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September Numbers UP!

There were 7,411 residential transactions in September 2013 through the Toronto MLS system.  This is 30% higher than September 2012 which only had 5,687 transactions.  Also, the average sales prices increased from $533,797 to $501,326 for that same time period.  With news of mortgage rates increasing in the near future and the winter season approaching, it would appear people were scurrying to buy last month.

Homebuyers are buying properties they can't afford!

Canadian mortgage borrowing jumped in the second quarter, pushing household indebtedness to a new high, according to Statistics Canada.

At the same time, Canadian household net worth climbed in the quarter, boosted by rising home prices.

Statistics Canada said Friday the ratio of household credit market debt to disposable income increased to a new high of 163.4 per cent in the second quarter compared with 162.1 per cent in the first three months of the year.

That means Canadians owe just over $1.63 for every $1 in disposable income they earn in a year.

StatsCan Survey

Three out of five homeowners are saddled with mortgages. But in many ways it’s harder being a renter.

Statistics Canada finds that a significantly larger percentage of renters are overextended than homeowners in this country. That's one of the more noteworthy findings in its National Household Survey (NHS) data released this week.

Other highlights:

  • 4 in 5: Households buying a home between 2006 and 2011 had a mortgage in 2011 (79.7%)
  • 58.6%: Of owner households had a mortgage overall
  • $1,141: Average monthly shelter cost of a homeowner
    • It is $848 for renter households
  • $1,585: Average monthly shelter cost of a homeowner with a mortgage
    • The average mortgage payment in 2011 was roughly $1,074 per month
  • 26.2%:  Of homeowners with a mortgage spent more than 30% of their gross household income on housing (StatsCan’s threshold of “affordability”)
    • That’s 1.4 million households
    • They pay $1,776 per month on average, $688 more than what StatsCan's “30% of income” rule of thumb suggests
    • Says TD: “It is interesting that shelter costs have risen for homeowners even though mortgage rates were at record low levels.”
    • This number was amply hyped by the media but lenders, default insurers and regulators have targeted, and will increasingly target, homebuyers who overextend themselves. Just as telling (if you believe these numbers) is that almost three-quarters of Canadian mortgagors have budgeted prudently.
    • But there’s a chance this 26.2% may be somewhat low. StatsCan’s NHS was voluntary, so low-income homeowners might not have responded in proportionate numbers (due to well-known response biases). That may have skewed this figure lower.
  • 40.1%: Of renters spent more than 30% of their income on housing
    • That’s 1.6 million households
    • They pay $928 per month on average
    • With tougher mortgage regulations prompting increased rental demand, this 40.1% number could grow (and it may be biased lower already, for the same reasons as above).
  • 69%: Of households own homes
    • That’s 9.2 million households out of 13.3 million
    • This number has changed little since 2006

TD Canada Trust Forecast

In just a few short months, long-term mortgage rates have burst higher by almost ¾ of a percentage point.

People naturally want to know if the hikes are sustainable, and how they’ll affect the overall housing market.

TD Economics weighed in on these points in a report last week. Here’s a quick overview of the implications TD foresees, and some observations of our own…

    Future Rates: TD projects a 2.25 percentage point jump in 5-year bond yields by 2017. That would peg 5-year fixed rates at roughly 5.74%. Given economists’ poor forecasting record, this number is a pure shot in the dark. But it’s still a worthwhile number to use when stress testing your mortgage. That aside, one TD assertion that most would agree with is that future rate “increases are expected to be…gradual.”

    Securitization: The report notes that, “…The recently-announced changes to the amount of mortgage backed securities that will be guaranteed by CMHC will…lead to somewhat higher costs in funding for financial institutions.” As we wrote on August 6th, this impact won’t be extreme for most lenders (and consumers).

Toronto Real Estate Forecast (Residential)

On the residential side (properties with less than 4 units), prices are expected to remain strong and stable.