent down payment—the insurance makes ownership more accessible for many, and benefits first-time buyers by enabling them to make a 5 per cent down payment on a home. It also benefits lenders by protecting them in the event that payments are not made and from potential defaults.
For an example of how the policy change might affect you, let’s pretend you’re buying a $600,000 home. With a 5 per cent down payment of $30,000, you would need a $570,000 mortgage. Before June 1, 2015, your premium would have been $17,955, however, at the new rate of 3.60 per cent, the cost would be $20,520— a difference of $2565.
Changes effective June 1, 2015
95% Loan-to-Value
|
Loan Amount
|
$150,000
|
$250,000
|
$350,000
|
$450,000
|
Old Premium
|
$4,725
|
$7,875
|
$11,025
|
$14,175
|
New Premium
|
$5,400
|
$9,000
|
$12,600
|
$16,200
|
Additional Premium
|
$675
|
$1,125
|
$1,575
|
$2,025
|
Increase to Monthly
|
$3.12
|
$5.20
|
$7.29
|
$9.36
|
With the new changes, there are many things to consider if you are planning to purchase a home with a smaller down payment. A down payment of 5 per cent, less the new premium of 3.6 per cent leaves you with only 1.4 per cent equity in your home. Although it might seem like your monthly payments are only going up by a few dollars, it is important to think about the impact a down payment of 5 per cent combined with the premium increase, would have on your investment in the long-term.
Questions about real estate, investments, or property management in Toronto? Contact us! We’d love write about it and feature your topic on our highgateproperties.ca blog!
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