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Why 2016 May Be the Year of 'Peak Housing' for Canada

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still bubbling like our market

Toronto Bidding Wars So Fierce Homebuyers Skip Inspections

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by Kim Chipman
April 3, 2017, 7:00 PM GMT+10 April 4, 2017, 3:03 AM GMT+10
Firms see 30% decline in property inspections from a year ago
It’s a sign speculation has entered the market, lawyer says
In Toronto, some homebuyers are so desperate to win bidding wars that they’re rushing to make offers without even getting an inspection.

The average price for a detached home in Canada’s largest metropolitan area jumped to C$1.21 million ($905,950) in February, up a third from a year earlier, amid a dearth of properties for sale. In the same period, Toronto-based home-inspection firm Carson Dunlop saw a 34 percent drop in volume. Murray Parish, president of the Ontario Association of Home Inspectors, said he’s seen a 30 percent decline at his firm, Parish Home Inspections.


Realtor looks at prospective buyers in Barrie, Ontario.Photographer: Mark Sommerfeld/Bloomberg
“The bottom line is we are in a shortage of supply,’’ said Tasis Giannoukakis, a Century 21 Leading Edge Realty Inc. broker based in Toronto, adding that it’s not uncommon to see bids of as much as C$200,000 over the asking price. “That pressure is what’s causing everybody to remove the conditions on an inspection.’’

Home-price increases in North America’s fourth-largest city and its suburbs have outpaced growth in places including Manhattan, Vancouver, Seattle and San Francisco, leading local officials to search for ways to control price gains and spurring concerns a correction may be coming. The frothy market, buoyed by low interest rates, is resulting in frenzied bidding wars, causing many shoppers to leave once-standard clauses such as a professional home inspection and financing contingencies out of their purchase offers.

DIY Homebuyers

Giannoukakis noted that homebuyers are generally savvier when it comes to repairs and renovations than they were a decade or two ago, thanks to information on the internet and the popularity of home-related TV shows. Still, removing conditions such an inspection aren’t due to voluntary risk-taking, but are “100 percent” a byproduct of multiple offers on the same property, he said.

“When you are the only offer on the table, you can submit a conditional offer,” said Lorand Sebestyen, an agent with iPro Realty Ltd. in Toronto, adding that he counsels clients on the risks of skipping an inspection. “But when competing with several other offers, you don’t have that luxury.’’


Home inspector views the foundation of a home in Toronto.Photographer: Mark Sommerfeld/Bloomberg
Even for do-it-yourself types, the potential pitfalls are myriad -- especially if a buyer is already going over budget to complete a purchase. Alan Carson, founder of home-inspection firm Carson Dunlop, said problems his team has found over the years include faulty pipes, eroding foundations, termite infestations, old roofs and a bathroom that seemed functional but actually lacked any connected plumbing. Other surprises have included finding a loaded rifle and large bag of jewelry in an attic, as well as a “very sooty raccoon” jumping from a fireplace damper, he said.

“You don’t know what could be hiding behind the walls,” said Shubha Dasgupta, owner of Capital Lending Centre, a Toronto-based mortgage brokerage.

The average home-inspection fee is around C$450 these days, according to Carson.

San Francisco

A move away from inspections isn’t unique to Toronto. Vancouver, Canada’s hottest real estate market until Toronto took that mantle last year, saw a surge in unconditional purchase offers in the first half of 2016, said Adil Dinani, an agent with Royal LePage West Real Estate Services in the West Coast city.

The same is true in hot U.S. markets. Mark Attarha, president of Bay Sotheby’s International Realty, which has seven offices in the in San Francisco Bay area, said he’s seeing a spate of offers without contingencies, along with a raft of “overbidding.” Attarha estimates that 75 percent of prospective buyers he works with are accepting a home-inspection report from the seller rather than ordering their own or including an inspection clause in their purchase offers.

“I don’t think the trend is people don’t want to do inspections anymore -- it’s somewhat being forced on them in order to compete,” Giannoukakis said. But, he added, if someone is buying a property in the million-dollar range -- something far more common after the steep increase in home prices -- then a few thousand dollars of potential repairs may be of little concern.

New Homes

There are other instances where buyers can sometimes skip the inspection without feeling like they’re taking too big a gamble. With newer homes, an argument can be made doing so is fine because municipalities ensure properties are built to code, said Dasgupta, the Toronto mortgage broker. Inspections are also less of a concern for condominiums, which are “well-protected and insulated from some of the potential damages that may occur in detached properties,” he said.


Sold sign stands in Barrie, Ontario.Photographer: Mark Sommerfeld/Bloomberg
The financial burden typically falls to the buyer who opts to skip an inspection. Because the buyer “supposedly has the ability to see problems and ability to negotiate either a lower price or for work to be done, the law doesn’t see any reason really to protect you,” said Michael Lamb, a real estate lawyer and professor at the University of Western Ontario.

Marcus Simon, a property attorney based outside Washington, D.C., said the last time he saw a marked increase in waived inspections in his region was around 2007, just before the full financial crisis hit. Recently, the trend has popped up again in some Washington suburbs, he said.

Speculation Sign

Removing the inspection clause is a sign that “speculation has entered the market,” said Simon, owner of Ekko Title in McLean, Virginia. Some buyers believe property values are appreciating so quickly they can’t lose.

“People think they know the worst-case scenario, but their imagination doesn’t always serve them well,” he said. “They don’t realize how bad or how expensive it can get.”

There is one group that doesn’t see much of a problem with the decline in home inspections: mortgage providers. Banks are far less concerned about costly repairs that may arise later and are instead focused on the appraised value of a property, Dasgupta said.

“The home inspection is really more for consumer protection,” he said. “From a home value standpoint, the appraisal is really the key indicator for the bank. Lenders aren’t liable from the perspective of any deficiencies in the property.”


Just as Toronto’s surging prices have stretched to other parts of Ontario, so has the decline in inspections. The city of Barrie, about 65 miles (105 kilometers) north of Toronto, has “gone nuts’’ in the last three months, said Peggy Hill, a local broker with Keller Williams Experience Realty. Hill said she now sees offers with no conditions about 80 percent to 90 percent of the time, compared with 10 percent to 20 percent previously. Like his counterparts to the south, Derrick Vogel, owner of EnerOne Inc., an inspection service in Barrie, said his business is down too -- by about 45 percent this year.

Nicholas L’Ecuyer, a managing partner at Barrie-based loan brokerage Mortgage Wellness Group, said he doesn’t view skipping inspections as a red flag for the market, but rather as a necessary evil for buyers seeking to win bidding wars.

“For about four hundred dollars, everybody wants to do it,” he said. “But they know they can’t.”

 

 

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Meanwhile...   Just when people quit thinking affordability would ever return the speed of the Canadian Real Estate correction is freakin' the people out.

Could it happen just as quickly here?

Greaterfool.ca   The Landing

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First the numbers. On Thursday realtors confirmed what this pathetically prescient blog reported last week. A detached house in the Kingdom of 416 which fetched $1.578 million in April is now going for $1.3 million. More than a 17% decline in 90 days. The biggest monthly decline since the Bronze Age. Historic. And sales are foretelling more pain to come. The number of detached deals collapsed in July (from last July) by 48%. Overall in the GTA, home to six million lost souls, sales faded 40%. In the 905 region, land of suburban despair, accepted offers fell by half. There is not enough lipstick in the land to make this porker pucker.

 

Edited by Dose

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1 minute ago, Dose said:

Meanwhile...   Just when people quit thinking affordability would ever return the speed of the Canadian Real Estate correction is freakin' the people out.

Could it happen just as quickly here?

Greaterfool.ca   The Landing

 

I read that article Dose.

It was even more enlightening in the comments, to see that some people have withdrawn their properties and are now renting them. Waiting out the downturn; believing that this is only a short reversal, and they will soon be back on the trajectory to the moon.

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I think that sentiment can decline quickly. Interest rates will be kept low for a while yet by the RBA. But banks are starting to raise for interest only loans. Wages are stagnant and not looking like rising for the foreseeable future either. I don't sense much optimism amongst people I speak with. China is also trying harder to restrict capital outflows. Nothing signaling a crash but likely a moderation. The longer these conditions hold the more moderation we will see. Not sure if governments will stimulate either if the decline is gradual.

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Well well it does see interesting.  The CDN Gov'ts (Feds & Provincial) were trying to moderate RE with small things here and there: bump the qualify test a little, no more 30 year mortgages, min 20% down on Jumbos...and mortgage rates crept up a touch, from what I can tell about the same as here.   And suddenly BAM! prices dropping, deals stuck with lawyers...90 days.   Insane, but if you can't really afford it anyway why is everyone so surprised idiots at the margin were overpaying by 30%?   The last time Toronto had a correction similar in size it took more than a couple of years to get back to even...  so what's the hurry?   Fortunately Australia has Victoria Bitter which prevents the locals from putting all this together.  

Canadian RE growth ...caution, sourced from rea, I think

I guess with Canada stuffed Australia claims Gold Gold for Australia!?   We're the only ones left, right?  So we won?   Gold Gold for Australia!?  

Why is everyone rushing for the exit?

Edited by Dose

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There are over 120,000 realtors in Canada. Astonishingly, 48,000 of them work in a single market – the GTA. This probably explains why the region has 10 Audi dealerships. And why there was an audible wail in the air Friday afternoon, epicentred on Don Mills Road just south of the Death Highway known as 401. The massive Toronto Real Estate Board, the largest in North America, just got smoked.

It’s taken six years and a massive pile of court documents, but the real estate cartel’s stranglehold on information has finally been broken. The federal Court of Appeal upheld a previous ruling that TREB (and, by extension, every other real estate board in the country) must allow its members to freely publish consumer-friendly stats and related data, the way the enlightened realtors in Nova Scotia do.

What this means: expect progressive agents and real estate marketers to start publishing the sold prices of houses, sales histories including expired or renewed listings, days-on-market, price reductions or increases, pending sales as well as broker commissions. Dashed have been the real estate cartel’s arguments that this is proprietary data and  revealing it would encroach on the privacy of homeowners.

So, finally. Transparency on sales histories, giving buyers some context, opening the door for a Canadian Zillow. Combined with rising mortgage rates, universal rent controls, anti-Chinese-dude taxes, empty-house taxes and the 2% stress test, plus assaults on AirBnB and the lunacy going on in Vancouver, this ruling helps ensure 2018 will be a year of profound adjustment in the housing market. Aren’t you glad you listened to advice here and bailed in March?

http://www.greaterfool.ca

Imagine...being able to see what was actually happening instead of what the vested interests told you was happening.

Confirmed.  Gold! Gold for Australia...

 

 

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