Condo buyers in Canada’s largest real estate markets might be breaking a sweat. In April, Canada Mortgage and Housing Corporation (CMHC) warned first-time buyers about buying a condo at this time. Despite the warning, many went ahead and bought one in May. If they made the minimum downpayment, there’s a good chance most of their money is gone. In Toronto, after months of payments, these buyers are virtually underwater. Vancouver owners are doing a little better, but not by much.
About The Calculations
Today we’re looking at the performance of condo prices with a minimum downpayment. The estimates use a 2.00% mortgage rate, with a 25 year amortization, and the benchmark price. Included is mandatory insurance fee, and the minimum downpayment is used. The minimum downpayment in Toronto and Vancouver is higher than 5% in some cases, due to insurance rules. However, we did go with the absolute minimum you can put down.
Important to note these aren’t a comprehensive list of costs, nor value assessment. Notably absent are transfer fees, legal, and maintenance. Interest payments aren’t included for the after-payment calculations either, just the principal contribution. The investment losses would most likely be larger if forced to sell. Especially in the event of an equity shortage, in which case the person is forced to “top up” to sell.
ROI On Minimum Downpayment For Toronto and Vancouver Condo Buyers Is Negative
Let’s look at the downpayment first, since many of these units were sold as ways to use leverage to make money fast. Across Greater Toronto, the return on investment with a minimum downpayment currently stands at a loss of 112.36%. For condos in the City of Toronto, it’s even higher at a loss of 125.09%. More simply put, the downpayment is gone on a typical condo bought right after the CMHC warned you not to buy.
Canadian Condo Downpayment Return
The estimated return on downpayment for May’s benchmark condo buyers in Toronto and Vancouver in October.
Source: TRREB, REBGV, Better Dwelling.Greater Vancouver is doing a little better than Toronto. Across REBGV, the return on the minimum downpayment for a typical condo is a loss of 56.49%. In the City, it’s much higher. Vancouver East stands at a loss of 82.53%, and Vancouver West works out to a loss of 80.82%. While not as bad as Toronto, a similar observation can be made – city units are doing worse than suburban ones.
Toronto Condo Buyers Have ~4 Boxes of Oreos Worth of Equity Left
Of course, that doesn’t include the payments people have made since buying. While it doesn’t eliminate losses, or change returns, principal contributed changes the equity. A typical TRREB condo buyer in May has $3,863 in equity, or about 0.66% of the current value. In the City of Toronto, a typical buyer has $20, or roughly 0% equity left. A typical City of Toronto condo owner has about 4 boxes of OREOs worth of equity, Greater Toronto buyers across the board, would be wiped out with another month like October.
Canadian Condo Buyer Estimated Equity
The estimated equity May’s benchmark condo buyers in Toronto and Vancouver have, after making payments.
Source: TRREB, REBGV, Better Dwelling.Greater Vancouver condo owners are doing a little better. REBGV condo owners have about $23,541 of equity on a typical condo, about 3.44%. In the City, Vancouver East owners have an estimated $12,709, or 2.16% equity. In Vancouver West it works out to $17,673, or 2.26% equity. Like I said, better than Toronto – but they’d have to pay to sell or even switch lenders.
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The real beauty here is the pandemic has every country developing their domestic capacity for job creation, while Canada is just waiting to import more borrowers.
Going to be hard to attract the kind of talent we were trying to. We’re more like a factory workers for tax dodging US big tech.
How many insured buyers default or sell within the first two years of getting an insured mortgage?
Toronto and Vancouver has become unaffordable under the liberals. Worst housing bubble in the world.
We need to hold corrupt politicians accountable!
We bought our Toronto condo in May, so even though we got a deal, we may only have 4 boxes of Oreos left of our down payment!
I’m not worried though. We plan to be here for several years and renting out our place is always and option, once we are ready to move again.
Yeah….. But you cant live in those 4 boxes of Oreos!
But you can rent 1 bedroom now for $1500 in Toronto… And yes it’s brand new condominium 🙂
Isn’t the maintenance fees and loss now higher than the cost of rent? If investors want to pay to house people, I guess it’s a sweet deal for renters and the bank.
Real estate is so criminally inflated beyond median incomes, being sold by individuals who did nothing to earn property ownership in the first place, let alone the right to earn a profit – insane profit, by unbridled greed – on said property. Pigs at the trough.
These articles are fear mongering. Real estate is subject to volatility like the stock market, just slower moving.
Don’t sell in a down market, find a way to hold. Also can’t over generalize: real estate is hot always in certain parts of the city, at different times of the year, etc.
This is the dumbest take I’ve read. “Fear mongering.” What’s the opposite of fear mongering, shiestering? Because it’s always good to buy from someone at any price, but it’s never good to mention something might be bad.
There’s also no such thing as seasonality for a benchmark. If a house was always cheaper in the winter, why would you buy it during the summer? The MIX of house is different. That’s not impacted by a benchmark, which is adjusted.
If I bought a condo I truly loved and bought it to live in then I dont care . Life will return to normal eventually. And if i did not buy before I would buy now. On the other hand I bought to speculate or as an investment I would be having sleepless nights.
I hear condo insurance fees have risen significantly, but have no details, is it an issue or just another 10-20$ a month?