Attention Turns To Toronto's Subprime Debt Time Bomb

Tyler Durden's picture

Authored by Kaitlin Last via,

Canadian real estate values continue to soar, and a record number of buyers are piling into risky loans. According to the Bank of Canada (BoC), and the Ministry of Finance (MoF), high ratio mortgage borrowers are extending themselves to the limit. While we covered how concerning this trend has become in Toronto, it’s not just isolated to that city. It’s a trend that’s growing across all Canadian urban centers.

High Risk Mortgages

People taking out high-ratio mortgages combined with incomes too low for the property value, is spreading across Canada. A high-ratio mortgage is defined as a mortgage where the buyer leaves less than a 20% downpayment. The BoC and MoF have both expressed concern when high-ratio mortgages are paired with high income-to-loan ratios. The amount of high risk buyers is increasing as markets reach dizzying heights, especially in urban areas.

Vulnerability isn’t just the buyer’s ability to keep devoting a high percentage of their income to carrying payments. Since the number of these buyers are accelerating as prices get higher, they’re at a greater risk during a correction (not even a crash). Something as small as a 5% drop in value and many of these mortgages would be underwater. Underwater is industry slang for the buyer has 0, or less than 0, equity in their home. If this happens it would mean already broke homeowners would have to pay to get rid of their home. Combine that with a higher interest rate at renewal, and you can imagine the mayhem that can unfold.

Toronto and Vancouver Have The Highest Totals

High-ratio mortgages with low income levels is a growing trend in Canada, but Toronto and Vancouver take it to the next level. Across Canada, 18% of high risk mortgages have extremely low incomes for the homes they’re in, an increase of 38% over two years. Despite Vancouver’s insanely high prices, Toronto still tops the risky business of subprime borrowers. Toronto takes the top spot with a 53% increase during the same period, bringing their total to 49%. Coming in second is Vancouver which had a 25% increase over the past two years, bringing their total to 39%. These two cities are moving much faster than the average for the country, and they’re getting to dangerously high levels.

Source: Ministry of Finance (Canada), Bank of Canada’s Calculations.

Trend Is Growing Across Canada

Although Toronto and Vancouver take the cake, this trend is also growing across Canada, albeit with a lower impact. Over the past 2 years, Calgary saw a 23% increase of high ratio mortgages with at risk-income ratios, totalling 32%. Montreal saw a 30% increase over the past two years, bringing their total to 13%. Ottawa-Gatineau saw a massive 62.5% increase, bringing their total to 13%. Meanwhile, quiet little Halifax saw a 40% increase, a total of 7%. So while the issue is growing across Canada, it hasn’t reached the crisis heights of Toronto and Vancouver yet.

While Toronto and Vancouver are leading the market for risky mortgage debt, they aren’t alone. Canada has dodged the real estate commodity cycle for almost 30 years. That has produced a whole generation of people that have no idea that real estate is a cyclical market. This irrational exuberance, and the thoughts that this market will never end is placing all homeowners in a precarious situation.

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Buck Johnson's picture

Canada is going to be the catalyst this time.



I am Jobe's picture

Followed by the US.  Of course USA has Auto Subprime first , Student Loans next and then housing. 

Giant Meteor's picture

Or all three at once !

I'm thinkin the pooch is really screwed this time ..

y3maxx's picture

-Canada will simply declare a Trump style BK.

BaBaBouy's picture

TYLER... Banks Have Been paying 0.5% Interest for years now.
Give me a call about R-E Bubble when Banks start paying 7% to 10% Interest GIC's...

Mr.Sono's picture

What can go wrong? Nothing to see, move along.

BaBaBouy's picture

Talk About Bubbles...

The USG can't Run without issuing more Debt, even at RECORD LOW Rates...
Look how fast they agreed on a new budget, SO THEY CAN ISSUE MORE DEBT, and keep borrowing to fund operations...

PrayingMantis's picture


... boom and bust cycles repeat every 8 to 10 years ... if you time your buys and sells in real estate, you might find yourself ahead ...

... I lived and worked in Chicago, Schaumburg IL, Portland, Vancouver, B.C., North Vancouver BC, Las Vegas, San Francisco, Los Angeles, Modesto CA, Fresno, Alameda CA, Pleasanton CA, Oakland CA, Hollywood, Pasadena CA, Toronto ON, Temecula CA, San Diego, Gastonia NC, Lethbridge ALTA, Red Deer ALTA, Charlotte NC, Shelby NC, Sacramento, Stockton, Medicine Hat, Edmonton, Porterville, CA, Glendale, Palm Springs, Brandon Man, Watts CA, Calgary, Kelowna, Grand Rapids, Kamloops, Fort McMurray, Castlegar BC, Kingston ON, Gananoque ON, Camrose ALTA, Saskatoon Sask, Moose Jaw, Regina, Winnipeg, Thunder Bay, North Bay, Manitoulin Islands, Sudbury, Espanola ON, Mississauga, Richmond BC ... (in no particular order) ...

... and when the boom/bust cycles (1991-92;2001-02;2007-08) hit, I found myself in North Vancouver BC, Las Vegas, NV and Toronto (with a half-acre of land) ... and bought detached houses at each location for $110K, $100K & $280K respectively ... the equity for each property went up 63%, 80%, 435%, respectively ...

... so, even when the debt time-bomb hits with a 50% correction, if timed properly, your investment would still remain safe ... and it looks like 2017-18 is now due for this debt time-bomb boom-bust cycle ... wait until it hits then make your move (China's moneychangers are doing it ) ...

... the point is, these boom/bust cycles are not too difficult to follow (especially in post-internet era or when you follow clues and hints here at ZH) ... during pre-internet era, I relied on business sections of local papers ... and there are places to avoid like Detroit, Niagara area, Stockton, Los Angeles, Chicago and other high-risk locations unless you are in for the long haul and sit on valuable land perhaps ...

... when these doom and gloom scenarios kick in, use it to your advantage ... real estate might be better than stocks ( I got burned a little bit with the Bre-X scam, lol ;)

... btw, the best place to relax and have peace and quiet is a little place called Shelby, in North Carolina ... should've bought a property there ... but that was years ago ;)

... and the worst place for me was Watts, in Los Angeles California ... the company I visited would send out their janitor/caretaker to sit and guard my car a block away from the office until a parking spot was made available in the premises (it explained why lots of cars near the area without wheels were sitting on cement blocks and in some cases, gutted up ;)


Your Good Friend's picture

Incorrect. This is not a "cycle". This is a mania and it's global.

Déjà view's picture

Chinese Trojan Horses...Yellow Horse included...aptly named...

BlindMonkey's picture

How many more cycles can the CBs kick the can?  I didn't think they could do it in 2008 but they did.  They have been preparing and I am betting they can do it this time too but no further than that.  Time will tell. 

Ghost of PartysOver's picture

Say it ain't so....  Canada is the Black Swan?  Eh.

new game's picture

motled gray, white and black. see they know the answer, call ben, propaganda, then print like hell...

give em credit from learning from the last go around, yup, from mistros of deception, da fed...

UnschooledAustrianEconomist's picture

Don't you egocentric bastards forget about us good old Europeans. We, too, are ready to rumble.

I am Jobe's picture

Never been a bette time to buy a home, especially in CA, Austin, Dallas areas. Meanwhile the Proprty Taxes is going thru the roof. Folks are enjoying their dream homes. 

Angelo Misterioso's picture

Cost for renters is also going through the roof - the PITI on those multifamily properties gets passed through just the same - 


but your cell phone performs 2x's faster for just 75% more cost - so the government says we have deflation! 

Cognizant Millennial's picture

Our housing market is a joke, but you could have at least found a less gloomy picture for the article. That looks like Beijing at it's smoggy worst.


It's actually quite nice here: 

Justin Case's picture

Yup, that is a better representation of TO.

Just saw the townhouse I sold in 1999 go up for sale last week. In 1999 sold it for $200K even. On Monday the listing is for $749,000.00. Mind you the pictures show a big reno inside(1800 sq/ft. Everything was re-done. Just giving you an idea of how high prices have gone in Mississauga even.

Defiated's picture

I find Toronto is pretty decent for a bigger city.....until you have to get into your car

2_legs_bahhhhhd's picture

No shit, I scream at those retards every time I have to drive thru there. What idiot spends 2-3 hours in their car every day to be a debt slave. It's pure insanity.

Vuke's picture

Pretty.  A city of trees.....

Giant Meteor's picture

Well everyone gets a turn at this thing ..

Your Good Friend's picture

How many times do I have to tell you to shut the fuck up?

economessed's picture

Don't worry, people.  The central banks can not afford to let you down from living the levered lifestyle.  They'll print away your debts.  Just hang in there, keep borrowing, and watch more television.  Your debt will be diced, sliced, sold, resold, re-resold, and eventually become someone's retirement investment or collateral for their own leveraged adventure into unbridled debt-gasm.

Bay of Pigs's picture

I thought I read about that somewhere recently?


Pareto's picture

"Cat shit rolled up in dog shit." (Big Short)

Nameshavebeenchangedtoprotecttheinnocent's picture

Canada won't have the same type of housing collapse as what the US had, as we don't have the time bomb ARM type, NINJA and other junk mortgages.

House prices will still go down, but it will mostly affect the bigger cities like TO and Van.  Smaller towns won't be affected as badly.

I expect that TO should see price drops of 50%.

At its worst the US saw drops of 80% in some bubble towns. It would have been a lot worse if the banks didn't get bailed out and if they and the hedge funds hadn't kept dead inventory off the market.


Defiated's picture

last correction saw house prices go down 20-30%...'Condo's'.... another story...bought my first warehouse-loft-conversion...

w/appliances...for 60K.....neighbour w/same unit paid 122K.....No Appliances.....(1 yr earlier) the math!

robertocarlos's picture

How can we do the math when we don't know if you have old appliances or a $50k set of 6 burner gas stainless steel appliances?

Siriustwo's picture

I'm not sure about that.  At least in the US you could walk away from the mortgage and live rent free for 2 years because the bank was afraid to foreclose.  In Canada you are on the hook and personal bankruptcy is not so easy.  The only real victim in the US was the taxpayer. 50% of the jobs in Ontario in Q1 were real estate agents.  Trying to borrow some XFN... I think this is wider than people think.

SRV's picture

Yup, different here... lol

Of course, it's different everywhere, but just new ways to get to the same sorry state!

Canada never had a crash because governments (the Progressive Conservative corporate hacks led by Harper to be precise) continued to prop up the RE sector artificially as the US tanked. They also lied about the bailout the Big Five Banks got from Crown Corps, and then we find out years later they took a good chunk of the Feds $16T in zero interest loans they passed around the world like candy without a word, or single approval!

Down Payments were slashed, mortgage terms were increased to 40 years, interest rates were kept artificially low even though OUR banks were supposed to be squeaky clean, sub prime mortgage companies spread (now imploding), self employed could basically report any income they needed for "approval," RSPs were allowed to be raided tax free for "new home buyers" (with new immigrants streaming in to keep the Real Estate Corporations humming)... the schemes went on and on, all to mask the growing time bomb until after the next election.

Time to pay the Piper... been leasing a luxury condo for years waiting for this, and it's hard to believe they've kicked the can this long.

... and this is with absolute rock bottom interest rates... Meh

northern vigor's picture

" would have been worse if the banks had not been bailed out..."

Herein lies the problematic difference between 2008 US and 2018 Canada. In 2008 the US government bailed out banks with newly printed fed dollars. The Canadian government borrows money from the Bank of International Settlements, thanks to the old 1974 Trudeau signing away the right of the Bank of Canada to cover government debt. I think it will quite ironic if Old Trudeau screwed Baby Trudeau this way. 

sagramore's picture

The key to collapsing the house of cards is the Privy Council and Guernsey. They are papering over material fraud bigly.

pitz's picture

Canada is chock full of time-bomb ARM loans, and we know from the HCG debacle that there's probably a lot of NINJA and junk mortgages out there. 

Small towns are also heavily severely overpriced, particularly out west where they were often priced at "big city" prices.

Nameshavebeenchangedtoprotecttheinnocent's picture

No It isn't. Show me one ARM mtge with a reset in Canada. They don't exist here, at least not via any lenders I've ever surveyed.

The HCG thing is ridiculous in the misrepresentations the news is making. HCG caught a bunch of brokers engaging in fraud a few years a go and cut ties with them. They've worked to clean things up since then, & were very up front about it every step of the way. Now, 3 years later everyone is making a shit about it. WTF...

They also started pulling out of the overheated markets like TO and Van, many years ago, despite what the news has been claiming, both MSM and here.

Seems suspiciously like the big 5 were getting worried about how much market share HCG was getting and didn't like it. For years I thought HCG would be a takeover candidate by one of the big 5. The best way to do a takeover is to create a market confidence crisis in your competitior. To me this looks like what is really happening. It really looks like they are being setup.

It's the same thing that Apple did to BB. Start planting lots of negative news stories & hype and watch the competitor crash.

Let's wait and see who steps in to buy HCG when it hits bottom. That's who's likely spreading the 'news' about them now. Either them alone, or in concert with some of the big short sellers that have been trying to kill HCG for a couple years now. 


Abbie Normal's picture

"Show me one ARM mtge with a reset in Canada"

Okay, after 5 seconds of searching, the opening web page on CIBC Mortgage has this offer:


Be mortgage-free sooner

Your Good Friend's picture

Incorrect. But does it really make a difference when it is prime mortgages that are falling at an increasingly rapid rate.


Do you really believe all those subprime mortgages won't implode?

asteroids's picture

The insanity blast radius stretches about 2hrs (car drive) around the downtown Toronto core. That's most of the population of Ontario. The implosion will take down the Ontario and Canadian economy. For my fellow Kanadian comrades I suggest imperial US dollars and gold/silver.

Nameshavebeenchangedtoprotecttheinnocent's picture

Like the US dollar is going to hold its value...not! ...... It'll be toilet paper soon enough.

Justin Case's picture

China and Russia officially opened banks (SWIFT equivelents) in their respective countries to do trade in local currencies, side stepping the USD. As other countries do the same the USD will become less useful in the larger scope around the world in trade. When the currency loses demand it will accelerate to the downside. As merica issues moar and moar debt, they will require moar and moar buyers of that debt, at a time when other countries are abandoning it for trade.

pitz's picture

Canadian dollars would be a much better bet, given that all that debt will need to be repaid in CAD$, so there will be intense demand for it. 

CRM114's picture

The insanity of provincial government regulations covers the whole province. Just decided not to move there once I discovered the full horror. 

directaction's picture

There sure are a whole lot of black swans flying overhead. 
Which one will land first?  

401K of Dooom's picture

I just want it to happen under little Trudeau's administration.  I want him to explain how he is a victim of male chauvinism.

HedgedCanuck's picture

If the HOOPP guy that caughed up $2B to HGC is saying housing would have to tank ~65% for them to break even, should we not anticipate a 50-80% drop in housing?  It's like he gave us the midpoint of his scenarios.