Is The Obama Effect Influencing Toronto Real Estate?

Mortgage Interest Rates In Toronto Are Close To Hitting Historic Lows

I KNOW it’s certainly affecting how we treat our spouses. I can’t wait to go dancing with Sally and give her a dip and a kiss . Watching Barak dance with Michelle was great!

The Toronto Real Estate Board stats which came out mid-month were pretty dismal compared to last year BUT I think they were premature. I’ve had offers on three of my listings in the past week… one of them with multiples on a house that was on the market last year and remained unsold for almost six months.

The RE/MAX Hallmark office we work for has seen lots of sales coming in from all areas of the city so this increased activity isn’t just limited to our Team’s business.

We just had an extremely successful home buyer workshop last night in North York and had 32 people attend. This was our third workshop of the month and each one of them was well attended. This is totally different from the last 3 months of 2008 where we were running at 50% attendance.

So… is the Obama effect influencing our state of mind here in Toronto? Certainly his positive attitude, openness and charisma have affected most Americans and people in every country around the world. It really shows that anything is possible if they set a goal and consistently work towards it.

Maybe it’s also the realization that we’re really not so badly off here in Toronto. We live in a great, vibrant city, mortgage interest rates are hitting historical lows (Prime is now 3.0% and the 5-year discounted rate is 4.49%).

More Buyers Are Now Able To Purchase A Home In Toronto

When you combine that with lower prices, affordability is improving dramatically. In early 2008 that index reached 33% (ownership costs as a % of pre-tax income). We hit a ‘recent’ low back in 2003 when this measure was around 22%. It’s expected that the recent price/interest rate changes have brought the affordability index back down to around the 28% level which is excellent.

I attended a seminar last Monday where Craig Alexander, one of the chief economists with TD Canada Trust did a presentation to a select group of RE/MAX Realtors. One of the interesting stats he reiterated was the fact that only 0.25% of Canadian mortgages are in arrears compared with almost 5% in the USA.

The reason – the excesses in granting mortgage financing were a lot less in Canada than in the US or Great Britain for that matter. Credit was just too available in those countries with little or no attention being paid to qualification criteria.

The prediction is for the Bank of Canada to drop their rate again at their March meeting which would bring the prime down to perhaps 2.5%… this would make the rate on a variable mortgage to be in the 2′s or low 3′s!

We had a good question at our workshop last night… “What if, in 5 years time when I go to renew my mortgage, the rate is very high and we can’t afford to pay it?”. There are two considerations.

First, to be cautious, when you’re working on your budget, calculate how large a mortgage you want based on say a 6% rate (payments about $6.45 per thousand for a 25-year amortization and $5.70 per thousand for a 35-year am). Then when you’re paying at a lower rate now, you’ll know you’ve got a big cushion built in.

Second, take advantage of the current low rate and increase your bi-weekly payment by as much as you possibly can. Since every penny you pay over and above the standard payment goes to reducing your principal, you’ll pay down the mortgage very rapidly. Then when you renew 5 years from now, you’ll be renewing on a much reduced mortgage balance.

Now, go give your significant other a big hug and kiss and experience the Obama effect for yourself .

By the way, one of our lawyer friends, Charles Eyton-Jones, and his wife, Jean, were down at the Obama Inauguration.
Take a look at the video from CTV News.

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