Private lenders rein in real estate borrowers..
As financial pressures intensify, real estate industry professionals are keeping a wary eye on debt-burdened homeowners – particularly those who rely on cash from private lenders.
The credit that flowed so easily from private and alternative lenders when the Canadian real estate market was climbing is scarce, expensive and sometimes unobtainable when property values fall.
Mark Morris, Toronto-based real estate lawyer with LegalClosing.ca has a growing sense of foreboding as more problem files land on his desk. The steep climb in interest rates, combined with a slide in house prices, may be a major source of instability in the real estate market in the Greater Toronto Area and beyond, Mr. Morris says. “The stars are aligned for a bloodletting,” he says.
Warnings from within the industry follow seven interest rate hikes by the Bank of Canada last year that took the benchmark rate to 4.25 per cent from 0.25 per cent. Low interest rates during the pandemic spurred many potential buyers to jump into bidding wars that sent prices soaring, but the central bank’s increases extinguished the market euphoria in 2022.
Mr. Morris says most homeowners have so far been able to cope with higher monthly expenses, but the duration of the increased rates is taking a toll. Some of those who borrowed heavily against the equity in their homes are struggling to make ongoing payments.
More inventory will hit the market, he believes, and he’s already seeing more homes listed under power of sale as lenders foreclose.