Canada’s Housing Agency Warned First-Time Buyers. Now They’re Getting Slaughtered

Canada’s first-time buyers may be in for some volatility, and they don’t even know it yet. Earlier this year, the Canada Mortgage and Housing Corporation (CMHC) warned first-time buyers that leaving just a 5% downpayment could be problematic. If the market had a sudden sharp turn, they could suddenly see their downpayment wiped out in a matter of weeks. This is a big issue in markets expecting significant declines in home prices – like Toronto and Vancouver. Now it appears that’s exactly what’s happening, with a typical condo buyer at 5% losing as much as a third of their downpayment in a month.

The Warning

Evan Siddall, the head of the CMHC, did something unusual earlier this year – he didn’t motivate buyers. Instead, he warned first-time buyers to question the motivation of people saying prices will rise. He further added, if you do buy in this environment, try to make a bigger than minimum downpayment. Emphasizing this could be particularly troublesome in high-flying markets like Toronto and Vancouver. This is somewhat unusual from an organization designed to help stimulate buying. Why would he do that?

The problem with leaving the minimum downpayment is it increases risk. Not just downpayment risk, but social and economic risks as well. If you leave just 5% down, and prices drop 5%, you’ll have to pay to sell. This creates a disincentive to move, which could prevent you from relocating for a better job.

This could also mean you could have to ride out negative equity – a drag on wealth building. For example, some people in the US that bought at peak in 2006, are still underwater. In other words, the issue isn’t just defaulting on your home. It’s a negative on your personal wealth and prosperity as well. Despite this, a lot of people went ahead anyway, with some agents anecdotally suggesting a surge in first-time buyers. So far, they aren’t doing so hot in Toronto or Vancouver.

Toronto Condo Buyers With 5% Down Lost Over 30%

Greater Toronto condo apartment buyers lost a significant chunk of change last month. The benchmark price of a condo apartment was $601,300 in May, and a 5% downpayment would be $30,065. The benchmark fell $9,600 in June, which would have wiped out about 31.93% of that downpayment. In other words, people with 5% equity would be sitting on just 3.4% a month later.

Canadian First-Time Condo Buyers With 5% Downpayment Get Slaughtered

The percent change in equity by June, for a May benchmark condo apartment buyer with a 5% downpayment.

Source: CREA, Better Dwelling.

In the City of Toronto, the declines are a little more steep than the whole region. The benchmark price was $633,600 in May, and a 5% downpayment would be $31,680. The benchmark price fell $11,400 in June, thus wiping out 35.9% of that downpayment. A May buyer of a benchmark with 5% down, would be left with 3.2% equity a month later.

Vancouver Condo Buyers With 5% Down Lost Over 16%

Greater Vancouver didn’t do quite as bad as Toronto, but it didn’t exactly do great. The benchmark price of a condo apartment was $686,500 in May, and a 5% down payment would be $34,325. The benchmark fell $5,700 in June, wiping out 16.6% of that downpayment. A May buyer of a benchmark with a 5% down, would be left with 4.1% equity a month later.

Canadian First-Time Condo Buyer Equity Remaining On 5% Down

The percent of equity a May benchmark condo apartment buyer with a 5% downpayment would have left in June, by MLS region.

Source: CREA, Better Dwelling.

In the City of Vancouver, the market of Vancouver West is where the biggest hits are being taken. The benchmark price of a condo apartment was $801,300 in May, and a 5% down payment would be $40,065. The benchmark fell $12,000 in June, wiping out 29.9% of that downpayment. May’s benchmark condo owner would be left with 3.5% equity a month later.

These numbers are just one month in, which doesn’t necessarily make a trend. However, it is a substantial single-month decline most people aren’t discussing. A number of firms have now forecasted declines, which they state won’t happen until the second half of the year. Organizations like the CMHC have stated Toronto and Vancouver will see the largest price declines. At least one bank has forecasted the declines will hit condo apartments hardest.

Like this post? Like us on Facebook for the next one in your feed.



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Marc 4 years ago

    Sure, but if you were renting your rent would have gone up!

    Oh wait, rents are falling.

  • PK 4 years ago

    If real estate prices alway went up, no one would ever make money. There would be no idea time to sell. You would just ride it up.

    A period like this should have been a prime opportunity to sell.

    • Rob Turner 4 years ago

      I bought in the early 90s. Sold at a loss, when upgraded. If a detached home falls more than a condo, taking the loss sometimes makes more sense. Not the end of the world.

      You never know how things are going to turn out , but the economy was in the dump and everyone was saying real estate would go up forever. Had I the knowledge that lower interest rates can’t fix a bad labour market, I probably would have played that differently.

      • Max 4 years ago

        In many arguments what fails to be acknowledged is gains and losses are not realized in real estate until that asset is sold.

        Real estate is a long term purchase and when purchased correctly, which is to say buy what you can afford to carry, offers long term financial benefits while providing shelter.

        The reality that homeownership is dwindling in major cities around the world would indicate an increase in tenancy rates. A closer look at that dynamic would shed light on the value of real estate as an investment.

        In most cases fear mongering is what causes the major dips and spikes in value. Once the fear subsides the values stabilize in an upward trajectory.

        Invariably, smaller numbers of well fund or risk taking buyers purchase real estate during the dips with the intention of buying, holding or leasing out.

        More over, as prices drop banks increase the rate of interest to borrow, so your monthly payment remains the same. It becomes a matter of paying more to the home owner in a hot market or paying more to the bank in a cold market.

        The imperative factors to consider when buying your first home are can i afford it and can i live there for a prolonged period of time.

        In the end we all need shelter, whether we own or rent. So avoid falling into the trap of timing the market.

    • Paul 4 years ago

      Pk. Why would falling house prices be an ideal time to sell?

  • Radical Dude 4 years ago

    Wasn’t yesterday’s article on how Toronto just started a multi-year record for new condo apartment construction too? Party on!

    • cb 4 years ago

      isnt that good news? so when we get a renewed immigration wave the inventory will be there?

    • zalzon 4 years ago

      What’s the point of CMHC warning about anything when they have been fuelling the moral hazard of insuring sub prime garbage mortgages that banks profit from creating?
      All at taxpayers expense.

      Inevitably the ones getting wiped out are taxpayers.

  • Mortgage Guy 4 years ago

    Benchmark price also has a stupid lag, since it’s determined by multi-month movement. If prices fell that much, it’s factoring in a much more sharp drop.

  • Derek Bowman 4 years ago

    “In the City of Vancouver, the market of Vancouver West is where the biggest hits are being taken. The benchmark price of a condo apartment was $801,300 in May, and a 5% down payment would be $40,065. The benchmark fell $12,000 in June, wiping out 29.9% of that downpayment. May’s benchmark condo owner would be left with 3.5% equity a month later.”

    I have a problem with the math on this. If the benchmark price of a condo was $801,300 in May, and the benchmark price fell $12,000 that would make the new benchmark price $789,300. So, a 5% down payment on $789,300 is $39,465 for a net loss of $600 on the down payment, therefore wiping out approximately 1.5% of that downpayment.

    • Harvinder 4 years ago

      You are assuming the bank will share the 12k loss with you. That would be lovely.

      What the article talks about is the fact that if you bought @801k with 5% you lost 30% of your 5% equity at 789k, realized when should you sell. You are still on the hook for the original mortgage.

      If this continues a lot of people will be underwater and be forced to sell to protect their balance sheets.

    • Joanna 4 years ago

      but the mortgage is 95% of the original price, that does not change and that’s where the loss comes in.

    • JG 4 years ago

      If you paid $40,065 for that $801,300 in May, your mortgage is for $761,235.

      Then the worth of the house drops by $12,000. You still owe $761,235 (or slightly less, because you’ve made one payment), but the house is now worth $789,300. Your equity is now what the house is worth minus what you owe: $789,300 – $761,235 = $28,065. You have lost $12,000 of equity. $12,000 is 29.9% of $40,065.

      The math is right.

    • QQ 4 years ago

      Better Dwelling’s math is correct .

      Better Dwelling is showing the unrealized gain/loss in June for a May purchase.
      If the purchase was made in May, the down payment is from May’s price.

      You are comparing a new purchase made in May to a new purchase made in June. If you had not made the purchase in May, there will be no unrealized gain/loss. I think you are confused.

  • Ahmed 4 years ago

    PSF for new construction is lower than existing units for the first time in a very long time. I don’t know if this is temporary or a sign of things to come, but some developers are definitely not expecting the market to improve.

    Email me if you want the price sheets.

  • Straw Walker 4 years ago

    The 5% down payment was on the $801,300 May price, which is a $40,065.. The house was bought in May and fell in price in the month of May.
    By June it was now worth $12,000 less or $789,300 which would require a down payment of $39,465. The house bought in May after down payment carries a mortgage of $761,235 while the houses mortgage if bought a month later would carry a mortgage of $749,836..
    This means that the house bought in May carries a $11,399 higher mortgage carried over 25 years.

  • Rick Gilley 4 years ago

    Rule of thumb….Don’t sell for a minimum of 5 years….Why would I worry about a drop in one quarter when I’m investing for 20.

    • Jason Chau 4 years ago

      Because investing for 20 years is the easiest way to dilute gains, and incur a higher cost of investment.

      NYC is the best example of this. Over a 5 year period, prices doubled. Then over the next 15 years they fell, and still haven’t recovered.

      CAGR would be about 3.5% in NYC, less mortgage interest, property taxes, insurances, maintenance, and selling costs. An investment in the NASDAQ over that period would have yeilded 4.98%, at a cost of pennies per transaction.

      If you don’t have any money, a house is an investment. If you have money, a house is a liability and expense.

      As for landlords, no professional landlord is buying to get into a negative cap in most markets, while rents are falling.

    • Kolf 4 years ago

      Rick, you dont know what inflation and purchasing power is? How much stuff can you buy with $100 20 years ago and how much can you with 100 now?

      Canada have horrible weather, high taxation, horrible pay and ageing population. In 20 years when all the boomers die how much will your old crappy house be worth??

      No place in the world ever had a happy ending with real estate bubbles. Not even the U.S with its super economic status. Canada should have popped thus bubble during this pandamic instead of propping it up even more with mortgage deferrals.

      • zalzon 4 years ago

        Govt in Canada is aiding banks in offloading defaulting mortgages on taxpayers and/or trying to inflate (aka destroying savers, wage earners, pensioners) to keep housing prices up.

        It’s disastrous for an economy when govt picks winners and losers and lobbyists have a say in how those losses and gains get transferred.

    • Mtl_matt 4 years ago

      For starters, you might start sweating for the interest rate you’ll get in 5&10 years if the central bank is fighting inflation and you still owe a large underwater principal sum.

  • Vincent Domenico 4 years ago

    If I’m planning to live in my first home for at least 5 years does this matter as much?

    • I Lived Through The 90s 4 years ago

      Not if you don’t care about the investment value of the home, and you don’t have a high demand career that might make you move.

      Riding out negative equity is kind of like buying Microsoft in 2001. Sure, you didn’t lose any money if you didn’t sell. You had to wait until 2018 to break even though.

      Ask a financial advisor about economic losses, and how they impact your portfolio.

    • MH 4 years ago

      If you are not interested in a few thousand dollars remaining in your pocket all for the price of waiting for a month then no it doesn’t matter.

      Looks like those Toronto first time buyers are really loaded. Makes one thinking why do we even need those 5% down mortgages ensured by taxpayers to begin with.

      • Vincent Domenico 4 years ago

        So if I wait till August I should be ok?

        • MH 4 years ago

          We will see in August. I wish you well.

          It is rather amusing to see a RE buyer casually dismissing thousands of dollars while going deep into the debt. Especially against the current disastrous economic backdrop that has been papered over by the government throwing around taxpayers’ money like a drunken sailor.

          There are some hard lessons to be learned here.

        • nick 4 years ago

          I believe August will be to early.
          I think govt. is supporting real estate market to hold because oil is already down and real estate is second biggest market in Canada. But with weak labour market they won’t be able to hold it more. But can’t say anything about timeline.

          I am also first time buyer, but really confused what to do.. I am taking strategy of Wait and watch… atleast I hope prices are not going up soon..

    • alvi 4 years ago

      You are right -you still have to live somewhere. alot of the permabears forget or ignore this

    • Lok 4 years ago

      You are better off renting and wait for the bubble to pop, at which point when you buy your monthly mortgage will be way lower

      • Vincent Domenico 4 years ago

        That’s all well and good but we’ve been trying to get into the market for two years

    • Sam 4 years ago

      Your answer is in the article: “If you leave just 5% down, and prices drop 5%, you’ll have to pay to sell. This creates a disincentive to move, which could prevent you from relocating for a better job.”
      If you are 100% sure about your job security, by all means go ahead, and ride out whatever happens… But I don’t think many people can be sure about their job security in these times.

  • Rob 4 years ago

    Have patience Vincenzo
    Wait till deferral cliff is resolved
    No lack of inventory
    No reason for upside in prices
    Don’t FOMO
    Don’t be underwater mortgage guy 🙂

  • Jarrod 4 years ago

    This totally ignores transfer taxes (~2%) and mortgage insurance (~4%) for buyers, and realtor selling fees. To break even a property must increase in value. Real estate as any investment has risks in the short and long term. The idea is once in the market, gains and losses are experienced for both your current and future property. This is only difficult when leaving the market completely.

  • neo 4 years ago

    The real elephant in the room is 30,000 immigrants haven’t been flown into the country every month since March. That has had a material impact on the rental market in big cities and will have a spillover effect on the housing market in general as we get into the Fall.

    • zalzon 4 years ago

      Why does real estate sound like a pyramid scheme

  • DBMan 4 years ago

    Way to cherry pick numbers. It is true May MoM condo prices dropped. However, condo’s are still up YOY compared to 2019.

    • Yan 4 years ago

      I don’t think you understand what cherry picking is. The CMHC said if you buy now, you may be forced to sell when the recession hits, and that could mean negative equity.

      Can you go to the bank and say “sure, I need to sell in an emergency, but it’s up year-over-year!”

Comments are closed.