Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian Real Estate Is Worse Than Official Data Shows, BMO Revises Forecast Lower
BMO lowered its Canadian real estate forecast, now calling a double digit correction. The bank is seeing more listing terminations and failed closings, along with falling investor demand. Demand at these prices disappeared so fast, developers are now discussing canceling projects. Not the market people were discussing back in February 2022.
Canadian Cities Have Seen Investors Buy Up To 100% of Newly Constructed Condos
Canada’s real estate boom was heavily investor-driven, especially with new construction. We dug through ownership data and found most condos built after 2016 are investors owned. The owners might be landlords, wanting a second home, or just using it as a house-shaped deposit box. In any case, the “most affordable” housing option is majority investor owned. More funds will be diverted from end users for shelter, and expect a falling ownership rate.
Canada’s Mortgage Boom Is Almost Entirely Uninsured As Investors Take Over
Canadian mortgage debt is soaring and the growth is all uninsured credit. Uninsured mortgage debt reached $1.0 trillion in May, up 18.7% (+$160.2 billion) from last year. At the same time, insured balances fell to $0.4 trillion, down 7.0% (-$30.5 billion) over the same period. Since first-time buyers are typically insured borrowers, this should be expected. As RBC warned a few weeks ago, investors are replacing first-time buyers.
Many of Canada’s Peak Real Estate Buyers Might Already Be Underwater
Many of Canada’s peak real estate buyers might owe more than their home is worth. A typical buyer at the March 2022 peak bought at $868,100, down 6.7% (-$58,400) by this past June. Insured buyers would have spent more to borrow than the latest benchmark. As a large bank recently warned: hopefully you like the place you just bought. You might be stuck for a while.
Canada’s Rising Mortgage Rates Is Bad News For Borrowers, But Not The Economy: NBF
Higher mortgage rates won’t be the trigger for a recession in Canada, says National Bank. They estimate max leverage borrowers will lose 2.6% to 6.0% of their net disposable income to interest costs. That’s a huge amount, but most Canadian households don’t own a home. A large share have already paid it off and the rest are renting. At the national scale, the loss of disposable income is seen at just 0.65% for the next 3 years. That’s a lot smaller than the current rate of inflation doing more than 10x the damage.
Canada’s Variable Rate Mortgage Borrowers Aren’t In For The Mayhem Media Expects
National Bank doesn’t see a doomsday event for variable rate mortgage borrowers. Variable interest costs rise with interest rates, but most payments don’t. The borrower’s payment typically just sees less apply to paying down the principal. It’s not until rates hit the contract’s “trigger rate” that monthly payments rise. According to the bank, the average trigger rate won’t be hit this year. Some exceptions have already been seen, but definitely not the average case.
Canadian HELOC Debt Hits A 9-Year High For Growth, An Abrupt Surge In Borrowing
Rising rates didn’t deter Canadian homeowners from borrowing, but an invitation. That’s the takeaway from May’s HELOC data, showing the biggest growth in a decade. It’s just a small share of the home equity borrowed too. When including similar HELOC-like products, the growth rate triples. Borrowing equity in every possible way, and in a rush to do it as rates rise for reason.
Toronto Real Estate
Toronto Real Estate Developers Sold Zero New Single-Family Homes Last Month
Greater Toronto real estate is barely recognizable, especially compared to earlier this year. Developers sold zero new single-family homes in the City of Toronto last month. In contrast, buyers braved the cold in February to buy 45 during the scorching hot market. They’ve pulled back in the summer, as the market became frigid cold though. Eroding demand is helping inventory to recover, but it’s still not at pre-2020 levels.