Time for your cheat sheet on this week’s most important real estate news.
Canadian Real Estate
It’s a common belief that poor people bought too much house, and crashed the US real estate market in 2008. New research shows, that wasn’t the case. A team including a US Federal Reserve economist poured through default and credit data from the period, and found there’s little evidence that shows this was a subprime borrower issue. It was an investor led issue, run by borrowers with good to excellent credit scores.
People buying homes to actually live in went on the slide during 2002 to 2006, when prices climbed the most. More people with good to excellent credit decided to buy additional homes, to try and cash in on climbing home prices. When the bubble popped in 2008, subprime borrowers actually became a smaller segment of defaults. Those with higher credit scores made huge jumps in defaults however. It turns out the US real estate bubble was driven by middle class investors/speculators, taking out loans at subprime lenders. Not subprime borrowers taking out subprime loans. How does this change how we view the Canadian real estate market? A lot. Don’t worry, we break it down.
Canadian debt levels are hitting record highs, but parliament isn’t giving the issue much attention. No, this isn’t wilful negligence. The data they’re using shows that the household debt service ratio, which is the amount of income devoted to paying debt, is only 14.17%. That’s a 5.15% decrease from 2007 Q4, the all-time high, and only 1.06% higher than the 5 year trend. The reason is low interest rates. Canadians have never paid so little, to borrow so much.
Real estate prices have spiked across Canada this year, and so has borrowing against that increased value. The total of loans secured with residential real estate at Canadian banks is now $279 billion. That’s a rise of 9.92% ($25.4 billion), which is huge growth. To give some context, regulatory filings going 5 years back have never seen 12 month growth exceed 5%.
Land registry operator Teranet released their monthly numbers, and home prices across their 11 city index slipped 0.47% in November. Prices remain 9.19% higher than the same month last year, but are still down 2.22% from peak gains made earlier this year.
Toronto Real Estate
Toronto detached real estate had a cooler than usual November. The price of a detached home in the city is now $1,088,200, a 2.86% increase from the same month last year. Prices are moving just a bit above inflation at this point, a big change from double digit gains made earlier this year.
Much of this has to do with the increase of inventory, which is a lot higher than last year. November saw 7,420 new listings, a 45.23% increase compared to last November. The total number of active listings at month end hit 10,600, a 146.74% increase. Last year we saw a record low, so an increase was expected. This however, was more than most people anticipated.
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