Canada

Toronto and Vancouver Condo Buyers Warned by CMHC Still Getting Slaughtered

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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20 Comments

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  • V 3 weeks ago

    But will they also be right about detached homes falling too?
    That’s the prediction a lot are waiting for. More vaccinated people = more house for sale.

    • Mortgage Guy 3 weeks ago

      It’s fun to watch the industry narrative shift, and buyers not understand it.

      Originally it was “only detached prices are falling, now buy a condo!” Now a few months later it’s look at the detached, no one wants a condo.

      Unfortunately if you bought in one of those segments, you can’t switch to the other as soon as the agents can switch the narrative.

  • Patrick 3 weeks ago

    Strata fees are almost as high as rent now. People are strictly buying for capital appreciation, which is usually not a great idea. High stakes gamble. Good luck to all.

    • Sideliner 3 weeks ago

      If you don’t mind sharing: What are the typical strata fees for a condo? (I have never lived in a condo in Canada)

      • Bibou 3 weeks ago

        Check on realtor sites in the region you are interested in. Fees and taxes are disclosed for properties on sale.

      • M 2 weeks ago

        There is no such thing as typical as it depends on the size of the condo, the location etc. When I was looking for a 1 bedroom condo I was regularly finding some at around $400K with $300 monthly strata fees. I was looking in Burnaby, East Van areas.

      • Why Complain 2 weeks ago

        Usually $300CAD/month or thereabouts, depending on your unit size and building.

        • Mortgage Guy 2 weeks ago

          $0.50 – $1.00 is usual, so up to $600 for a one-bedroom in Toronto, $1,200 for 3 bedroom. That’s regular buildings. Luxury or hotel hybrids I’ve seen go up to $1.75-$2.00.

          It’s not cheap to maintain large community systems, and it usually gets more expensive as it gets older. Some better quality luxury buildings from 20 years ago are around where some new buildings are though. That should tell you what good management can do, vs investor driven management.

      • Alex 2 weeks ago

        Not unusual to see condo fees at $0.40-0.50/sq.ft. in Vancouver. So a 1000 sq.ft. condo could cost $400-500/month in fees. Depends on what the amenities are. Underground parking, security officers, pool, gym, gardens, building maintenance, heating, gas bills, and more, are all factors that come into play.

      • M.Bury 2 weeks ago

        On top of the fees, a resident could be hit at any time with a $10k bill or more to fix a major problem or a renovation of say, the lobby and hallways or the exterior façade.

    • Laurence Chang 2 weeks ago

      Due to the pandemic, there are more condos for sale. I was surprised when I searched condos in downtown Toronto. Still above 600k for a condo smaller than 500 sf. Still cannot afford it. Are there really so many rich people in Toronto. From TV, there are more people to visit food banks.

  • V 3 weeks ago

    Too much!

  • Dave 2 weeks ago

    Crazy compared to the rest of the world. On average I would say $350/mo. in a well managed building is a “good deal” – some buildings can go as high as 800 or even over 1000 for ~750sq ft. Depends a lot on all the usual factors (size, age, overall condition, etc.) But really makes you wonder when cities like Montreal seem to have much much lower fees on average… Nevermind Europe where our monthly expenses would roughly equal a year’s worth over there.

    • Julia Szwet 2 weeks ago

      I have been browsing the condo listings. Starter condos without amenities have fees in $250 to $350 range. As the condo price and the amenities increase so do the fees. I’ve noticed some as high as $450.

  • George 2 weeks ago

    This article is misleading. As long as you still own the property, you haven’t lost anything.

    • RM 2 weeks ago

      … if that’s how you’re viewing money you are not investing. The opportunity cost alone of not being invested in appreciating assets is a problem, let alone the massive returns the stock markets saw over the same period.

      In fairness, the only factor that’s not being considered here is the income the unit could have produced or the offset of living expenses if you’d been living there. Strictly speaking though, it’s a terrible investment and has been for years.

      • Enough already 2 weeks ago

        I could be wrong, but I think the previous person was referring to people who actually LIVE in the units, not invest.

        Honestly, the idea that real estate is an investment needs to stop. That’s what’s pricing out people wanting to enter the market, and arguably more important, couples and young families.

        Real estate should be to LIVE in, NOT invest.

    • brad parma 2 weeks ago

      Its like wearing your dirty underwear for another 30 Days! As long as you are wearing it; it’s Not Dirty!

    • DVE 2 weeks ago

      The article is pretty clear and not misleading to me.

      “Canada Mortgage and Housing Corporation (CMHC) warned first-time homebuyers in April to be careful about jumping in.”

      “Today’s calculations will be estimates of how much first-time buyers made (or lost) if they went against the CMHC’s advice. ”

      The articles just saying condo prices fell n% of that min downpayment. And benchmark negative equity. Excluding all fees which I think is generous. Overall price fell to the point you would technically own more of your condo if you didn’t even buy it in the first place, so yes lost even if you still own the property. More money > less money I think we can agree.

  • mv 2 weeks ago

    Condo prices in Vancouver have been decreasing since the 2017 peak. But I’m curious – what is your methodology for calculating the estimated returns on downpayments that you have listed above?

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