It's Getting Harder To Borrow Money

By: Chris Dawson & Elizabeth Machula

It's Getting Harder To Borrow Money

Tags: Toronto Condo Prices, Toronto Condo Market Report, Toronto Condo Statistics

Here are the statistics for last month:

Over the last 5 years, the average number of condos on the market for sale in October has been 964. This past October, we had only 542 available. Inventory remains about half as typical.

Over the last 5 years, the average number of condos on the market that sold in October has been 385. This past October we had 394 sales.

Low supply is keeping us in a Seller's market. 

The median price of a downtown condo was slightly up from $610,000 in September to $615,000 in October.
 

In October, the average price of a detached home fell from $1,342,363 to $1,311,265. Since January 2017, home prices are now slightly down -1.9% while condos are up 33.6%. 
 

The Overall Average Toronto MLS price still looks to be on track for it's first declining year since 1996.

We're seeing the big 5 banks raising their lending requirements and it's getting harder to qualify/refinance a mortgage but most significantly are changes to HELOCs (Home Equitly Line Of Credit). Very quietly, 3 of the big banks have changed the HELOC lending practices. If you have a HELOC and you want to buy another property (condo, cottage, rental property etc), during qualification they will assume that the entire amount of the HELOC is being used, not just the actual amount owed. For example, if you had a $200,000 HELOC with $50,000 borrowed from it, they will consider that you've borrowed the entire $200,000 and will need to be making monthly interest payments on that amount. Previously, they would have just used the $50,000. 
A great article from RateSpy.com explains this in far more detail and shows the following chart as another example.

This chart shows that the TDS (Total Debt Service) ratio, a metric used for determining how much debt you can afford, changes significantly with this new method. In the above example, the home owner has a $200,000 HELOC with a zero balance (owes nothing) but the lender will now assume the home owner owes all $200,000 and needs to make monthly interest payments on that amount. What that then does is change the TDS calculation so that it breaches the 44% limit and will not qualify for the new mortgage. 

How will this impact us? I think many people will now have a reason to reduce or eliminate their unused HELOCs. More people will go to Mortgage Brokers who have access to alternative lenders vs the 5 big banks. Fewer people will qualify for 2nd properties reducing demand. The common opinion is that this is not driven by the banks but by government regulations trying to calm the market. Expect all the banks to follow suit. One credit union we spoke with said that any HELOC over $100,000 will have that additional amount converted into a mortgage. We expect lending qualifications to continue to be raised in efforts to stabilize the real estate market.

More importantly than ever, if you're considering buying a 2nd property, financing arrangements are one of your top priorities.