New Divorce Trends as a Result of the Real Estate Market

The crisis in the mortgage and Toronto real estate industry makes headlines every day in the newspapers and the news on TV and radio. Some areas of Toronto have not been touched by the real estate crisis, while others have been devastated. Even those areas yet untouched have been affected by falling real estate prices and a higher than normal rate of foreclosures. Few homeowners in Toronto have not felt the credit crunch of the recession in some form. Families are having to face the fact that they will lose their homes and have to move out and this causes tension in the household. As a result the number of divorces in Toronto is up as a result of the crash.

When couples divorce in Toronto they usually sell the real estate and divide the proceeds between them. The real estate crash is having an effect on this because the houses that once sold rather quickly are now not selling at all. The cash they had looked forward to using to help them get on with their lives is not forthcoming and this puts a strain on both partners as they try to lead separate lives. It does dictate where and how they are able to live once the divorce is finalized. It also plays a major role in the amount of child support one spouse is able to pay in spite of the agreed upon amount.

The crash in the Toronto real estate market has led to a new trend for couples who have recently divorced. This is called post-marital cohabitation and it means that the couple continue to live in the same house after the divorce. This was unheard of until recently, but the real estate market and finances have forced couples to look at this option until the home is sold. Many of them have no choice but to continue to live in the family home until such time a buyer in Toronto comes along with an acceptable bid. They simply cannot afford to let the house it empty while they rent and they certainly can’t afford to let the lender foreclose on the home because then they won’t get any money from the sale.

Many newly divorced couples are now finding that in order to survive after divorce they do have to live together for at least several months or longer afterwards. Whether they have young children or are an older couple there is no doubt that this is a stressful situation for all involved. For divorced families with children, it is likely that any rental properties that are within their financial reach are too small for the size of the families or are in areas not conducive to children. If the situation becomes too unbearable, many former spouses have resorted to moving in with friends or family members.

The Toronto real estate crash has limited the options once open to divorced couples. In many cases the value of the home has fallen significantly and they will not realize enough money from the sale to be able to go one with their lives. This leaves them no other option but to remain living in the home until the real estate market starts to turn around. They can also decide to cut their losses and sell the home for the amount owing on the mortgage just to be able to separate fully.

In some areas in Toronto, this situation has led to court action and the judge is the one to make the final decision on what the divorced couple should do next. This has occurred in some situations where one partner wishes to remain in the home until such time as it is sold at a reasonable price and the other wants to sell immediately no matter what the loss may be. Judges are hesitant to order the home sold and the partner to move out because it is possible that Toronto real estate prices may rebound and the house will sell at a very good price.

What Caused the Toronto Real Estate Crash of 2008?

When the Toronto real estate prices came crashing down in 2008 there were many people who were astounded that this kind of thing could happen in this day and age. However, there were many others who were not surprised by the events and had, indeed, been predicting that this very think would eventually happen.

The loss of the subprime market has been held as one of the leading causes of the real estate market crash. Sub-prime mortgages were approved at an amazing rate by all mortgage lenders. Such loans involved using lending practices that put the lenders in a higher risk category, such as lending more money to borrowers to buy real estate than they really could afford, offering deals on the amounts of down payment required and offering loans at lower than standard interest rates. As a result, many of the major lending institutions found themselves in a credit crunch with many of the borrowers unable to meet their payment obligations. Companies were forced to declare bankruptcy putting millions of people out of work and forcing the lenders to foreclose on the mortgaged real estate.

The crash of the sub-prime mortgage industry has been the focus of news reports for the past year in Toronto and elsewhere. While millions of Toronto homeowners have been affected, no one is quite certain as to the initial cause of this real estate downturn.

The Toronto real estate industry was a gold mine for investors in the past number of years. One could purchase a property, make a few renovations and resell it for a sizable profit. Even those with poor credit ratings could afford to purchase a home or condo in Toronto. This is because the restrictions on lending were more relaxed in an effort to entice more buyers into the real estate market. Lenders were able to make a killing by approving mortgages for those with bad credit by charging high rates of interest on the loan. The lenders believed that they would make a profit while the borrower was making the payments and if the time came when they had to foreclose, they would make an even larger profit on the resale with real estate prices continually rising.

The source of the funding used by lenders in order to offer these mortgages was varied. Due to low interest rates offered between banks, lenders were able to secure funding at a low rate of interest and then charge a higher rate when they approved mortgages for their customers. The real estate market remained stable and there was a boom in new real estate construction all over Toronto. Instead of the normal 20 or 25 year mortgages, consumers were taking out mortgages for 35 and 40 years in order to have manageable payments each month.

Toronto homeowners were taking on massive amounts of debt in order to own their own home and get out of the cycle of renting. The real estate market was healthy and everyone expected that it would continue to be a very profitable sector of the economy. It appears now that in hindsight such expectations were very unrealistic.
2005 and 2006 were boom years for the real estate sector. Lenders approved mortgages for virtually anyone that applied making it very lucrative for them financially. However, the start of problems occurred when the previously low interest rates offered to lenders started to rise and this had a negative effect in that their profits started to decrease dramatically in a short period of time. Low interest rates spur spending whereas high interest rates deter spending on real estate.

Up until the middle of 2006, there was an unprecedented demand for new housing and real estate construction. Builders could not keep up with the orders, often having a wait list of customers waiting for homes to be built. Some real estate was sold before construction even started. The second half of 2006 saw this demand for real estate gradually starting to decrease and it was about the same time that the first increase in loan defaults became apparent in the Toronto real estate industry.

In 2007, lenders started to encounter difficulty obtaining funding for the mortgages they wanted to approve for customers. Since there was less money available, those who wished to become homeowners were finding that the doors were starting to close on easy financing. Wary investors developed stricter guidelines for mortgage lenders which led to the lenders tightening their own lending guidelines.

With rising interest rates on the market, Toronto homeowners who had taken out adjustable rate mortgages were faced with impossible monthly payments when the adjustment occurred on their mortgages. They found that they were unable to meet the unusually high payments required to keep their accounts in good standing and because of the new regulations, they were unable to refinance for fixed rate mortgages. More and more homeowners were left with no choice but to default on the loans and the number of foreclosures reached massive proportions.

Harder to Find Toronto Home Renovation and Home Equity Loans

As a result of the crash in the Toronto housing market last year, fewer homeowners in Toronto are engaging in home renovations. You may think that this is a contradiction in that the more renovations done to a home, the easier it will be to sell. The problem is not that the homeowners don’t want to do renovations. It is that they do not have the money needed for these renovations.

Just a few years ago when house prices were on a tear in Toronto, a few simple renovations to a home would fetch a high price when the home went on the market. Due to the high prices many homeowners had a lot of equity built up in their homes, even without making a large down payment on the mortgage. They could easily obtain a home equity loan for up to 100% of the equity to carry out renovations. However, with the Toronto real estate market almost grinding to a halt last year, all these sources of funding for home renovations no longer exist. The falling values of homes means that many homeowners now find themselves in a negative equity situation, which means they owe more on the home than it is worth on the market.

During the housing boom of 2005 and 2006, millions of homes in Toronto went through upgrades and renovations, especially to the kitchen and bathroom areas of the home. New cupboards were installed with granite countertops, whirlpool tubs and home spas were installed and the flooring in both rooms was upgraded to laminate, hardwood or ceramic tile. High-end appliances, such as stainless steel stoves, fridges and dishwashers were all the rage. What was once a mediocre home became a luxury home on the market.

In most cases, when homeowners completed the renovations and sold the property, they were able to recoup the cost of the renovations in the price for which the home was sold. For many this was a great way to realize a profit at a low cost.

Today, the cost of renovations has skyrocketed and the materials needed to make upgrades are beyond the reach of many. With so much excess houses on the market, why would anyone want to invest time and money into renovations for a home that might not sell. If the homeowner is able to secure a home equity loan or a second mortgage, this will seriously cut into the finances in the extra monthly payment required. Those who have done renovations with an eye to making a profit are realizing that they are only recouping about 70% of the cost of renovations in the sale.

Homeowners in Toronto who are considering making upgrades to their homes hoping that this will give them a better deal in the price should take a second look at the state of the Toronto real estate market. It does not mean that you shouldn’t renovate, but it does mean that you should look at the cost of the materials and perhaps scale down the renovations. You shouldn’t go all out with the most expensive of everything, especially if you are planning on selling within the next three years. If so, you will incur a loss because you won’t get the price you need for the home in order to make a profit as a result of the upgrades.

Getting a home equity loan is not as easy as it was a few years back. Lenders now look closely at the credit rating of applicants and take the debt to income ratio more seriously than they did when lending restrictions were more relaxed. They are more wary of making risky approvals for fear of the homeowner defaulting on the loan or that the lender may have to foreclose on the property. Default rates and foreclosure rates as a result of home equity loans have doubled in the past year alone.

Consumers Benefit from a Renter’s Market in Toronto

More and more consumers are recognizing that at least for right now they are better of financially renting than buying in Toronto. This is certainly a departure from the past when most consumers realized that the best financial option would be to buy rather than rent so that their money would go toward creating equity in a home.

Today that is no longer the case; however. While rents have continued to rise in many locations in Toronto, consumers are still finding they are often able to rent for less money than what they would pay for a monthly mortgage payment on a comparable property. In some cases, renters are able to save between 40% and 50% by renting instead of buying.

One of the reasons for this is that in some locations in Toronto, property values rose quite steeply. Today, buyers who snatched up those homes without blinking have discovered they must now sell. The problem? They need to sell the homes at the prices at which they purchased them two years ago to recoup the balance they owe on the mortgage. Renters just are not willing to pay more money than a home is worth.

Even renters who are able to qualify for mortgages just do not feel as though they are getting enough home for their money, especially when they can often rent a comparable or even larger home for less money.

As a result of the shifting market, many experts are quick to point out that today the Toronto real estate market is no longer a seller’s market and it is not really a buyer’s market either. Instead, it has become more of a renter’s market.

Other renters are holding off on the idea of buying because they are concerned that prices in Toronto real estate have not yet hit the lowest point. They are primarily concerned that if they purchase a home today it may not be worth the same amount just six months from now. They feel it is far more prudent to wait and see exactly where the housing market will land before they consider buying a home. Other renters are concerned about the upcoming hurricane season. Few have forgotten the hurricane season of just two years ago that devastated many areas. Homeowners in those areas, especially those without insurance, have yet to recover.

While some areas in Toronto are experiencing a deficit in supply of rental properties, in other areas homeowners have recognized the wisdom of holding off on selling their homes. They, too, are reluctant to sell their homes now when it seems more prudent to wait and see when the market will stabilize. To help make ends meet, many of these homeowners are willing to rent out their homes to the scores of renters lining up to take advantage of the opportunity. Even homes that are on the market for sale are also available for rent. While renters must accept the reality that the home in which they are living must be available for showings, they still feel the trade-off is quite worth it.

Would-be investors who attempted to get in on the quick profit potential of flipping homes have also discovered that it makes more sense to rent out their properties right now instead of trying to selling them. In some cases, investors are discovering they simply do not have any other options when they must meet mortgage payments every month and are unable to sell their properties. In some cases, this means renting the properties at a loss, creating a negative cash flow.

In fact, this situation has become so much of a problem that landlords in certain niche markets are finding they must cut rents in order to create even a small amount of cash flow. These investors have quickly discovered that it is far better to rent right away at a loss than wait several months to try and attain the amount of rent they really need. Although landlords are often upside down on most of these properties, renting them out has proven to be the safest method; at least for now.

Sell Your Home Faster in Toronto By Offering Concessions to Buyers

Toronto homes are definitely not selling at the same rate they were a few years ago and in some areas, the Toronto real estate market has reached a stalemate. The market is crowded with excess inventory and many homes that would have been snapped up overnight are now languishing on the market for months on end. Depending on the home and its location, interested buyers bid against one another with the result that the purchase price was higher than the asking price.

Numerous investors became involved in Toronto real estate at this time due to the ease with which one could obtain a mortgage and the low rate of interest charged on the loans. Signs that the market was in difficulty did start to become evident in late 2007, but the bubble did burst entirely in 2008. Experts recommend that the situation will continue to get a lot worse. Many homeowners are getting very concerned about the situation and are wondering if there is anything they can do to protect themselves in the current market.

If you are one of the many homeowners faced with financial difficulties and have no option but to try to sell your home now, you will have to come up with very creative ways in order to do so. The market is full at the present time with an excess of homes for sale due to foreclosures, impending foreclosures and investors who are trying to recoup some of the money they have invested.

It is important that you recognize the fact that there is a glut of homes on the market. A few years ago it was a seller’s market with few properties for sale and an excess of buyers. Today the situation is reversed with more homes for sale than there are buyers in Toronto. Prices are lower and buyers can take their time in looking at properties and deciding which one they want to buy. This makes the market very competitive for sellers who do have to offer buyers something that will entice them inside and peak their interest.

Providing concessions for buyers is a new idea for sellers at the present time. During the 1980’s many sellers offered to pay the closing costs for the buyer, but in some cases the amount of the costs they can pay is limited depending on the lender the buyer is using for the mortgage. Some of the options you can consider in deciding to offer concessions is to include an allowance for the buyer for the purpose of upgrading the flooring or making a contribution towards the closing costs of the transaction.

Concessions were not a typical part of a selling transaction where both parties negotiated over the purchase price of the home. However, there is little negotiating taking place in the Toronto real estate market today because sellers are already selling their homes at the lowest possible price. You do need to offer the best possible price in order to entice buyers.

One method of offering concessions to buyers could include offering to include the draperies in the home if the buyer expresses interest in them. This can also include rugs and accessories in certain rooms of the home, such as an electric or gas fireplace, especially if you are moving to a smaller home and know that you will not have room for it. In the case of a seller who is moving to an apartment, throwing in the lawn mower is a concession that most buyers will jump at.

Another option would be to pay the buyer’s points, which is a win-win situation for both parties. One way in which you could do this is to deduct a percentage of the purchase price and use this money to purchase points for the buyer. In this way, the buyer can obtain a lower rate of interest on the mortgage and you manage to sell your home. The buyer wins with a lower monthly payment and you have enough money to pay off your mortgage.