by Greg Quinn and Erik Hertzberg

Canadian new home prices fell for the first time since 2010 in February, led by a drop in Toronto as buyers were squeezed by higher interest rates and tougher mortgage regulations.

Prices in the nation’s largest city fell 0.6 percent, the second monthly decline and the biggest in eight years. Builders also charged the same or less across much of Toronto’s surrounding cities, an area known as the Golden Horseshoe.

Statistics Canada’s nationwide home price index declined by 0.2 percent from January, the most since June 2009 around the time of the nation’s last recession. Economists surveyed by Bloomberg predicted a 0.1 percent increase.

Toronto’s weakness is a swing from last year when policy makers stepped in to curb 30 percent price gains in resale prices, which raised concerns some buyers were taking on unsustainable mortgages. The new home price decline likely reflects a new mortgage stress test that took effect in January and a rise in lending rates, Statistics Canada said.

Those market changes may have also been a drag in western Canada.

Prices were unchanged for a second month in all three cities tracked in British Columbia including Vancouver, another city that has been the focus of concern about a housing boom.

Statistics Canada also reported declines in all four cities it monitors in the provinces of Alberta and Saskatchewan.

One bright spot was a 0.6 percent gain in Montreal. The agency’s index covers single houses and multiple-unit residences but not condominiums.

Copyright Bloomberg News

by Chris Fournier

Scott Hannah says low borrowing costs and rising home prices have lured Canadians into a debt trap they may not escape if looming economic threats materialize.

Hannah, president of the Credit Counselling Society, is seeing an influx of clients as higher financing costs begin to bite and people find it harder to manage. Phone calls were up 5.3 percent in the first quarter from a year earlier, while online chats increased 40 percent.

He says with debt loads at a record and little in the way of savings to fall back on, Canadians may be “caught off guard” if housing markets cool significantly or North American Free Trade Agreement talks go sideways.

“We’ve been in a perfect storm for a number of years” where low interest rates encourage borrowing and discourage saving, Hannah, 60, said by phone from the Vancouver suburb of New Westminster. “People have been lulled into a false sense of security.”

Hannah’s organization can help people set up a debt management program or find a licensed insolvency trustee. He’s sounding the alarm as rising interest rates and stricter borrowing rules threaten to squeeze households even further. The Bank of Canada is expected to raise its benchmark rate twice more this year and it’s next decision is April 18.

Credit Relief

Hannah’s colleagues dubbed him “Dr. Debt” after he received an honorary degree in 2012 from University Canada West, a private business school, for his “distinguished service in the field of credit counseling.” Prior to establishing the non-profit, registered charity in 1996, he worked for 11 years at Equifax Canada, a credit reporting company, but decided “a nice title and a good salary doesn’t make you happy,” so he left to find something that “made a difference.”

He found it by helping people get relief from their creditors. As Hannah tells it, during the early 1990s, the provincial debtor assistance program in British Columbia was cutting back just as bankruptcy rates were rising. A group of banks, credit unions and department stores tried and failed to establish a complementary service. Hannah offered to raise the necessary funds, so long as he was allowed to run the organization.

Drop in the Bucket

Twenty-one years later, the society — with offices from the provincial capital in Victoria to Ottawa — has assisted more than half a million people. The average client is 43 years old, has C$31,000 in outstanding debt and seven creditors. More than half are female. Average gross monthly income is C$5,200, and housing costs consume 42 percent of their net income. The society’s clients repaid C$51 million last year, up about 6 percent.

It’s still a drop in the bucket.

Canadian household credit totaled a record C$2.13 trillion at the end of February, roughly doubling since 2006, central bank data show. Residential mortgages account for 72 percent of that. The rest includes credit cards, lines of credit and auto loans.

People carrying large debt loads still feel ahead of the game because home prices keep rising, Hannah said. “What happens when the economy has a downturn, like in Alberta. We know what happened. We’re still seeing the impact of that,” he said, adding people in the oil-rich province were “caught off guard, and because of a lack of savings, many people lost their homes, had to sell their assets and start over again.”

Read more about cracks starting to show in the quality of Canadian credit

Some observers argue Canada’s household debt isn’t a problem because asset ratios and home equity levels are also high and the country’s labor market is strong. A report from the Canadian Banker’s Association this week showed the national mortgage arrears rate through January was 0.24 percent, close to the lowest in three decades.

Hannah doesn’t buy it. Low arrears and delinquency rates “don’t tell the whole story,” because a robust housing market is masking financial strains, he said. “If a person’s had difficulty keeping up with the mortgage payment, it’s been relatively easy just to sell your home,” said Hannah. “What happens though when you have a tight market and it’s not as easy to sell your home? That’s when you’ll see delinquency rates start to rise.”

Copyright Bloomberg News

by Natalie Wong

Toronto’s housing market has seen a stunning slowdown in the past year. Now one brokerage has cataloged the damage for 988 homeowners who got caught in the eye of the hurricane.

In the space of four months last year, the homeowners lost a collective C$135 million ($107 million) as the median house price slid 18 percent, a faster decline than any major market during the U.S. market crash, according to Realosophy Reality Inc.

The story goes like this: The median house price surged 30 percent from January to peak at C$765,000 in March, largely driven by investors who were pouring money into the market for quick returns, Realosophy said in a report. To tame the beast, the government instituted a series of regulations, including a foreign buyers tax, starting in April.

Some 866 homeowners had clinched a sale but were not able to close, eventually selling to another buyer later in the year for C$140,200 less on average. Some buyers had to walk away as they weren’t able to sell their own homes or the banks appraised the house for less than what they agreed to. Another 122 sellers sold their houses for an average $107,325 lower than what they bought it for earlier. By the time the dust had settled in July, the median price had dropped to C$626,000 from C$765,000 in March.

To put that 18 percent four-month decline in perspective, it took major U.S. cities 20 months on average for prices to fall 18 percent from their peaks between 2005 and 2006, with Miami the shortest at 12 months, according to the report.

“The rapid rise in investor demand coupled with their rising negative cash flow suggests that a speculative mood hit Toronto, reflected in investors who appeared to believe they could make easy money by buying what they perceived to be a safe and secure asset, single family homes,” Realosophy President John Pasalis said in the report. “When the market unwinded, the areas with the biggest decline had the highest percentage of investors.”

The Toronto homes that Realosophy tracked were low-rise, largely detached homes with an average of 135 days between the first and second transactions. The average decline in prices for the properties was 12 percent, though some Toronto region suburbs saw a deeper plunge than others. A total of 1,784 properties that were sold in 2017 and subsequently relisted did not sell, according to Realosophy.

This February, Toronto led the drop in Canadian home prices falling for the first time since 2010, a consequence of the housing downturn which saw additional mortgage lending rules put in place this year amid higher interest rates. For now, prices have largely stabilized for detached-homes. But there’s a new hot spot to watch out for: Toronto’s condominium market has seen prices soaring about 20 percent since last February and is a target for speculative investment.

“The condo segment is probably the one thing that’s potentially going to cause some vulnerability in the market in Toronto,” Pasalis said. “But everyone’s been calling for a condo crash in Toronto for 10 years — it’s hard to predict.”

Copyright Bloomberg News

If you’re having difficulty qualifying for a mortgage due to bad credit, are fresh out of school, or maybe just don’t have enough of an employment history for some lenders. Don’t despair… co-signer might tip the scales in your favour.

Robb Nelson, CEO of FamilyLending.com, says a co-signer often tips the scales from ‘no’ to ‘yes’ with many lenders. Often, borrowers are very close to being approved, but just need one more small advantage to get a mortgage approval.

“When choosing a co-signer, look for somebody who has a different strength from your own,” says Nelson. “If you have a good employment history, but bad credit, choose someone who has good credit even though may only have been in a job a short while. An advantage like that can make all the difference.”

Talk to a mortgage broker to see if a co-signer is what’s holding you back.

Broccolini Construction Inc. plans to invest as much as C$300 million ($233 million) to build the tallest residential tower in Montreal.

The closely held firm will transform 600,000 square feet of downtown city space into a 56-story mixed-use tower, said Roger Plamondon, president of real estate development and acquisitions at Broccolini. Eight stories will be allocated to office and retail space; the rest of the building will contain about 400 condominium units.

The new tower will dethrone Broccolini’s recently completed 50-story mixed-use building, dubbed L/Avenue, as the tallest tower of its kind in the city.

“It’s the future of real estate as a rule,” Plamondon said in an interview at Bloomberg’s Montreal office. “By necessity you’re moving into mixed-use. We’ve been very successful and we have a very good ear to what the market is looking for so we’ve adapted our mix.”

Developers are racing to Amazon-proof their businesses by reducing mall exposure and turning to a mix of retail, condos and offices. The tech sector has helped drive tenant demand for office space to a record in Montreal in 2017, according to CBRE Group Inc. The city, with its mix of old cobblestone charm and relaxed vibe, is the country’s third-hottest commercial market with C$3.5 billion in transactions in the first three quarters of last year.

The housing market is also heating up as capital is shifting from over-priced markets in Toronto and Vancouver.

Broccolini plans to start marketing the building this fall and complete construction at the start of 2023, Plamondon said.

The residential tower will be located next to the largest office tower to be built in Montreal in 25 years — the new headquarters of National Bank of Canada which is slated for occupancy in 2022. National Bank will invest more than C$500 million ($402 million) in the building which will also be built by Broccolini. The plan so far is to build a park between the two sites as well as an underground path.