Canada’s two largest Metro regions are the same two that are always brought up first when people talk about the overvaluation of real estate, but there’s no getting around the fact that these two cities are always going to have the highest average home prices. There is an incredible array of drawbacks to the urban densification trends that are occurring in Canada and making these two metro regions as grossly overpopulated as they are, but that’s another discussion entirely and beyond the scope of what we look at here.
The reality of it is that there’s no end in sight for homes of all types being punishingly expensive in Toronto and Vancouver as all the newcomers push the demand supply of the supply / demand equation even further. But a recent survey is countering all the bad news somewhat for people who are still determined to live in either locale. You have to have REALLY deep pockets to buy a home in either city without taking on a mortgage, but it turns out you may well be getting more sheer value out of that loan than you might have expected.
Those high home values do mean higher realtor’s commissions too, and for obvious reasons connected to that there’s also a gross overpopulation of realtors in Vancouver and Toronto too. Also not going to change, so what a new realtor can do to get some leverage is take advantage of our online real estate lead generation system here at Real Estate Leads. It’s a great way to get more out of your new client generation efforts and also make much less of a task to get your real estate business growing more quickly
Enough about that for now, let’s continue with this week’s news and specifically with how GVA and GTA homeowners have the best loan-to-value ratios with their mortgage of all homeowners in Canada.
Lower Value, Less Risk
With loan-to-value ratios averaging 50% in Vancouver and 53% in Toronto as of the third quarter for 22, mortgage holder in these cities have the most reason to see their investment in financing property favourably. 57% is the national average, and Edmonton and Regina had the highest loan-to-value ratios at 83 and 88% respectively. To give this stat some framing, a loan-to-value ratio compares the mortgage to a property’s value and lower ratios are generally seen to be less risky because it means a larger portion of the property is owned by the homeowner.
3 main factors are seen as being behind this. First, the surge in home prices over the past decade. Second is the ability of more workers to move to relatively cheaper regions because of the increased acceptance of remote work for digital employees. Last but not least is the the ‘Bank of Mom and Dad’ where homeowners in these cities have often grown up there with parents who have benefitted from the strong local economies and they are enjoying some of that generational wealth.
It is true that the ongoing surge in home prices did make it challenging for many Canadians to get into the market, but higher property values have also aided with putting downward pressure on many longer-term homeowners’ loan-to-value ratios – to the tune of a 67% average nationwide.
Smaller Cities with Biggest Individual Gains
The biggest improvements for this were in London, Hamilton, Halifax, and Moncton. 4 markets had loan-to-value ratios that worsened over the past decade and both were larger cities in Prairie Provinces – Saskatoon and Brandon.
The mortgage stress test has also played a positive role, promoting more secure responsible lending practices and giving people more peace of mind that they’ll be able to manage their payments. But interest rate rises have still hurt many homeowners and especially those who locked into variable mortgages when rates were very low.
Those who took home equity lines of credit to help their children buy a house may also not be in the most ideal situation financially, but when those homes are in the GVA or GTA the way those markets are insulated against market shifts because of high demand adds to reassurance that may come with understanding their kids have the best loan-to-value ratios with the mortgages they have on their homes.
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