We are now in the second half of July 2010 and the busy spring market for real estate is over.  In fact the slowdown occurred early with statistics showing reduced sales for June. It had been busy all through Fall and Winter and people have been nervous entering summer in anticipation of HST and higher interest rates.  Banks  made small downward adjustments in long term rates but Canada’s official interest rate rose .25% in June and another .25% on July 20.  That should maintain a degree of market interest as people try to buy while they can get low interest mortgages.  The major banks began to raise longer term mortgage rates during the last week of March and again in mid April as the long term bond rate went up due to speculation of higher rates coming.  Most people were expecting that the official Bank of Canada interest rate would begin to rise June 1st and soon after but these were small adjustments from a rate close to zero.  There is good reason to hold rates low for now when problems in Europe and concern over restraint in China have hurt the Canadian dollar and commodity prices for minerals and oil which are so important to Canada’s economic performance.  This continuing world recession will slow pressure for rate increases in Canada. High interest rates would help raise the Canadian dollar above the US dollar and hurt the Canadian manufacturing sector which is the main part of Ontario’s economy.  With oil prices generally on the rise and concerns about the danger of offshore drilling in the US, we can expect the Canadian dollar to rise to dangerous levels due to higher valuation of Canadian tar sands oil reserves even without an interest rate increase over the next several months. Much of the real estate activity has been driven by fear of more increases in interest rates.  People want to lock into a long term mortgage while rates are still fairly low.

The real estate market was hot in our local areas of Pickering, Ajax and Whitby and other popular places in the City of Toronto.  The mild weather and absence of snow in Southern Ontario certainly helped keep the market alive in the winter and give an early start to the cottage market.  This busy winter market was unprecedented and the big question now is what will happen after the current market summer slow down.  Recent developments have shown that the economic crisis is far from over and unemployment is a very serious concern and could get worse so the recovery is a fragile one.   July 9th statistics gave a false positive reading to employment in Ontario by including temporary jobs created by the G8 and G20 meetings and the pre-HST boom. While technically the recession was over by the end of 2009 the recovery remains questionable. There is a huge Government deficit both Federal and Provincial which will take many years or major Government spending cutbacks to repay once the effort is made. Right now interest rates remain at historic lows and incentives for first time buyers have brought new buyers to the real estate market. From September 2008 there was a severe slow down in real estate sales which continued until about May in the spring of 2009. There was a rush to be ahead of the Ontario HST which adds 8% provincial sales tax to the GST of new home purchases (over $400,000), all real estate commissions and all legal fees which started in July 2010.  Utility and fuel costs have risen because of the HST. Higher taxes associated with home ownership, purchase and sale have already slowed the market. The 905, 519 and 705 areas are significantly benefiting from the City of Toronto’s Land Transfer Tax which adds considerable cost to a home purchase in Toronto  (except for first time buyers).
The auto sector is doing reasonably well now and jobs have been preserved at GM and Chrysler who were in bankruptcy situations. Ford has remained strong, their sales are solid and they are keeping most Ontario plants open. In Oshawa people at GM are working overtime and extra shifts to build new Camaros.  Impala production in Oshawa has been renewed along with new Cadillac models and the made in Oshawa Camaro continues to be produced below demand levels.  GM is benefiting greatly from increased sales in the growing market of China. Toyota’s vehicle problems have helped GM as well and GM is now actually making a profit.  Even if there are a few small increases in mortgage rates the real estate market in Ontario is likely to continue in its strength.  The February 16 announcement by Canada’s Finance Minister Jim Flaherty of tighter rules for qualification for an insured high ratio mortgage have made a greater than originally expected impact on the market and not just by keeping borderline qualified buyers out of the market. With the rise in long term interest rates the new rules force home buyers to qualify for a mortgage at the high 5 year posted fixed rate even if they are selecting a discount, variable or lower short term rate. Many who can easily afford to buy a home are not qualifying because of the requirement that they qualify for the highest rate mortgage now offered.  All of these factors combined should lead to a stable but slow market for the remainder of 2010 and into 2011. Right now it is definitely a buyers’ market.

Condominium sales remain strong and fear of there being too many new ones being built is unfounded as condominiums reflect a lifestyle change which is beginning to extend to the baby boomers. There has been little activity in the cottage market for two seasons but we predict a busier cottage season this year but no boom.  Lower priced cottages have been selling as have those with price drops.  Reasonable pricing is the key as the market has many cottage options in Ontario with a wide range of prices. The best cottage investments would be properties close to the GTA where the drive is not too far.  Buyers for all types of properties need to be cautious of overpaying and need to think of the future when they may have to renew large mortgages at a higher interest rate.

I predict that the Ontario, Canada real estate market will remain slightly positive through 2011 despite the HST and a rise in interest rates.  Canadians always seem to adjust quickly to new taxes. I do expect a slowdown but no “crash”. Most home buyers now are locking into longer term mortgage rates that are much higher than short term rates.  I believe you will save if you get a lower variable rate now as I predict any rise in rates will not be as large as the current spread between long term and variable rates. What you do depends on your willingness to take risk and how important certainty is to your budgeting.

Miskin Law Offices are ready to assist you in home sales, purchase and mortgaging from our conveniently located Whitby and Peterborough locations. We handle the legal work and help you make decisions at no extra cost if you seek our advice. Our main office in downtown Whitby on Brock St. just north of Mary St. has free parking.  Our Peterborough office near the Lift Lock, in Time Square at Hunter and Armour also has free parking for our clients.   Both Murray Miskin and our main real estate staff member, law clerk Arlene Nicholson, now live in Peterborough and are regularly at the Peterborough office in addition to being in Whitby most days. We will accommodate your needs when it is time to come in for your real estate transaction. Our fees are highly competitive and we are happy to explain them to you. Our standard fee is presently $650 on a purchase and $550 on a sale (plus GST and expenses).   We do not recommend closing a purchase and sale on the same day.  You will save much trouble plus moving costs if you close your purchase ahead of your sale. Bridge financing is very inexpensive too.  Beware lawyers who quote a fixed price because there are almost always extra costs involved in the form of expenses such as registration charges and taxes. Almost always our price will be lower or we will agree to match the advertised fixed or “all inclusive” price of other lawyers. Very few lawyers can beat our personal service and reasonable cost for the legal work involved in real estate transactions. As part of our service we will review an offer before it is signed or made firm,  for our clients’ protection with no extra charge. Call Arlene at our office, Extension 119, with your questions.

“The practice of law at the consumer level is a highly competitive area,” says Murray Miskin of Miskin Professional Corp. in Whitby.

“Ultimately, the lawyers will probably end up making less money because for one thing, there will be fewer deals in the purchase and sale of homes, so they’ll be doing less volume of work. But also, they may have to make concessions to clients because of the competitive nature of fees.”

Miskin’s real estate practice includes residential home sales throughout the GTA and into cottage country via his firm’s office in Peterborough.

He worries not only that the HST will stymie any possible resurgence of home sales but also that the construction industry could suffer due to the higher tax rate on new home purchases.

From his vantage point in Whitby, he was front and centre during the uncertainties swirling around the Oshawa General Motors plant.
Without any confidence in jobs and the economy, people stopped buying property.

“Last winter was bleak for the real estate market. Real estate agents weren’t making any money. Real estate lawyers weren’t making any money,” he says.

“A lot of lawyers had to lay off their real estate staff and they’re just starting to come back again. So this past year has been very difficult for real estate practitioners until the market started heating up again.”

He suggests that if the economy continues its recovery, the Bank of Canada will have no choice but to raise rates by next summer, which would coincide with the new tax.

While he acknowledges “the real estate market is a very volatile market,” he says lawyers might need to become creative and offer clients deals or discounts to get them in the door.
That’s exactly what his firm is doing.

“What we’re saying to our clients is if they come to us with a deal that closes after the HST is in effect, we will adjust our fee so they don’t have to pay extra,” says Miskin.

“With new homes, there’s often a delay in closing, so we’re trying to give the client some stability where even if there is a delay, they won’t have to pay us more. We want to get the deals in and offer some help to the clients who are hurting also.”

But within the city of Toronto, Miskin isn’t optimistic that the market will easily absorb the tax.
“It may put a permanent damper on the market just like the Toronto land transfer tax has put a permanent damper on the Toronto market,” he says.

“The Toronto land transfer tax has been good for the GTA, anywhere outside of Toronto where it’s less expensive to purchase because of the land transfer tax, and I think people will factor all of these taxes into their decision-making process.”

The Miskin Law firm discounted the extra cost in legal fees from HST on real estate  transactions brought to our office before April 1, 2010. Eligibility for this discount has expired.