ORES Real Estate Index for December 2011

ORES Real Estate Index for December 2011

 Ontario Real Estate Source

By Brian Madigan LL.B.

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 31 December 2011, here is the Index representing average prices with the November 30^th, October 31^st, September 30^th, and August 31^st, numbers appearing in brackets for comparison:

Real Estate

139.70…..(148.67)…..(147.97)…..(144.01)...(139.77).....GTA single family

Other market comparisons

357.92…..(408.18)…..(402.57)…..(378.73)…..(423.96).....gold (per ounce)
224.82…..(228.30)…..(211.99)…..(186.24)…..(198.52).....oil (per barrel)
129.89…..(132.60)…..(133.12)…..(126.29)…..(158.73).....TSX index
139.70…..(148.67)…..(147.97)…..(144.01)…..(139.77).....ORES sgl family
114.81…..(114.72)…..(114.53)…..(114.25)…..(115.96).....CPI index
126.32…..(127.05)…..(130.16)…..(117.12)…..(125.07).....NASDAQ index
116.49…..(114.83)…..(113.97)…..(104.04)…..(110.71)......Dow Jones index
106.46…..(105.56)…..(106.10)…..(95.78)……(103.18)......S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of December, the index stood at 139.70. That's a 39.70% increase in 84 months. That means the increase is 0.472% monthly, or it could also be expressed as 5.67% annually. The performance here is shown without annual compounding for the sake of simplicity. It is noteworthy that the annual percentage was 7.01% as at the end of October. Both numbers were calculated using

Observations (on the Index)

As we use index, there are several notable comments:
· Commodity prices are just commodity prices
· There is no other "extra return" for commodities
· The same is true for the CPI
· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 114.81; increases have been modest and inflation appears to be under control; this is significant.
· For a realistic performance goal, you should aim for CPI plus 3.5% annually
· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices
· The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies
· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes
· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

Comparative Observations Using the New Index

· Gold overall is still the best performer, reaching 357.92, decreasing this past month by 12.6%; a major decline since its August peak at 423.96
· Oil was the most volatile, (it dropped in half over our measurement period), also declining this past month
· Real estate was the most stable, with solid predictable returns at about 5.67% annually
· Our own stock market posted reasonable gains, but still falls behind single family homes over the measurement period, however, don't forget that the TSX is still well off its highs and is substantially resource based
· All three US stock market indicators now show positive numbers, and may truly be a better overall indication of the true state of the North American economy. The Dow matches inflation, the S&P is now measurably under the Nasdaq which is starting to track our own TSX

Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

The present rate of return although high by historical standards appears to be sustainable in sought after locations like the GTA. At the moment, over our measurement period we are looking at a 0.67% annual premium over the benchmark 5%.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com 1 January 2005 as the starting point.

The other statistics are reported in a similar fashion for the ease of comparison.

Toronto Condo Market in 2012

What’s Happening ~ Toronto Condo Market 2012

Ontario Real Estate Source

By Brian Madigan LL.B

Although the world is filled with pessimists and a lot of them see the Toronto condo market going bust, the facts and the figures don’t seem to support that conclusion.

There are two major driving forces behind the most active condo market in the world:

1)     net new immigration, and
2)     low interest rates.

Condo developers are just reacting to the demand. A lot of people are moving into the GTA each year, actually upwards of 100,000. They have to live somewhere!

Affordability is relatively attractive, so they are buying.

The condo lifestyle is becoming more popular. It works for several different groups:

·        New and first-time homebuyers
·        Trade up Buyers
·        Empty nesters
·        Investors
·        Out of town buyers

Each of these different and rather diversified groups will find a developer catering to their needs.

Prices of condos have kept pace with single family homes. Both have increased over the last few years at about 7% per annum. Compare that to the stock market or the return on bonds or bank accounts.

Newspapers often sponsor articles that spell the doom for the condo market but the fact of the matter is that other than a “hunch”, they don’t have any other supporting facts. The real facts seem to suggest otherwise. The Toronto condo market will be hot well into 2012.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Distributing the Proceeds of Sale

Priorities Upon Sale (Mortgage, Lien, Execution)

Ontario Real Estate Source

By Brian Madigan LL.B.

What happens when there is a mortgage, construction lien and execution against the property? How does the money get distributed?

Let’s consider the simple straightforward case.

Here, the property is worth $300,000, and the buyer secures a first mortgage of $250,000.

The deal closes and the money is advanced.

Subsequently, the buyer defaults upon his credit card to the extent of $10,000 and a judgment is obtained.

The homeowner decides to sell and hires a contractor for $25,000 to effect some improvements, repairs and renovations to the property. The work is completed but the homeowner never pays.

So, the basic question is “who gets the money”. Basically, to some extent “priority of registration prevails”:

1)     the first mortgage was fully advanced, and it secures the number #1 position for the principal plus the interest to the date it is paid. 

2)     The construction lien comes in second. The proceeds upon the sale are considered in part to be repayment on account of the work done and the corresponding increase in value.

3)     The Judgment assuming it was registered as an execution comes in third position.

That is what happens 99% of the time, since that is the usual scenario.

If all the money was not advanced under the mortgage, then that would affect the mortgagee’s priority. Assuming only $200,000 was advanced, then it would have priority only for the $200,000 and not the other $50,000. It still has that money.

There may be more than one lien. Some of the liens fall under the general contractor. It works like a pyramid here, with the lien claimant at the bottom having priority over the General contractor.

Executions creditors share on a pro rata basis in respect to the amount of their claims. So, if there was one execution for $10,000 and another for $20,000, they would share 1/3, 2/3 out of the amount leftover.

If there is a shortfall they would share in the shortfall based upon the same ratio.

Any excess would be paid to the homeowner. And, any deficiency would remain the obligation of the homeowner.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888www.OntarioRealEstateSource.com

Resurgence in Toronto Real Estate Market During September 2011

Resurgence in Toronto Real Estate Market

Ontario Real Estate Source

By Brian Madigan LL.B.

You might wonder what is happening to the real estate market in Toronto and the GTA.
Here are the latest figures released by the Toronto Real Estate Board.

Month        Sales           Average Price

January        4,208           $425,903

February      6,074           $452,967

March          9,009           $455,886

April            8,783           $476,637

May             9,785           $485,436

June             9,976           $474,365

July             7,711           $458,966

August         7,384           $451,310

September   7,658           $465,369

So far, everything is quite predictable. The market rose and peaked in May with a high average price for the year at $485,436. Then it declined until August and started an upward course once again.

If trends continue like they have over the last decade the average price in October will approximate the May number. Usually, the two peaks, being in the Spring and Fall markets are about equal.

There was a significant deviation from this usual trend in October 2009 with the world stock market crisis and loss of confidence in financial institutions.

This October offers challenging market concerns with Greece on the brink of disaster and the Toronto Stock market (TSX) slipping officially into bear market status.

The resurgence in the Toronto real estate market in September was evident and predictable, but there may be some uncertainty going forward. This represents opportunity for both sellers and buyers.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Mortgage Acceleration Clause

What is an Acceleration Clause?

Ontario Real Estate Source

By Brian Madigan LL.B., Broker

This is a clause in a mortgage which triggers the obligation to repay the entire principal sum outstanding in advance of the time that it is otherwise due.

Consider a borrower who pays $1,200 per month on his $135,000 mortgage. The mortgage runs for five years. If he breaches an important covenant contained in the mortgage like for example failing to provide insurance, the entire $135,000 is due and owing, even if it is just year one in the mortgage.

Some breaches are considered substantial enough to “accelerate” the principal.

This is an option available to the mortgagee (lender). But, in cases, where the rate of interest is high the borrower may wish to have the mortgagee activate this clause which provides the opportunity to pay earlier.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Be careful About Condo Fraud in Toronto and the GTA

Is it Safe to Buy a Condo ~ $ 20 million Fraud

Ontario Real Estate Source

By Brian Madigan LL.B.

Channel Property Management operated in Toronto for years under Manzoor Khan of Brampton, Ontario.

Channel specialized in condominium management and gained the confidence in many cases of immigrants who identified with him from his native Bangladesh , where he has now returned.

It appears that Manzoor looked after about 15 residential condominium buildings.

While it does not really seem that sophisticated, here is what he did:

1)     Manzoor had his employees pose as senior officers of the condominium corporation,

2)    As President and Secretary, they could issue certified copies of the by-laws of the company,

3)    They certified a new banking by-law and/or borrowing by-law authorizing certain loans to be negotiated,

4)    The proceeds of the loans were placed in bank accounts over which Manzoor Khan had signing authority,

5)    The total borrowed appears to be about $20 million and such loans are secured against about 7 properties.

The arrangement is simple enough. The fraud is clear and the man has fled the country.

But, are the owners of the residential condominiums at risk? They might be!

The lenders are innocent and the homeowners are innocent. Both were duped by the same person. Hopefully, they all had insurance bonds as against Manzoor and his company. If they did, then they will be compensated.

This may not be just the fault of the lender. At the outset, it will be necessary to determine whether the board of directors might be liable. There may be directors and officers liability insurance. That would be helpful too.

However, the fundamental question for the courts is going to be whether these mortgages were valid.

This is an extremely costly undertaking. And, it could be that one or more of the residential condominium corporations do not have insurance and is therefore at risk of liability.

In the meantime, if you were a purchaser about to close a deal, you would want a very large holdback and if you were looking for a condo to purchase, you would probably avoid these buildings until the issues are resolved.

With all this uncertainty, homeowners will just have to put their lives on hold. And, this could go on for years!

Make sure you see and understand the financial statements of the condominium before you buy. Ask yourself whether the property manager is reputable and whether the board members are sophisticated. Get professional assistance right from the beginning.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Mortgage Rates ~ 9 September 2011

Brian Madigan LL.B.,Broker






Terms Bank Rates Preferred Rates



6 Month 4.45% .....4.40%

1 YEAR 3.50% ......2.64%

2 YEARS 3.85% .....2.99%

3 YEARS 4.35% .....3.09%

4 YEARS 3.99% .....3.09%

5 YEARS 5.39% .....3.39%

7 YEARS 6.35% .....4.49%

10 YEARS 6.75% ....4.79%

Rates are subject to change without notice. *OAC E&OE


Prime Rate is 3.00%

Variable rate mortgages from as low as Prime - .75%

If you require a referral to a mortgage broker then please call me at 905-796-8888

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com