Day: October 22, 2023

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Growing Concern Over Subprime Borrowing in Canada

subprime mortgages written on black sheet and calculator and mini house on desk

A recent report from TransUnion Canada highlights a significant increase in subprime borrowing during the last quarter. This uptick is causing worry about its potential impact on Canada’s economy and real estate market.

What is Subprime Borrowing?

In Canada, a credit score below 660 often qualifies for subprime borrowing, leading to higher interest rates. Factors like low income, high debt, or past bankruptcy also play a role.

Acceleration in Subprime Borrowing

TransUnion’s latest data reveals that the number of subprime borrowers has increased by nearly 9% over the last year, reaching 2.64 million people. This growth rate is double that of near-prime and prime borrowers and four times faster than above-prime borrowers.

The State of Canadian Debt

In the second quarter, outstanding credit balances for Canadian borrowers rose by over 3%. Household debt saw a 4% increase, amounting to $2.3 trillion. Higher debt levels and increasing interest rates are contributing to elevated minimum payments, adding financial stress for many consumers.

Lenders Still Lending

Despite the inherent risks, lenders continue to extend credit, even to subprime borrowers. TransUnion reported a 16% increase in below-prime loan originations this quarter, as opposed to a 6% rise for those with better credit scores.

Implications for Canadian Real Estate

Experts argue that Canada’s real estate market doesn’t face the same subprime issues as the U.S., thanks to federal regulations. Rob Aitken, an associate professor at the University of Alberta, describes Canada’s economy as stable, particularly in comparison to other global economies.

Mortgage Payments on the Rise

The Bank of Canada has warned about potential increases in mortgage payments due to rising interest rates. Borrowers renewing their home loans could see their monthly payments jump between 20-40%. Already, new data shows homeowners are facing financial stress, with longer loan amortization periods becoming more common.

Final Thoughts

While Canada’s financial system remains robust, the increase in subprime borrowing and household debt could put pressure on the economy and the real estate market in the long run.

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Toronto’s Real Estate Paradox: Surging Listings Amid Rising Prices

homes in Toronto in the fall

Rising Prices and More Listings: What’s Up with Toronto Real Estate?

Home prices in Toronto are up, says data from the Toronto Regional Real Estate Board (TRREB). As of last September, the average home costs almost $1.2 million. That’s a three percent rise from last year.

The Price Tags

Different home types have different price trends. Detached houses average over $1.7 million, up 8.5%. Semi-detached homes cost about $1.3 million, a 5.9% increase. Townhouses come in at $992,000, up 5.1%. Condos, however, are down 4.9%, priced around $732,000.

Fewer Sales, More Listings

Even with higher prices, fewer homes are selling. Sales dropped 7.1% in September, totaling 4,642 units. So why the drop in sales but the rise in prices? The answer is more supply.

Supply on the Rise

New listings have jumped 44% in a year, says TRREB. That’s 16,258 new homes on the market. Active listings also went up, by almost 40%. They now sit just under 19,000.

Inventory Details

Inventory, measured in months, rose slightly from 2.4 to 2.5. In simple terms, it means we have a bit more time to sell current homes at the existing pace. Here’s how it looks by home type:

  • Detached: 7,465 new, 8,439 active listings
  • Semi-detached: 1,169 new, 1,079 active listings
  • Townhome: 1,352 new, 1,381 active listings
  • Condo: 1,153 new, 1,374 active listings

Room to Bargain?

TRREB’s Jason Mercer says buyers might get a better deal soon. With more listings, they might have more power to negotiate.

More Needs to Be Done

John DiMichele, TRREB’s CEO, says we need more homes. He calls for action from all levels of government. He says we need to match housing supply with population growth.

Construction Data

Housing starts dropped 9% last August. But year-to-date, they’re up by 28%. Even so, experts warn that Toronto is a decade behind in building homes.

What’s Next?

Housing affordability is a big issue, warns RBC Economics. If it doesn’t improve, people may move to other parts of Canada. On a national scale, Canada needs about 3.5 million new homes by 2030. Missing that target could lock a generation out of owning homes in big cities.