Time for your weekly cheat sheet on the most important stories in Canadian real estate.
Canadian Real Estate
Low-ratio mortgages, those with a down payment of 20% or more, are now subject to a stress test. Bank of Canada (BoC) estimates 12.37% of mortgages issued last year would not have passed the test. That works out to a massive 81,950 borrowers that would have to change their plans. It’s hard to see how this won’t reduce buying activity, especially on the higher end of the market.
The Fraser Institute, a non-profit think tank, crunched the numbers on density. They determined that Canadian cities rank relatively low for density, when compared to similar class cities. We wanted to see how that same list compares for economic output, to see if there’s any correlation between density and economic output.
Turns out Canadian cities rank even lower for economic output than they do for density. Vancouver, which ranked 13th for density, ranked 22nd for GDP per capita. Toronto, which ranked 19th for density, ranked 22nd for GDP per capita. What’s more Interesting, cities with less density, like Detroit, ranked higher on GDP per capita.
We re-ranked the Fraser Institute’s list of cities by density, by condo prices. Vancouver, which ranked 13th for density, ranked 9th for price per square foot. Toronto, which ranked 19th by density, ranked 11th for prices. There seems to be little correlation between density, and prices – especially since the list only included cities with similar living conditions. It’s also worth noting that other cities on the list with such a large disparity between prices and density, are currently seeing prices fall.
Stress testing may have seemed like a good idea when interest rates were low, but should it be in place while they’re climbing? Working with interest rate projections from the Parliamentary Budget Officer (PBO), we estimate mortgage borrowing rates. Currently the Bank of Canada’s 5 year rate is 4.99%, which is projected to rise to 6.6% by 2021. This will taper the amount households can borrow drastically, even when combined with incomes rising.
Combining that with income projections, we see how this cools borrowing without a stress test. The median household mortgage qualification across Canada is projected to rise to $442,168 by the end of 2018. By 2021, this should drop to $399,627, a 9.62% decrease. That’s assuming incomes continue to rise, and experience no setbacks.
Toronto Real Estate
Toronto real estate it still higher than last year, but increasing inventory and declining sales are putting a drag on price growth. The benchmark price, the price of a typical home, was $743,500 in December, up 7.43% from the year before. Active listings, the total number of listings were 12,926 in December, up 172% compared to the same time last year. Sales fell to 4,930 sales, an 8% decline compared to the same month last year. More supply and less demand typically leads to lower prices.
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