A group of Ontario residents who purchased pre-construction homes in Brampton at the peak of the recent real estate frenzy say they’re now struggling to close on their deals because of a perfect storm of rising interest rates, falling home prices and stricter federal mortgage rules.
CBC News spoke to eight people who bought homes at the Paradise Developments Valley Oak community in late 2021 or early 2022. They all said they’re having trouble getting financing due to the sudden real estate downturn brought on primarily by the Bank of Canada raising interest rates in an effort to tame inflation, which has sent mortgage rates skyrocketing and home values plunging.
The buyers, who are mostly from the Punjabi community, say they want to honour their commitments, but with interest rates so high, many no longer qualify for mortgages.
Those that do qualify are being offered hundreds of thousands of dollars less than the amounts they’re on the hook for because appraisal values have fallen dramatically over the past 10 months. Existing mortgage rates would mean unaffordable payments, they say.
First-time homebuyer Gurcharan Rehal agreed in October 2021 to pay $1.959 million, plus $90,000 in upgrades, for a single-detached home that would house himself, his wife, their two children and his mother.
“We thought, if we live hand-to-mouth, we can still afford it,” Rehal, an Uber driver, told CBC News.
But with his closing date approaching next month, he’s so far been unable to secure a mortgage.
An appraisal recently estimated the home’s value at $1.7 million — more than $300,000 less than what he agreed to pay for it. On top of that, he says the mortgage rate he was pre-approved for would have required monthly payments of $5,000, but now he’s being quoted amounts between $12,000 and $15,000 per month.
Coming up with hundreds of thousands of dollars to cover the difference upon closing — in addition to the $260,000 down payment he’s already made — and making exorbitant monthly payments is something his family simply can’t afford.
“Me and my wife, I think we haven’t slept for [the] last three months,” said Rehal. “Our kids, they can see the stress on me and my wife’s face.”
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Buyers want closing dates extended
The buyers CBC spoke to say there are around 100 people in the same situation at the development. They provided a contact list showing approximately 60 households.
“We are not able to eat, we are not able to rest,” said Poornima Malisetty, who purchased a detached home in the Paradise Valley Oak community with an in-law suite for $1.9 million that’s now being appraised at $1.6 million.
“Even if we win a lottery, we will not be able to close.”
The buyers are asking Paradise to extend their closing dates or reduce their purchase prices, and have protested outside the developer’s sales office.
In a statement, Paradise Developments said it works collaboratively with purchasers throughout the purchase, construction and closing period.
“Paradise Developments makes business decisions, enters into contracts with suppliers, hires employees and commits to the contracting of numerous building trades based on agreements we have signed,” the statement said.
“Whenever purchasers raise individual issues with us, we look to address them in accordance with our policies and the terms of our joint agreement of purchase and sale. Based on having finalized and completed these agreements, construction is now advancing on the homes in this community, and we look forward to completion.”
Rehal says Paradise has offered some buyers a three month extension on the closing date in exchange for more money on their deposit, but with the future of interest rates uncertain, he’s not sure if he’ll take them up on it. They and the other buyers are still communicating individually with Paradise and hoping the builder will extend their closing dates or reduce the prices.
John Pasalis, a housing analyst and the president of Realosophy Realty Inc., says buying pre-construction homes is risky because buyers aren’t buying a home, they’re signing a contract that obligates them to buy one in the future at a pre-determined price. (Farrah Merali/CBC News)
Pre-construction a risky gambit, real estate broker says
John Pasalis, president of residential real estate brokerage Realosophy Realty, said the situation highlights the risks of buying pre-construction in a hot housing market.
“They’re not buying a home. They’re signing up on a contract that obligates them to buy a home in the future at some pre-determined price,” said Pasalis.
“If, between the time you sign on that dotted line and the time you’re about to take the keys, prices have declined, well, you’re on the hook for that difference.”
Buyers who want to break their contracts risk losing their deposits. But if those buyers walk away, builders could also sue them in an effort to recover the difference between the original purchase price and the price they end up selling the home for.
That’s something Paradise might do in this case. CBC viewed an email sent to one homebuyer where a lawyer for Paradise threatened legal action to recoup “all costs, loss and damages it may suffer as a result of your client’s failure to complete this transaction.”
The Brampton Valley Oak housing development is currently under construction. Buyers say their closing dates are approaching in the first half of 2023, but a perfect storm of rising interest rates, falling home prices and stricter federal mortgage rules mean they are struggling to close. (Ryan Patrick Jones/CBC)
Wrong home at the wrong time
The Bank of Canada began incrementally raising its trend-setting interest rate in March when it was at 0.25 per cent. It’s now at 4.25 per cent.
Home prices in the Toronto region, which had been rising steadily since 2018, have cratered since then, as have new sales.
The average sale price of a detached home in Brampton went from $1,608,894 at its peak in February to $1,197,119 in November, a decrease of more than $400,000, or 25.5 per cent, according to data from the Toronto Regional Real Estate Board (TRREB). The number of detached home sales in the city dropped to 142 from 460 in the same period.
Variable mortgage rates, meanwhile, that were around 1.45 per cent one year ago have increased to around 5.45 per cent, according to Ron Butler, founder of Butler Mortgage. Five-year fixed rate mortgage rates have increased from 2.89 per cent a year ago to around 5.49 per cent today, Butler told CBC in an email.
Compounding the problem is the federal mortgage stress test, which requires buyers to be able to show the ability to pay mortgage payments of 5.25 per cent or two per cent above their approved rate, whichever is higher. Most buyers were stress tested at 5.25 per cent last year when interest rates were low, but now they’re being tested above seven per cent.
“If you, by no fault of your own, got unlucky with your timing you can certainly be in a strained situation,” said James Laird, co-CEO of Ratehub.ca and president of mortgage lender CanWise.
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Condo buyers are facing similar issues and developers are also feeling the pinch of a challenging market.
Kevin Lee, CEO of the Canadian Home Builders Association, said inflation has raised construction and labour costs, while higher interest rates have raised the cost of financing projects. Lee said developers have very little flexibility when it comes to recouping their costs.
“When it’s coming time to close on purchases, it’s not like there’s a whole bunch of wiggle room on the builder-developer side of things,” Lee said. “Otherwise, they’re in a situation of taking big losses.”
Laird and Lee say the market could stabilize sometime next year after the Bank of Canada hinted last week it may be finished with rate hikes.
That would be the best scenario for the Paradise buyers, but it could be a case of too little, too late.
“Emotionally and financially, this gonna disturb my whole life,” said Rehal, who’s now unsure if he’ll ever be able to buy a house in Canada.
TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.
The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.
The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.
“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.
“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”
The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.
New listings last month totalled 15,328, up 4.3 per cent from a year earlier.
In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.
The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.
“I thought they’d be up for sure, but not necessarily that much,” said Forbes.
“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”
He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.
“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.
“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”
All property types saw more sales in October compared with a year ago throughout the GTA.
Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.
“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.
“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”
This report by The Canadian Press was first published Nov. 6, 2024.
HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.
Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.
Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.
The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.
Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.
They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.
The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.
This report by The Canadian Press was first published Oct. 24, 2024.
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
