A lot of senior Canadian real estate owners are still seeing their home equity die a slow death, but the rate of growth is tapering. Office of the Superintendent of Financial Institutions (OSFI) show reverse mortgage debt reached a new high in August. Despite reaching a new high, the pace of growth is still decelerating from peak growth, hit earlier this year.
Reverse Mortgages, Explained For Millennials
Reverse mortgages are a way for house-rich, cash poor Boomers to access equity from their home. A few select banks will let seniors withdraw a portion of their home’s equity, in either a lump sum or payments. They’re kind of like a home equity line of credit (HELOC), but more expensive. The benefit to seniors? They can live in their existing home, without having to make any payments on the equity withdrawn.
The negatives? Rates are generally higher than HELOCs, and since they’re on a fixed income, paying it off is unlikely. Those that can’t pay it off, slowly see their equity vanish into thin air, at a higher rate than a HELOC. You probably won’t transfer a whole lot of wealthy to your family if you live a long time. However, it does beat going back to work in your Golden Years or going back in time to diversify your portfolio.
Canadians Now Owe Over $3.03 Billion In Reverse Mortgage Debt
Senior homeowners in Canada printed a new record for reverse mortgage debt. The outstanding balance reached $3.03 billion in August, up $40 million from the month before. The monthly increase works out to 1.35%, and the annual growth is a massive 42.32% from last year. It’s a huge debt pile, with a very large rate of growth.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
The Massive Pace of Growth May Be Tapering
The good news (or bad if you’re in reverse mortgage sales), is that growth is starting to decelerate. The growth rate of 42.32% in August is down from peak growth of 46.32% in February of this year. This is the fourth consecutive month of deceleration, and the sixth month in a downtrend. The growth rate is still huge, but it is coming down.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
The rate of growth is falling, but it’s unlikely to go negative anytime soon, considering the product. Since the debt is issued to a demographic of people on fixed incomes, it’s highly unlikely to be paid off. That means it continues to snowball into a larger liability as time goes one. As interest rates rise, so does the rate of equity that dies until the sweet release of death.
Like this post? Like us on Facebook for the next one in your feed.
Are these callable? What happens if the value of the home drops?
I was told prices never fall in Canada, so they probably didn’t need to explain to regulators what happens if they do. 😂
Doesn’t this provide more pressure to housing? Since people that would normally have to sell and move to the suburbs aren’t?
Only a little if you think about it. A senior that takes out a reverse mortgage needs the cash for living expenses or an emergency. That means they don’t have enough cash on hand to live a sustainable lifestyle going forward. One hiccup, and they’re forced to sell.
If it’s a temporary cashflow issue, use a HELOC. If you’re not planning on paying it back, just downsize. You won’t live in the luxurious home you once did, but you also will have enough cash that you can live without worrying about your whole life falling apart if you miss your payments.
We’re talking about house rich, cash poor boomers… They are already in the suburbs!
Not in Vancouver, they’re anyone not in a shoebox. 😬
Not necessarily cash poor by design. Their kids continue to struggle in the new economy of crap jobs and need money. Food costs a fortune as does many other things. The plan they made in the 80’s and 90’s was for a world that no longer exists. Have you seen how much cancer meds can be, even with medical insurance? Try 80 grand and up. Many will lose their homes in the next down times. Don’t rag on Boomers too bad.
A world that they helped shape. Boomers are just as accountable as anyone for the way the world turned out – if we can throw millennials under the bus for not planning enough for their future like hell we can blame the ones that made the world this way.
Is the rate of deceleration increasing?
Same content over and over again…..
You know what? You might be right.
It’s almost like these monthly reports come out every month. 🙄
I’m having a hard time determining if people like George are stupid or if they genuinely think they understand markets after reading a single data point, and coming back to it in ten years?
I guess if making money was easy, everyone would be rich. Instead, everyone just has a million dollar illiquid home and thinks they’re rich.
judging by the people insulting you. it’s clearly these people are not very bright, otherwise they wouldn’t be struggling to own a home.
the market has come down significantly and a lot of flippers have lost money, but we can’t deny the fact that there are still demand for new houses. just this weekend, Mattamy sold out their Oakville preserve and Observatory sold half of their inventory upon release, albeit the price is reduced by 1mil from 2.5mil to 1.5mil.
in every crash, some will survive while other will perish (bankrupt). the one coming out at the end will see heavily depressed asset and scoop them up at bottom. be smart and be ruthless….
everyone coming here have the agenda of buying something. especially the ones hoping for a major crash. people in their 30s and 40s struggling to buy a place deserve no sympathy…
Found the moron that didn’t diversify out of real estate. Making the assumption that people don’t own because they’re “struggling” isn’t just lazy, it’s dumb.
Evan Siddall, the head of the CMHC sold and began renting because he thought it didn’t make sense.
Brian Porter, CEO of Scotiabank sold his home at a loss last year. I know he only makes $30 million a year, so he probably can’t afford the condo you have 90% of your wealth in, but I imagine he can dip into homeownership. Even post B-20.
Sincerely,
A PM that probably makes your home’s value every year in salary.
Last year anyone with a heart beat could get a loan to buy a home.
“it’s clearly these people are not very bright, otherwise they wouldn’t be struggling to own a home……………………………..albeit the price is reduced by 1mil from 2.5mil to 1.5mil.”
That’s a 40% price reduction in just over a year. Whose brighter? those that bought for 2.5m or those that just got in at 1.5? Is this the end of the correction/crash? Interest rates look like they will still be going up in the short to mid term. Ton of supply on its way.
“the one coming out at the end will see heavily depressed asset and scoop them up at bottom. be smart and be ruthless….”
Don’t catch the falling knife
Zz, it is truly remarkable that you (and many of your ilk) think that anyone that is pessimistic about Canadian real estate must not have enough money to buy a house. Then again, you can’t possibly be stupid enough to think that, so you must just be spouting off in an effort to feel smug. Even worse, I suppose.
I bet when monthly reports were coming out showing bullish moves @George was cheerleading instead of saying this 🙂
If you have more cash than morality, becoming a private lender in the reverse mortgage space could be quite profitable.
Think about it, if the interest rate chargeable is higher than the appreciation rate, you will eventually own 100% of the future value of that home for a 50%- 60% down payment today, and you will not be responsible for any of the upkeep or maintenance. That’s even true in a scenario where prices stay flat for long enough. Toss in a recession/ correction or untimely death ; ) , and you could have full control of that home a lot sooner. Prices correct 40% over the next few years? No worries, you only allowed a 60% LTV. Aunt Gurdy is now tapped out and on her way to bankruptcy, you just scored a brand new home in the center of the universe.
Don’t want to risk being tied to this investment for too long? Only lend to the unhealthiest people you can find. I recommend targeting smokers and fat people.
Rich people don’t take reverse mortgages. These are regular working class people who often have to pay more in property taxes, or “luxury taxes” every year than they paid for their houses in the first place. The NDP government , for example, in BC is openly encouraging homeowners who cannot afford the high taxes to allow debt to pile up on their homes. Government policy and nimbyism are the problem. Local planning departments need to be much more aggressive about approving high density along arterial roadways near transit to bring prices down. i.e. 26 stories on Cambie an Broadway Streets in Vancouver- not 4-6. Demonizing seniors living in mature neighbourhoods and taxing them literally to death is not the answer!
Luxury taxes are on homes worth more than $3 million. No one’s shedding tears for people sitting in $3 million homes, pretending they can’t pay the taxes.
I own in both Vancouver and Austin. In Austin, my taxes are almost 3x what I pay in Vancouver, for a home nearly a third of the value. Consequently, there’s a bustling city where homeownership isn’t the only “business” people are interested in.
Vancouver needed higher taxes in the first place, as a disincentive to putting all of your money in a home. This isn’t taxing someone to death, it’s actually one of the core principals of capitalism and land use.
I don’t believe your story. This is the same BS that is being spouted by Kershaw, Davidoff and their ilk. The rate in Austin is probably 3 times as high, but the average taxes for the average house will be about the same. That is because most cities require about the same amount per household to provide services regardless of the cost of the house.
I have been to multiple public meetings where NDP hacks make these claims and when I check them on BCONLINE it always turns out that they do not own property in BC.
We’ve been thru this is California and are headed for it again. The terms of reverse mortgages vary and those in Canada may be different than in Los Angeles. One couple took out a large reverse mortgage and squandered the money on an expensive renovation when the husband was in in early 80’s the the wife in her early 60.s’ The reverse mortgage only allowed the husband to remain in the home until he died. Of course, he died first and the wife was homeless.
They had 5 children who could have all chipped in a little so that a reverse mortgage would not have been taken out, but instead they fought over who would pay how much. Now with dad dead, the house gone, the Mom lives in small apartment on Social Security.
A Reverse mortgages is just a tool. It’s not good or bad in and of itself, it’s how the tool is used that matters. If someone plans to use up the equity in their home while still living in it, then a reverse mortgage is in fact the right tool for the job.
The main issue from a societal perspective is this represents a segment of the population that is NOT planning on leaving an inheritance to the next generation. Maybe the upcoming inter generational wealth transfer won’t be as big as we first thought.
Repeat after me … reverse mortgage is the most toxic product out there. If someone plans to use the equity, advise them to cash out, sell their home and downsize.
So many other tools should be used before you resort to a reverse mortgage.
I usually like when Daniel writes. Kinda dumb how the author is explaining the the what a reverse mortgage to millenials like they are babies.
A millennial is someone who is under 40 years of age. Get it? that’s probably your demographic
Actually, the vast majority of people don’t understand how a reverse mortgage works. That includes a lot of the people that have them.
Anyone know why they were major jumps recorded in November 2017?!
Everything before and after seems relatively steady on the charts. Was there a government policy change, market factors, etc. that made a whole bunch of seniors run out and get a reverse mortgage?