Canadian real estate price spiked in 2017, and a lot of homeowners have already spent that equity. Canada Housing and Mortgage Corporation (CMHC) numbers show a huge number of people are taking out multiple mortgages on their homes. The trend now represents over 1 in 10 mortgages issued in the country, and nearly half are in just 3 cities.
Multiple Mortgage Holders
The term “multiple mortgage holder” can have a lot of meanings, so let’s just run over the CMHC definition. These are mortgage holders that took out a new mortgage on a home with at least one existing mortgage. These numbers from the CMHC only include loans that result in a balance increase of more than 10%. The total number is likely higher, but even excluding smaller loans we get some giant numbers.
Canadian Real Estate
Canadians taking out multiple mortgages on the same house made a huge jump. There were 145,013 new loans issued on already mortgaged homes in 2017, a 4.16% increase from the year before. That represents 15.12% of originations that year, or over 1 in 10 mortgages across the country. That’s a lot of people in a rush to use their home equity all of a sudden.
Multiple Mortgages Issued Across Canada By Market
The number of mortgages issued on homes with an existing mortgage, by major city in Canada.
Source: CMHC, Equifax, Better Dwelling.
Toronto Real Estate
Toronto real estate is the number one spot in Canada for multiple mortgages on a single property. There were 28,364 new loans issued on already mortgage properties in 2017, up 6.4% from the year before. This represents 17.4% of all originations in the city, a 2.6% increase of market share from the year before that. The volume and market share of multiple mortgages is on the rise in Toronto.
Percent Change of Multiple Mortgages Issued Across Canada By Market
The percent change in the number of mortgages issued on homes with an existing mortgage, by major city in Canada.
Source: CMHC, Equifax, Better Dwelling.
Vancouver Real Estate
Vancouver is home to the third largest market of multiple mortgages. There were 12,597 new loans issued on already mortgaged properties in 2017, down 7% from the year before. This represents 18.1% of mortgages in the city, a 2.2% increase in market share from the year before. The volume of multiple mortgages is on the decline, but the share of total originations is on the rise.
Montreal Real Estate
Montreal is home to the second most multiple mortgage holders in the country. There were 18,270 new loans issued on already mortgaged properties in 2017, up 4% from the year before. This represents 17.4% of mortgages in the city, a 2% increase in market share from the year before. The volume and market share of multiple mortgages is on the rise in Montreal.
Debt by itself isn’t a problem, but the current setup makes it an interesting one. A significant number of these loans are in markets that recent price acceleration. In the event of a correction, these borrowers will be with less cash than they expected. This becomes more complicated with rising rates, increasing the cost of servicing these loans.
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Another problem that this causes is if these mortgages are used to fund other mortgage originations. Mortgage brokers have been telling people to withdraw some of their equity to use to fund private mortgages. Borrow at 4%, lend at 7%. It’s a perfect plan, until it isn’t.
In the event of a correction, that’s a lot of money people won’t be able to just come up with in a moment’s notice. Remember, 10% in Vancouver is likely around ~$100k.
This is the exact problem the US had. People think it’s poor people and immigrants, but it was over leveraged investors that got caught in a liquidation event. Some poor people in markets like New York continued to pay up, and have still only accrued 5% equity in their homes.
All tribes look to blame outsiders rather than be internally critical. It is human nature and is consistent across all groups. The British utilized this understanding in their Machiavellian colonial exploits. I digress…when ‘uncle tony’rolls up in a new jag, just bought a few condos on spec and is on his way to his brand new custom home, everyone think he’s a genius and wants a piece. Maybe Uncle tony flames out but he’ll suck in other who may or may not get crushed. But no one cares when times are good. 100% asset appreciation, in the span of 2 is natural but a 40% correction, well that’s just impossible! This will be the final gutting of the Western middle class and will mark a shift to conservatism for the next decade or two. Pray.For.Mojo. BD4L.
Kitchener, London, Niagara? All highly speculative markets. Hm…
Prices in Niagara are stupid high. The same home on the other side of the border is about 1/3 of the cost. Little difference, other than one is located in Canada, and the other is located in the US. An extra $700k can buy you a lot of health insurance.
you are clearly not factoring in the fact you would have to live in Buffalo, or the US for that matter. some things are worth it!
Vancouver is down? That kind of makes sense, since we’re seeing a big drop off in sales. Locals are probably too worried a rich Chinese buyer won’t buy their home from them anymore.
Niagara’s stat should make all of you worry.
High unemployment, high welfare, and homes that doubled and tripled in value in just a few years.
There are ALOT of investors trying to rent out homes that have been converted into apartments for 1500+ per apt.
Paper millionaires who make 50000.00 per year.
Couple this with obscene taxes and WAY more municipal government officials than T.O. city council. And all in a region of under 500000.
Watch for the cracks in this area. I guarantee you a whole bunch of these mortgages are already underwater.
Niagara is definitely been where I’ve been watching as well. They had a trickle of Mainland money in new developments, and everyone though their beat down mobile trailer on a plot of land was worth half a million. They’re in for a sick surprise if they can’t unload soon.
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Here’s where I get confused (hopefully someone more knowledgeable can clarify). Let’s say someone bought a starter home in Toronto in 2005 for $500k. In 2016, this home was worth $1.5 million. The owner decides to borrow the 1 million in equity against is home to knock down the starter home and build a mansion. In 2017, mid-renovation, the value of that property goes down from $1.5 million to 1.2 million.
Which parties get affected by this scenario- and how?
It’s my understanding it would work like this.
– Say they put 20% down on the $500k home, so that’s a $400k mortgage. The LTV is 80%.
– Let’s say they pay half of that off by 2016, so they have a balance of $200k at refinancing on $1.5M, they would have a 13% LTV.
– They take out a million, so the balance would they now owe $1.2M, so they’re back to an 80% LTV.
– price drops to $1.2M at loan update, they’re under water. The bank has the option of calling in the loan, meaning you would have to top up the 20% or sell. If your credit depreciated in this process (likely), you would need to go to a private lender, and hope they’ll accept a 0% down, with a premium payment. Banks haven’t needed to do this in most of Canada in over 20 years, so it’s hasn’t been tested.
Most likely the government would slash interest rates to preserve values if this was a wide problem (which is a disaster in the waiting).
Polos says he does not give two shits about housing exuberance. BoC is concerned with macro not maintaining over inflated housing. BD4L.
When will the bubble birst?
Bubble already burst in 2017, it’s just in a process of fluctuations before it accelerates in 2019. 2018 is a period of highs and lows with people debating if we are in a momentary pause, or will it go down further.
2018 in Canada is eerily similar to 2007 in US. Market in US peaked in Q1 2006, fluctuated in 2007, and was in full crisis by Q2 2008.
a bubble implies there is no demand, which there is. buyers sitting on the sidelines hoping for
a break in the rise. irrational exuberance may be a better term to describe. Canadians love to own homes, almost more than any other country
A bubble is marked by a deviation from the mean which is lacking fundamental support. In fact I would counter to suggest a bubble implies there is too much demand and asset values are increase not on fundamentals but intangible factors. Also bubbles are not related to asset demand but demand for the transnational currency gets cut off once the ‘smart money’ begins pulling the plug. Don’t confuse demand for the asset with demand for the ability to consume the product. Nothing in this world is free. BD4L.
learn some basic economics Pattycakes.
So what is the big deal here? As a previous Mortgage Broker, I suggest to that a second mortgage is NOT the way to withdraw equity. Why pay increased 2nd mortgage interest rates when you can refinance at a lower rate? As to a bubble in Canadian housing prices, this is a myth. There are easily over 30 million people in the world outside of Canada with a networth of more than a million dollars who would like to live in Canada. We live in the best country on the planet (in a variety of categories) and you would be a fool to realise those who can will come here to live. Canadians need to awaken to the fact that we are very lucky and privalidged individuals who take far to much for granted. Stop whining about your lot in life and get on with living it…
Iain Palmer – “We live in the best country on the planet.” Not for long.
“Canadians need to awaken to the fact that we are very lucky and privalidged individuals.” There was nothing “lucky” about it.
“As to a bubble in Canadian housing prices, this is a myth.”
Reminds of the saying, the greatest trick the devil ever pulled was to convince the world he didn’t exist (i.e. it’s a myth)! 😉
“There are easily over 30 million people in the world outside of Canada with a networth of more than a million dollars who would like to live in Canada. We live in the best country on the planet (in a variety of categories) and you would be a fool to realise those who can will come here to live.”
Wow, talk about anecdotal evidence! Really, 30 million HNW people who want to live in Canada? Can you kindly direct me to a link that supports even a fraction of that number?!
Because the last time I checked, the number of HNW individuals coming to Canada annually was in the 1000’s and there’s no shortage of them having their families living in Vancouver in $3.5M homes collecting welfare!
I reckon most HNW individuals coming to Canada aren’t coming or investing in the country because Canada is “the best country on the planet” or contributing to the economy, rather they move to or invest in Canada because of our ridiculously lax tax laws… Canada is one of the best tax havens in the world, to the detriment of its taxpayers, not one of the best countries on the planet!
That is slowly changing as the CRA is finally catching on and going after more and more people, so this was a temporary multi-year phenomenon that has come to an end. I know plenty of HNW individuals wanting to get out of Canada and plenty of low-net-worth low-skilled people trying to get into Canada but I haven’t come across a single HNW individuals wanting to move to Canada (this is of course anecdotal as well but true nonetheless).
Iain Palmer – classic example of an uneducated scamming mortgage broker folks
The article didn’t mention this at all and it’s extremely important, but I’m guessing these are CMHC originated mortgages only?!
In other words, does this data include private 2nd mortgages or second mortgages from major institutions where the 1st mortgage was not on CMHC’s books?
Obviously this makes a huge difference since more and more people are being forced into the private lending market (started in late 2017 and accelerated in 1st half of 2018).