Time for your weekly cheat sheet on this week’s most important stories.
Canadian Real Estate
Most people know the US real estate crash started with subprime lenders. Most don’t know most defaults were people with good credit, using subprime lenders. The same trend is hitting Canada, with investors going to private lenders as well. For those that don’t know, a private lender takes people looking for more risk than a bank would accept. For this privilege, they charge a premium on the interest rate – making it much more expensive than traditional bank financing.
The government doesn’t collect info on private mortgages, but there’s an interest correlation brewing. Private mortgages are one of the few segments of mortgages with dollar volume growth in 2018. Nearly 1 in 5 new Toronto condo investors were paying interest typical of a private lender. There’s a good chance Canada is seeing investors using subprime lenders, replicating the setup in the US.
Canadians are increasingly looking to private lenders to sidestep traditional bank regulations. Private lenders now represent 7.87% of originations in Ontario, a massive 37.8% increase from last year. Over $2.09 billion in private mortgage originations occurred in Q1 2018, up 2.95% from the previous year. The last point is interesting, since originations saw dollar volume declines in other segments.
Mortgage stress tests are eliminating the country’s most indebted borrowers. Mortgages to households with a loan 450%+ the size of their income peaked in Q3 2016, at 18.87%. Stress testing borrowers begun in the next quarter, leading to an immediate decline. The industry is complaining that stress tests are “ruining” the mortgage market. However, they really should be celebrating the improved loan quality.
The Teranet-National Bank of Canada HPI shows prices across the country rose in May. The price of a typical composite home is now 4.48% higher than last year, but gains are decelerating. The 4.48% is a rapid taper from the 14.46% peak we saw less than a year ago. The trend of decelerating price gains was most notable in Toronto, where prices went negative for the first time since 2009.
Toronto Real Estate
The price of a detached home is much cheaper than it was just last year. The Toronto Real Estate Board reported a typical detached now costs $934,100, a 10.19% decline from last year. In the City of Toronto price fell to $970,800, an 8.6% decline from last year. The percent might seem a little abstract, but it adds up to over $100,000 dollars. Great news if you’re a buyer, a tough pill to swallow if you bought last year.
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