Equity Refinance Mortgage Loans Canada - Equity Mortgage Loans Canada - Second Mortgage Loans Canada
Mortgage Loans Canada, Mortgage Refinance Canada, Equity Mortgage Loans CanadaOnline Mortgage Application Form Instant Mortgage Approval 1-866-573-3122 24 HOUR CUSTOMER SERVICEEQUITY REFINANCE MORTGAGE LOANS CANADA BLOGMortgage Canada Buying and selling a home cheat sheetMortgage Canada Words To Know When Buying A HomeImportant Mortgage Websites linksMortgage Canada Basics - Mortgage Canada GuideMortgage Canada CMHC Newcomers to Canada Buying your First HomeMortgage Canada CMHC Home Buying Step By StepMortgage Canada CMHC Condominium Buyers GuideMortgage Canada Compare all Canadian Credit CardsHow Credit Effects Your Canadian MortgageMortgage Canada CMHC Housing Market Outlook Canada Edition Page 1Mortgage Calculator - Mortgage calculators allow you to make informed mortgage decisions
Equity Refinance Mortgage Loans Canada, Home Equity Unlocking, 1st & 2nd Mortgages, Your Mortgage Experts. My right Mortgage, INSTANT APPROVAL 24/7 CUSTOMER SERVICE FAST MORTGAGE PAYOUTS IN CANADA HIGHEST MORTGAGE APPROVAL RATE IN CANADA 1-866-573-3122

HOME BUYING, BUYING YOUR FIRST HOME & INFORMATION FOR SEASONED HOMEBUYERS
FINANCIAL CONSUMER AGENCY OF CANADA
CANADIAN ECONOMY NEWS
MORTGAGE BROKER NEWS
October, 2015
November, 2015
December, 2015
January, 2016

20% housing correction would push young homeowners under water

Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.

The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.


20% housing correction would push young homeowners under water

Homeowners in their 30s and younger are especially vulnerable to a housing crash, the CCPA says

By Pete Evans, CBC News Posted: Nov 09, 2015 9:27 AM ET Last Updated: Nov 09, 2015 11:26 AM ET

Young homeowners are especially vulnerable to a house price correction because they tend to be more leveraged, the CCPA says.

Young homeowners are especially vulnerable to a house price correction because they tend to be more leveraged, the CCPA says. (Associated Press)

Young Canadian homeowners are disproportionately vulnerable to a housing correction, and more than 1 in 10 would owe more than they owned in the event of a modest or larger pullback in the market, according to a report.

The report, by the Canadian Centre for Policy Alternatives, was released Monday. The left-leaning think-tank urges governments to implement policies aimed at bringing down debt loads before its too late.

Policymakers have been warning for years about the dangers of high house prices and the debt loads they tend to generate. But the CCPA report is among the first to quantify how those debt loads are skewing disproportionately towards younger people, who often have no other assets than the house they borrowed so much to buy.

1 in 10 wiped out by 20% correction

Their debt loads make them even more vulnerable than the population at large to a housing correction.

The Organization for Economic Co-operation and Development (OECD) issued a warning Monday about the risk of correction, particularly in Toronto, which has a rapid pace of new condo development.

It pointed to high debt-to-income levels in Canada and urged tightening on mortgage lending in markets such as Toronto and Vancouver, where homes are expensive compared to incomes.

"In Ontario, and especially Toronto, economic activity has been relatively buoyant and demand by foreigners has been boosted by the falling Canadian dollar. That said, newly completed but unoccupied housing units have soared in Toronto, increasing the risk of a sharp market correction."

Central bank says houses overvalued

The Bank of Canada estimates Canadian house prices are currently 10 to 30 per cent overvalued, and some private-sector economists say the problem is even worse.

"Declines in real estate prices would have a strongly disproportional impact on young homeowners," CCPA economist David Macdonald said. "If, or more likely when, real estate prices fall, families in their 20s and 30s can expect to lose a substantial portion of their net worth, and could find themselves owing more than their house and other assets are worth."

He offered some crunched numbers to back up that contention.

The debt-to-income ratio for people in their thirties has almost doubled since 1999, hitting a new high of 4 to 1, the highest of any age group.

Young families hit hardest

If Canada sees a housing correction near the midpoint of the Bank of Canada's projections, younger families would be disproportionately hit by that:

  • Families with people in their thirties would lose an average of $60,000, which represents 39 per cent of their net worth.
  • 1 in 10 families with people in their thirties or younger (169,000 families across Canada) would have a negative net worth, meaning their debts are larger than their assets. Today, the CCPA says there are 44,000 families in this group who are under water even before any housing price correction.
  • If the correction is larger, say something in the range of 30 per cent, the impact would be even greater, as 294,000 households or one in seven families would be underwater.
  • People in their twenties would lose less in dollar terms, less than $40,000 each on average, but that figure would reduce their net worth by 45 per cent.
  • Families headed by people in their forties and up would lose more in dollar terms to a housing correction because their houses tend to be larger and worth more. But with an average loss of $70,000 to $80,000, that only represents 23 per cent of their net worth because they tend to owe less, and they tend to have other assets beside their house.

Housing corrections tend to have a cascading impact on the rest of household finances because of the large amounts of leverage involved in buying a home. As a rule of thumb, every 10 per cent decline in house prices represents a loss of 20 per cent on the average person's net worth, Macdonald said.

"In cities with higher prices, like Toronto, Vancouver and Calgary, young families would likely see declines in net worth dramatically worse than the national average due to higher leverage," he said.

"A badly managed downturn in real estate prices could wipe out the wealth of a large number of Gen-Xers and Gen-Yers," he said. "We need to recognize that young families are the most likely group to be plunged underwater by a nasty housing correction."

<< Back Add New Comment
0 items total
Add New Comment
Name*
Subject*
Comment*
Please type the confirmation code you see on the image*
Reload image

Powered by 4GoodHosting