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Mortgage stress test rules may be pushing borrowers towards unregulated lenders





The Bank of Canada released data this week that shows stricter mortgage rules along with higher interest rates have helped slow the growth of risky mortgages, but some economists question whether over-leveraged borrowers are simply turning to the unregulated mortgage market.

The central bank’s analysis said tougher mortgage qualification tests have helped to drastically cut the share of people who borrow at least 4.5 times their annual income to buy a home, and put down small down payments when they do.

Two years ago, that category of borrowers made up 20 per cent of the market. Now it’s down to just 6 per cent, the Bank of Canada calculates.

But the central bank’s numbers are limited to what’s happening at federally regulated institutions such as the country’s largest banks. What’s happening at unregulated private lenders isn’t included. 

Private lenders don’t have to comply with federal rules, including Ottawa’s tougher mortgage stress tests.

“Areas with high house prices, such as the Greater Toronto Area (GTA), could therefore see more borrowers obtaining mortgages from private lenders because they might not be able to qualify with other lenders,” according to the bank’s analysis. 

While private lending falls outside of its purview, the central bank admits that it’s a part of the market that’s growing. For example, the market share for private lenders in the GTA has grown by 50 per cent since last year, and now makes up nearly one out of every 10 borrowers, the bank said.

Unregulated lending isn’t inherently risky — but it is difficult for analysts to monitor.

“We are getting into a situation in which the fastest growing segment of the market is the one that is in the dark, and that’s suboptimal,” said CIBC deputy chief economist Benjamin Tal.

Without more information about what’s happening in the private market, Tal said it’s unclear whether the central bank’s policy changes are simply spreading risk around — as opposed to reducing it. 

“It’s definitely lowering the risk in the regulated segment of the market, the question is whether or not it’s lowering the risk in the market as a whole,” said Tal.

Consumer insolvencies on the horizon

Bankruptcy experts said current data isn’t giving a full picture of Canadians’ overall debt either.

Consumer insolvencies peaked during the 2007-08 financial crisis and have been relatively stable since 2012. Around 120,000 Canadians went insolvent last year, less than 0.4 per cent of the country’s population. But experts in the field know there’s a delay between when interest rates go up and when that finally pushes people over the edge.

“Historically, there has been a two year lag from the time interest rates begin to rise and when consumer insolvencies start to increase,” said Chantal Gingras, chair of the Canadian Association of Insolvency and Restructuring Professionals.

So far, higher rates are mainly hitting variable rate mortgage holders, but most Canadians who borrow to buy a home opt for a fixed-rate term, which insulates them from rate hikes — for now. When those people renew in an era of higher rates, they could be in for a significant shock.

“At one point,” said Gingras, “consumers will hit a wall.” 

Still, the Bank of Canada was confident when it hiked interest rates in October that households are adjusting to higher rates and housing market policies.

Based on the central bank’s analysis this week, Scotiabank deputy chief economist Brett House said it seems as though the slew of recent policy changes are doing what they were designed to do — but he’d still like to see more data. 

“It doesn’t get down as much into the weeds on the impact of the [mortgage] rules as I’d ideally like,” said House


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Real Estate

Montreal real-estate prices climbing much faster than Toronto or Vancouver: study





MONTREAL — The cost of housing per square foot has skyrocketed in Montreal while other cities saw little change over the last year, according to a new national survey.

The study found that condominium prices in downtown Montreal are up 13.5 per cent from last year to, on average, $805 per square foot.

That’s not as high as other cities, but it’s catching up — and Montreal’s rate of growth is outpacing other major Canadian cities.

Toronto’s condo prices grew to $1083 per square foot, an increase of just under 10 per cent, according to the study. In Vancouver, where you can find some of Canada’s most expensive condo prices, rates are down 4 per cent to $1192 per square foot.

To make the comparisons, Canadian real estate giant Century 21 collected data from real estate boards across the country to calculate the home costs per square foot.

“It’s important to compare apple to apples,” said Todd Shyiak, the company’s vice president of operations.

Montreal’s rise was even more explosive for detached homes and townhouses.

Detached houses in Montreal’s downtown and southwest rose to $958 per square foot, 40 per cent up from last year.

“It’s wild,” said Century 21 broker Angela Langtry. She says the pandemic raised demand.

“People had a lot of time to figure out they don’t like the home they’re in,” she said. “They all want pools.”

There was a big spike in sales, she noted, following a pause in brokerage during the spring, at the peak of the pandemic.

Experts say the pandemic will push people into the suburbs as they search for affordable housing and home office space.

“A huge portion of our society’s housing needs changed overnight,” said Shyiak. People “no longer need to be 10 minutes from the office.”

He says that could mean less demand for condos in the future. “People want their own front door,” he said.

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Real Estate

Carttera buys prime downtown Montreal development site





Carttera has acquired a prime downtown Montreal site at 1455 De La Montagne St. which will mark its third development on the thoroughfare.

“We think it’s probably one of the best, if not the best, locations in the whole city,” Carttera founding partner Jim Tadeson told RENX. “We’ve had great success on De La Montagne.”

The two earlier projects are: L’Avenue, a building with 393 residential units, 84,000 square feet of office space and 34,000 square feet of retail that was developed with Broccolini and occupied in 2017; and Arbora Residences, a two-phase development with 434 rental and condominium units in three buildings being built in partnership with Oxford Properties.

Thursday’s latest acquisition, for $48.5 million from 630745 Ontario, is a 31,750-square-foot surface parking lot with flexible mixed-use zoning on the corner of De La Montagne and De Maisonneuve Boulevard West.

The site is near the Vogue Hotel Montreal Downtown, the new Four Seasons Hotel Montreal and high-end retail.

“It’s zoned for up to 203,000 square feet of density, which we’re going to take advantage of,” said Tadeson. “Our vision for the site is a condominium project with some retail.”

Since there is no demolition required and no heritage issues to contend with, Toronto-based Carttera plans to move ahead quickly with the luxury project.

It’s in the concept design phase and Tadeson said it could take six months or more before it’s prepared to make a submission to the city.

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Montreal Has the Hottest Real Estate Market in Canada Right Now





If you thought Toronto’s real estate market was on fire, it’s time for a second take, because the market in Montreal is the hottest in all of Canada right now.

A newly-released annual report from CENTURY 21 Canada reveals that, following an early-spring decline due to the COVID-19 pandemic, sales numbers are bouncing back and house prices across the country are maintaining their strength. The study compared the price per square foot of properties sold between January 1 and June 30 of this year, compared to the same period last year.

In Toronto and Vancouver, unsurprisingly, prices remain high. But while regions across the country are seeing varied stories when it comes to their housing market fluctuations, Montreal stands out — there, prices have increased dramatically since 2019. While the numbers remain lower than Toronto and Vancouver, that housing market is proving to be the country’s strongest right now.

In Quebec’s largest city, prices have increased significantly since last year, particularly in the downtown detached house and townhouse markets. For example, the price of a detached house in Montreal’s downtown and southwest rose 42.14% to $958 per square foot, while townhouses went up 44% to $768, and condos, 13.55% to $805. Comparatively, in Toronto and Vancouver, prices saw more modest increases or, in some cases, even declines.

“Even though real estate in Quebec was not considered an essential service, we have seen strong demand and a jump in prices in 2020,” said Mohamad Al-Hajj, owner of CENTURY 21 Immo-Plus in Montreal.

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