Yeah, yeah – you wanted to read all of the stories this week but you were too busy. No worries, because we’ve summed up the best content of the week, and summarized it for your time-constrained reading pleasure. It’s like Cliff Notes for a week of real estate news.
One of Canada’s Largest Mortgage Lenders Just Imploded, Here’s What Happened
Home Capital Group, one of Canada’s largest mortgage companies found itself suddenly short on cash. The company experienced over $591 million in withdrawals from their high interest savings account, leaving the company to seek a credit line. HCG, which engages in subprime loans, found a lender that would give them $2 billion in credit. Great! Except the terms of the loan are 10% interest on the capital withdrawn, 2.5% interest on non-withdrawn cash, and a $100 million charge on the loan. Some people think this is enough to turn the company around. Not sure exactly how a mortgage company paying 10% on a loan, can make money when the average mortgage is less than 3% right now.
Mortgage Defaults Don’t Indicate A Real Estate Bubble, A Lack of Defaults Do
Mortgage defaults don’t happen before a market crash, they happen after. A common argument is that people should worry about the market when a substantial amount of mortgages fall into arrears. Turns out it’s actually the opposite, mortgages in arrears actually fall to a low before prices decline. The reason is simple, strong buyer demand provides a highly liquid market. If someone falls behind on their payments, they can list the home and sell it within weeks for a profit.
Conversely, if prices decline there’s a lack of buyers. This means it’s harder to sell your home on a whim if you fall behind on payments. Even if you do manage to list it, it may take months to actually liquidate it. Mortgages in arrears during the last Toronto bubble didn’t spike until the second year after prices declined. The same trend was observed in BC.
More People Are Buying Toronto Real Estate That Shouldn’t, and Half Are At Risk of Defaulting
The FOMO is real. Insane profits being realized by some homeowners are inspiring a lot of people to hop into real estate. If you’ve got the capital to lose, it’s not a big deal. However, according to the Ministry of Finance less people are able to make substantial down payments, and are taking out high-ratio mortgages (less than 20% down). Even worse, the Bank of Canada has determined that almost half of these loans are from people with far too little income to be carrying such a large loan.
Sorry Vancouver, But Toronto Is The King Of Risky Mortgage Debt
Soaring real estate prices are just too tempting to stay out of the market. As a result, more Canadians have been taking the leap into homeownership, regardless of whether or not they’re ready. According to a Bank of Canada and Ministry of Finance joint data, this trend is growing at an alarming rate. Almost every urban centre has seen high-ratio mortgages, combined with low income to loan values across the country.
Vancouver Condo Market Sees Prices Increase, Despite Less Sales
No rental vacancy, and houses are insanely expensive for locals in Vancouver, so what do they do? Scramble to buy a condo! Despite less sales this year than last, locals are engaging in heated bidding wars over condos. Inventory fell in line with the decline of sales, leaving the market at the same level of relative demand as last year.
Toronto Condo Prices Were Up 23.98% In March
Toronto condos saw prices climb over 23% year over year in March. The increased prices come with increased sales, and weaker inventory than last year.
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