Market Insights

At the beginning of every month, we work to compile statistics related to market activity within Toronto and the GTA.


MARKET SNAPSHOT - APRIL 2022

GTA-Market-Snapshot-September-2020
 
 
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MARKET INSIGHT FOR THE WEEK ENDING MAY 13TH, 2022

Canada’s house rich but cash strapped Boomers are back to tapping their home equity. Regulatory filings with the Office of the Superintendent of Financial Institutions (OSFI) show reverse mortgage debt hit a new record in February. Over the past couple of years, the segment had seen a slowdown. However, growth is now suddenly back, and the balance grew by nearly a fifth in just one year.

Canadian reverse mortgage debt reached a new record, and it’s moving briskly. The outstanding balance was $5.4 billion in February, up 2.0% (+$106.9 million) from a month before. Since last year, the segment has grown 18.3% (+829.9 million), drawing close to a billion dollars. During public health measures, there was a major slowdown, but now that most measures are gone, it appears people are back to borrowing.

 

Reverse mortgages are exactly what they sound like — a mortgage in reverse. Seniors pledge their home equity in exchange for cash, either a lump sum or a regular payment. They’re like a home equity line of credit (HELOC), but with one big difference — regular payments aren’t required. Payments are generally only due in the event of death, default, or sale.

 

Since the lender isn’t sure when they’ll be repaid, they charge a premium interest rate. Regular payments aren’t needed but interest still accumulates, chipping away at home equity. Borrowers might want to repay the loan, if possible, despite not needing to do so.

 

That brings up the benefits and risks of a reverse mortgage. A positive is clearly being able to age in place, use your home equity, and not have to worry about payments. However, since seniors are past their prime earning years, too large of a loan can be tricky to pay back. Others might find when it’s time to sell, they accumulated much more debt than thought. It also becomes more problematic if there’s a downturn and they need to sell for some reason.

 

Reverse mortgage debt is expected to grow as Canada’s population ages. The sharp acceleration is a bit unusual though, especially considering the timing. Growth goes vertical as home prices and inflation begin to surge.

 

The increase can mean reverse mortgages helped capitalize the Bank of Mom & Dad. It can also mean seniors needed more funds to cover inflation, or it could just be hot tub time to celebrate a surge in home equity. In any case, these borrowers just committed to some pricey loans. Reverse mortgages are currently 6.99% interest for a 5-year term. If they averaged that rate for ten years without payments, the outstanding balance will have basically doubled.

 

Sales have declined over the past six or so weeks, which is the opposite of what normally happens in the spring for real estate. Sale volumes are down year-over-year — a whopping 41.2 percent from last April — and according to TRREB, the decline is even bigger outside of Toronto’s core, especially for detached houses.

Sample Borrowing:

Someone 70 years old – has a property worth $1,500,000 – is eligible to borrow up to a maximum of $675,000 – borrows just $300,000 in one lump sum. In 15 years (2037) the property value would be $2,336,951 – equity remaining is $1,634.016 (less the $702,925). Reverse mortgage of $300,000 borrowed plus interest of $402,925 = $702,925 is what’s payable back.

 

ABOUT BOSLEY REAL ESTATE LTD., BROKERAGE

Bosley Real Estate Ltd. is a full-service, 4th generation brokerage operating since 1928 with offices serving Toronto, Niagara, Waterloo Region, Southern Georgian Bay and Port Hope. With over 250 agents in residential and commercial real estate, the firm has built a reputation on trust, respect and integrity selling and leasing property throughout Ontario. Bosley Real Estate is also recognized internationally through an exclusive affiliation with Leading Real Estate Companies of the World®. This prestigious partnership connects the brokerage to a global network of 130,000 real estate professionals in 70 countries. Headquartered in Midtown Toronto, President and Broker of Record, Christan Bosley continues to innovate and maintains the high standard of excellence forged over a century.

 

HERE ARE THE TOP FIVE TRENDING STORIES OF THE WEEK:

RBC Makes Another Upward Revision To Its Bank of Canada Rate Forecast

“Rain or shine, Canada’s largest bank sees much higher interest rates to combat destabilizing inflation. RBC hiked its forecast for interest rates today after the central bank increased its neutral rate forecast. By year-end, the bank sees the highest interest rates since the 2000s.”

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Toronto Councillor Looks To Incentivize Single-Family Home to Multi-Unit Conversions.

“A new motion set to go before Toronto City Council on Wednesday would encourage the owners of single-family homes to convert their residences into multi-unit properties.”

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A huge dip in sales may mean the downturn of Toronto's housing market has started

"Rents in Toronto fell during the early days of the COVID-19 pandemic, but they have since rebounded and are expected to increase even more. So, what’s behind the seemingly always increasing rents in Toronto? Supply issues, according to Rentals.ca rent forecast report. "

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‘Ontario stands to lose its edge’: OREA calls on political parties to build more homes, address affordability

“Ontario’s election is less than a month away, and the province’s real estate organization has called on election candidates to focus on housing needs for future Ontarians.”

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As Home Prices Fall, More Buyers Are Backing Out of Deals

“In early February, a three-bedroom house in Clarington, Ontario — a city on the easternmost outskirts of the GTA that has, on a good day, an hour-long commute into downtown Toronto — sold for $1,035,000. It was on the market for just four days. ”

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