Royal LePage Niagara Home Connection - January 2010

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Royal LePage Niagara R.E. Centre, Brokerage
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101 LAKEPORT RD
ST. CATHARINES, ON L2N7L7

Thinking of selling your home? -- well there's always next summer.
But wait .. next summer may be too late. The new 13% harmonized sales tax comes into effect in Ontario on July 1, 2010, and it will likely hit the whole housing market hard. If you haven't sold by July 1, you may well be out of luck. And if you haven't bought by then, well, maybe you'll want to change your mind. And the funny thing is, hardly anyone seems to realize it.
"There are going to be a lot of very surprised people on July 1," says Jim Flood, director of government relations for the Ontario Real Estate Association. "It's a massive tax increase."
So here's the bad news: Although resale houses will not be taxed, everything to do with the sale will be -- the house inspection, the agent's commission, the moving costs and legal fees.
There will even be tax on the home energy audit all sellers are now compelled to carry out thanks to the Green Energy Act the McGuinty government passed in May. And speaking of the home energy audit, why isn't anyone concerned about that?
Altogether, that means the extra tax on a resale house priced at $184,500 will come in at roughly $1,000 (largely the tax on the agent's commission)
It's enough to make you wonder exactly why you're thinking of moving. Or to get you packing your bags and calling the mover today.
But it's worse news for new home buyers, although not as bad as it was originally expected to be. Under pressure from groups like the Ontario Home Builders Association, the province has decided not to levy the tax on the first $400,000 of any new home purchase. (GST has been payable for a number of years but builders tend to hide it in the house price.)
So on a $500,000 house, the extra HST hit will be $6,000 instead of $30,000 (builders get a 2% tax credit that lowers the overall tax hit from 8% to 6%). Without that change, the loss of a potential 21,200 jobs in the GTA alone looked probable. That's enough to scare off first-time home buyers and potentially many other people struggling to make ends meet.
"Is the average consumer is even aware of the tax." The HST will impact many things you haven't even thought of yet -- but the housing-related taxes are killers.
How new tax adds to cost of a sale:

·Realtor Commission $1,100- $1,700

·Mortgage insurance $470

·Legal costs $80 *

·Home Inspection $32

·Title Insurance $15

·Total $1,747 -$2,297
(Estimates based on house less than $400,000, from Ontario Real Estate Association)

How much can we afford? The HST will already add to costs for buying and selling a home, but there could be more increases. Interest rates rising in the 2nd half of 2010, increasing downpayments to 10% and decreasing our amortization periods back to 25 years. These could all mean trouble for being able to afford a mortgage. I would be happy to help my clients and give them the best advice I can on these changes and/or recommend a professional to advise them further. This will affect anyone with mortgages coming up for renewal as well. Its better to have too much information than not enough. Give me a call or send me an email. I am happy to help.

See this article below for more details:


Toronto, Ottawa - Globe and Mail update Dec. 24, 2009

The housing market that led Canada out of recession is now so hot that Ottawa is talking about doing something to cool it off, a move economists say carries risks for the economy.

Fuelled by record low interest rates, residential real estate prices have gained 20 per cent this year. And Finance Minister Jim Flaherty is now warning he will step in if prices get too high by tightening the rules for borrowers, by increasing the minimum down payment and shortening the maximum length of mortgages.

Such a move would have to be done cautiously, economists say, because the real estate market touches all parts of the economy, and anything that caps its growth could also temper the recovery.

Policy makers are concerned homeowners will take on more debt than they'll be able to afford when interest rates rise again, possibly leading to a painful correction later.

The Bank of Canada has vowed to keep lending rates low into the middle of 2010, limiting its options for taking the pressure off a hot market.

But since the federal government dictates rules around down payments and amortization periods, it can effectively dampen the housing market without increasing borrowing costs for businesses.

When you apply for home insurance or renew your current policy, you may be asked to give your consent for a credit check. Should you agree?

While new in the Canadian insurance industry, this has been happening for quite a while in the United States. Insurance companies want to see your credit rating and credit score in order to tailor your premiums to your risk level.

Co-operators General, Canada's third largest property insurance company, is now sending letters to clients about its plans to use credit scores to help determine rates.

Here's the message to customers: If you don't want us to get access to your credit score, we will respect your wishes and we will offer you insurance. However, if we don't have credit score information, we may not be able to offer our most competitive rate.

Some people find these letters disturbing. They don't feel they should be required to offer access to credit scores, especially during a recession when credit is tight. They worry about privacy, but also suspect their rates will rise if they refuse.

Why would insurance companies want to know about your ability to handle credit in the first place?

Your credit score is very predictive of claims, both the number and the size of claims, says a Co-operators spokesman. It's the company's way of assigning the right level of risk to clients, to reward good clients and make others pay more.

However, auto insurance is treated differently because it's provincially regulated and mandatory for all drivers. In every province except Quebec, governments have banned the use of credit scores in issuing car insurance policies.

Is it fair to raise premiums because of credit problems that may be unrelated to your insurance history? And if you have your home and car insurance with the same company, how do you know your credit score won't be used to set car insurance rates as well?

In the United States, research has found that the poor and minority groups have been hurt by insurers using credit scores. And the steps you might take to improve your credit score have no direct relationship to reducing your risk of an insured loss.

Here's something else that's unfair. In Canada, you have to pay to get your credit score online through a credit bureau. If companies are getting access to your credit score in determining your discounts, they shouyld make it available to you at the same time.

©2010 Brookfield Real Estate Services Fund.