Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s Real Estate Bubble Has Buyers Paying 2x The Mortgage Of Existing Owners
Canadian homebuyers are paying double the payments of existing homeowners. In 2021, the average homeowner’s mortgage payment climbed to $1,382 per month in the third quarter. The average homebuyer pays a whopping $3,139 per month, more than double what existing owners pay. It’s also a national average, with major markets having even large gaps. Young buyers and immigrants are paying more for housing than well-established households.
The Toronto Real Estate Bubble Now Has 1 In 59 Workers Selling Homes
Canada’s economy is dangerously addicted to real estate, and everyone wants in. Toronto’s real estate board reported 62,867 members in 2021, up 10% from last year. Pre-pandemic growth was already high, but this is double the rate. About 1 in 59 working adults in the city are now registered with the local real estate board. It’s the highest concentration of real estate agents in North America.
Canada Sees New Mortgage Payments Rise 12% As Low Rates Turn Toxic
Canadian mortgage borrowers have seen rates fall and took it as an invitation to borrow more. In Q3 2021, the average monthly payment on a new mortgage reached $1,621 per month. Payments have increased 11.7% from last year and are 20.3% higher than five years before. Existing mortgages also saw annual growth of 4.0% and 15.9% over the past five years. Low rates were supposed to improve financing costs, but not when people borrow more.
Most Of Canada’s Uninsured Mortgage Borrowers Are Betting Against Rising Rates
Canada’s central bank warned home buyers to prepare for rising interest costs. They’re calling their bluff, taking out mortgages with variable rates. In October, borrowers took out $34.3 billion of uninsured mortgages, 58% with variable rates. This is more than double the rate typically seen, and a bet the central bank won’t be able to raise rates very fast.
Canadian Subprime Real Estate Buyers Surged Higher Last Quarter
Canada has seen a surge in subprime home buyers from historic lows. In Q3 2021, subprime borrowers were 4.4% of mortgages issued, up 0.5 points from the previous quarter. The share is still low compared to historic numbers, but the volume also needs to be considered. Home sales are near record highs, and the share of subprime mortgages is rising. Buyers with bad credit are increasingly becoming a major contributor to the market.
Toronto Real Estate Is On Fire, But It’s Also Ontario’s Worst Performing Market
Toronto real estate has some of the fastest growing prices for any major global market. Home prices climbed 28.3% from last year, and have jumped 67.8% over the past five years. A massive climb, but it fails to impress in Ontario where the city ranks at the bottom of the list for growth rates. This says more about Ontario’s small cities than it does about Toronto.
Canadian Real Estate Provided Over 10% Of GDP Growth
Speaking of Canada’s real estate-heavy economy, it’s also a big share of GDP these days. In October, real estate and rental and leasing (RERL) provided 12.1% of gross domestic product (GDP). The segment has now reached $266 billion, representing 13.3% of Canada’s GDP. It’s a big share of the economy’s output, but the contribution is even higher. Industries like construction and finance are largely dependent on housing, contributing even more.
Canadian HELOC Payments Rise 6% As Dependence On High Real Estate Prices Deepens
Canadian homeowners are cashing in on their equity, with huge minimum payments. Households without mortgages now have an average HELOC payment of $594 per month in Q3 2021, up 6.1% from last year. Considering how much interest costs have fallen, this is a massive binge in borrowing.
Nearly All Canadian Real Estate Markets Saw More Subprime Buyers, Including Toronto
Almost every Canadian city is seeing a lot more subprime mortgage borrowers. In Q3 2021, the share of subprime mortgages increased in all but three cities across Canada. Southern Ontario managed to see the most with Windsor (6.3% of borrowers), St. Catharines-Niagara (6.3%), Sudbury (6.2%), Barrie (5.8%), and Peterborough (5.6%) all ranked in the top ten. Large climbs can be seen in almost all markets, as they bounce higher from the record low.
Canadian Household Debt Is Surging, And Previous Quarter Revised 3 Points Higher
Canadians are back to borrowing debt a lot faster than their incomes are rising. The debt to income ratio reached 177% in Q3 2021, up 2.1% from last year. In other words, households had an average of $1.77 in debt for every $1 they earned. A 3-point revision was also made to Q2, meaning the ratio is climbing faster than it looks. Improvements over the pandemic were temporary due to how disposable income is calculated.