From the Desk of Faisal - Real Estate News for the Week of Dec 24th - Dec 30th
Welcome to Properties Ontario’s weekly update. Our team goes through numerous articles and summarize them for you! Please do not hesitate to contact me if there are any topics you would like to discuss further. If you have any questions about buying, selling, or leasing residential or commercial space, we’re the team for you. For current listings in the marketplace, check out our website www.propertiesontario.com
Reverse Mortgage Balances Increasing
Reverse mortgages occur when borrowers over the age of 65 borrow against the equity of their home. They receive a lump sum payment or regular payments. It is important to note that interest rates on reverse mortgages are typically higher because the borrower does not have to pay anything back until the home is sold or when the borrower passes away. This borrowing can be an issue if funds are not set aside to pay back these balances. Currently, the new balance of reverse mortgages in Canada reached a record high of $3.425 billion at the end of October. This is 11.57% higher from the month before or a 57.46% annual gain from October 2017. Reverse mortgages are sometimes required but it is very important to budget before going through this process to avoid any issues in the future.
Total Debt Secured by Residential Real Estate
Based on Statistics Canada, the total debt secured by residential real estate hit a new record of $294.16 billion in October 2018. This represents a 0.63% monthly increase or a 4.5% annual increase. During October 2017, the annual gain was 9.03% so the growth is starting to taper. This is expected as the costs of borrowing increases. Out of the total, $264.76 billion was used for non-business purposes while the remainder of $29.402 billion was used to invest in business operations. The non-business borrowing is 6.12% higher than last year while business borrowing is 8.12% lower than the previous year. Personal consumption borrowing takes longer to slow down compared to business borrowing as business expansion is typically favourable during periods of low interest rates. In conclusion, Canadians should limit borrowing unless it is a must as businesses have already produced a sentiment of staying away from it.
RBC Economics Affordability Index
RBC Economics released their affordability index for the third quarter of 2018. The index measures median household income required to purchase an average priced home. It is assumed that a five-year fixed rate with 25 year amortization is used along with a 25% down payment. The median household in Canada needed 53.9% of their income during Q3 2018 to purchase a home. This is 3.05% higher than the same quarter last year. The index for Toronto fell 0.13% to 75.3% during the same period. For comparison purposes, Vancouver is at 86.9%, which is 3.2% higher than last year. Affordability continues to be an issue across Canada but more notably, the major cities. This will likely continue as interest rates rise but has the possibility to be mitigated due to falling home prices.