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Increase of 2nd, 3rd, 4th mortgages out-pacing 1st mortgages ?
October 17, 2021
8:44 am
hwyc
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https://financialpost.com/real-estate/mortgages/investors-are-gobbling-up-homes-in-canadas-hot-housing-market

In the 12 months through June, the number of people adding a fourth mortgage or more surged 7.7 per cent, more than doubling the increase for first-time borrowers, according to data from consumer credit reporting firm Equifax Canada Inc.

Am I fueling a bubble with low interest earning deposit ?

October 17, 2021
11:01 am
Loonie
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Sounds more and more like a crash is coming to me.

It's one thing if inheritances and mom and dad and grandparents are ponying up down payments but quite another when buyers and indebted owners are desperate enough that they need four mortgages. I never even heard of fourth mortgages before!

October 17, 2021
12:45 pm
canadian.100
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hwyc said
https://financialpost.com/real-estate/mortgages/investors-are-gobbling-up-homes-in-canadas-hot-housing-market

In the 12 months through June, the number of people adding a fourth mortgage or more surged 7.7 per cent, more than doubling the increase for first-time borrowers, according to data from consumer credit reporting firm Equifax Canada Inc.

Am I fueling a bubble with low interest earning deposit ?  

That article is not clearly written - 4 mortgages for a 1st time homebuyer seems strange-- perhaps it means there are 4 mortgages on one property - that investors are buying multiple properties and put mortgage(s) on first property to buy another property and then mortgage the 2nd property to buy a third etc. - i.e. the investor has 4 mortgages - but perhaps not all on the first property - but anything is possible. I think the article could be clearer.
During Covid, the federal govt provided much funding into the economy with all the handouts, relief, support, welfare etc - which put extra cash into a large number of people's pockets who did not really need that relief - so many of those people are using that cash to buy residences, investment properties, invest in the markets. The Ontario Govt also froze rental increases so tenants gained extra cash/savings. Many of these tenants likely jumped into the housing market as buyers.
While Vancouver and Toronto have very high house prices, the average price in the rest of Canada is not necessarily higher than other 1st world countries.
Apparently the Canadian economy is doing quite well from all the financial articles I read. We are a rich country and foreigners are heavy investors in Canada. We have lots of immigrants arriving - many educated and not necessarily all poor. While such things as property prices and stock prices may slow down a bit or even have a pull back, I doubt there is going to be any long term "crash" as Loonie states.
You are correct that low interest rates accentuate what it occurring but interest rates are likely going to stay at low levels for at least another year - that is the way Govt and BofC want it - and even then any increases will be very gradual so not to put the economy into jeopardy.
Just my take on things.....hopefully we will get some good leaders to steer the ship.

October 17, 2021
1:04 pm
Norman1
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canadian.100 said

That article is not clearly written - not sure it means there are 4 mortgages on one property - I think it means that investors are buying multiple properties and can put a mortgage on one property to buy another and then mortgage the 2nd property to buy a third etc etc. - i.e. the investor has 4 mortgages - but one on each property.

It is more like the investor has four properties and a mortgage on each property.

The lender might as well not bother with a mortgage if there are already three mortgages on a property totaling 100%+ of the value of the property. The lender would receive zero should the borrower default.

October 5 Toronto Star article Changing the rules so more homes are for first-time buyers, not speculators is clearer:

According to data from consumer credit reporting firm Equifax Canada Inc., reported by Bloomberg, the rate of growth of people buying homes was greatest among those who already own several homes. Between June 2020 and June 2021, the segment of people taking out their fourth mortgage (or more) increased at twice the rate of first-time home borrowers.

October 17, 2021
1:09 pm
Bill
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I agree, the article is about multiple properties, not 4 mortgages on one property. And I agree that a crash isn't coming, i.e. slight pullbacks are common but it doesn't take long to get roaring again in the big cities. Even the article mentions a 2017 crackdown on rising prices, well that didn't have any significant lasting effect within a very short time.

The current government is increasing immigration levels yet again in the next few years, that will fuel further increases in the big cities with a resultant ripple-effect elsewhere. Plus inflation upticks result in folks moving to hard assets, like real estate, so again an upward price effect.

October 17, 2021
3:34 pm
hwyc
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Actually the Bloomberg piece Norman1 mentioned was the one I originally read but I think it is behind a wall. If you can get to it, the bar graph in the section "Investor Advantage" depicts the trend since 2016 ... & interest rates were rising along during those years until COVID hits.

October 17, 2021
4:21 pm
Loonie
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One person with multiple properties does sound more likely than one property with fourth mortgages.

But what this comes down to is the rich getting richer and less opportunity for young families who may be stuck being perpetual renters unless they have parents who can afford to set them up. That's not my idea of a healthy economy.

October 17, 2021
4:49 pm
Norman1
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Definitely not healthy especially with some investors grabbing single family homes now.

CBC reported one company aiming to buy $1 billion of existing single-family homes: 'Very frightening' plan by developer to buy $1B in homes will price renters out: anti-poverty group

October 17, 2021
6:44 pm
Bill
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Predictable scare-mongering ("very frightening"), percentage of home ownership at pretty much all time highs in Canada, I think at around 68% (1970, for example, was around 60%). I'm fine with the market determining price, prices are "high" because people have the money to buy or finance at these prices. Just because not everyone can afford a house is zero evidence prices are too high, always been lots of lifelong renters.

October 17, 2021
7:53 pm
Loonie
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The increase, such as it may be, is primarily due to an aging population. Families in older age groups are more likely to own their own homes because they got into the market some years back. They are also increasingly likely to stay in their home longer.
It's younger families that are getting shafted.

October 17, 2021
8:27 pm
Norman1
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The young family won't be able to outbid the investor who intendeds to turn the single-family house into two rental units, unless the family too is willing to divide the house and have a rental.

It is unfortunate that developer with $1 billion to invest doesn't spend it to build $1 billion of new rental units.

It reminds me of that venture capitalist fad years ago of buying up small drug companies that were the sole source of post-patent drugs and then jacking up the price overnight.

October 17, 2021
8:44 pm
Kidd
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It's a trade off, low interest rates and a high price OR high interest rates and a low price. Which do you prefer?

I bought this place I'm living in now, 30 ish years ago and my mortgage rate was something like 11.25%. Mind you, we put our money toward paying down that debt, NOT over indulging ourselves like todays youths do. My phone was attached to the wall of the kitchen, not a $1,000 phone resting in my pocket.

October 17, 2021
8:46 pm
canadian.100
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Loonie said
It's younger families that are getting shafted.  

Yes - in some cases - however I find that many younger couples have high expectations for their 1st house re area, city etc. But many young couples/families are not so young in that they marry later, have kids later, and fewer kids, than the older generations, are more educated, have had better starting jobs than the older generations.
There are always those who seem to succeed while there are others who never seem to get ahead. I am always impressed with certain immigrants who arrive with little, work hard, are careful with their money, buy a house, etc etc - I have known some of these and seen their drive and work ethic.

October 17, 2021
11:06 pm
Loonie
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This is all true but there still aren't enough houses to go around that enough people can afford. We can't judge the aggregate by the exceptions.

I do think people could learn to be more creative about their use of space and either settle for less of it or include more people. Poor immigrants often choose the latter, or did in the past, by pooling their savings and then helping each other later to each get a house. However, as you suggest, the ones who can now afford a house are mostly professionals, come usually from middle or upper class families, are being subsidized by family, can't imagine their child not having their very own backyard, and their imaginations are tuned to what they experienced growing up.
There is a lot more one could say on this topic but I'll leave it there.

October 18, 2021
2:54 am
HermanH
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Loonie said
Poor immigrants often choose the latter, or did in the past, by pooling their savings and then helping each other later to each get a house.

My father did just that. After buying his own home, he helped another family by co-signing for their house. Otherwise, they would not have qualified.

October 18, 2021
5:55 am
canadian.100
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Loonie said
I never even heard of fourth mortgages before!  

Just spoke to a friend who is a lawyer and I asked about fourth mortgages - he told me he has never heard of a fourth mortgage either. Too bad that Financial Post article was so poorly written.

October 25, 2021
12:53 pm
sellis
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Norman1 said
The young family won't be able to outbid the investor who intendeds to turn the single-family house into two rental units, unless the family too is willing to divide the house and have a rental.
 

Isn't this an example of real estate investors helping increase the supply of homes and making things more affordable for families? You're taking an asset that housed one family and making it work for two families.

October 25, 2021
1:33 pm
Loonie
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Norman's statement as quoted is not necessarily true. I sold a house last week. The only bid that could clearly be identified as coming from a developer was fourth on the list in terms of price offered, and significantly less than that of the individual to whom I sold it.

Whether the developer might have paid more if asked, I don't know, but I wasn't about to ask. The gap was $74,500. In this case, the highest bid was also the strongest bid on all counts.

Whether a developer wins a bid depends on what everyone is willing to offer and what the seller accepts. Right now, in southern Ontario, it's a seller's market. Developers may have deep pockets, but if they're not willing to open them up, they will lose out.

October 25, 2021
10:25 pm
Norman1
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The developers or investors aren't out to win the bidding on the houses at any price. The purchase price has to make sense in the context of the rent from the resulting two units.

If the developer was that one mentioned, who was planning to create a new rental units out of the basements, then the highest bid would likely be about $74,000 more than would make sense for the rent from the resulting two units.

October 25, 2021
10:35 pm
Norman1
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sellis said

Isn't this an example of real estate investors helping increase the supply of homes and making things more affordable for families? You're taking an asset that housed one family and making it work for two families.

Not quite.

I don't think the investors are turning, for example, a four-bedroom fully-detached home into a home with four bedrooms on the main level and another four bedrooms in the basement.

I think the investor mentioned is going to isolate the basement and the main level. So, a four bedroom house with two of its bedrooms in the basement would end up as two two-bedroom rental units.

There will be one less four bedroom detached house available for families to buy or to rent. In return, there will be two two-bedroom units available for rental only.

That could be good for families looking for a two-bedroom rental. But, it's bad for families trying to own a four-bedroom house.

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