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The GTA housing market has been interpreted many ways by experts and homeowners. Some see potential in the market while others are expecting a decline to occur before the market gradually gets stronger. Overall, a positive market view has surfaced leaving the fear of the bubble in the rearview mirror.

There is a sense of optimism, which began in late 2017 and could carry throughout the year. What is causing this optimism and is it founded?

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National Housing Market

Confidence in Canada’s housing market is gaining, fueling a renewed optimism for the GTA. Homes in Toronto and its surrounding areas, which are experiencing constant development and enhanced infrastructure, could increase in value. This does come with a shift to long-term thinking and less concern with short-term gains.

Supply vs. Demand 

Toronto is still experiencing a shortage of supply, which will drive the market. The optimism is due in part to demand leading to higher sale prices which will increase the average house cost.

There also doesn’t seem to be a lot of public backlash towards the new stress test. This could present a small speedbump but it shouldn’t curb the market. It is designed to protect lenders, which can help the market by vetting borrowers. This could improve the market without slowing it down.

Suburbia

Areas like Thornhill, Oakville, Richmond Hill and Aurora have been attractive to homeowners for a long time. Their continued investment in infrastructure, evidenced by the York University subway line, and fair pricing will drive more people to suburbia. This will sustain the peripheral markets if central Toronto experiences any dips.

A Healthy Economy

In the broadest sense, there’s no bigger reason for optimism than the economy. The economy is expected to grow 2% in 2018 and further growth is forecasted for 2019. Unexpected downturns can be expected and there are variables—the minimum wage increase, inflation and the growing tech sector—but the economy is headed in the right direction for now.

There are legitimate reasons to be optimistic about the GTA’s housing market in the near term. All Canadians are hoping that it proves to be true.

Purchasing a home is an expensive undertaking. By the time you’ve forked over the down payment, legal fees, and moving costs, you will be financially and emotionally drained. Before deciding to buy a home, you must think beyond the purchase price because those costs, while substantial, are a one-time thing.

Maintaining a home is costly and every homeowner needs to understand what they’re getting into before their mortgage is approved.

Property Costs

In the GTA, each homeowner must pay property taxes every year. The cost is devised by multiplying a property’s assessed value by the tax rate. There is flexibility with respect to the payment schedule, meaning homeowners can pay monthly, annually or make six equal payments a year.

Exterior Costs

If you own a house, you will have monthly costs to care for the exterior of your property.  Some of these are discretionary whereas others are required for the health of the house. These costs include:

• Cleaning the gutters
• Lawn care and gardening
• Roof Care
• Snow removal for driveway
• Window washing

Remember, some of these tasks can be performed by the homeowner, assuming they know what they’re doing and have the time. Doing a lackluster job could cost you more money in the future as you’ll have to pay someone to undo your work and then complete the job.

The Guts of the Home

There’s a lot of essential equipment and technologies that need regular upkeep in your house. Furnaces and hot water heaters need regular inspection and maintenance. You will also have to pay for general repairs and some opt to pay for housekeeping.

A good rule is that the annual maintenance of a home will cost one percent of the purchase price. If your home costs $500,000, then you should budget $5000 for ongoing maintenance. Anything left over can just roll into the budget for the following year. Some prefer to calculate maintenance costs per square foot. The rule here is to budget $1 per square foot. A 1,000 square foot home would conceivably cost $1,000 in maintenance.

For maintenance, repairs, and upgrades cash flow is essential. A home equity loan is a proven way to leverage your equity into maintaining or increasing the value of your property. If cash flow isn’t an issue, then be sure to properly budget.

In your search for a mortgage, you should meet with several lenders to interview them and discuss the terms and process. During this time, you need to properly gauge the terms they are offering and the advice they are giving to guide you through the process. Not all lenders are created equal and the key is to come ready with the right questions to ask.

Here are three questions every applicant should ask a lender during their first conversation.

How to Decide Between Fixed or Variable Interest Rates?

One of the biggest decisions you will make, outside of choosing a home and making an offer, is what type of interest rate to choose. Your lender must have the market knowledge and a sense of how the banks will act to guide you to the best decision for your situation. There’s no one size fits all.

A fixed interest rate means the rate will stay the same throughout the duration of your mortgage. This is a good option if the rate is low and there are signs that it will spike at some point. A variable rate is volatile and can increase or decrease based on what The Bank of Canada does. Typically, you are signing up for a higher rate with the hope that it will drop at some point, meaning you can put more towards the principle.

Can I Pass the Mortgage Stress Test? 

The stress test has been a popular point of discussion since late 2017.  Every lender you meet with should outline the parameters of the stress test. They should also honestly evaluate whether your application could pass with flying colours. A lender should acknowledge when an applicant could have trouble passing the stress test and then offering advice on how to better their application.                                                                        

What’s the Pre-Approval Process?

Finally, inquire about the steps it takes to be pre-approved for a mortgage. Your first conversation with a lender should give you the tools to prepare the best application, as these things are rarely straightforward. Get a list of everything you will need so that you can create a comprehensive checklist. Be sure to ask if there are any tips that can help you get approved.

Contact us today to put these tips into practice and to get more information about mortgage approvals.

In October 2017, the Federal Government announced that a mortgage stress test would be applied to all mortgage applications in Canada. This news caused a firestorm of opinion and questions as many believed that it would block tens of thousands from homeownership.

What do current and future homebuyers need to know about the stress test, and what positives can be drawn from this Government intervention?

The Basics

Under this test, homebuyers must prove that they can afford a mortgage at either a five-year rate close to 5% or two percent higher than their current rate, depending on which is higher. The idea is to prove that a household will survive in the event of an interest rate hike.

The stress test is now embedded into the pre-approval process and is unavoidable for the most part. Homebuyers must evaluate their ability to pass the test or speak to a mortgage expert.

Insured and Uninsured First-time Homebuyers

An uninsured borrower is one who puts a minimum of 20% towards the purchase price as part of the sale. For borrowers who have a down payment below 20%, they must pay additionally for mortgage insurance.

Many uninsured borrowers assume that their down payment would exempt them from the stress test. Being able to pay a larger lump sum upfront doesn’t tell the lender that an applicant can carry the cost of a home monthly. Both insured and uninsured borrowers will be subjected to the stress test.

Mortgage Renewals

The stress test is not retroactive, meaning if your mortgage was approved prior to October 2017, then there will be no impact on your situation. In addition, if you renew with your existing lender, then you are exempt from the stress test. With respect to renewals, if you switch lenders then you will be subjected to the stress test during the process. Be sure to speak with your broker to confirm as this can vary from lender to lender.

The best advice is to not get too stressed about this situation. This new rule is designed to protect borrowers and lenders in the long-term against any market volatility.

There is a lot of information to sort through so speak with a mortgage specialist to review your situation and start the pre-approval process.