The Real Estate Investment Network says Canadian mortgage arrears are expected to hit the highest levels since 2017 and foreclosures will rise this year, creating opportunities for investors.

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REIN released a new special report, How to Avoid and Buy Foreclosures, advising investors how to prepare for the emerging foreclosures market in Canada as the federal government’s income support and mortgage deferral programs come to an end.

Jennifer Hunt
Jennifer Hunt

Jennifer Hunt, vice president research at REIN, says buying foreclosed and pre-foreclosed properties will likely emerge as an investment tactic for investors that are uniquely positioned and educated to implement solutions amid the economic slowdown brought on by the COVID-19 pandemic.

“The unfortunate reality some homeowners may face is potential eviction from their homes or loss of investment properties, but there are many options for both lenders and borrowers to avoid this scenario,” says Hunt. Owners should educate themselves about foreclosures and be proactive, and investors will benefit from understanding how foreclosures work, the many debt settlement options available in the pre-foreclosure stage, and where to find and purchase these unconventional investment deals, says Hunt.

“Foreclosures can happen at any time, for a myriad of reasons, and during any phase of the real estate cycle. But foreclosures also rise depending on which phase of the cycle the market is in,” says Hunt. She says most of Canada’s major housing markets will see foreclosures increasing in the next few months. “The key for homeowners and buyers is to learn how to pivot while employing all means possible to either protect their properties or expand their portfolios.”

REIN’s Economic Turmoil Formula

REIN’s Economic Turmoil Formula outlines a series of factors over an 18-24-month cycle that begins with no GDP growth. After 12 to 18 months, other economic indicators include growing employment, population decline, decreased rental demand, increased vacancies and decreased rents. Those factors lead to an oversupply of properties and decreased property prices, says REIN.

“We have a precipitous drop of GDP from the pandemic since March. Obviously, an incredible loss of jobs. Even though it’s slightly improving, it still has not recovered and we have significant job losses,” says Hunt. “And of course, population is impacted in all kinds of different ways but let’s just focus on immigration with the closed borders.

“And then we see rental markets typically are affected about 12 to 13 months after that economic event and GDP change. Then at 18 months to two years you see all of that move through the cycle – because those are lagging indicators – and actually show up in real estate prices. We are currently in the technical slump phase…In that beginning phase in most markets, property values may be going up and there’s that sort of frothy fear of missing out in a hot market. But the supporting fundamentals are no longer there. And as a result of that, based on the guideline formula . . . those economic fundamentals are the drivers and we expect in about 18 months to two years to see those housing prices affected.”

According to the report, the COVID-19 pandemic has triggered widespread business closures and the sudden loss of jobs, which in turn prompted a spike in mortgage delinquencies and therefore a potential rise in foreclosures in the coming months.

But Hunt said other market influencers like a policy change or a change of interest rates can affect how fast the real estate cycle takes place. The longer the pandemic lasts, the more foreclosures we will see. Thankfully, government financial support has kept foreclosures down during the pandemic.

“The time is now to become savvy and educated on the mysterious foreclosure process in Canada,” says Hunt. “Most information about foreclosures in real estate is based on the U.S. processes but of course Canada is a different country with an entirely different system. We wanted to demystify that for individuals so that they can be prepared and educated on how to avoid foreclosures should they be at risk as a homeowner or an investor….and also so that they could be prepared as investors to be able to create win-win solutions, where maybe they’re able to acquire properties in pre-foreclosure or support an individual going through pre-foreclosure and come up with creative solutions.”

Hunt says people need to understand debt settlement measures in the pre-foreclosure stage, adding that banks and lenders prefer to avoid foreclosures because they are expensive and lengthy.

“These debt settlement measures in the pre-foreclosure become really, really valuable for individuals to get acquainted with so that they can come up with negotiations or leverage points or options to salvage their credit and to keep their home, or to work with an investor for support,” she says.

11 COMMENTS

  1. Seriously? Sometimes we are eager to put pen to the paper and express our thoughts and share knowledge with others. But this?
    1. The title and the article are not even aligned in any way. Catchy title, yes. Caught my attention. But as I read on I got a strong feeling that much of the text is more like it would be copied and pasted from a text book but on a different subject. I hope not.
    2. Where is the text teaching “Learning about Canada’s “mysterious” foreclosure process”?
    3. Why are some folks so eager to see the “real estate bubble burst” as also claimed by some in the media? It hasn’t in a long time. We really should be careful what we wish for. Where are the financial indicators to showing this collapse. Those who are active realtors will agree, that demand has outstripped supply by far. Agreed prices of properties have risen tremendously.
    In closing, I wish as many comments say, this article had correct facts about the Canadian market. I enjoy reading REM articles over a cup of coffee, but this left me strongly wishing it had had been thought thru’ first.

  2. Where is the information like the title suggests?? Why isn’t the author actually writing what you are claiming in the title? I didn’t learn about the foreclosure process at all. Thanks Rick (above)- you should have written this article!

  3. Some good content covered in the article but I agree with all the comments above. The title seemed a little misleading, as it talks about Canadian Foreclosure Process, yet majority of the focus was economical forecasting and the not the process itself. Lastly, in the last 18 years of my real estate experience, I have never seen a bank initiate foreclosure … its usually POS.

  4. I have been in real estate since 1970, and have only had one foreclosure and that was by a small private lender. Everybody else went power of sale.

  5. The article was hardly informative. You may as well have just had a link. Unless you work for a bank POS are not public until they hit TREB or the MLS system

  6. I was attending an economic outlook event this past week and the major job loss happened in the lowest income tiers (73% of losses) whom are not home owners for the most part and even less investors. The over 200 000 mortgage deferrals in the early Pandemic shrunk to 45 000 by November and even at that point if they all went on the market, the inventory would still have been below November 2019 level nationally. Demand is strong, inventory at record lows, consumers have more disposable income than expected especially in higher income tiers households.

  7. Forecasting an economic downturn or a weather episode are very similar – “it may rain, or may not”! The reality is, too many variables, much of which are beyond control of even the mightiest nations (as we have just experienced). A proclaimed real estate journalist wrote many years ago in a widely read news paper “Toronto’s real estate bubble is ready to burst”. Alas, after many years, it hasn’t happened yet – but, it may. Just as – the earth is warming up. But it may cool down too! It has done so four times in the near past (geologically speaking). I wish someday sensational journalism will end. Amen

  8. Are you originally from the States? In Canada there are two processes. 1. is Power of Sale and 2. is Foreclosure. 95% in Canada are done through the Power of Sale method but you have not mentioned that method once in your article. For legal reasons the banks always use the POS method. Private lenders sometimes use the Foreclosure method. Foreclosure is used almost exclusively in the USA.

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