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Latest in Mortgage News: Toronto and Vancouver Home Sales Surge in September

The fall was supposed to herald in a period of more subdued housing activity and home price growth. But preliminary September data for the Greater Toronto and Vancouver areas tells a very different story.

In the GTA, home sales reached a new record of 11,083, representing a 42.3% gain compared to September 2019. Similarly, the MLS Home Price Index Composite Benchmark for all home types rose 14% year-over-year to $960,772, according to data from the Toronto Regional Real Estate Board (TRREB).

Canadian home sales rise in June“Improving economic conditions and extremely low borrowing costs sustained record-level sales in September, as we continued to account for the substantial amount of pent-up demand that resulted from the spring downturn,” TRREB President Lisa Patel said in a release.

Year-over-year sales growth continued to be driven by “ground-oriented market segments, including detached and semi-detached houses and townhouses,” TRREB noted. Condos, on the other hand, experienced a slower overall pace of growth, with sales up 14.6% year-over-year and prices up 6.6%. On a month-over-month basis, condo prices cooled slightly.

Similarly, Vancouver had its best year on record in terms of the number of homes sold. The Real Estate Board of Greater Vancouver (REBGV) reported that 3,643 homes were sold in September, representing a 19.6% increase compared to August and a 56.2% jump from September 2019.

Home prices continued to post gains as well, with the MLS home price index composite benchmark price rising 5.8% year-over-year to $1,041,300.

“Demand-supply conditions have tightened considerably for single-detached homes as new listings rose ‘only’ 18% y/y,” wrote RBC’s Robert Hogue in a research note. “We expect prices to heat up even more in this market segment in the near term (and) we expect more plentiful inventories will do the opposite for condo prices.”

Yet, House Price Declines Still Expected

Despite Canada’s key housing markets continuing to weather the storm, “the pandemic will eventually take a toll,” according to a new report from Moody’s Analytics and RPS Real Property Solutions Inc.

The forecast released in September expects a total peak-to-trough decline in house prices of 7%.

“The housing market will no longer be able to escape the poor condition of the labour market as vacancy and delinquency rates rise in 2021,” wrote Abhilasha Singh, Moody’s Analytics economist and author of the report. “However, while all regions are expected to experience price declines, the size of the impact will vary meaningfully across them.”

Notably, the report suggests prospects for the condo segments in key urban centres “could be adversely affected by a drop in immigration.”

Regional dynamics will also remain in play, the report notes. “Montreal and Ottawa still show steady appreciation, while Calgary and Edmonton have been pulling down on the 13-metro area composite index.”

CMHC’s Siddall Stands by Home Price Decline Forecast

Despite the strength of Canada’s housing market throughout much of the year, the head of the CMHC stands by the agency’s forecast for home prices to decline by 9-18% peak-to-trough.

“If those analyses still pertain, those peak-to-trough number should go up,” Siddall said during an online interview with Mortgage Professionals President and CEO Paul Taylor. “The impression of froth in the real estate market is overstated to a certain extent because there’s been a compositional change.”

Siddall said that’s due to the homes that are currently selling being the higher-priced single-family detached segment of the market, which “makes the average price appear to go up, when it’s not.”

For example, he pointed to the condo segment, which is much more likely to be the purchase type of choice for first-time buyers in urban markets compared to single-family homes.

“I worry that’s creating this fear of missing out, that’s causing people to chase something that actually isn’t real,” he added. “A quarter of our labour force is on income support, we’ve got a bunch of mortgages under deferral and I’m not optimistic. So, we’ll see.”

Siddall also noted that when CMHC’s home price forecast was initially released in the spring, the trough was identified as occurring in the middle of 2021, which he says “may have been pushed out by government policy. So when people say, look…his predictions didn’t come true, we don’t know yet, because we at CMHC didn’t say that the bottom would be now.”

New Interest-Only Mortgage Product on the Market

For those looking for a unique solution to their financing requirements, an interest-only mortgage could fit the bill.

There are only a handful of products on the market currently, but a newcomer has just entered the market. longer term mortgagesNeighbourhood Holdings recently launched a new 3-year interest-only mortgage with rates starting at 5.95%.

An interest-only mortgage is as the name suggests: borrowers are only required to make the interest payments on the mortgage, and aren’t required to pay down the principal–similar to a home equity line of credit, for example.

Neighbourhood Holdings is promoting the mortgage as a unique product in the alternative space, aimed at increasing borrower stability. The product is offered as an interest-only or amortized mortgage, and can be paid out at any time with a prepayment penalty of just three months’ interest.

“By extending the industry standard one-year term to a true three-year term and lowering our rates, we are now able to give borrowers peace of mind with their mortgage, and additional flexibility when it comes to managing their cash flows,” said Taylor Little, CEO of Neighbourhood.

“In the shadow of the pandemic, borrowers are experiencing unprecedented uncertainty,” he added. “We’ve developed this product to help stabilize the industry, and simultaneously address long-standing industry feedback from brokers around the need to close the gap between the B-Lenders and Alternative Lenders.”

Here are some additional details on the 3-year interest-only product:

  • Maximum LTV: Varies by location, but generally 65-70%
  • Lending area: Urban and suburban areas in BC, AB, MB, ON, QC and NS
  • Available to all brokers: Yes
  • Minimum credit score: 575+
  • Maximum GDS/TDS: None, “the file has to make sense.”
  • Income proof requirements: Stated income only
  • Fees: No lender fee