Time for your weekly cheat sheet on the most important stories in Canadian real estate.
Canadian Real Estate
The Bank of Canada (BoC), Canada’s central bank, has determined that Canadians prefer to leave the smallest down payment possible. In 2016, 18.04% of new mortgages had a loan-to-value ratio of 95%. This is the absolute smallest down payment buyers can leave for a high-ratio mortgage. Also that year, 23% of new borrowers had a loan-to-value ratio of 80%. This is the absolute smallest down payment a borrower can leave for a low-ratio mortgage. These two segments of borrowers represent over 40% of the mortgage market. That’s good news for banks, looking to extract the largest amount of interest payments from homebuyers. Bad news for buying behavior, since this means stress testing can have a larger impact.
Non-regulated financial institutions (NRFIs) are playing an increasing role in Canadian real estate. Using the mortgage securitization pool, a Bank of Canada analyst has determined that 14.42% of mortgages were securitized by NRFIs in 2013. This beats the previous high of 12.99%, established in 2010. The fact that these lenders are not-regulated may sound risky, but BoC doesn’t believe that’s the case here. NRFIs analyzed, targeted qualified borrowers with the lowest rates, this means they got the highest quality applicants. Since they’re vetting their own risk, and participating in the same government backed securitization pool – these loans are at least a similar quality to those given by regulated banks.
Canada’s house wealthy, aging population is turning to reverse mortgages to make up a shortfall in retirement savings. In October 2017, the total of reverse mortgage debt in Canada rose to $2.175 billion, up 2.02% from the month before. This represents a 22.27% increase compared to the same time last year. Reverse mortgage debt may be the fastest growing segment of debt in the country, and it’s currently only offered by one lender… for now.
Toronto Real Estate
Toronto real estate had record low inventory last year, but that could change quickly. Modeling against the number of projects with shovels in the ground, we determined over 57,674 residential units should complete across Greater Toronto in 2018. To give an idea of the scale, Greater Toronto forms an average of 29,241 households per year. Since this is way more supply than can physically be used, we should see prices drop in the condo segment since quite a few of these will be flipped back into the market. The supply tsunami cometh.
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