Aspiring owners should think carefully before buying a home with the minimum down payment. So warns Canada’s most vocal housing official.
“A first-time home buyer purchasing a $300,000 home with a 5-per-cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall just 10 per cent, which we are forecasting,” Evan Siddall, chief executive of the Canada Mortgage and Housing Corp. (CMHC), told a parliamentary committee earlier this week.
This fate could affect a large cohort if they’re forced to realize those losses. An estimated one in three first-time buyers and one in eight new mortgages have less than 10-per-cent equity. Most such folks are putting down just 5 per cent, which, after default-insurance fees, leaves them almost 100-per-cent financed.
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When you’re nearly 100-per-cent financed with no backup funds, you can’t move, refinance or sell without a loss.
You’re essentially trapped in your four walls.
That’s an eerie feeling, especially if prices are collapsing all around you.
It’s a depressing feeling if you have children and need a bigger home.
It’s a desperate feeling if you must move to accept an out-of-town job offer.
It’s a panic-inducing feeling if you lose income and can’t pay your mortgage at all.
Home buying with 1-per-cent equity has risk in normal times, let alone during what could be the most severe recession in modern history.
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Forget all those economists and their shot-in-the-dark forecasts. What does your gut tell you about where home values might be headed when we’re about to see:
An estimated 41.3-per-cent collapse in economic output this quarter, according to a Bloomberg survey of economists;
As many as one in five working-age adults either jobless or with major loss of income;
Up to one in five borrowers potentially unable to pay their mortgage after deferrals stop (the “deferral cliff,” as CMHC puts it);
Tens of thousands of businesses that will never again reopen;
Record mortgage delinquencies that could double the 1980s peak, per CMHC numbers.
Sure, the government is rolling out billions of dollars in various forms of short-term financial assistance, and sure, banks are deferring mortgage payments temporarily. But fast-forward to October when millions could still be off work while deferrals end. A year from now, CMHC fears tens of thousands of low-equity homeowners could owe more than their home is worth.
If you’re anxious to own a home, I don’t blame you. But if you’re not rock-solid financially, renting a bit longer is sensible risk management.
And remember, CMHC will garnishee your wages and pursue you up to the point of bankruptcy if you get an insured mortgage and don’t pay.
Should 5-per-cent down payments be banned?
Government policy makers are considering it and some fear they’ll hike the minimum down payment to 10 per cent.
That’s not going to happen near-term, not across-the-board, anyway. If it did, a price correction could become a price crash. The time to enact tough mortgage rules is before a crisis, not during a crisis.
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If credit tightening is measured – i.e., the feds don’t mandate 10-per-cent minimum down payments across the board – then higher down payments on select borrowers is arguably less negative than a potential flood of panic/forced sales from those borrowers.
Timing is key with so much at stake. Plummeting home prices would cost hundreds of thousands of jobs, a nose-dive in consumer spending, record lender losses, limits on refinancing, losses for seniors who rely on equity for survival and so on.
Were Ottawa to suddenly force 10-per-cent down industry-wide, the government could bear the blame for pushing housing off a cliff, and deep down it knows that.
Either way, it’s understandable to at least temporarily require bigger down payments – even 10 per cent – from less-qualified borrowers, those with weaker credit, higher debt ratios, less stable income and few backup financial resources.
If that sounds anything like you, don’t wait for the government to tell you that you can’t buy. Be a happy renter until at least later this year. Then re-evaluate.
Robert McLister is a founder of RateSpy.com and intelliMortgage, and mortgage editor at rates.ca. You can follow him on Twitter at @RateSpy.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
