Read the title here and we imagine that nearly all of you will correctly guess which 2 cities those are. Toronto and Vancouver have had grossly inflated real estate markets for years now, but it’s equally clear that homebuyers continue to wade into them just as they always have. The difference now, of course, is that in doing so they’re taking on mammoth levels of mortgage debt and collectively they are making it so that the vast bulk of mortgage debt in the entire country is for property in those 2 cities alone.
Here at Real Estate Leads, we’re keenly aware of how market dynamics influence the decisions realtors make regarding the best interests of clients. The current picture of what many will have to take on to buy a home in Canada’s 2 most-desirable locations is definitely something worth considering. Fewer ‘qualified’ buyers means less in the way of opportunities for realtors to gain legitimate clients. Our online real estate lead generation system for realtors is an excellent way to get more out your prospecting efforts there, and ever more advisable given this current state.
Impetuses to Buy
As the incentive to buy real estate increases – and most commonly because prices are seen to be rising fast – more buyers charge into the market. Many of them are determined not to ‘miss out’ on the profits that can come from home ownership. Many of these same people will turn to private lenders if they don’t meet the banks lending criteria. It’s certainly not advisable, but the numbers indicate that hasn’t deterred thousands of homebuyers from going this route.
Private lenders don’t report data to anyone, so the full extent of this form of ‘shadow banking’, if you will, isn’t entirely known. As a result, the numbers that Canadians owe 1.2 million in mortgage debt may be lower than the truth, and therefore a more rosy evaluation of Canadian mortgage debt.
Mortgage Debt Addiction
Canadians may have a bit of problem. Reliable data shows them collectively having $1.208 trillion in mortgage debt as of the end of 2017. And yes, the highest concentrations of that big mortgage debt are in Vancouver, Toronto, and Montreal. Toronto households in particular owe more than $268 billion, which works out to roughly 22% of outstanding mortgage debt.
Vancouver households come in at $133 billion, accounting for 11%. Montreal households owe more than $118 billion, working out to 9.79%. The sum of all 3? 42.79% of all mortgage debt.
All of which requires a massive amount of cash to keep going. Canadian homebuyers with mortgages make $7.32 billion in payments each month. This is also likely less than the real number for what’s required to service this debt.
Expensive Servicing
Looking at that more critically, it’s the same 3 cities topping the list for mortgage servicing:
- Toronto has monthly scheduled mortgage payments of $1.52 billion – 20.7% of the total payments scheduled
- Montreal – $731.9 million – 9.99% of payments per month
- Vancouver – $731 million – 9.84% of payments per month
Note that while Vancouver having more debt but lower payments scheduled is a reflection of a preference for longer amortizations.
The concentration of mortgage debt puts these 3 local markets in a vulnerable situation. Toronto and Vancouver are both considered “overvalued” by the CMHC, and thus might experience a price correction. If so, that would devalue large amounts of equity that homeowners there have built up over the years.
In a best case scenario interest rates will rise, and with them the amount of money going towards to servicing debt. The result would be lower amounts of available capital for productive investments, and consumer spending. However, that also tends to lead to higher rates of unemployment, and lower home sales. The result of that? Again, a loss of equity. It’s not a particularly promising scenario if you are a homeowner.
Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated leads delivered exclusively to you, and for your similarly exclusive area of any city or town in Canada. It’s a smart investment in seeing to it you make connections with homebuyers and home sellers, and especially valuable given the fact that there will be fewer qualified buyers out there all the time.
