Canada

Over 1 In 10 Canadians That Bought Real Estate In 2017, Borrowed Over $600,000

Looks like mortgage stress testing came just in time for Canadian real estate buyers. Canada Mortgage and Housing Corporation (CMHC) numbers via Equifax show more borrowers turned to huge mortgages in Q4 2018. The share of large mortgages far outgrew the pace of more modestly sized ones across the country.

What Are We Looking At?

Borrowers with higher debt loads, are more sensitive to interest rates hikes. That is, as rates rise, the cost of servicing their mortgage will be more impactful on their finances. The greater the interest paid, the less money to spend or invest in the economy. That’s why we’re looking at mortgage distribution data today. More specifically, the size of mortgage people are taking out, in relation to the market.

We know, what if these people with mega mortgages have deep pockets? Some might, but the evidence that these large borrowers aren’t as well off as you would guess. The Bank of Canada warned earlier this year that 8% of mortgage holders owe 20% of the total mortgage debt. Even worse, these borrowers have mortgage debt greater than 350% of their gross income. Best case scenario, these households experience reduced cash flow and slowdown the economy. Worst case scenario… let’s just stick with the best case for today.

Over 13% of Canadians Took Out A Mortgage Over $600,000

Canadians starting with larger mortgage balances jumped in market share. Mortgages with a starting balance between $400,000 – $600,000 represented 18.92% of originations in Q4 2017. That’s a substantial increase from Q4 2016, when 17.72% of mortgages were in that range. Mortgages greater than $600k saw one of the biggest leaps, representing 13.86% of the market in Q4 2017. Mortgages of that size were just 11.64% of the market in the same quarter of 2016. Yup, over one in ten Canadian buyers at the end of last year took out over a half a million for their home.

Canadian Mortgages By Market Share

The market share of mortgage originations by dollar size across Canada.

Source: CMHC, Equifax. Better Dwelling.

Modest Mortgages Are On The Decline Across The Country

Who wants an affordable option, when you can max out your credit? Mortgages of $100,000 to $200,000 across Canada fell to 20.53% of 2017 Q4 originations, up from 18.92% last year. Mortgages between $200,000 to $300,000 represented 24.73% of originations, down from 25.97% last year. Most of the gains in larger markets, are at the expense of modestly sized mortgages.

The reasons why the B-20 mortgage stress test has been introduced gets clearer by the day. Home prices can only rise as quickly as people are willing to take out credit. People maxed out their credit as fast as they could, falling for the home shortage narrative. This created a dangerous pool of debt, as interest rates were rising. Today’s buyers shouldn’t be complaining that they can’t borrow as much as they could last year. Instead they should be thanking regulators for preventing reckless competition for homes.

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

29 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.

  • The Great Sarcasmo 3 months ago

    Bought at peak valuation, with interest rates near all time low. I see no problem here.

    • Lut 3 months ago

      You’re being sarcastic, but it’s amazing how a little FOMO led to such panic buying. This is like when Bitcoin was at $12,000, and people started maxing out credit cards, and doing wire transfers to get in, until it hit $19,000… before collapsing down to $8,000. If being rich were as easy as borrowing money and buying what everyone else is buying, everyone would be rich.

  • Ian 3 months ago

    Meanwhile, as a millennial that watched the Great Recession and the collapse of millions of loans, I won’t touch anything more than 3x my NET income.

  • Karen 3 months ago

    Mo money, mo problems. Buy within your means, you’ll never be stressed.

  • SUMSKILLZ 3 months ago

    It’s not only the $500 000 mortgage but new cars in the driveway. You can’t have a non-luxury car in front of a new luxury home. I can’t believe tha cars folks are driving these days. $900 a month, great where do I sign! Seems to be the mantra. Everyone’s liv’n the Instagram life.

    • Beh G. 3 months ago

      Wow SUMSKILLS! I’ve very seldom seen such a concise comment so eloquently summarize such a major socio-cultural problem and I’ve been reading on average 100 comments a day for the past 15 years!

      Indeed, people seem so unsatisfied with their lives in T.O. that the only thing that gives them a sense of accomplishment is not only buying a bigger house and a more expensive car – which up until a few years ago seemed enough to boost their mortal remains – but actually showing off about it on Instagram now!

      What a sad society where you have to flash your “success” and “accomplishment” in people’s faces on a daily basis for someone to make you feel a little more secure about yourself.

    • Neo 3 months ago

      Couldn’t agree more. The number of Range Rovers I see in the driveways of even modest homes has me scratching my head. These are $150,000 cars that are expensive to maintain.

  • Im Therious 3 months ago

    The data would be better if it included what the mortgage debt greater/gross income ratio was per bin.

    Having said that $600k is a huge amount of debt to take on, regardless of income.

    • Data Mule 3 months ago

      No joke, look at what US$270k (~CA$350k) gets you in Houston, another city that’s roughly the same size.

      https://www.zillow.com/homes/for_sale/Houston-TX/28192581_zpid/39051_rid/globalrelevanceex_sort/30.257288,-94.987106,29.375593,-95.878372_rect/9_zm/

      • Beh G. 3 months ago

        but, but, but… Toronto is the best and safest city in the world and everyone wants to live there and willing to pay millions to get in on all the actions the city has to offer, like its world class public transit from the mid 19th century, and its fantastic healthcare with 8 hour wait times! 😉

        • Bluetheimpala 3 months ago

          What hole did you crawl out of? Looks like mid-2017…yes, we know TO isn’t the bees knees. Next time toss in something about it being dirty, not as good as Chicago/boston/NY and maybe a little subversive political racism a la ‘Liberal refugee problem’…I know you’re new but your C-team/Circa-2017 commentary is tiring and makes Blue mad. BD4L.

  • vnm 3 months ago

    Toronto could be in for a really rough ride.
    56% of household income is less than $40K.
    Only 10% is > $100K.

    So more than half the city can’t afford to buy anything, 90% can’t afford a 1-bedroom condo, and less than 1% can afford a small house.

    And that’s with the economy currently basking in a Goldilocks moment
    of low interest rates and nearly full employment.

    • Justin Thyme 3 months ago

      So by your figures, most of Toronto residents are homeless? That’s a LOT of people living on the streets.

      So who IS living in all of those houses? Oh, wait, they are all empty.

      • Foxxy 3 months ago

        There are a lot of people living on the streets – most of Toronto’s shelters are maxed out

  • rob whittaker 3 months ago

    Q4 2018 should read Q4 2017.

    • Lessdanadalla 3 months ago

      Power of sales and bankruptcies are on the rise … Q4 won’t be pretty but real carnage starts in early 2019.

  • GLM 3 months ago

    Q4 2018 we will see power of sales and bankruptcies accelerate. its already happening in toronto, its just been kept quiet to not create a panic

  • Justin Thyme 3 months ago

    Lots of doom and gloom the sky is falling the sky is falling.

    Random facts, unrelated statistics. pretty graphs with lots of zigzag lines.

    SO why has this been going on for seven years?

    Because there is a lot more to this than second guessing the economy. Percentages are near worthless. Raw numbers are useful. For instance, 20% of 20,000 people is 4,000. But if the pool drops to 18,000 people, those 4,000 people are now 22% of the pool. What is important is the pool size, not the percentage.

    The housing market is not going to correct until the stock market does. And none of this analysis refers to the stock market.

    The richest 10% of Canadians are having no problem, and the richest 10% of Canadians total about three million. They control most of the exuberant money.

    So why would a multi-millionaire borrow to buy a house?

    The question SHOULD be ‘Why wouldn’t the multimillionaire borrow ALL of the money to buy a house?

    The stock market is returning upwards of 15% for a savvy investor. People with money are savvy investors. They can make more money by investing in the market, than they pay out in interest on a mortgage. An interest rate of 3% is piddling compared to the rate of return that their money can make. So even though they COULD buy the house with cash, they would be stupid to. They could pay off the mortgage interest just from their dividends.

    Better still, they can use their stock portfolio as leverage. They don’t NEED real estate leverage. Guaranteed collateral, that gives them the lowest rates.

    So until the stock market crashes, they will not budge. They will not even break out a sweat.

    But to see how widespread this is happening, more data is needed. Like maybe looking at the net worth of these mortgage holders? Looking at which segment of the income strata they are in?

    If the 20% that have mortgages over $600,000 are also the same 20% that control most of the exuberant money, why are they going to panic at a silly little interest rate rise? Until the interest rate on their mortgage is higher than the rate of return on their portfolio, do you really think they re in trouble?

    Yes, I totally agree. The ones in the bottom 50% are in really, really deep trouble. Well, not really, they can’t buy a home anyway.

    But as long as 3 million Canadians have the exuberant money to support the rush, the rush will continue.

    • @xelan_gta 3 months ago

      Justin, your conclusions have nothing to do with reality.
      But even in your reality everything is not as rosy as you think. Investors are avoiding Canadian stocks for a while now, and some are even betting against those.
      https://www.theglobeandmail.com/investing/investment-ideas/article-reality-bites-for-canada-as-foreign-hunger-fades-for-its-securities/

      • Justin Thyme 3 months ago

        SOMEONE owns those Canadian stocks.

        But your answer is irrelevant.

        The portfolio of Canadians does not have to be in Canadian stock. It can be in stock from anywhere in the world. It just has to be a stock portfolio. Since the American stock market has not crashed, that is all that matters.

    • Neo 3 months ago

      Ummmm. I believe the investor class you are referring to is the top 1% not the 10%. That number would be 300,000 not 3,000,000.

    • carlton 3 months ago

      SO why has this been going on for seven years?

      Low rates Justin, cheap money, pretty obvious now.

      Purchasers / creditors maxed out whatever the bank was offering, Now the bank is no longer lending as much or as cheap. Prices and sales have been declining since credit is getting tighter and rates have risen.

  • Paul 3 months ago

    Your report states buyers should be thanking regulators for implementing the stress test as this prevented home prices from increasing…I have yet to see any home prices decrease across my city in Calgary and have not seen any slow down in activity in Vancouver or Toronto. To afford a property for a family the average mortgage is between 400K – 600K, as your report states people should be aiming for 100K – 200K?? How do you think this is even possible for the average person? Canadians are not trying to max out their purchasing power…they are forced into purchasing these large mortgages to support their families, and be in the best communities for their children. They are trying to become home owners at-least once in their life and get out of the rental world as why would they want to pay someone else’s mortgage for the rest of their life?? I don’t understand how you think one should be able to stick to a mortgage of 100-200K when home prices are at a minimum of 400K start for a 1500 square foot home. Builders and developers are not coming down in prices, rather I have seen an increase and the stress test has done nothing but make it extremely difficult for an average Canadian to become a homeowner.

    • carlton 3 months ago

      I agree just normalize rates back to 5.5 instead of the 3.4 we have now at all the banks and remove stress test. If you cant afford homes at normal rates then you cant buy!

Comments are closed.