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Sales and prices in Toronto’s real estate market are soaring

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Sales and prices in Toronto’s real estate market are soaring After last year’s record meltdown, Toronto’s housing market came roaring back to life last month as the annual spring selling season produced a jump in both sales and home prices. According to data released Wednesday by the Toronto Regional Real Estate Board, on a seasonally adjusted basis, the number of house sales in Canada’s most populous city increased by 27% in April compared to March. Outside of the recovery from the Covid lockdowns in 2020, it is the largest monthly gain in the previous two decades. In April, the average price of a property in Toronto, which is C$1.11 million ($815,000), was up 2.4% from the previous month. This increase completely reversed prior drops in pricing for the year, with prices being 0.5% higher overall. According to Toronto real estate agent Tom Storey, “this is seasonal activity in the way things typically happen, but the difference this time is that inventory is not just low but extremely low.” There was a lack of listings because “sellers didn’t want to put their property on the market in a market they were told wasn’t very good.” After a historic drop in prices in 2017 due to the Bank of Canada‘s aggressive rate rises, prices have already begun to rise again. With the central bank on hold, buyers have returned, refocusing attention on the severe lack of inventory that made Canada’s real estate market so competitive in 2017. “As demand for ownership housing has picked up relative to supply, we are seeing renewed upward pressure on home prices,” said Jason Mercer, the real estate board’s senior market analyst, in a news statement accompanying the study. He claimed the “persistent lack of listings” is making it harder for people to purchase homes. National Bank of Canada said in a research note on Wednesday that the amount of new listings entering the Toronto market lags considerably behind the growth in sales, at only 2.8%. That resulted in a 12.3% decrease in the inventory of homes for sale, which had been building up over the previous year, and left the city’s active listings to sales ratio, a metric of buyer competition, tighter than the historical norm, as noted. Supply shortages and price increases aren’t exclusive to Toronto’s real estate market. Vancouver, historically one of the most expensive markets in the nation, also witnessed a 2.4% increase in its benchmark price last month. According to Vancouver Real Estate Board Director of Economics and Analytics Andrew Lis, “the issue remains a matter of far too little resale supply available relative to the pool of active buyers in our market,” as stated in a press statement on Tuesday. After a difficult year, “home buyers are returning with confidence as evidenced by rising prices and a rebound in sales this spring” Related posts 11 May 2023 Sales and prices in Toronto’s real estate market are soaring Sales and prices in Toronto’s real estate market are soaring After last year’s record meltdown,… 11 May 2023 Rise in Toronto’s Home Building Costs Rise in Toronoto’s Home Building Price Even if inflation in Canada has slowed, the price of constructing… 05 May 2023 Toronto and Vancouver Home Prices Rise Like Mortgage Credit Toronto and Vancouver Home Prices Rise Like Mortgage Credit Home prices increased dramatically last month… 29 April 2023 To Avoid Defaults, Canadian Banks Extend Amortisations 35 Years To Avoid Defaults, Canadian Banks Extend Amortisations 35 Years What is Canada’s secret for having… 24 April 2023 Canada’s Cheap Mortgage Credit Drives Real Estate Prices… Again Canada’s Cheap Mortgage Credit Drives Real Estate Prices… Again Everyone in Canada is trying to determine… 14 April 2023 Canada maintains 4.5% interest rate, What’s next Canada maintains 4.5% interest rate, What’s next? The Bank of Canada will reveal its decision on… 11 April 2023 TRREB: GTA Competition increases due to tight market conditions  TRREB: GTA Competition increases due to tight market conditions In March 2023, the Greater Toronto Area…

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Canada’s Bank Regulator Wants Tighter Real Estate Risk Rules

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Canada’s Bank Regulator Wants Tighter Real Estate Risk Rules More stringent rules on mortgage borrowing could be on the horizon for Canadian homebuyers. The Canadian banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued a call for comments on proposed new regulations. This intended to limit banks’ use of leverage and lessen their exposure to risk. Risk instruments like the stress test have proven their worth. Now they’re looking to fill any holes that have opened up because of this.  Possible Income-Based Loan Limits for Canadian Mortgage Borrowers There may soon be limits placed on how much money an individual or family can borrow in relation to their income, known as loan-to-income (LTI) or debt-to-income (DTI) ratios. The level of household debt as a percentage of disposable income is expressed as the LTI ratio. A loan-to-income (LTI) ratio of 200% indicates that the borrower has taken on debt equal to twice their annual salary. Borrowers are termed overleveraged or heavily indebted when their LTI ratio for their mortgage is 450% (4.5x income). If a borrower’s balance drops below this critical point, they are at risk of a financial crisis. There are currently no limits placed on the total amount of loans at this tier. OSFI research indicates that the Q3 2022 will witness over one-third of all new mortgages issued to borrowers who are already in financial distress. However, since the beginning of the epidemic, highly leveraged borrowers have become a larger portion of the market, despite the fact that their share has dropped from 40% to 20%. OSFI is considering a change in this by implementing a “high LTI threshold” of 4.5x for mortgages. This wouldn’t get rid of them because there are buyers out there. These buyers have high incomes and good credit histories for whom lenders consider them lower risk. The proportion of these mortgages that the lenders can be capped at 25%. It’s better than the pre-crisis average of 23.8 percent. However, it still implies 8.7 percent of recent loans wouldn’t have been as large as they were in the most recent reported quarter. The predicted result is a lessening of leverage, which should make the system more resilient to shocks. In addition, it would reduce leverage, so limiting the market’s overall capacity. Given the rise of highly leveraged speculators who are outbidding end consumers, this is likely a positive development. New Zealand just instituted a similar policy, and it’s having a major effect. While not quite as significant as increased interest rates. Debt Service Coverage Regulations Aim to Curb the Plight of Overleveraged Mortgage Borrowers The OSFI is also thinking about imposing debt service coverage requirements, which would cap financial commitments at a specific percentage of income. In the case of insured mortgages, federally supervised lenders already deal with these. Gross debt service ratios are used to make sure that mortgage payments for insured borrowers do not exceed 39% of monthly gross income (GDS). Using a debt service ratio, total monthly debt obligations (including mortgage payments, car payments, and student loan payments) cannot exceed 44% of income (DSR). “Beyond those requirements, B-20 does not articulate limits on GDS and TDS for uninsured mortgages and generally permits FRFIs to establish debt serviceability metrics under their RMUPs that facilitate an accurate assessment of a borrower’s capacity to service the loan,” according to the industry consultation documents. To put it another way, neither GDS nor TDS impose any restrictions on federally chartered lenders in regard to uninsured mortgages. Risk management strategies should include a prohibition on irrational lending practices. There is, however, no universally applicable rule or policy that applies to all federal loan providers. OSFI is mulling over a policy shift that would see comparable regulations applied to lenders. It could be targeted at the borrower specifically or implemented across the board for all of the lenders. To that end, they advocate for capping amortisation periods at reasonable levels. The end goal is ostensibly another limit on leverage in case a borrower circumvents the others, albeit this one might not have as much of an effect. Consumer loans in Canada, such as auto loans, could be subject to a revised stress test The traditional “mortgage stress test” has been updated to include interest rate affordability testing. The amount of leverage a mortgage borrower can use is currently limited by a minimum qualifying rate (MQR). People tried to fit themselves into the one-size-fits-all approach, but ended up switching to variable-rate mortgages in search of a better interest rate. Many borrowers with variable rates are now paying interest rates higher than the stress test rate, so that strategy didn’t work out so well. To mitigate this threat, OSFI is considering implementing multiple MQRs depending on the specifics of each product’s risk profile. Consider the fact that a mortgage with an adjustable interest rate has proven to be riskier than a mortgage with a fixed rate. The qualifying rate would be lower for longer fixed terms since there is less potential for payment shocks. It would be fascinating if the regulator also considered testing for consumer debt payments. They imply that it may be necessary to explicitly emphasise the necessity of comparing the stress test rate to the TDS ratio, which is not currently done. Conclusion Soon, a stress test could be implemented for retail loans. Non-mortgage retail financing could be subjected to a stress test, according to the obliquely phrased consideration. Retail lending that is not secured by a mortgage, such as car loans, has been on the rise as record highs are approached. This isn’t such a bad plan. Despite common misconceptions, OSFI’s input time isn’t for mere consideration. They are answers to problems that they may not have fully explained to the general audience. There is more of a “why shouldn’t we do this?” tone to the discussions. There seems to be no reasonable explanation for the sudden rise in the prevalence of excessive leverage in the property market. Further underwriting policy is

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Fitch Ratings: Canadian Real Estate Prices to Drop Double-Digit, Delinquencies Rise

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Fitch Ratings: Canadian Real Estate Prices to Drop Double-Digit, Delinquencies Rise According to a major credit rating agency, the decline in the value of Canadian real estate will continue into next year. The 2023 projection that was provided by Fitch Ratings predicts significantly lower property prices for the following year. After three decades of steady price growth with no signs of abating, the affordability of housing is at an all-time low. When high rates are included in the equation, a decrease in demand is likely to occur in the near future as housing prices adjust. It is also anticipated that the cooling market will create a significant increase in the number of delinquencies. It is anticipated that prices of Canadian real estate will drop next year The recent prediction of declining real estate values across Canada was made by Fitch Ratings, the most recent company to make such a prediction. It is anticipated that prices will drop by between 5% and 7% in the year 2023, representing a nominal decrease of 15% from the peak to the trough. When inflation is at such a high level, it is essential to emphasise the importance of nominal terms. It is anticipated that prices would resume their upward trend in 2024, albeit at a slower pace than usual. The Rate of Canadian Mortgage Defaults Is Expected to Sharply Increase The percentage of Canadians who are behind on their mortgage payments is expected to climb dramatically during the next few months. The Fitch Ratings prognosis for the delinquency rate in 2023 is 0.25%, which is an increase of 11 basis points (bps) from this year’s projection. The increase is quite dramatic when one considers that it indicates more than a 75 percent increase in mortgage delinquencies. The rate is still quite low, and it is mostly compensating for the historically low rates that are typical of bubbles. Indeed, there is a low rate of delinquency in bubbles. According to the company, there is no justification for going into default if the residence is sold in a matter of days or less. If the market is doing well, a borrower who is having trouble can sell their home and avoid going into default on their mortgage. Fewer people are willing to acquire that property at this price since it is not affordable for them, and demand is not particularly strong. In most cases, this is what causes an increase in criminal behaviour. Homeowners in Canada are sitting on a mountain of equity, which will help keep interest rates from becoming unreasonably high. They have the ability to draw on or borrow against, that equity if they find themselves in a difficult situation regarding the cost of living. It also means that they will have a lower risk of entering a scenario in which they have negative equity and the lender forces them to sell the property. According to the projection made by the company, lenders have also been collaborating with borrowers. Numerous current borrowers have been receiving amortisation extension offers from financial institutions. It will set you back more money, but the higher interest rates will make it less likely that you will default on your payments. The latest company to make these predictions is Fitch Ratings, which sees a decline in housing prices and an increase in defaults. Companies such as BMO, Oxford Economics, and RBC have all predicted more significant price declines in the future. This is most likely attributable to the more pessimistic outlooks that those companies have in contrast. If the economic contraction is more severe than expected, Fitch anticipates a further fall in prices.

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Most Canadian peak purchasers with a low downpayment are underwater

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Most Canadian peak purchasers with a low downpayment are underwater Peak purchasers in Canada are in for a difficult time as the real estate bubble bursts swiftly due to rising interest rates. According to the latest numbers released by the Canadian Real Estate Association (CREA), the national market peaked that year, in March. We calculated how much equity purchasers from that month would have accrued as of the present. Most people who bought a house at the pinnacle of the market last month are already underwater. NEGATIVE EQUITY MORTGAGES AND LOAN-TO-VALUE RATIOS RATIOS When the mortgage’s LTV is more than the property’s current value, the borrower is said to be “underwater.” In layman’s terms? In the event of default, the home’s worth wouldn’t be enough to pay out the mortgage. The situation is complicated for the lenders because they have no collateral for their loans. Canadian mortgage borrowers typically have large amounts of equity, leading to low loan-to-value (LTV) ratios. A fee must be paid by underwater homeowners in order to sell their property. No matter what the value of the home used as collateral for the loan, they are still responsible for paying down the remaining balance. Lenders must make up the difference by providing additional funds. That doesn’t take into account any ancillary expenses associated with the sale (such as commissions for real estate agents, legal fees, moving charges, etc.). Our focus today is on the markets where first-time peek purchasers would be at a significant disadvantage. In this case, we use the all-time high in the country, which occurred in March of 2022, just before rates of interest began to climb. The majority of our mortgages are high-ratio loans that require little to no down payment. Markets where the median price of a property is over $1 million often require a traditional mortgage down payment of at least 20%. Increased safety net for creditors and debtors during economic downturns. INDICATIVE OF A NORMAL SUMMIT PURCHASER NEARLY 10% UNDERWATER ON CANADIAN PROPERTY Since peaking in March, the price of a composite benchmark home has dropped significantly. In October, the average home’s price dropped to $735,400, a drop of 15.3% (-$132,900) from its peak. If they bought at the peak, a buyer who only put down the minimum would be 9.7 per cent ($71,100) in the red. To get out of the agreement, they would need to pay higher than they first put down. When looking at the key indices, the majority of the Canadian real estate markets (55%) share the same boat. If the same trend seen in October continues into November, investors who bought into 75% of the major indexes would be in the red. Homebuyers in Ontario should anticipate spending up to six figures if they need to cover repairs on a property they’re purchasing. When it comes to real estate, Ontario was once at the forefront, but now it’s at the bottom. The average buyer in Kitchener-Waterloo was $146,500 in the red in October. In second and third place, respectively, were Cambridge (-$140,000) and London-St. Thomas (-$137,000). Making six figures by selling a house in a small city at least an hour from Toronto sounds, to put it mildly, painful. CANADA PROPERTY VALUES A market’s lack of negative equity is no guarantee of success. Vancouver ($138,100), the Lower Mainland ($100,600), and the rest of British Columbia ($99,700) indexes would have the highest remaining equity. Even still, in March of 2022, the average home in those areas cost well over a million dollars. That means the bare minimum required for a down payment was $200,000. However, the amount of equity is less than what is required for a typical mortgage, therefore it is not necessarily a profit. That can create complications if you decide to switch mortgage lenders. SOME CHEAPER MARKETS HAVE CONTINUED TO GROW AS CREDIT HAS BEEN MADE MORE AVAILABLE THERE Despite the general trend downwards in the real estate market since March, not all major areas have experienced declines. Equity contributions increased in Prince Edward Island, Bancroft, and Newfoundland. All of these communities have median home prices that are less than $500,000, making them accessible to a wide range of buyers. It’s debatable whether it’s worth that much. *Markets, where the composite benchmark price was over $1,000,000 in March 2022 just, weren’t eligible for high-proportion mortgages, and consequently required a 20% downpayment, leaving most of Canada’s peak real estate buyers underwater. The only people who should be worried about a company with negative equity are the investors. Large mortgage companies rarely evict customers who are current on their payments. They are only interested in the interest payments, not the actual residence. Default is not a major problem if you want to stay in the house for 10 years or more. The banks are safe too because the loans are typically guaranteed with only a modest down payment. It’s an inconvenience, but the borrower forked over a fat insurance premium to cover the bank. However, the borrower is still responsible for the entire balance. If the investors’ business case shifts, they are in much more of a bind. Many would-be landlords chose negative equity investments with the expectation that future gains would cover initial outlays. Rising rents should assist, but interest rates are rising and equity is being eroded at an alarming rate. As a result, some investors may decide to cash out or double their bets. Since investors accounted for a quarter to a third of the market, substantial losses are possible. Especially considering additional obstacles, such as international mortgage legislation and increasing interest rates. The Bank of Canada issued a warning about the increasing difficulty of navigating the current level of risk just yesterday. It won’t be a massive problem, but it also won’t be simple. Related posts. How does a home warranty differ from an insurance policy? Read More Deposit Protection Eases Homebuying Stress Read More Importance of the performance audit Read More How can Home Warranty Guard You Against Unexpected

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