Canadian real estate borrowers are paying their mortgages at a near record pace. Filings with the Canadian Bankers Association (CBA) for the first quarter, show mortgages in arrears have fallen to new lows. The largest markets of Ontario and BC are just off of record lows. That sounds like great news, but more often is a sign of an overly liquid market.
Mortgages In Arrears
A mortgage in arrears is a simple concept, that’s often misunderstood – especially by the banking and real estate industry. A mortgage is classified in arrears when payments are more than three months late. Most people think this is a leading indicator of health for real estate markets. Unfortunately, it doesn’t tell people what they think it does.
Mortgages in arrears are a greater indicator of market liquidity. Record low levels of arrears are often observed when markets are overheating. Some people argue low levels of arrears are a better indicator of a bubble, since it represents an overly liquid market. There’s little reason to default in these markets, since you can sell your home after you miss your payment, but before it goes into arrears. Liquidity starts to dry up after prices start to drop, and people aren’t in a rush to buy. By the time you see arrears start to climb, prices have typically already begun falling. Simply put, a rise in arrears trails price drops.
Canada Mortgages In Arrears Are Flat At 0.24%
Mortgages in arrears across Canada are falling, to one of the lowest levels in history. Only 11,641 mortgages fell into arrears at Canadian banks in January, representing 0.24% of all mortgages held. This is the sixth month it’s been at this level, and we’ve only ever seen it hit this level two other periods – in 2006, and 1990.
Source: CBA, Statistics Canada, Better Dwelling.
Ontario Mortgages In Arrears Fall To 0.10%
Ontario mortgages in arrears are just off the record low. Banks reported 1,987 mortgages in arrears in January, 0.10% of the total held. This is a 16% decline compared to the same month last year. A record low was hit in the past quarter, when we saw the ratio hit 0.09% in November 2017. Arrears are a little higher than the month before, but still very close to that record.
Source: CBA, Statistics Canada, Better Dwelling.
British Columbia Mortgages In Arrears Fall To 0.16%
British Columbia saw mortgages in arrears rise just off of an all-time low. Banks reported 1,008 mortgages in arrears in January, representing 0.16% of the mortgage pool. This represents a 23.8% decline compared to last year, and we’re just off the all-time low hit in December 2017.
Source: CBA, Statistics Canada, Better Dwelling.
Quebec Mortgages In Arrears Fall To 0.3%
Quebec is seeing middle of the road performance in terms of mortgages in arrears. Banks reported 2,719 mortgages in arrears for January, 0.3% of mortgages in the province. This is down 14.28% compared to the same month last year, and the second month in a row we’ve seen the ratio climb. Being somewhere in the middle is actually a healthy thing.
Source: CBA, Statistics Canada, Better Dwelling.
Mortgages in arrears at Canadian banks are hitting record low levels. This is great for banks, but often indicates a highly liquid market. When markets become overly liquid, they’re often referred to as exuberant. Is this too much of a good thing? Drop your comments below.
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If you’re going to sell, periods like this are perfect to realize the most profit. If you’re going to buy, it’s actually not a bad time since you’ll sell at the same peak 10 years down the road.
People that think they can buy today, and sell in a few months, better watch out. Everyone thinks they understand how to buy low and sell high, but whee you’ve just seen an increase of this much, you’re looking at the high.
Last time it took 20 years for Toronto prices to recover and house prices in Japan never recovered from 90s crash (27 years so far)
Most of the times recovery is shorter but you definitely can’t rule out the possibility of much longer recovery than just 10 years.
And even if prices are back at this level ten years from now you also have to survive that long with raising rates and potentially having to renew 1-2 times while carrying negative equity.
In 10 years or more your positive energy will be drained by a long road to mortgage (slavery) monthly payments and you will surrender your dreams. You will stop going to shop or vacation. You will continue to drive your old cars while BANKS will be losing billions in depreciating value of the new cars that unfortunately left to rot on the dealers parking lot .
Nice, so it looks like defaults are a contrarian indicator. Also love that you added recession periods to these charts. Gives people a healthy dose of what’s about to hit the fan.
One question, if we know the recession is coming, what do we do? I feel like I’m watching a slow moving train wreck about to happen, but I’m not sure how to make any money from it.
I know. Unfortunately these stats are before b20 really took effect. I think we will start to see defaults rise in the coming months.
I keep trying to save money every month and get my savings up in the event of a downturn.
This will be my third recession that i can remember as an adult and i really do not wish to go through this again.
There will be no impact from B-20. In the thread from yesterday I explained why.
Sorry but you’re wrong. Credit unions and alt-lenders simply do not have the capacity to replace the loan volume being rejected by the Big Six.
Just because they are not subject to B20 doesn’t mean they are willing – or able – to accept every B20 reject from the Big Six.
Maybe, like I said I’m not an expert here so I don’t know for sure if credit unions are able or not able to absorb.
I personally think people will find a way around B-20 like any other regulation and so far the numbers supporting my point of view since both average and median prices in GTA grew 12% since Jan 2018.
Could be result of minimum wage hike, I don’t know but it doesn’t really matter if it overpowers B-20. So far I see 0 evidence B-20 affected prices at all and it was labeled as “the most significant regulation ever” by media.
It likely has very little effect where house prices aren’t expensive. For example, it has zero effect on Ottawa.
http://www.cbc.ca/news/canada/ottawa/ottawa-bidding-wars-housing-market-1.4626315
The entire city of Ottawa has barely 2000 houses/condos for sale in inventory right now, and prices are low enough that anyone with an income can qualify B20 or not.
That means B20 likely has little effect in Calgary, Edmonton, Winnipeg, Halifax and Montreal. Toronto is definitely being affected, as the folks telling their sob stories over on communityforfairness.com will attest. It is like affecting some individuals in Vancouver, though it will be difficult to tell the effects on the market with all the other interventions there.
Credit Unions also like to sell off a lot of their mortgages through securities. If all of a sudden the market starts to view their products as more risky their funding for new loans will dry up quickly. Furthermore there are a lot of articles about the general bubble in the bond markets. There is actually a great speech from Powell back in 2012 fed minutes where he points out how once QE is reversed which they started to do, it will eventually lead to massive losses in the bond and treasuries department. This sets the price for all debt. If pension funds and other large investors slow down their bond purchases or worse, start to dump positions, funding across the board could dry up very quickly. The fed selling off while the treasury needs to raise money from the market due to new tax cuts could be what leads to this eventually blowing up.
https://www.federalreserve.gov/monetarypolicy/files/FOMC20121024meeting.pdf
Start at Powell on pg 192.
Greenspan has also pointed out how this reversal could lead to huge losses in bonds, stocks and RE.
B-20 is huge. It basically applies a 2% interest hike to all new borrowers/buyers for the sake of getting approved and buying. We know how may people who currently have debt have said that even the smallest increase could break them……….. Well the next wave of buyers have to be in a very strong position to be able to support existing debt loads (prices). They have to prove they can do this at 2% higher. This number increases as the actual rate goes up. From the numbers I am looking at it really seems that the only part of the market with any heat is the condo segment. This has masks a lot of the overall index numbers. Also, with condo’s strength vs some of the lower priced SFH options, there is a window where some existing condo owners with stronger equity may think it is a great opportunity to trade up.
We also know how many investors are in this segment (many cash flow negative) vs SFH. Could be a rush for the exit. If condo prices start to drop good luck finding any trade up buyers. The youngest home buying demographic will be trapped inside little shoe boxes with no equity and crazy debt levels unless they decide or are forced to declare bankruptcy.
I also do not think the minimum wage hike will have a positive effect on to many existing home owners as i doubt few of on min wage them have been able to actually afford to buy in the GTA recently. Can potentially allow the cash flow negative landlords to charge more. Min wage hike could eventually start to push up all salaries as certain companies have to price their wages above minimum to get workers………so on and so forth.
I think the more immediate impact will be price inflation, and I think the timing of doing this is misguided. I see it as forcing inflation at a time where we have record high household debt, and are thus in a bad position if rates have to start being hiked at a faster rate.
Grizz, those are valid points. I’m familiar with the potential impact of the unwinding QE but thanks for the link anyway it’s very useful to know.
In fact it you check 30Y US bond yields you will see that they jumped significantly to 3.2% since the start of QE unwind. So the process you are describing is unfolding already for a while.
Also 10Y Bond yields already reached 3.0% which is only 0.2% away from making the curve partially inverted. I told you before about that sign for economists.
As for B-20, I completely understand how it works and its impact “on paper” and I’m not sure if you read my findings yesterday but just in case you missed those I will repeat:
Even today if you are turned down by the bank due to B-20 you can go to Meridian and they will close their eyes on this stress test altogether and will qualify you under the old rules with 3.29% for 5 years fixed.
Allistair expressed option that Meridian is unable to accommodate everyone but as of today they are still readily issuing mortgages to everyone.
So I agree, on paper B-20 is the most significant regulation but mortgage brokers are directing everyone is turned down by the banks to Meridian. At least my mortgage broker does that and that’s the most logical thing for any mortgage broker to do because they want to help their clients.
Of course, some people won’t go to mortgage brokers and just give up on buying but in periods of high exuberance and FOMO when people act irrationally it doesn’t sound like an obvious choice.
I’m starting to see the B20 rules affect the Fraser Valley out here in BC. Our neighbour is trying to sell their townhouse. They had two bids fall through due to B20. Both buyers thought they were totally fine but ended up that they couldn’t qualify for financing. In the last 2 weeks or so, at least in the market I’m watching, townhouse inventory is starting to explode!! I’ve not seen this many new listings in my inbox in a very long time.
Housing bubbles make people poor and homeless. Not rich
You people find a problem with everything. Have you considered that this means people in Ontario are wealthier than they’ve ever been, and therefore don’t need to default? In the 1990s, you needed to walk the streets to find a new job. In 2018, you click on LinkedIn, and have one in a couple of weeks. Things are changing, and people actually are richer than they think. Especially in contrast to how they have been in history.
Yeah ok. Tell that to the 100 families in oakville about to lose their homes.
Anyone who believes that an economy driven by an asset bubble is sustainable, is an idiot.
Our economy apparantly “took off” in 2015/16, right about the time house values and HELOC’s exploded.
Housing bubbles make people poor and homeless. Not rich.
Vancouver’s housing bubble has made every single old-time homeowner very, very rich. I know many families who never made more than $50,000 in a year who are sitting on $4,000,000+ of real estate. That’s 80 years of tax-free salary equivalent banked. It’s like winning 4 lotteries.
And some are sitting on $8,000,000 worth of real estate. And when they sell and move to ‘cheaper’ parts of the city or province, their newfound wealth then makes somebody else rich.
That’s right Bob. And someone who would have paid $400K for that house 20 years ago is now paying millions, and is therefore much poorer because of it. See how that works? Then there’s the misallocation of capital as people “invest” in houses instead of productive assets. We can’t even measure that. But go ahead, keep telling us how housing bubbles create wealth.
The question would be, can they sell their home for $4mill. Unless their properties get rezoned, there will be little demand because there are few buyers who could support that cost. We are NOT as rich as we thnk.
Just because i dont work until the afternoon…
I found this just for you sammy.
This guy us definitely not richer than he thinks.
Ha ha ha !
https://www.google.com/amp/s/www.cbc.ca/amp/1.4629631#ampshare=http://www.cbc.ca/news/canada/british-columbia/real-estate-anxiety-hits-b-c-divorce-court-1.4629631
It’s not often where you see an agent who predicts prices to fall.
I send CHMC chart from yesterday to my RE agent and she didn’t even wanted to look at it, she answered that Regardless of whatever I send to her she believes that prices will go up. Full denial mode:)
I’m confused, are you bull or bear?
Have can you say, “There will be no impact from B-20. In the thread from yesterday I explained why.”
And then 30 minutes later day, “Regardless of whatever I send to her she believes that prices will go up. Full denial mode:)”
Seriously, read the data, form an opinion, and share it. Stop flipflopping like a fish put of water based on what you think should be said.
I don’t have any blind beliefs. I analyze the data and take everything into account.
I’m definitely a bear in the long run, but I’m not going to deny facts I see. If I see no impact of B-20 or temporary rebound in GTA house prices – I’m not going to pretend it’s not happening. Admitting policy failures or temporary rebounds doesn’t make me a bull.
We all know prices are heavily overvalued right now and should go down and I see the most value of this blog is to share data among each other to understand how close we are to that moment. To track together if we are approaching it or getting further.
So to answer your question, I’m a bear but I’m not a bear “no matter what” and you know , there is a possibility of the scenario when prices wont go down and Canadians will stay heavily indebted forever supported by the government. Luckily it’s not where it’s heading right now but you need to face the reality all the time.
The average time to find a job in the GTA is 8 months, 4 months for all of Canada. I’m guessing you haven’t been out job hunting in a while. No one uses Linkedin anymore.
That’s interesting. Wonder why it takes longer in the GTA? You would think since there’s more employers, it would be booming.
What do people use instead of Linkedin to find jobs?
Indeed.ca seems rather popular or other job boards
The “wealth” is being driven by record debt levels and record asset appreciation (two sides of the same coin). And that “wealth” has already been borrowed against via exploding HELOC volumes.
“Americans have enough equity in their homes to withstand any downturn” was a common refrain in the US from 2004 to 2007. How’d that work out for them?
If people are richer why there are record high consumer debt ?
In other words, the 2 times arrears were at record low dated back to 2006 and 1990. We all know that 2006 is just before the real estate/financial crisis in US and 1990 was when real estate was at its peak in Canada before the bubble bursted that same year and lasted till 1996. So this is really a good indicator for the real estate crash that will go on for at least few years from 2017.
Hi Daniel / Steven / Data Nerds
I want to bring something to your attention that something has changed in RE market in GTA for sure as houses have started going above asking. It is slow but it has started. I was hoping that recent changes in rules would bring down the prices but that does not seem to be happening. I know our banks/other lenders are addicted to give free money and it seems to me that banks, lenders and borrowers have found a way to work around the rules. I know it is happening and tax payers will always be on the hook.
I believe this will be a great if you guys can prove it through your research that these lenders, banks , realtos, mortgage agents are in together for another organized crime 🙂
Regards
Malik
You are correct, GTA market is rebounding since January (not GVA, though).
My main guess at the moment that it could be related to minimum wage hike since it should boost family income for some people.
Markets are usually rebounding in Spring so this is normal but all the stats say that there is no immediate prices crash risk for GTA (Even King City inventory dropped from 10+months to 5).
Another factor is that due to bad weather very few listings appeared on the market but weather didn’t really affect buyers at all (sales & listings stats prove that). Yesterday there was a spike in listings so that trend may be changing.
I don’t think it’s an organized crime, there should be rational explanations.
P.S. no matter what as long as interest rates are rising housing market is in danger so even this rebound is temporary.
Ah, completely forgot, that’s the major factor too (maybe even the main one):
https://betterdwelling.com/this-weeks-top-stories-the-government-used-fake-news-to-drive-borrowing-and-canadians-hit-a-record-pace-of-borrowing-against-their-homes/
Please, tell me what minimum wage earner is able to buy and pay for a house and all its operating expenses.
Prices are bouncing, not rebounding. 1) people believe they should pay more in the spring because that is the conventional wisdom. 2) This whole conversation is based on looking at over/under asking price. This is meaningless. If you had an actual vested interest in tracking the market you would know the quality of home vs. selling price is deep in negative territory compared to 12months ago. Something current metric can provide.
John, don’t forget that there are a lot of families where one members of the household has a high paying job and another works at minimum wage. And even family with 2 minimum wage workers will qualify for $300k mortgage so they will be able to find a property in GTA.
Anyway, this is just an idea about minimum wage impact, I don’t have a proof for that and I think growth of debts is much more important factor contributing to prices.
I agree with you that the picture I have is not complete. I don’t have visibility to the quality of properties being sold, are those renovated or not, I can only see the overall numbers. And if you are right those are definitely good news.
Minimum wage hikes don’t boost family income enough to make housing affordable. People making minimum wage don’t buy houses in the GTA, period.
I see GVA as the Canadian bellwether, and I’m shocked that it hasn’t completely imploded yet…instead prices there for SFH and condos continue to shatter records every month (even in the midst of growing inventory). If that scenario can exist there, it can happen in the GTA too.
What will it take to crack the GVA nut? Once we see GVA numbers begin to decline, we can expect the GTA to follow. I suspect exuberance and continued flow of foreign capital is responsible but that has limits, too.
Oh Malik, over asking is a fugazi but you know that. You seem like a number jockey…hold on because if you don’t provide guidance/value for your clients you’ll be washing cars in a g-string come next summer…something tells me you don’t look that good in a g-string.
It is an organized crime which is blessed by Govt. There is no other explanation that households who neither have big incomes not bigger down payments are qualifying for and getting approved for humongous mortgages. All realtors, mortgage agents, banks are in this together and they have a blessings of Govt.
Thanks
Malik
Nice, you answered your own question:) Why bother asking then?
Which loans go into arrears first, those with 3% interest rate or those with 12%? Private lending in Canada is half the size of the regulated one. Same story allover again…
Having my lunch yesterday, a radio commercial block made of three ads: a) you have always been smart, time to buy an investment property – call [alt lender] for loan b) you can afford that car c) debt relief services.
One bunch of greedy clowns is willing to keep borrowing beyond their repayment ability while another bunch of greedy clowns is willing to lend more money to them. This is the last thread this market is hanging on.
good insight. It seems like there are fools on both sides thinking they are ‘getting one up’ on the other but when the house of cards falls everything is going to be in the red. tick tock,
Pay attention to the news cycle for 2018 and take note.
Beginning of the month, news reporting supported by data shows 20-60% drop in sales YOY depending on asset class and location. As each month progresses and verifiable data gets sparse, reports of “rebounding” housing market permeate headlines – only to be disproved at the beginning of the next month by factual data yet again. Weak reporting has really delayed the inevitable crash, but it will come regardless.
The reality is that the single family sector above a certain price point has crashed in Vancouver and Toronto, while demand persists up to the peak of affordability in each market. This explains the conflicting reporting.
Nonetheless, With single family sales trending 60% down from last April in Vancouver and sales to listings over 16 month for detached (per zolo). Sorry Vancouver if this is your spring market, you are crashing heavy right now. Pay attention Toronto buyers and please don’t be foolish with your cash.
Agreed, it is all a fugazi. The cracks are showing in toronto. Check out realtor.ca. No analysis needed; just keep watching. Tick tock.
it’s about to blow! tick tock tick tock you heard it here. Peep the hip-hop slang warnings and take heed y’all. Septembro.. belee dat.
Default levels on mortgages are related to Unemployment and not interest rates or real estate values. Real estate prices on based on supply and demand.
Let’s say you have 100k average house price and 5% unemployment
Let’s say next year average house price drop to 50k and unemployment still stays at 5%
It’s obvious a lot of people won’t be able to refinance/renew so price drops directly affected default levels.
The ability to service mortgage debt is definitely related to interest rates, and interest rates (like the historically low rates we’ve had for many years now) are definitely related to real estate values. If interest rates were at their historical median of 7%, real estate prices would not be as high as they currently are, despite demand. Supply or lack thereof can be artificially manipulated (as in condo speculators consuming half of all new condo purchases in the city), and is a lagging indicator anyway – you don’t know if you’ve built too much, until you’ve built too much.
Just wait a couple years till the Boomers start selling off their homes and downsizing en masse, then homes will be plentiful and prices will finally go down…and then Boomer Children will start buying them up.