Everywhere you look these days you hear about how Canadians are carrying dangerously high levels of debt, and that many times the bulk of their dangerous debt is related to the roof over their head. Real Estate Agents will be better situated than most to know what the term ‘house poor’ means, and there’s a lot of people that are in nearly-over their heads in this way. This is particularly true in high demand, lower supply housing markets that are also popular destinations. That of course describes Toronto and Vancouver most explicitly, and to a lesser extent cities like Montreal and Calgary.
Homeowner insolvencies are increasing quite significantly all across the country, and whether they are for consumer proposals or bankruptcies it’s not only a major calamitous event for the homeowner and mortgage holder. It also send negative shockwaves through the prospective-homebuyer crowd and in the chill it can put on them is a negative factor for realtors who would either be helping them find a home or selling one to them on behalf of a client. There’s some insulating factors related to the market in Canada that take the edge off that, but it still makes the business a little more challenging.
Client prospecting can be more challenging for any number of reasons – consumer trepidation and uneasiness among them. Our online real estate lead generation service here at Real Estate Leads is an excellent way to harness the power of the Internet to be more immediately put in touch with people who are genuinely considering buying or selling a home in the near future. Being in touch with them first because of the service provides you with very obvious benefits.
But back to topic, what should be read into all these insolvencies when it comes to homeowners in Canada?
A Genuine Spike in Home Forfeitures via Insolvency
Greater Vancouver is following the rest of Canada’s lead when it comes to this spike in insolvencies. We need look no further than the National Office of the Superintendent of Bankruptcy (OSB) and their data to see households filed a lot more insolvencies in Q4 2019. It’s interesting to note that Vancouver’s growth in them is showing itself to be consistent with elsewhere in the Province. However, there’s no debate that BC is seeing a very rapid rise in the number of distressed households.
Insolvencies Vs Bankruptcies
Bankruptcy tends to be a term that everyone’s familiar with, and fears accordingly. But many, real estate agents in Canada included, may not know the difference between a bankruptcy and an insolvency. There’s two types of insolvency in Canada – consumer proposals and bankruptcy.
With a consumer proposals the individual enters into a formal agreement with creditors to repay debt, doing so at a fraction of the amount and / or over a longer repayment period. Oppositely, a bankruptcy is when the borrowers gives up their assets in return for being no longer responsible for the debt. In both cases it’s really not quite that simple, but that explanation works well enough for our purposes here. Both are administered by a licensed insolvency trustee (LIT) and it’s fair to say that every time it gets to this point the person or entity has been swimming in debt.
If the debt is less considerable then the person can hope for a consumer proposal. Of course, homes in Canada and especially in popular locales are NEVER purchased for less than a considerable amount and most buyers will have a mortgage on half of the purchaser price or more (usually much more).
So we can then see that the majority of homeowners who going into insolvency with their home buying debt are going to be facing bankruptcy. In certain situations, however, bankruptcies are a better option for the borrower.
How serious is this problem, and is it an indication of something bigger like what occurred in America some 12 years ago? The second part of that would be a speculative discussion of its own, but we will take a look at how insolvencies are jumping in numbers in Vancouver.
End of 2019 Insolvency Spike in Greater Vancouver
Greater Vancouver insolvencies did take quite the leap at the end of last year, to the tune of 1,284 insolvency filings in Q4 2019, and that was up 12.2% from the same period in 2018. 398 of those were bankruptcies, and that’s a jump of 5.6% from a year before. Consumer proposals make up the other 886 filings, up 15.5% from last year. While the GVA is seeing much faster growth than the national average, it’s still less than in Greater Toronto.
We will also add further that Canadian insolvencies are on the rise as a whole, and in fact last year there was the highest number of them since the Great Recession. We can probably safely assume that British Columbia’s rapid growth and housing crisis is prompting people to get in over their heads with the real estate market. This kind of ‘urgency’ to making a move in real estate has been seen time and time again over many decades, but it may be at its most feverish right now for people in BC, and Vancouver in particular.
As a realtor, part of your responsibility to your client is to advise them as to where making offers on properties may not be in their best interest given their established purchasing power. Of course, the client’s wishes are never overruled, but it doesn’t hurt to at least try to steer them in the right direction in this regard.
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