toronto real estate market Archives - Ira SmithTrustee & Receiver Inc.

Toronto real estate news 2018: Introduction

There is an unfortunate situation brewing for those who bought a home off plans from a builder in 2017. The market has cooled significantly and the average price of a new construction home in the Toronto region in February 2018 was $1.22 million. A significant drop! So, the Toronto real estate news 2018 is now that buying a pre-construction Toronto area home can be risky.

Toronto real estate news 2018: It used to be burn baby burn!

Until recently, Toronto’s real estate market hasn’t been hot; it’s been an inferno. Houses were selling for way over the asking price and real estate agents in Toronto say bidding wars became the new normal. Buyers were so desperate to get into the market that they were making offers and waving a house inspection.

It wasn’t just the resale market that was on fire. According to building industry statistics, the Toronto region real estate values in February 2017 of a new construction home in the was about $1.5 million. Advertising for real estate investing workshops was everywhere.

Toronto real estate news 2018: What caused this drop in real estate prices?

Two main reasons. First, the Office of the Superintendent of Financial Institutions (OSFI) introduced new, tighter mortgage rules, requiring borrowers with uninsured mortgages to undergo a stress test. As of January 1, 2018, uninsured borrowers must qualify at a new minimum rate – the greater of the Bank of Canada’s five-year benchmark rate, currently at 4.99%, or 200 basis points higher than their mortgage rate.

This new mortgage stress test is for protecting homebuyers to ensure that they don’t buy more house than they can afford – even if the interests rates rise. There were only two real estate markets in Canada on fire; Toronto and Vancouver. So, in Ontario, this new test is also known as the Toronto real estate stress test

Second, the Ontario Liberals introduced its Fair Housing Plan which included a foreign buyers’ tax. Many believe that this plan contributed to the drop in real estate prices and adversely affected middle-class families in mid-transaction.

toronto real estate news 2018

Toronto real estate news 2018: Some buyers who purchased a pre-construction home at the height of the real estate frenzy are now facing financial ruin

These buyers are now contracted for homes that are no longer worth their purchase prices. They can’t resell the new home contracts because the builders are selling new construction homes for less than they’re asking – just to break even.

Some couldn’t get larger loans to cover the difference in price. If they walk away from their contracts they could lose upwards of $200,000 and risk being sued by the builder. To add insult to injury, they can’t afford the interest rates that alternative lenders are charging. This is a recipe for financial disaster.

This is what today the Toronto real estate news 2018 is.

Toronto real estate news 2018: Are you feeling the pain of possible financial ruin?

Are you facing financial ruin as a result of a cooled down market? Is the pain and stress of too much debt, regardless of the reason unbearable?

The Ira Smith Team can help you return to financial health with immediate action and the right plan. Don’t despair; there is a way out Starting Over, Starting Now. Make an appointment for a free, no obligation consultation. Financial peace of mind and pain-free living is just a call away.

toronto real estate news 2018

Subprime lender: Introduction

Toronto’s real estate market has changed in May 2017. Many more listings have come onto the market and the Canadian subprime lender mortgage landscape has changed. The regulations for qualifying for a traditional mortgage have tightened significantly. Canadians in ever-increasing numbers have turned to alternative mortgage lenders or subprime lenders. For a higher interest rate subprime lenders give mortgages to people who are higher risk and don’t meet the criteria demanded by traditional financial institutions.

Subprime lender: Now the subprime lender is in trouble

The problems started in July 2015 when Home Capital Group disclosed it had cut ties with 45 mortgage brokers. An internal investigation revealed that certain borrower applications contained false income and employment information to get loans. The Ontario Securities Commission (OSC) alleges that the company broke securities law by making misleading disclosure after the company believed it discovered some brokers had falsified loan applications. All hell broke loose!

Subprime lender: No Capital = No Mortgages = No Business

Alternative mortgage lender Home Capital Group is now in big trouble. Its stock dropped 60% in a single day. A run on deposits have taken them into a deep dive to $391 million from $2 billion. Home Capital’s ability to attract new funding is now seriously in doubt.

Subprime lender: The subprime lender resorts to borrowing at subprime

Home Capital Group has taken out a $2 billion loan from the Healthcare of Ontario Pension Plan. With a 10% interest rate plus other fees and charges, the company is effectively paying 22.5% on the first $1 billion it borrows. This falls to 15% if it uses the full $2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada. The subprime lender has borrowed at subprime rates so in effect the predator has become the prey!

Subprime lender: How can a subprime lender’s troubles affect you?

Home Capital’s problems have tainted the entire subprime mortgage lending in Canada industry. Stocks of other subprime lenders have also dropped. “Home Capital contagion has spread to the entire mortgage market, in particular, alternative mortgage lenders,” says National Bank of Canada analysts Jaeme Gloyn and Victor Dri.

Home Capital Group won’t be able to continue to fund at the same volume as they have in the past. This means that mortgage brokers and borrowers will approach other subprime lenders. This demand will probably lead to subprime lenders charging even higher interest rates, making mortgages unaffordable to many Canadians. 3bestaward

Subprime lender: What does this mean for the Toronto real estate market?

If fewer people can get mortgages then the entire real estate market is going to feel the crunch. The Canadian financial services industry is much different from that in the USA. Although no one wants to set off alarm bells, what happened to Home Capital Group sounds all too reminiscent of the New Century Bank story in 2007 in the U.S. They too faced a liquidity crunch which eventually left them with no alternative but to declare bankruptcy – a move which set off the 2007-2008 financial crisis.

Is the subprime lender borrowing at subprime rates a warning? We are already seeing the Toronto real estate market slowing. It now resembles a very active market, but not the overheated market of the past year or so. Will it slow down more? Is the Toronto real estate market still a bubble about to burst? Only time will tell.

Subprime lender: Have you borrowed all you can borrow but still need more money to make ends meet?

Buying more house than you can afford is never a good idea. If you’ve bought more house than you can afford or are experiencing serious debt issues for any reason, the Ira Smith Team is here to help. We’re experts in debt, serving companies and people throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. Give us a call today.

Our thoughts and prayers are with the victims and their families of Monday’s horrific attack in the Yonge Finch Sheppard area. Thank you to our brave first responders, and to ordinary Torontonians who did extraordinary things today. Photo courtesy of the Toronto Sun.