Canadian real estate markets may be on fire, but don’t let that fool you into thinking everyone’s made money. Canada Mortgage and Housing Corporation (CMHC) warned first-time homebuyers in April to be careful about jumping in. Despite a lot of real estate agents mocking the organization, the agency was mostly right. Typical condo buyers in Toronto or Vancouver in May, are most likely down more than a downpayment in December. Let’s take a look at these returns.
About The Calculations
Today’s calculations will be estimates of how much first-time buyers made (or lost) if they went against the CMHC’s advice. The estimate uses a 2.0% mortgage rate, with a 25-year amortization, and the benchmark price. The minimum downpayment is used, which is sometimes a little higher than 5% due to prices. Also included in the second set of numbers is the mandatory cost of mortgage insurance.
It’s important to note that these aren’t a comprehensive list of costs, nor value assessments. Big hits like transfer fees aren’t estimated, and neither is legal or maintenance. Interest payments aren’t included as a loss either, but the principal contribution is included for the purposes of equity calculations. The investment losses would be much larger if forced to sell, or one needs to move. Especially in the case of regions with a shortage of equity, that would require the owner “top up” to sell. Yes, there are people that are so broke they can’t even sell the home they live in. Even in a hot market.
The ROI On A Minimum Downpayment Is Negative In Toronto and Vancouver
First, let’s look at the return on investment for your downpayment, since that’s how many agents sell condos. “Think about the leverage!” Across TRREB, a benchmark condo buyer last May would have lost 147.95% on their downpayment. In the City of Toronto, a benchmark buyer would have lost 169.29% of their downpayment. Great reminder that leverage works both ways.
Canadian Condo Downpayment Return
The estimated return on downpayment for May’s benchmark condo buyers in Toronto and Vancouver in December.Source: TRREB, REBGV, Better Dwelling.
Greater Vancouver buyers did a little better, but it depends which half of the City you bought in. REBGV’s May benchmark condo buyers would have made a 76.88% loss by December. In Vancouver East, the return over the same period comes in at a slightly better 59.25% loss. Vancouver West is closer to Toronto, with the loss working out to 140.73% by December. Vancouver West underperforming the rest of Greater Vancouver, is a recurring theme these days.
Toronto Condo Buyers Most Likely Have Negative Equity
Including the payment made towards principal, the equity retained would still be negative in Toronto. In TRREB, a benchmark buyer would be in the hole by $3,805, or have negative 0.66% of value. In the City a benchmark buyer would be a little worse, down $10,792, or about 1.81% negative equity. Yes, these buyers are likely now negative equity.
Canadian Condo Buyer Estimated Equity
The estimated equity May’s benchmark condo buyers in Toronto and Vancouver have, after making payments until December.Source: TRREB, REBGV, Better Dwelling.
Vancouver Condo Buyers Are A Little More Mixed On Equity
Greater Vancouver is a little more mixed, with West Vancouver doing significantly worse. REBGV benchmark buyers would have $19,1983 in equity, or about 2.95%. In the City, Vancouver East condo buyers would be around $22,613 equity, or about 3.80% left. Vancouver West is the only negative region with a loss of $2,331 over the period, and negative 0.31%. Despite paying the bills for months, Vancouver West condo buyers still don’t have equity. Other areas in the Greater Vancouver region are doing a little better. Just not overwhelmingly positive, like some of the narratives imply.
Yes, the market is unusually active as lower interest rates pull more buyers forward. There’s a record number of home sales in almost every market in the country. However, sales volumes and prices are two totally different things. It’s been popular for agents on social media to dump on the forecasts made by the CMHC, which may be off by a few points. Telling the future isn’t easy though, and their initial assertion that first-time buyers should be careful is still a valid one.
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