Maybe it’s too many months living and working in the same cramped quarters. Or the ultra-low mortgage rates. For some, spending less during the pandemic means they finally have enough saved for a down payment.
All that is prompting people to ask themselves whether now is the time to buy a home — even as the long-term outlook for the real-estate market remains uncertain.
There’s been a burst of home buying across the U.S., especially in suburbs outside cities where people were cooped up during the spring Covid-19 lockdown. In August, contracts to buy single-family houses in Greenwich, Connecticut, nearly tripled from a year earlier. Contracts were up 57% in nearby Westchester County.
“In almost every community you’re probably overpaying by some metric right now,” said Ilyce Glink, author of “100 Questions Every First Time Home Buyer Should Ask.” “Prices are getting pushed to where they aren’t affordable even with the historically low interest rates.”
Glink still recommends buying to those who can swing it. Overpaying a bit now doesn’t matter as much if you’re planning to stay in the home long term, she said. The questions she says first-time buyers should ask themselves include:
How long do you plan to stay in the area?
How much money do you have for a down payment?
If companies require workers to begin commuting again, will that large, leafy property in the suburbs still seem as attractive?
How set are you financially with your job? Do you see a career change ahead?
Are you prepared to spend much more on maintenance and taxes than you have as a renter?
Home buying isn’t for everyone. While there are financial benefits to owning property — the value could increase, and mortgage interest can be tax-deductible — you lose the flexibility that comes with renting. And property taxes, maintenance, insurance and unplanned expenses mean there is much more to consider than just whether or not a mortgage payment is cheaper than rent.
Bloomberg spoke with people across the world about what went into their decision to buy — or wait.
Alexis Strober had been living in New York City for the past 14 years, most recently in Battery Park City.
She’d enjoyed getting away to the Hudson Valley with her husband and their two young boys, and they’d looked at vacation homes to buy in the area, about a two-hour drive from the city.
When the pandemic hit, they decided to transform their lives, give up their city lease entirely and move upstate. In April, they closed remotely on a house they had previously considered for a second home, paying $303,500.
“The big driver to get rid of the apartment and be up here full time was really because of the childcare and the schooling options,” Strober said. “Our younger son is two and a half, so it’s really impossible to get any work done with him in the house. We found great day care and nursery school options for him here.”
The new home in rural High Falls has a fireplace, a large backyard, and much more space, something they were missing in Manhattan after lockdown began. The family has been doing a lot more hiking and just bought a car.
The savings have been enormous. The Strobers’ new mortgage payment is a little more than $1,000 a month, versus $5,500 rent for the Battery Park City apartment.
One downside: Fewer food options. “It’s been a little bit of a culture shock,” Strober said. “There’s three restaurants in town, and they are all closed on different days. I’ve been doing so much cooking.”
After sending their youngest child off to college this fall, Gerard O’Beirne thought he and his wife Anne would sell their Westchester County house after more than two decades and buy an apartment in Manhattan.
But the pandemic made them question whether that was the smart move. They decided to rent in the city instead.
“A lot of my clients are fleeing New York City,” said O’Beirne, a tax partner at accounting firm EisnerAmper. “Maybe it would be the right thing to rent for a while and see how things play out.”
The flexibility, market uncertainty and tax considerations all contributed to the couple’s decision to rent.
They recently listed their Pelham, New York, home for about $1.2 million. They are looking for rentals on the Upper East Side, to be close to the EisnerAmper midtown office and to their daughter, who lives on the east side. They want to spend $5,000 to $6,000 a month for a three bedroom, which would allow them to keep a home office and a guest bedroom for the kids to stay in. That compares with their old mortgage payments of about $4,800 a month.
O’Beirne said he will save money in other areas by not owning in the suburbs.
“My Metro North ticket was $275 a month,” he said. “Back and forth to the train was another $100 a month. Maintaining two cars and insurance on two cars. Lawn maintenance every week. The utilities to run a house our size. Every time you turn around there’s a new bill, and it all adds up.”
Henry Palmer has been a city person his whole life. The British expat and self-described “city-center boy” moved eight years ago from London to New York, where he worked as a vice president at Citigroup Inc. before joining a software startup.
Until now. Palmer and his wife, in their late 30s, packed up their 600-square-foot downtown Brooklyn apartment and headed somewhere more bucolic where they could work remotely. They settled on a home in Smallwood, New York, a rural area about two hours northwest of New York City.
The new home is surrounded by forest instead of concrete. At 1,100 square feet, it’s nearly twice the size of Palmer’s old apartment.
Palmer paid $365,000 for the Smallwood home. His new $2,500 mortgage payment is a nice discount from the $3,600 rent paid in Brooklyn.
Palmer said he and his wife were worried about the market — but because they were part of the frenzy of city dwellers that snapped up places in the country. They had to put offers on five or six different houses and move toward the top of their budget after repeatedly getting beat out by all-cash offers from tech workers fleeing the city. He thinks he probably overpaid.
“The knock-on effect of the pandemic was quite shocking,” he said. “The place we ended up buying is worth maybe 75% of what we paid.”
Palmer has been in the new home for about a month. He’s enjoyed the quiet outdoor space, the savings, and having a car for the first time — even though it’s a bit strange that he now needs to drive just to get some milk.
Greg McVay gave up his rental apartment in March and moved into his boyfriend’s Lower East Side studio to spend lockdown together. It was the two of them, a poodle and an overweight cat in 550 square feet. They soon began looking for a rental one-bedroom with outdoor space in Brooklyn’s Williamsburg neighborhood. When they crunched the numbers, they realized something surprising: They could afford to buy.
“We didn’t really have to compromise on anything, and money is cheap now,” said McVay, 34, a manager for a life sciences company.
In June, they toured their first condo listing — on the waterfront with a terrace and a home office — and put in a half-serious, low-ball bid. They offered $999,000 for a 892-square foot apartment listed for $1.195 million.
“We were just trying to test the market,” said McVay’s boyfriend, Scott Topel, 29, an interior designer.
In the next two months, they toured 40 other places before returning to the original apartment. The seller had dropped the price to $1.175 million; they came to a deal at $1.15 million — with a $25,000 credit to cover closing costs. The couple, who secured a 10-year adjustable-rate mortgage at 2.85%, will complete the deal in October.
It was a different experience from when Topel bought his Lower East Side studio in 2015, when there were already two competing offers for the place within hours of the first open house, he said. He plans to rent it out when they move.
“There’s an opportunity for people who couldn’t afford New York — and now, New York is slightly more affordable,” McVay said. “I’ve been in the city nine years and could never imagine buying something like this.”
Ashley Brown, 31, and her fiancée Aaron Shuman, 30, have been apartment hopping in Atlanta for the past three years. They’ve had to deal with terrible management companies, crazy utility bills and cockroaches. Renting was losing its appeal.
They thought about buying a place of their own but worried about the economy. They’re self-employed artists who lost business during the pandemic. Back in May, they had their doubts.
“We were still kind of a little uncertain about what was happening with the coronavirus and how that was going to shake out,” Shuman said.
Still, they started looking at houses and were surprised by how much of a seller’s market it seemed to be. When Shuman saw a listing pop up for a $239,000 two-bedroom house in a historic suburb of Atlanta, he cancelled his afternoon meetings. That afternoon, they took a look and made an offer.
Four other people also made offers, some higher, but Brown wrote a personal letter that the sellers said they loved. The sellers asked them to match the next-highest bid of $245,000 and threw in $6,000 in closing costs.
Brown is a musical theater artist and web designer while Shuman is a music instructor and business owner, and they wanted to have a cash cushion even after the purchase. They assumed they needed to put down 20%, but the numbers started to work when a lender offered a mortgage with 5% down and around $100 a month in private mortgage insurance.
Within the first week of moving in, Brown posted in a local Facebook group asking how to take care of the plants in the front yard. To her surprise, the former owner of the house responded and offered to help.
“She came over 10 minutes later,” Brown said.
Matt Smith-Daniels, a 30-year-old career consultant, was finding it difficult to work from home in downtown Chicago. His 27th floor rental, a 750-square-foot studio with floor-to-ceiling windows, used to be his dream apartment. That changed after spending his entire day working and living in the same room.
He revved up his search to buy a place for himself. He was looking at townhouses, but he was surprised to find that property values in Chicago had gone up, and not down. He also worried that higher taxes and more people working from home would mean less interest in downtown property.
“I took the long-term view,” Smith-Daniels said. “I’m probably buying this place at its most expensive price, and it’s just not worth it right now.”
Meanwhile, rental prices were low. So he upgraded to a more spacious apartment. His new place is $2,700 a month for two bedrooms and two bathrooms. It’s only three blocks down from his current studio — for which he pays $2,550 a month — and this apartment has an even better view, he said.
Joel Grant, 30, and his partner had been living with his parents for two years when the pandemic hit. Reduced rent meant they saved money, but it became too tight a squeeze with everyone working from home.
“Our attitude with the property market is that we wanted to get in,” said Grant, a manager for the Duke of Edinburgh’s International Award Foundation. “We’re not looking to sell in the next five years anyway, so even if it does dip, we’re not going to suffer too much.”
As he went back and forth with his partner about whether now was the right time to buy — Were their incomes secure? Were prices about to plummet? — a slew of Australian government support bolstered his confidence. There were incentives for first-time home buyers, for builders and breaks from mortgage payments. The perks kept coming.
“The government will put in place things to keep the property market alive at all costs,” Grant said. “If the property market really crashes, then Australia is doomed economically.”
Searching during the height of uncertainty about the pandemic actually had one plus: less competition, particularly from investors who’ve been blamed for pushing first-time buyers out of the market.
In August, they managed to find a two-bedroom townhouse on a quiet road in Ashfield, an up-and-coming suburb about 6 miles from Sydney’s central business district. Like many properties in Sydney it was scheduled to go to auction — a frenetic affair where prospective buyers and onlookers gather on the front lawn with an auctioneer whipping-up emotions and driving the price higher.
Sensing there was less competition in the market, they took a chance and made an offer four days before auction. It was accepted the next day. Grant declined to say how much they paid.
“Covid worked in our favor there,” Grant said. “I think the vendor was unsure about auction interest because of the pandemic, so they jumped on our offer.”
They got the keys a few weeks ago.
Katie Larson and her husband needed to move out of London to enroll their son in a specialized school in the English countryside. They were renting in London — a 5-bedroom, 1,600-square-foot flat that cost 3,400 pounds ($4,430) a month — and figured they would do the same in the Cotswolds.
That quickly proved difficult. Like many others during the pandemic, they adopted a dog — and finding a landlord who would allow pets narrowed their choices. Every time they wanted to view a property, they’d drive two hours only to find houses in “awful” condition and yet in high demand.
“It was depressing,” she said. “You would look at a house and it would get taken, or there’ll be a waiting list for it.”
They looked at older homes, but most needed work just to move in. One, she recalled, had carpeted bathrooms.
She decided to go with a newly built home in Chipping Norton, a town of about 6,300 people in Oxfordshire. They are spending more than £600,000 for the 1,800-square-foot, four-bedroom house. Their monthly mortgage payment is £2,250.
They took advantage of a property tax break offered this year by the U.K. government to stimulate the economy during the pandemic, saving about £15,000.
“Do I miss London, and where we lived for the past five years? Yes, totally. But it’s beautiful here, and I think we’ll really get to start to enjoy it once we do get in our house,” she said.
Even though she doesn’t consider this a “forever home,” she says the family is planning on staying for at least five years, so she isn’t worried about the market slipping in the short term.
The world’s largest central bank is seeing the warning signals for Canadian real estate get brighter. US Federal Reserve (US Fed) updated their exuberance indicators for Q2 2020. Their measures for Canada show recent acceleration over the past two quarters. There was a brief period in the data where it appears Canada almost came back to reality. In the first quarter of this year though, buyer’s became more exuberant.
Exuberance Is Not A Fundamental
First, let’s quickly run through the concept of exuberance. Exuberance is the state of being excited. When used in economics, it means emotion and excitement is the driving mechanism. If a buyer is said to exuberant, they are buying not based on any fundamental reason – but rather their emotional reasoning. In other words, they’re paying more based strictly on the fact they think they should be paying more. Not because any fundamental basis is driving the valuation higher.
Exuberance doesn’t mean markets can’t or won’t go higher. Markets driven by an emotional state are more vulnerable to correction though. If buyers aren’t using fundamentals, then a sudden change in emotion means they need to discover the actual price floor. That’s sometimes a ways down.
Canadian Real Estate Becomes More Exuberant
Canada is seeing exuberance accelerate over the past few quarters. The indicator reached 1.89 in Q2 2020, up from 1.56 during the same quarter last year. The market has seen two consecutive quarters of acceleration.
Canadian Real Estate Buyer Exuberance
An index of exuberance Canadian real estate buyers are demonstrating, in relation to pricing fundamentals.
Source: Federal Reserve Bank of Dallas, Better Dwelling.
Canadian real estate has been consistently in this level for years, but not as many as some people want you to think. It first breached the critical threshold in Q1 2015, and hasn’t fallen below that level since. There’s been a few periods where it almost has, which have been followed by policy moves to prop up the market. Technically the market has only been exuberant for half a decade. Although that may feel like forever, it’s not really that long.
The Federal Reserve warns this indicator doesn’t tell us when we’ll see a correction, just the likelihood of one. After 5 quarters above the critical threshold, the Reserve believes markets will require a correction. The longer this trend persists, the further detached the market is from fundamentals. This means a larger correction will be required, whether in terms of falling prices or inflation that kills the real value.
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Changing The Landscape For Real Estate Brokers And Salespeople In Ontario: Personal Real Estate Corporations
22 October 2020
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On October 1, 2020, the Government of Ontario announced the
first phase of regulatory changes affecting the Real Estate and
Business Brokers Act (“REBBA“)
which will soon be renamed as the Trust in Real Estate Services
Act, 2020 (“TRESA“). These changes
address a number of important issues in Ontario’s real estate
industry. Most notably, the changes allow real estate professionals
to structure their business using a Personal Real Estate
Corporation (a “PREC“).
Personal Real Estate Corporations
As a result of the amendments, real estate brokers and
salespeople regulated by TRESA are now permitted to conduct their
business and pay themselves through a PREC. For many years, a wide
array of regulated professionals have provided services through
personal corporations and enjoyed tax planning and other benefits
associated with personal corporations. Real estate brokers and
salespeople are now among those permitted to use a corporation as a
means to structure their business. Of course, there are a number of
benefits to incorporation and real estate brokers and salespeople
should analyze these with their advisers. However, when considering
the suitability of a PREC, real estate brokers and salespeople
should be aware of the restrictions that apply to this type of
corporation. We summarize the most notable restrictions imposed on
PRECs as follows:
No federal corporations: PRECs must be
incorporated under Ontario’s Business Corporations
Controlling the Board of Directors: The
corporation may only have one director and that director must be
the controlling shareholder (a broker or salesperson);
Officer of the Corporation: The corporation
may only have one officer and that officer must be the controlling
shareholder (a broker or salesperson);
No non-registered voting shareholders: All of
the voting shares of the corporation must be owned (legally and
beneficially) by a broker or salesperson;
Non-voting Shareholders to be Family Members:
Non-voting shares of the corporation may only be owned by the
controlling shareholder, by one of its family members, or by
trustees in trust for one or more children of the controlling
shareholder who are minors as beneficiaries;
Inability to Limit Sole Director’s Powers:
There is no agreement or other arrangement that restricts or
transfers in whole or in part the powers of the sole director to
manage or supervise the management of the business and affairs of
For real estate brokers and professionals considering the
benefits of incorporating a PREC, understanding the regulatory
environment in which it will operate is crucial.
(Bloomberg) — Real estate investors are trying to figure out how to block a proposal by Denmark to close a legal loophole through which they’ve enjoyed virtually unlimited tax deferrals on value gains.
The plan, which still needs to go through parliament, represents the latest step by Denmark to rein in commercial property companies. The Social Democrat government has criticized the industry, arguing it’s padded its pockets while leaving average residents struggling to pay rent.
“Foreign investors have been able to push back tax payments for eternities and that is of course completely unacceptable,” said Christian Raabjerg Madsen, a member of the parliamentary finance committee for the ruling Social Democrats, and the party’s finance speaker.
Denmark’s government wants to use the extra tax revenue to cover the cost of early retirement for low-wage workers. It’s part of a broader plan whereby money is being moved from the finance industry and over to the country’s blue-collar demographic.
Michael Norremark, a partner at the law firm of Kromann Reumert, whose clients include some of the firms affected by the proposal, says it “effectively is targeted at foreign investors.”
Earlier this year, parliament passed legislation that freezes rent hikes for five years after renovations. The measure was aimed at property speculators and followed explicit government criticism of Blackstone Group Inc.
Blackstone has said in the past that it complied with the law. The firm declined to comment on Denmark’s latest proposal.
A lot of deals in Denmark are structured so that, technically speaking, it’s not the property that is sold but the holding company behind it, Norremark said. As companies are transferred, taxes on property gains get deferred “for quite a long time,” he said.
The plan to close the tax loophole would also affect local real estate firms, according to the Danish Property Federation. Its pitch for a compromise, under which taxes would be paid at the point of sale, was rejected. The group is now lobbying to raise the threshold at which the tax will apply.
“The burdens of the new tax are disproportionately heavier for smaller firms,” Anders Jeppesen, a consultant at the trade group, said.
Denmark’s commercial real-estate market has weathered the Covid crisis better than its Scandinavian peers. Deal volumes in the first half of the year fell much less than elsewhere in the region, according to data compiled by Catella Group, a property investment specialist. Volumes were down 2% in Denmark, compared with as much as 22% in Norway.
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