Canadian real estate owners are paying a lot for the privilege of their debt pile. Statistics Canada (Stat Can) numbers show mortgage payments hit an all-time high in Q1 2019. Even with near record low rates, interest is rising faster than principal payments. Over half of all payments go towards interest, and the ratio is climbing.
Canadians Paid Over $91 Billion On Mortgages Last Quarter
Canadians are paying a record amount towards servicing mortgage debt. Mortgage payments totaled over $91.42 billion in Q1 2019, up 2.04% from the previous quarter. The increase represents a 7.30% increase compared to last year. Breaking down the payments, there’s a pretty interesting problem brewing.
Canadian Household Mortgage Payments
The total quarterly amount paid towards servicing mortgages in Canada.
Source: Statistics Canada, Better Dwelling.
Less Money Is Going Towards Paying Down Mortgage Debt
Households are paying record amounts on mortgages, but less is going to principal. The amount that went towards principal reached $39.53 billion in Q1 2019, down 0.39% from the previous quarter. The decline was so large, the principal contribution fell 0.17% year over year. Less principal paid down means carrying a larger balance, and more interest.
Canadian Household Mortgage Payments
The quarterly amount paid towards servicing mortgages in Canada, broken down by interest and principal contribution.
Source: Statistics Canada, Better Dwelling.
More Than Half of All Payments Go Towards Interest
The difference in the increase of payments, and a drop in principal, is due to more interest. Interest represented $51.89 billion of payments in Q1 2019, up 3.98% from the previous quarter. The increase works out to a 13.78% increase compared to the same quarter last year. Quarterly payments towards interest have jumped a massive 27.33% from Q1 2017. This is the most Canadians have spent on interest since Q4 2014. Over 56% of payments made in the quarter when just towards interest.
Percent of Canadian Mortgage Payments Going Towards Interest
The percent of mortgage payments collected that go towards paying interest.
Source: Statistics Canada, Better Dwelling.
Canadians are devoting a record amount of cash to pay their mortgages as debt reaches a new high. That’s not surprising to most. What’s surprising is interest paid exceeds the amount towards principal. Canadians are paying ~$1.31 for every $1.00 they put towards their “forced savings.” That’s with interest hovering just above a record low.
Like this post? Like us on Facebook for the next one in your feed.
How is this even possible?
Short answer: property ladder.
This and interest rates.
If you’re taking out a mortgage at 5%, your principal contributions don’t become larger until than the interest portion for 12 years. If you upgrade every 10 years, 3x at an average of 5% (it would have been much higher 30 years ago), you’ve been paying the bank more than you’ve paid yourself the whole time.
This is where small changes in interest rates can make a big difference. At 3%, you start to pay more on principal than interest in the third year. Of course, over time this will go up since even if the BOC cuts rates, it doesn’t mean it will pass on to lenders lower than it’s currently going for. If you end up upgrading near term, you end up paying more as well (including transfer costs and no first-time buyer tax incentives).
Long story short, if you’re buying and it’s your first-time, you should really consider what the probability of you moving out of that $700,000 bachelor apartment with no fridge or whatever they’re doing now, is realistic. Rates are low today, so it’s easy to commit. If your home doesn’t rise in value, you’re stuck paying a pretty penny in interest and transactions costs to upgrade to something you might find more usable long-term. The transaction costs are what the whole industry is in it for, and they’re hoping you make bad short term decisions to shell out more in commissions and interest.
Money laundering, underground economy, human trafficking, proceeds of crime, overstating assets via KPMG, Deloitte, RBC, etc you name it.
“Best investment I ever made.”
Willing to be the vast majority of long time homeowners have no clue how much interest they paid. I bought in the mid-2000s, and I remember seeing the estimated interest costs and thought to myself immediately – I need to pay this off as soon as possible to work out. Even so, those first years are astronomical amounts of money being shelled out for leverage costs.
Those first 5 years or so are key to making extra payments in order to save on interest long term. If you’re going to make extra payments, make them in the first 5 years of the life of your mortgage for the biggest impact. Surprisingly few people do.
Exactly. The irony is by the time people have enough cash to make accelerated payments, the majority think it’s time to upgrade.
Why would someone pay down a 3% mortgage early when they could put the money in the S&P500 index to gain an average 11% per year and be 8% ahead?
Buys a 500k house 20% down(let’s say the seller only paid a 2.5% commission to the agent). Puts in 30k in day 1 backed-up maintenance, not counting the value of his time. Over the next five years, pays 30k in property tax, 74.5k in interest, and let’s say another 15k in maintenance (generous).
Sells for 700k, dings a quarter of his capital gains exemption, pays 17.5k in commission. Afterwards at dinner parties he’ll say he made 200k profit…
great article about Chinese consumer debt. Very relevant to what we are seeing here
https://qz.com/1615596/chinas-debt-disease-is-infecting-its-housing-market/
“If these trends continue, China’s debt-service ratio will likely reach 12-13% in no more than three to four years’ time,” Cui says. “This may not prove to be a hard ceiling, but relatively few countries have sustained debt-service ratios above this level.”
And Canada is at 13.1 and climbing? Does not bode well.
Better Dwelling
CANADA
Vancouver Real Estate Is No Longer The Country’s Most Expensive Market
JUNE 14, 2019
Canadian real estate prices are moving higher seasonally, but the annual change is diving further down. Canadian Real Estate Association (CREA) numbers show prices made an annual decline in May. The decline didn’t have a significant impact, with a number of markets even printing an all-time high. However, the decline does demonstrate a major shift in markets across the country. The largest and best performing markets are now falling, while smaller, underperforming markets are starting to surge.
Canadian Real Estate Price Growth Continues A Downtrend
The price of a typical home across Canada has made the largest 12 month decline in almost a decade. CREA numbers show the typical home across Canada has reached a benchmark price of $624,400 in May, up 0.43% from the month before. This represents a decline of 0.64% from the same month last year. The miniscule decline might not mean much in dollar values, but it does continue an interesting trend.
Canadian Real Estate Benchmark Change
The 12 month price in change of a typical home across Canada.
Source: CREA, Better Dwelling.
The 12 month rate of growth is continuing a downtrend. Last month the rate of decline improved, potentially indicating a change in direction. This month’s change was so large, it wiped out the shrinking pace, and continued in the previous direction. The 12 month rate of growth is now the lowest it’s been since August 2009. Not a huge amount in terms of dollar values, but worth watching to see if it can break out of a downtrend.
Vancouver Real Estate Is The Biggest Loser In The Country
Markets that underperformed in recent years are still leading in price increases. The Ottawa benchmark reached $420,300 in May, up 8.02% from last year – the largest increase in the country. Montreal followed with a benchmark price of $363,400, up 6.29% from last year. Guelph reached $547,200, up 5.65% from the year before. Both Ottawa and Montreal grew at half the pace of the rest of the country over the past 5 years. Guelph is an exception, growing at nearly 2.5x Montreal during the same period.
Canadian Real Estate Benchmark Price
The price of a typical home in Canada’s largest real estate markets.
Source: CREA, Better Dwelling.
Lower Mainland is still being hit hard, as well as a distant Toronto suburb. Vancouver’s benchmark fell to $1,006,400 in May, down 8.88% from last year – the biggest drop in the country. Barrie’s typical home followed with a benchmark of $466,600, down 6.14% from last year. Fraser Valley came in third with a benchmark of $832,500, down 5.92% from last year. Vancouver’s decline means it gives up the throne as Canada’s most expensive real estate market, giving it up to Oakville, Ontario. For those that don’t know where Oakville is, it’s better known as the traffic jam between Toronto and Niagara Falls.
Canadian Real Estate Price Change – 1 Year
The 1 year percent change in the price of a typical home, in Canada’s largest markets.
Source: CREA, Better Dwelling.
A few markets reached a new peak in August. Ottawa, Montreal, Guelph, Niagara, Hamilton, and Victoria all reached peaks. Only two of those real estate markets have a global presence.
Canadian Real Estate Price Change From Peak
The percent change from peak pricing for a typical home in Canada’s largest markets.
Source: CREA, Better Dwelling.
On the other side of that stat are central Canadian real estate markets, and Barrie. The typical home in Edmonton reached $322,900 in May, down 13.62% from the all-time high for the city. Regina followed with a benchmark of $266,500, down 13.39% from their market peak. Barrie had the third biggest drop at $466,600, down 12.41% from the market’s peak.
Generally, the market is following a trend set last year. The country’s largest and hottest markets are cooling, while markets that underperformed are making huge strides.
Like this post? Like us on Facebook for the next one in your feed.
CANADIAN REAL ESTATE PRICESCREATORONTO REAL ESTATE PRICESVANCOUVER REAL ESTATE PRICES
GET BETTER DWELLING IN YOUR INBOX.
Or, you know… wait for your bank’s economist to repeat the insights next week. Whateves.
your email
SIGN UP
Daniel Wong
Contributing editor, stats guy.
27 COMMENTS
COMMENT POLICY:
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.
REPLY
LOL
3 DAYS AGO
Buh Bye! Enjoy the top spot Oakville, it’s not what you think.
REPLY
Margeret
3 DAYS AGO
Guelph is growing at 2.5x Montreal, and people think that’s normal? That’s going to be a bit of a shocker for them when they realize, you know… they’re a blip on a map no one’s ever heard of.
REPLY
Mac
3 DAYS AGO
Good way to point out it’s not about density. Density occurs as building increases, which occurs when prices are high. High prices create density in cities, not the other way around.
Until they can longer find people to cram into them, which is why there’s always a big overhang.
REPLY
Doug
2 DAYS AGO
Why is Guelph on this list but not Waterloo? The Waterloo region has over a half million‘s and is a much hotter market than most of southern Ontario yet it’s not even on this list
And where the hell is aggregate ????
REPLY
GTA Landlord
2 DAYS AGO
Waterloo is so small it’s combined with Guelph. When boards are that small, they don’t have benchmarks. You can’t compare non-normalized stats to normalized ones.
It’s also not that hot. Combined the board is combined with Kitchener, and is still smaller by sales volume than some neighbourhoods in Toronto.
REPLY
MM
3 DAYS AGO
Loads of foreign investors and Money Laundering leaving Regina and Barrie ?
Who knew Regina was so over valued.
REPLY
Bay Street Guy
3 DAYS AGO
It’s pretty rough out in Sask right now. Climate change is pushing back their crop season, longer dry periods are making huge delays. Winters aren’t as long and cold, so insect infestations are also pretty a pretty big deal.
I know that doesn’t sound like it would impact an urban area, but Sask is an agri-province. Poor yields resulting in a lot less cash circulating.
REPLY
ToonTown
1 DAY AGO
Winters weren’t as long and cold? You must not be from Saskatchewan.
REPLY
MM’s Mom
3 DAYS AGO
I know you’re trying to be sarcastic, but money laundering and foreign investors were a big issue in Sask long before it was an apparent issue in BC.
REPLY
MH
3 DAYS AGO
“For those that don’t know where Oakville is, it’s better known as the traffic jam between Toronto and Niagara Falls.”
That’s because everyone in the world wants to live there. Do you know how many people from Vancouver want to immigrate to Oakville these days? Pretty much everyone. So do your homework before making jokes about the world-class city of Oakville.*
* This post may contain sarcasm.
REPLY
Bluetheimpala
3 DAYS AGO
This is funny. Tock.BD4L.
REPLY
John Davidson
2 DAYS AGO
Good point about not insulting someone else’s domain. No call for that. However I doubt that 1 a 100 Vancouverites has even heard of Oakville yet alone wants to move there. I know it. Nice place, terrible climate. No don’t want to move there.
REPLY
Grim Reaper
3 DAYS AGO
Oakville is known as a center of financial fraud is it any wonder that it is the most expensive real estate?
REPLY
Joseph
3 DAYS AGO
Please provide proof of this (Oakville is known as a center of financial fraud). In all my years living in southern Ontario, not once have I heard that said.
Just want some proof.
REPLY
S2u
3 DAYS AGO
that took me like 3 seconds.
https://toronto.ctvnews.ca/5-charged-with-fraud-and-money-laundering-in-92m-ponzi-scheme-1.2214008
REPLY
FuriousGreg
3 DAYS AGO
And the real estate associations and some in the government still claim foreign investment wasn’t the issue… A year after those foreign ownership and empty rental taxes went into effect and housing prices are falling, hopefully back to what they should be, so maybe the rest of Canada should follow BC’s lead?
REPLY
Duo
3 DAYS AGO
“For those that don’t know where Oakville is, it’s better known as the traffic jam between Toronto and Niagara Falls.” Oakville is closer to Guelph than to Niagara Falls, not to mention the nearly dozen communities – on the QEW alone – between the two cities. Learn how to read a map.
REPLY
GB
2 DAYS AGO
What about Winnipeg real estate prices?
REPLY
Mtl_matt
2 DAYS AGO
Sorry, the courier with the stats got stabbed.
REPLY
Aaron
2 DAYS AGO
Winnipeg isn’t included in any national index because of the private land registry. Even the Teranet index doesn’t have Winnipeg numbers.
Private land registries are great ways to ensure it’s completely cost ineffective for the public to know what’s happening in your market, until it’s over inflated. It’s also perfect for money laundering, since even the government has to pay to analyze it. Try telling your boss you need a few hundred thousand because you have a hunch there’s money laundering in a city
REPLY
Zenity
2 DAYS AGO
They don’t realize the fundamentals. Canada especially Toronto basically have too much land. With Canada’s economy based on high taxation and universal health care, the system itself is designed to transfer wealth from young people to keep boomers alive. Now with this housing bubble we are doing further wealth transfer where young families have to take on huge mortgages and pay high taxes.
Once smart people start to realize what is going on those that have in demand skills will leave. Taking their taxes for future decades and consumer spending with them. The best always leave first because they have the choice. eventually you will be left with low skill labor that you can’t really tax then the health care system goes and the boomers get screw anyways.
The best way for a society to build wealth is to give resources to young productive talent so they can create business and other ventures. Not tax and suck all their income and transfer it to old and non productive segments of society. If the housing price don’t come down Canada is headed for economic collapse soon.
I urge all young families to be responsible for you and your families future and consider other places where cost of living is not so high.
Or wake up organise and fight back against the system.
How great! Copypasta spam!
Comments which reveal that money laundering plays a huge role in the real estate markets of Toronto and Vancouver mysteriously get erased, but these copypasta spam to flood the comments to make it unreadable are allowed.
The money launderer, their financial representatives acting in collusion of impropriety, the fake Director/nominee of the numbered Ontario corporation, and the condo sellers are angry at this, that they resort to posting copypasta spam!
Canadian Household Mortgage Payments is a typical exponential function. Every system either in nature or engineering that have an exponential function eventually collapse in a catastrophic manner.
https://en.wikipedia.org/wiki/Exponential_function
Exponential function explain here
https://www.youtube.com/watch?v=6WMZ7J0wwMI
Economics science is a failed discipline because it relied of a exponential function ( or inflation) to generate growth. It is only matter of time before everything collapses and we go back to barter.
This whole world is a giant exponential ponzi scheme.
Just so. As well, the economy does not exist in a vacuum. Just as there is a limit to what you can exhaust into the atmosphere or throw into the ocean, there are natural limits to financial manipulations, debt, taxation, wealth inequality, etc. — it’s not a bottomless well.
“Vancouver’s benchmark fell to $1,006,400 in May, down 8.88% from last year – the biggest drop in the country” – anyone else see the irony in Vancouver’s benchmark being down 8.88%? Good old lady luck…
Haha! Chinese people like the number 8 because when pronounced in Mandarin, sounds like “money”
Monday July 17th:
“Government lays out fine print of new CMHC program that could contribute 10% to price of first home.
Program will be limited to first-time buyers who earn under $120K a year.”
https://www.cbc.ca/news/business/cmhc-first-time-buyer-program-1.5178055
Extra wood being thrown on the upcoming fire. It’s like they want to make sure all the pieces of wood are on the pile of wood before they light the match. This is such a deliberate act by the gov at such a pivotal time. It’s slightly disturbing.
Seems like the equivalent of a drug dealer offering drugs for free, just to get a non-user hooked.
Should say “June 17”