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“Over 65% of the inventory that’s out in the market right now are condos and they’re taking a massive beating,” Tran said. “There are a lot of new builds coming this year and next year as well.
“A lot of first-time buyers usually purchase condos as their starter home and a lot of people don’t have the 20% down, so they have to get an insured mortgage and it’s scary to put the bare minimum downpayment, for example, and potentially be in negative equity in a couple of months.”
Putting 5% down on a $500,000 condo, for instance, produces a mortgage size of $475,000 – but that jumps to $494,000 as a starting mortgage balance when the Canada Mortgage and Housing Corporation (CMHC) premium is added, spiking the loan to value to a hefty 98%.
“If there’s another drop of 1% or 2% on the condo prices or average prices, then you’re basically in negative equity,” Tran said. “If someone loses their job and they need to sell, they’re underwater already. Where are they going to come up with the money to cover the difference to pay off the bank?”
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