With property interest rates increasing, rumours of a bubble in cities like Toronto, and speculation that some housing markets are cooling, average Canadian homeowners — especially those in debt — are likely nervous.
This is the perfect environment for the most dangerous type of fraud: property valuation fraud — the homeowner committing what they think are innocent omissions that could mean big losses to you later.
Canadian household debt is climbing. Statistics Canada reported in September 2017 that Canadian household disposable income increased to 167.8%, up from 166.6% in the first quarter of the year. That means for every dollar of Canadian household disposable income spent in the second quarter of 2017, there was $1.68 in credit market debt. According to Statistics Canada, the increase in the debt ratio came as household net worth on a per capita basis fell by $1,300 to $285,900.
This can be particularly dangerous for the economy as low interest rates make it easier to borrow money. However, the Bank of Canada has been increasing interest rates since July 2017. According to The Globe and Mail, the interest rate increases have prompted some of the bigger Canadian banks to raise prime rates, used in variable-rate mortgages and other loans, such as lines of credit. New fixed-rate mortgages have climbed too in recent months as bond yields have increased.
Statistics Canada also reported that household income increased 1.2% while household credit market debt rose 1.9%. Total household credit market debt, including consumer credit, mortgage and non-mortgage loans, equalled nearly $2.08 trillion in the second quarter of 2017, and mortgage debt increased 1.6% to $1.36 trillion, while consumer credit grew 2.4% to $609.6 billion.
In mid-October, the International Monetary Fund released a report warning of Canadian’s high debt levels. Canada’s economy could become more sensitive, leading to tighter financial conditions and weaker economic activity.
We all know that CMHC is no longer insuring mortgage refinances. This has left homeowners with less borrowing power on the refinancing side of things where there isn’t significant equity. By a homeowner simply pumping up their home’s value by $50,000 to $60,000, they can unlock more equity to consolidate debt and this can be dangerous.
Then there are other homeowners who don’t have a clue what their home is worth and may overestimate the value based on the local buzz over recent years in their area. However, their estimates may not reflect the current Canadian real estate market environment.
This is why automated valuation models (AVMs) are critical. By looking at an AVM, you can quickly generate a property valuation online and determine if the value is accurate and if the deal is worth investing time and effort into.
Purview for Lenders has the AVM tools you need.
Call us today at 1.855.787.8439 or visit www.purviewforlenders.com.