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CMHC says Toronto housing market at ‘high risk,’ as economists fear Tories ‘throwing fuel on fire’

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Overvalued prices in the real estate markets of Toronto, Winnipeg and Regina are now at “high risk,” according to the latest imageassessment from Canada’s federal housing agency.

‘Ghost vacancies’ haunt downtown Calgary as oil patch layoffs empty office buildings

Vacancy rates in Canada’s energy capital have spiked as companies lay off thousands of employees in the worst oil rout in recent history, but insiders say the official tally may underestimate just how empty offices are. Read on Canada Mortgage and Housing Corp., which advises the government on housing policy, refused to wade into the debate over whether proposed policy changes by the Conservatives might stoke markets like Toronto, but others suggest they have the potential to do just that.

“They seem to be just throwing fuel on the fire,” said David Madani, Canada economist for Capital Economics.

In the past two weeks, Prime Minister Stephen Harper has offered two new policies aimed at garnering support among homeowners. On Wednesday, he said a re-elected Conservative government would allow first-time buyers to draw up to $35,000, compared to the current $25,000, from their registered retirement savings plan accounts without any penalty. His party has also proposed a permanent 15 per cent tax credit for renovations from $1,500 to $5,000.

“My concern is you are extending these policies at a time when you know there is considerable overvaluation in the housing market,” said Madani. “Clearly markets in Vancouver and Toronto don’t need any more housing stimulus.”

Related Canada Prime Minister Stephen Harper vows limit on foreign home buyers if needed Tories pledge to let Canadians withdraw more money from RRSPs to buy homes Toronto detached home prices drop below $1 million, but sales approaching record The Conservative proposals come as the housing market hit record levels on a national basis. The Teranet-National Bank House Price Index rose for the seventh consecutive month in July but records are now only being set in Toronto, Vancouver and Hamilton, according to new data out Wednesday.

On Thursday, CMHC changed its assessment of the Toronto market, upping its overall risk category from “moderate” in April to the current “high risk.”

“What has changed is we are identifying house price growth acceleration [as a risk],” said Bob Dugan, chief economist with the Crown corporation, adding that comes on top of prices already being overvalued.

The high level of risk in Winnipeg reflects risks of overvaluation and overbuilding, while in Regina it reflects price acceleration, overvaluation and overbuilding, particularly of condominium apartments,” CMHC said in its report.

In Toronto, where detached homes are selling for on average about $1-million, CMHC says the price appreciation is a reflection of a larger share of pricier homes hitting the market. Those price gains have not been matched by growth in personal disposable income, giving rise to a modest risk of overvaluation, said the agency.

In the country’s most expensive housing market, CMHC said there is a low risk of any sort of correction. “(In) the Vancouver market, basically there is lack of risk factors. We are not seeing any evidence of overheating, of price acceleration, overvaluation or overbuilding.”

While much of the focus on the Vancouver market has been on the price of an average detached home, which is more than $1.4 million in the region, Dugan says that is only part of the equation.

“There is tendency to equate high prices levels with overvaluation. High prices are only part of the story,” says Dugan noting that in the first quarter of 2015 the top 20 per cent of houses in Vancouver sold for an average of $2.2 million, while the other 80 per cent had an average price of $550,000.

A growing concern among many in Vancouver has been the influence of foreign buyers on the market, something Harper addressed during his Wednesday announcement. He vowed to get more data on foreign investment and even consider some kind of intervention, but CMHC said its only current survey is on the condo market.

While the changes proposed by Harper might help some Canadians enter the housing market, many financial planners suggest increasing the incentive to have Canadians raid their RRSPs to buy a home isn’t ideal.

“You are basically taking tax-sheltered money out of the system,” said Ted Rechtshaffen, president of TriDelta, and a certified financial planner, adding some people can only afford a home by borrowing from their RRSPs. “If you are able to get a downpayment otherwise, I recommend that.”

gmarr@nationalpost.com

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When the only ring is on your keys: What common-law couples should know before buying a house together

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0916couple2Charmaine Ferguson and Colin Andrews have been together for three years, since they were 28.

Their lives are tied together in almost every significant grown-up way. They love each other, they support each other — Colin even moved from Edmonton to Calgary so Charmaine could accept a teaching job — and they own property together.

But they’re not married. They’re not even engaged.

“We decided to move, and then we were in a position deciding whether to rent or to buy and so, Colin sold his townhouse and then we bought a house in Calgary together,” Ferguson says. “Marriage was never part of the conversation.”

They’re part of a growing number of Canadians who are choosing to buy property without tying the knot.

The number of common-law couples in Canada rose 13.9 per cent between 2006 and 2011, according to the latest data from Statistics Canada. While there’s no Canadian data on how many of those couples choose to purchase instead of rent, a 2013 study in the U.S by Coldwell Banker Real Estate found that 17 per cent of couples bought a home before they were married, with that number rising to 24 per cent among millennials.

Chris Bolin for National PostCharmaine Ferguson and Colin Anderson bought a house together, but they’re not married, or even engaged.

This trend is part of the larger shift in how millennials — and, increasingly, society at large — view marriage.

“We live in a time where people don’t necessarily see marriage as necessary for making all kinds of commitments,” says Eric Klinenberg, a professor of sociology at New York University who co-authored Modern Romance with Aziz Ansari.

For most of Western history, going back to ancient Greece, where husbands and wives were scolded for feeling eros, a passionate love for their spouses, instead of philia, a friendship-based love, marriage was a union that technically featured two individuals at its centre, but really expressed itself as a tightly woven net that stabilized, secured and nurtured clan alliances, offspring and property.

Five questions you need to answer before you buy a house together

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Karin Mizgala, founder of Money Coaches Canada, has some tips on what to talk to your partner about before you take the property plunge — relevant to married and unmarried couples alike.

1. What sort of living situation do you want?

He wants a big house in the suburbs, you want a semi-detached downtown. Have a good “heart-to heart on what each individual is looking for,” she says, before starting your search.

2. Who’s covering the down payment?

If you’re not married and break up in the first few years, the house will likely be divided proportionally according to who contributed to the down payment. If only one-half of the couple can contribute to the down payment, it’s possible the other party could be left with nothing, even if he or she helped pay the mortgage or for renovations. If there’s an inheritance involved, it could lead to resentment. You’ll need to find a fair way.

3. Have you thought of all the monthly, extra expenses?

If only owning a house was as simple as paying the mortgage. “One of the biggest mistakes people make is they crunch the numbers but then they’re not really considering setting aside money (for) any emergency things that come up,” Mizgala says. Who’s responsibility is it to pay the plumber when you have a leak?

4. Have you drafted a cohabitation agreement?

No? Well you should. To avoid he said/she said arguments later on, write down how you’ll divide the household responsibilities and who is entitled to what if you separate. You can always change it later on.

5. Have you gotten professional legal help?

You’ll want it. A lawyer will sit down with you and help you draft a fair cohabitation agreement, and advise you on your province’s common-law provisions.

Danielle Kubes, Financial Post

Sharing finances without the church or state recognizing a committed union was impossible. Literally: Women weren’t allowed to hold property in their name in Canada or the U.S until the middle of the 19th century.

It was socially unacceptable for quite a while longer; the risk of loss and destitution without the protection afforded by a legal union — protection that continued even if the marriage collapsed — was too great. Women especially, as they were usually the lower-earning spouse and unable to contribute monetarily to the household, would have been greatly disadvantaged.

But, now that both genders can successfully achieve everything outside marriage that they could formerly only accomplish within the institution, entangling assets out of wedlock is just another one of marriage’s ancient functions that has gone the way of the dowry.

“Marriage is going to be a decision, to me, which is entirely based on your love to that person, your commitment for that person, your willingness to go forward and support that person,” Andrews says. “It’s not in any way a financial decision for me.”

Klienberg echoes this modern viewpoint, that marriage is not the beginning from which a shared life develops but is rather an emotional commitment that comes after the shared life has already been tested and found true.

“I think for a lot of young couples buying a home is an economic decision and it’s a better idea than renting. I say this not as a sociologist who studied it, but also as someone who did this personally,” he says. “For me, buying a home with someone felt like less of a commitment than getting married. It’s relatively easy to sell a home if you decide you want to do that, but getting divorced is a much more complicated thing.”

But is it really so much easier to offset assets if a couple falls apart, especially if it’s acrimonious? How does the court divide these assets? What are the risks to entering such an arrangement?

Canada does not have true common-law marriage. Although provinces and various government agencies, like the CRA, may recognize marriage-like relationships in specific contexts, automatic rights to property are not included. But, couples who act like they’re married and buy property together can be entitled to most of the same protections that the law affords legally married couples.

“The Supreme Court of Canada case that was in the last couple of years says if you live as husband and wife, legally you should be treated the same way when it comes to property,” says Donald S. Baker, a family law specialist at the Toronto firm Baker and Baker. “However, as is their wont, they didn’t give any guidelines at all.”

The main difference, he says, is that a married couple, from the date of ceremony, is considered a partnership, regardless of who actually deposits and withdraws from the piggy bank. Upon the breakdown of the marriage, the piggy bank is divided equally, usually to the benefit of the lower-earning spouse.

An unmarried couple, on the other hand, is afforded this protection only insofar as their habits indicate: Do they have a joint bank account? How long have they been together? The courts treat the separation of assets as an “accounting exercise,” Baker says, with the house divided according to who put in what.

“The longer you live together, the deeper the roots and the more you will resemble a legally married couple,” Baker says.

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Take Ferguson and Andrews as an example. He provided the entire sum for the down payment, but Ferguson contributes to the mortgage and maintenance, proportional to her income. If they were to break up now, the courts would likely give the entire house to Andrews, and Ferguson’s contributions would be considered rent — she would have no claim to the property.

However, if they were married, the courts would likely award half to Ferguson.

Ferguson thinks the law, as it stands, is fair.

“I don’t feel entitled to something that I didn’t earn,” she says. “And it’s not that I don’t feel like this is half my house, it is.… When I have more solid work and as time goes by, it will end up being a more equitable purchase.”

The longer you live together, the deeper the roots and the more you will resemble a legally married couple

Since there is no federal legislation surrounding common-law couples and couples who buy property together may not even want to be considered common-law, Baker strongly recommends sitting down with each other and a lawyer to draft a cohabitation agreement, similar to a marriage agreement — or what’s known in the U.S as a pre-nuptial agreement — which lays out the rights and responsibilities of each person.

It forces the couple to discuss their finances honestly, as well as lay out a plan for who pays the mortgage, who pays the maintenance, who pays for the furniture and how it will be divided in the event of a break up. It has the added bonus of saving a bundle on lawyers in the future.

“Not to have a road map as to what you’re going to do in the event of a breakdown, whether it be common law or marital, in my mind is crazy,” Baker says. “You’re really taking a big chance that you know what the odds are.”

Illustration by Chloe Cushman/National Post

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A guide to the cost of renting in Canada

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WEB-rb-gi-carrick-0913Nobody loves a renter.

We bomb home buyers and owners with helpful advice and tools, but ignore renters. Partly, it’s a money thing. Huge chunks of the economy – lenders, lawyers, retailers and real estate agents – make big bucks from home sales, not renting. In a country with a near 70-per-cent home ownership rate, there’s also a snobbery aspect to the treatment of renters. In the eyes of many people, to rent is to be in a state of arrested financial development.

INTERACTIVE Where in Canada can you afford to rent? Use this tool to find out

VIDEO Video: Drawing Conclusions: Is renting really a waste of money?

VIDEO Video: Globe debate primer: Where Canada’s leaders stand on housing For practical reasons, it’s now time to respect the renter. Polls consistently show that young adults want to own homes, but high prices and a tough job market for millennials make it hard to earn enough to buy. At least for the short term, many millennials will rent for perfectly sound reasons.

To help them make smart financial decisions, my colleague Tom Cardoso and I created the Where Can You Afford to Rent Calculator. It’s designed for people making up to $60,000 or so per year. You tell us exactly how much you make and what province(s) you want to live in, and we’ll show you the cities where you can afford to rent. There are many online tools available to help home buyers see how much house they can afford – this one’s for renters.

The rough rule is that rent should account for no more than 30 per cent of gross pay. Our calculator was set up to find cities that come closest to that threshold based on your income. It’s just as crucial for renters to rein in the cost of shelter as it is for home owners. Short-term renters need to keep costs low so they can save a big chunk of each paycheque for a home down payment. Long-term renters need money to invest regularly if they want to end up with a similar level of wealth to owners who have paid off their mortgage.

But as with the housing market in many cities, rents are rising. Canada Mortgage and Housing Corp.’s latest rental survey showed the average rent for one- and two-bedroom apartments was about 2 per cent higher in April than a year earlier. In a hot real estate market, rents may rise even more.

The condo market analysis firm Urbanation reported in July that the monthly cost of all sizes of rented condo units in the greater Toronto area was 4.6 per cent higher than a year ago. In Vancouver, a recent report by the firm HQ Commercial said rent increases of between 10 and 20 per cent are becoming common when a unit becomes available. It’s not just home buyers in some cities who are facing the sting of higher prices. Renters are, too.

The calculator’s main job is to show what cities are affordable for you. You may choose to live somewhere where rent is less affordable, but at least you’ll know what’s happening in other cities. You’ll also get an idea of the compromises that can help making renting affordable.

Based on 2011 Statistics Canada income numbers updated to reflect pay increases at the level of inflation, the median income level for people aged 25 to 34 would currently be a little below $37,000. At that level, millennials who like big city life are going to be challenged by the results from this calculator.

In Alberta, the calculator suggests Red Deer as a place to move if you want a one-bedroom apartment and make that median $37,000. In Ontario, Oshawa comes up as an ideal affordable city at that same income level.

It takes an income of $41,500 to get Toronto to come up as an ideal choice for a one-bedroom apartment. In Vancouver, it takes $39,000. Bachelor apartments, anyone? With an income of $35,800, Calgary is an ideal affordable city; at $32,000, Ottawa comes up.

The calculator uses average numbers – maybe you can find a basement apartment in the suburbs to get your rental costs down. Or, try finding a roommate. Finally, there’s the moving back home option for some millennials. The original take on moving back home was a reaction to a tough job market. The Where Can You Afford to Rent Calculator suggests high rents are another factor driving young adults back home.

Follow Rob Carrick on Twitter: @rcarrick

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