A group of Oakville homebuyers, struggling to finance the pre-construction houses they bought in February 2017 at the height of last year’s real estate frenzy, are blaming “reckless” provincial housing policy and new mortgage rules for putting them on the brink of financial ruin.
The desperate buyers say they have been trapped in a unique period in the Toronto-area housing market — one engineered by provincial policy designed to cool the soaring costs of housing. The problem has been compounded by new mortgage rules that they believe have the potential to drive desperate buyers deeper in debt by sending them to alternative lenders that offer higher-interest loans.
Declining real estate sales in the Toronto region have meant the buyers have not been able to sell their existing homes for the amounts they anticipated when they contracted to buy new houses in Mattamy’s Preserve development near Dundas St. W. and Fourth Line. After they failed to sell when the market plunged or they took lower-than-expected prices, they say they couldn’t get larger loans to cover the difference.
“This impacts your health. Financially it breaks families,” said Zahir Bashiruddin. He and his wife bought a new house with a single-car garage so they would have fewer stairs to contend with while caring for their infant and toddler.
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The buyers want the government, the banks and builders to come together to find a solution for buyers in their “impossible” position. They say they have had no response to emails to Premier Kathleen Wynne, Ontario Progressive Conservative Leader Doug Ford and Housing Minister Peter Milczyn.
The buyers maintain the Ontario Liberal government failed to consider what the impact of its Fair Housing Plan would be on middle-class families in mid-transaction. When it launched its plan, including a foreign buyers tax, last April, housing sales plummeted almost immediately.
The double-whammy of the provincial plan and new mortgage stress tests from Canada’s bank regulator, requiring buyers to qualify at a higher lending rate than had originally been approved last February, has significantly reduced their borrowing power.
Mattamy president Brad Carr said he sympathizes with purchasers caught “in this very specific point in the (housing market) cycle.” But he said the company, Canada’s largest homebuilder, needs buyers to honour their contracts so Mattamy can do the same.
“When a homebuyer makes a firm and binding decision to Mattamy to have us build them a home, we in turn take that promise, that commitment, and we make a whole series of promises to our trades, to our suppliers, to our employees about what now we can do on the strength of those firm contracts to employ them,” he said.
An emailed statement to the Star from Milczyn’s office said that the provincial Fair Housing Plan has succeeded in making housing more affordable for more Ontario residents.
“Multiple experts, including senior economists at BMO and RBC, agree that our plan is working and has helped stabilize Ontario’s red-hot housing market,” said the statement.
“The housing market is complex, and home prices will inevitably go up and down based on a number of factors. The aim of the Fair Housing Plan is to keep housing fair and affordable for as many people as possible throughout market fluctuations.”
Three couples who spoke to the Star say they desperately want to fulfil their contracts with the builder. All of them have owned or own a home. All have young children. They describe themselves as working, middle-class people, who saved and sacrificed for years to afford their homes.
The houses they purchased cost between about $ 1 million and $ 1.6 million — around the average price of a detached, single-family home in the Toronto region.
If they walk away from their contracts with Mattamy, they will forfeit their deposits of more than $ 200,000. They also risk being sued by the builder that is refusing to provide financial assistance or extend the closings.
If they find a way to close the gap in their financing through alternative lenders, they say they won’t be able to meet their monthly bills.
An emailed statement from the company did not directly answer whether Mattamy planned to sue buyers who don’t close but, in a followup interview, Carr said the vast majority of buyers were fulfilling their contracts. He said he didn’t know how many purchasers have contacted the company with concerns about closing.
Carr emphasized that the issue the buyers face is an issue for the entire housing market, and is not specific to Mattamy or new-construction homes. It could as easily be an issue in a resale purchase.
“The individuals who signed up for these houses … did so with full understanding of where we were in the full housing cycle, in the same way anyone else would,” he said, adding that there was extensive media coverage of the heated housing market around the time the buyers purchased.
“You also have to remember we’re talking about price points and a type of housing that are right at the top end of the band,” he said.
The average price of a new-construction detached house in the Toronto region was $ 1.22 million in February this year. A year earlier, the average was higher — about $ 1.5 million, according to building industry statistics.
“I certainly empathize, but also I have to assume we’re talking about sophisticated individuals here who made very large deposits, signed binding contracts and do so at price points that would suggest to me they had the means to close,” said Carr.
But, while some of the houses in the Preserve sold for more than $ 2 million, two of the three couples who spoke to the Star say they paid about $ 1 million for their homes.
The third couple, Darren and Claudia Evans, are second-time Mattamy buyers, who have been living in the area for four years. They wanted a different floor plan for their 2-year-old son, so they bought another house for about $ 1.6 million, expecting their current place to sell for about the same amount.
They listed their house twice last year but received no formal offers, just a phone call with a “lowball” proposal.
“We haven’t put our house on the market again and we need to close in seven weeks. There is no point. We are watching the market so closely with our realtor and we can’t afford to take the amount of money that we will get offered right now. If we got a delay in closing then it would be fine. I’m sure the market will recover in time,” Darren said.
They could borrow from an alternative lender but that comes with a hefty cost of a 3 or 4 per cent fee on the amount of the loan and interest rates around 10 per cent, he said.
“I have to think of my family and think I would be safer staying in this house and defaulting on the new one, which I don’t want to do because if I do move into that house, the only people that make money are the lenders and Mattamy, and my family end up on the street, so I have to make a decision based on my family,” he said.
Shahina and Asif Khan bought in the Preserve as “a lateral move” motivated by the desire to send their 6-year-old to a different school, although it was actually smaller than their first house in Brampton. Oakville was also closer to more frequent GO service on the Lakeshore West line for Shahina, a human resources business planner, who commutes.
“We’re not investors. We purchased homes to raise our children,” she said. “If the government wanted to implement cooling measures, why was it so reckless? Why did they not stop and think about the families that were in the middle of a transaction.”
The Khans say they watched the pre-construction and resale home markets for months. “What was scary about that time is both markets were really tough,” she said.
New-construction home prices were escalating and there were stories of bidding wars for resale homes.
“With a resale you can never be prepared because you’re basically outbidding the other person. With a new build you have a budget to do some research and figure out your own finances,” said Asif.
The sale of their Brampton house closed in January for about $ 200,000 less than they had expected when they bought the Mattamy house last February.
The Khans, who lived with five other adults and their young son for seven years before buying their first house, are now residing in a basement apartment. Shahina says she doesn’t know how they will ever get out if they are forced to forfeit their deposit. But there is no way they can afford to finance the new house.
Pre-construction home sales are common in Ontario, she said.
“It’s not something (the government) could have forgotten about. It’s something they dismissed,” said Khan. “There’s some level of accountability with everybody and nobody’s stepping up.”
The Oakville buyers’ group said it has connected with more than 100 families who are unexpectedly struggling to finance their new homes. They are telling their stories via a website called Community for Fairness. They are also speaking with Mattamy buyers at the Queen’s Common development in Whitby and the Summit in Kleinburg, where purchasers are upset that the builder reduced the prices of its homes after they bought.
For Bashiruddin, an accountant who doesn’t typically take financial risks, struggling to close on his new home is an almost unimaginable shock — the kind he’s spent his life working to avoid.
He lived with his parents to save money during university and graduated debt-free by working part-time. After that he continued to save. He and his wife, Shamleed, lived with his parents for two years after they got married before deciding they had saved enough to buy their townhouse.
“I have a budget every month. I know exactly where my money goes. I can pull it up on my phone. That’s how detailed I am,” he said. “I track everything and I’m telling you, the risk I took when I purchased this (new) home was very calculated.”
Like the Khans, the Bashiruddins were watching real estate prices climb in 2016 and early 2017. They worried they wouldn’t be able to afford a move.
“At the time we thought it was a great decision (to buy the Mattamy home) because we’ve locked in our price. We know it’s not going to go up any further and our house was valued at a decent amount so there would be no real gap,” he said.
But although townhouses are selling in today’s market as one of the few affordable options, Bashiruddin says his has just sold for less than it would have a year ago and the stress test has cut his borrowing power by about 20 per cent. He hopes he will be able to work things out with Mattamy, but in May, he and his family will move back in with his parents until he figures out a solution.
Meantime, he says, “I honestly have not been this stressed ever.”