HomeNews1Numbers of forced home sales increase in GTA

Numbers of forced home sales increase in GTA

Numbers of forced home sales increase in GTA

Toronto real estate agent Daniel Foch found 35 power of sale listings in February, up from 12 the year before and zero in February 2020.

Under a power of sale, the borrower still owns their home, but the lender steps in to force the sale of the property.

A secluded multi-bedroom mansion north of Toronto, a Scarborough bungalow, and an Etobicoke detached home that’s been on the market for months.

The listings for these properties are peppered with language that reminds buyers to manage their expectations, to treat the properties “as is” and do their own due diligence. One even specifies that there will be no inside showings without an accepted offer.

On the surface they seem like very different properties up for sale in the GTA, but they all have one thing in common — according to the listings, none of their owners actually want to sell.

These are just a few examples of the rising number of forced sales in the GTA, according to realtor analysis of listing data, and a sign of more tension in the turbulent local real estate market.

The power of sale means the borrower is not able to keep up with their mortgage payments. But even borrowers who have kept up can be made to sell if lenders decide not to renew their mortgage. If borrowers can’t find a new lender, the current lender can force a sale.

“We’re seeing more volume of distressed properties. That’s evidence that there’s increased distress in the market right now,” said Foch, who has culled data from Toronto Regional Real Estate Board listings containing the terms “power of sale” on MLS.

In January, some GTA mortgage brokers also reported an uptick in forced sales, following rises in interest rates and a drop in home prices.

Power of sale data is not available to the public, but as a realtor, Foch was able to search Toronto Regional Real Estate Board listings for the terms. He found “huge growth” in power of sale listings in the last three years. He acknowledges his analysis will not pick up ads that don’t have the term power of sale, so it probably underestimates the actual number.

“A lot of it is just evidence of failed speculative activity,” Foch said, referring to investors and would-be flippers, who got caught out by the changing market and rising rates.

Forced sales are still a low number overall, at less than one per cent of total listings.

Another realtor, who did not want to be named for fear of professional repercussions, conducted a similar analysis of TRREB listings Ontario-wide that put the February number at 105, compared to 67 in January and 24 in February 2022. Sometimes regional listings, for example in Waterloo, are posted on both the local and the Toronto board for added exposure. This realtor used wider search terms that would indicate a power of sale, such as “bank” and “trust” and manually removed any false positives.

Foch, who has handled some of power of sale listings personally, said most of them seem to be either investment properties, private mortgages or second mortgages.

“In the majority of cases there’s more than one lender on the property,” he said.

“It just shows to me that leverage is what kills in real estate.”

Speaking generally, Foch said there are also “quite a few” homes that are halfway through extensive renovations up for power of sale.

“It’s some people that were renting out properties that were cash negative, some people going to flip a property and maybe got caught, maybe they bought at a bad time, they bought it in January or February of last year and they gave up on the renovation because there was no point,” he said.

Mortgage broker Jonathan Gibson, a partner at Landbank Advisors, said he’s seeing a lot of private lenders who were lending using home equity lines of credit (HELOCs). Now that the interest rates are so much higher, it’s just not worth it for many of them, and private mortgage renewal clauses are typically, “at the lenders’ discretion.”

“These lenders are basically saying we’re not renewing this thing, you can go find a new lender,” he said.

With interest rates so high, after eight consecutive hikes following historic lows during the pandemic, “there’s stress in the system 100 per cent,” he added.

At the same time as power of sales are surging, Gibson said behind the scenes big banks are quietly renegotiating the terms of mortgages for their overextended clients, drawing out the amortization period so borrowers can stomach monthly payments.

He has two clients with variable rate mortgages and their payments are now up “50 to 70 per cent from when they got their mortgages six to eight months ago,” he added.

“Never in my career — I’ve been doing this for a decade — have I seen a lender increase amortization midterm,” he said.

One of the reasons why power of sales data is so valuable is because it can be an early signal of trouble ahead. Mortgage delinquency rates take longer to reflect changes in interest rates as many stats reflect 90 days of missed payments.

Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, said mortgage defaults are “up slightly but nothing significant yet.” But she fears for what happens when a wave of mortgage holders who bought in 2018 and 2019 need to renew later this year and next year.

“You’re going see that payment shock come through,” said Oakes.

Homeowners who’ve been on a fixed rate for the last three to five years are going to be in for a rude awakening with the prime rate now sitting at 6.7 per cent. “It’s definitely going to be a challenging time for some people.”

Canada’s biggest banks saw the country’s major lenders move in lockstep ahead of a projected economic downturn, with each putting more money away for a possible rise in credit losses.

Experts say the more expensive cost of borrowing in Canada and the possibility of job losses could catch up to households and push a growing number into default, though some believe the worst of the debt pain is likely at least a year away.

Canada’s big six banks — TD Bank, RBC, BMO, Scotiabank, CIBC and National Bank — all reported earnings for their first fiscal quarters this week, with similar-sounding results. All reported a dip in profits as they put more money aside to handle credit losses.

The Montreal-based lender also pointed to a rapid rise in interest rates — the Bank of Canada hiked rates by a cumulative 425 basis points over the past year, with its next decision coming on Wednesday — as putting strain on its customers.

Part of the article was reported by the Star.