Less Canadians are missing the payments on their mortgages. Canadian Bankers Association (CBA) numbers for November, printed one of the lowest rates of defaults ever recorded. Across the country, late payments reached the lowest number in almost 12 years. However, don’t let that convince you the market is healthy and will continue to boom.
Mortgages In Arrears Don’t Mean What You Think They Do
Most people think high defaults rates indicate a bubble, but it’s more likely the opposite. Last year our chief data scientist argued that bubbles are periods when an asset has become overly liquid. Therefore, you’re likely to see a lack of late payments when things get frothy. If you’re close to falling behind on your payments, you can sell and walk away in less than 90 days. No need to go into arrears, people with the perception of a lack of inventory will scoop it up in less than a month. In a real housing bubble, you might even start to see aggressive tactics like bidding wars, and skipping inspections. All to grab an asset from someone that may not even be able to carry it.
When a bubble pops, and prices start to fall rapidly, then arrears will start to uptick. Eventually unsustainable price growth starts to correct, often to below the true value of a home. During this phase, people won’t buy real estate – because they think it’s risky. As a result of a lack of buyers, those falling behind on payments won’t be able to unload as quickly. Arrears start to rise. People become scared that homes are “overvalued,” and prices capitulate lower. No need to trust us though, Maclean’s debt expert-in-residence, Scott Terrio, confirmed this a few months later. That said, let’s get to the data.
Canadian Late Payments Fall To Lowest Level Since 2006
Canada saw late payments on mortgages hold steady at a near bottom. The rate of arrears fell to 0.24%, logging the same rate for a fourth month in a row. Prior to that stretch, the country last saw the rate this low in October 2006. It’s worth remembering that more than half of all mortgages issued across this massive country, are located in Ontario and BC. That said, let’s break those provinces down further.
Source: CBA. Better Dwelling.
Ontario Late Mortgage Payments Fall To An All-Time Low
Ontario hit a new record low for late payments. The rate of arrears fell to 0.09%, after 5 months of staying level. This is the lowest recorded number from the CBA, in the province’s history. Most likely because we don’t have provincial numbers for 1989.
Source: CBA. Better Dwelling.
BC Late Mortgages Payments Stall For A 4th Month
British Columbia is seeing late payments hold steady… strangely steady. The province had 0.16% of mortgages fall into arrears, the fourth month in a row. Prior to the fourth month stretch, the rate hasn’t been this low since June 2008. For context, the lowest BC has ever been is 0.10%, so we’ve got a ways to go for a record.
Source: CBA. Better Dwelling.
Mortgages in arrears, a.k.a. defaults, are falling to new lows across the country. Unfortunately, that’s not the healthy market indicator many “experts” consider it to be. At the same time, this isn’t the indicator that will tell you a market crash is imminent either.
It just means Canada is printing mortgages at a faster rate than defaults occur. That trend will like continue into January’s data, as uninsured buyers tried to squeeze in before mortgage stress tests.
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Thanks for this, but one request. Can you please add Quebec to the mix. Montreal real estate needs some much needed coverage, especially around issues like this.
As someone that bought in the late 80s in Toronto, I can say that the atmosphere is even worse than it was then. People assume the government is going to pad any potential loss, which has big consequences to society.
Is that an admission that the bubble has not yet burst?
It will take a bit of time before falling/stagnate home prices break the marginal or recent buyers. Remember, as long as prices were rising it was much easier to get a HELOC or to restructure your debts to something with lower rates (Credit card debt transferred to your HELOC for example) The sobering moment for a lot of households will be on renewal.
Seconded!
I don’t think anyone believes the bubble has burst, definitely not on BD. Also, the ‘burst’ is something that will/should take 12-18 months to work its way out but all depends how fast and hard we drop. For some reason, maybe this is the short-term FOMO again, people seem to think a ‘bubble’ bursts in a few weeks or a couple of months…even the banking meltdown took around a year to hit bottom and it still sputtered for a while. I suspect, unfortunately, there is a large number of boomers who will hold on far too long hoping that there is a rebound. This herd mentality will work to their disadvantage when reality sets in between Q3 2018-Q2 2019 as we, most likely, start facing a recession putting additional downward pressure on housing and the narrative shifts to ‘oopsy, yall are f-ed’ from ‘put your head down, everything will be ok’.
LOL I have read so many statements made by RE professionals along the lines of “The bubble has burst and is now back to a balanced market….. this is a good thing…… Now we will have healthy growth going forward!” OR ” This “correction” was to be suspected due to government regulation and abnormally large price gains in 2017……… 30% YOY is not sustainable”
I laugh when I read these statements, last year when we had 30% YOY growth the news headline would be “Is this the new normal for Toronto RE?” and would have a quotes from some RE agent along the lines of “Supply constraints, fear of being locked out of freehold forever, etc” ………………………….. Basically, the RE agents financial and economic expertise would lead them to the conclusion that these 30% YOY gains would be the new normal until the government would allow for more building.
As if a monster that has been brewing for the past 10 years can be tamed in 6 months.
I think a few people, including myself are trying to figure out timelines the “Great Toronto Crash”. If you look historically, at the US housing crash, and its timelines. The market peaked around Q2 of 2006. By end of 2006, troubles appeared. Throughout 2007, underlying conditions deteriorated. By end of Q1 of 2008, US declared in mortgage crisis. So that all took about 6-7 Quarters from Q2 of 2006 till Q1 of 2008. Note: in 2007, the equities market was doing well, interest were high, unemployment decent/low, economy seemed fine.
I think the bubble burst in Toronto in Q2 of 2017. By end of 2017, early 2018, problems are arising. As interest rates rise around the world, loans will be repriced, people will have less disposable income and less to spend on debt. As 2018 slogs along, we will get weekly news about price declines, increases in inventory, vacancies, etc.
Problems will start showing when the margin between disposable income and debt shrinks to zero, or goes negative. That’s when people start looking at their home, as their most prized possession, (thinking prices will rebound, and they can sell down the line). So they avoid arrears by hitting savings…. then hitting credit cards …. then exhausting and tapping all forms of money payments that may help (friends and family included). By end of 2018, beginning of 2019 delinquencies start to emerge, esp on HELOC loans.
2018 is akin to 2007 in US market. First half of 2019 is lined up to be like First Half of 2008, crisis mode.
In First half of 2007, no one was thinking about a housing crash, they just saw prices fluctuate,
and were told problems in the housing market were short term.
On top of all that…. factor a recession by mid 2019.
Why do you expect people to default? If people losing jobs or economy as a whole suddenly crash maybe then you can expect that…you can’t expect people becom bankrupt when economy is doing ok….plus internet rate might not go up as we lost 90k jobs last month…
I used to lived 2 blocks down from my boss back in 2008 in Bay area and we carpool to work. He said the similar thing. “We are living in a decent neighbourhood with all the high income earners, subprime crisis will not affect us”, at the end the lowest point about 2010 our homes lost about 40% from the highest point at 2007-8. During that time, we heard the news daily about recession, however, never one person I know lost their job in my neighbourhood. But many of them actually defaulted their homes because they think it would take more time to recoup the loss than just default now. Some of them simply not paying mortgage and kept thier cash until the bank finally evicit them which could take months if not year, which is sort of a way for them to recoup some of their losses. Personally I think emotion play a big role into it. People become irrational when you see your home depreciate daily very slowly but surely and not seeing the end of it.
$100-400K HELOC or 2nd mortgage to helps the kiddies. Decimated retirement fund as a result of the banker bailout. Desire to have something when you’re in your 70s (maybe, just maybe being able to retire before you die…is that a thing?). Major equity in the house that was purchased in the 80s or 90s. Prospect of losing $100K-$1M just because you waited.
I wish this was like 2008.
Are you talking about Canada or USA? In Toronto we did not lose home value by 40 percent in between 2007 and 2009. Once again compare USA 2008 with Canada is like comparing apple with orange. Nothing will happen unless our economy goes to severe recession and that’s not happening any time soon. And if recession does happen first thing bank will do lower the interest rate to zero just like they did in the past. And that won’t help price go down either.
Hello my special friend… Reading this is like making sense of a dog eating peanut butter; mouth is moving but nothing is coming out…and ya know, it’s a dog. You are a dog. In fact you may be one of those dogs that eats too much, pukes, then eats the puke and shits out posts on BD that are months too late and lacking in any real value. See you tomorrow.
No need to insult. If you can’t win and argument just don’t participate. You sound like you are just angry that every thing is not falling down the sky and people are crying on the streets. If you are one of those people who live on parents basement and want everything in cheap sorry dude keep waiting.
I was about to apologize because that was over the top even for Blue’s standard and then I read this:
http://www.cbc.ca/news/business/s-p-canada-mortgage-credit-1.4551991
And it dawned on me that I shouldn’t care about you. You stumbled here accidentally or with a specific mission.
There is no ‘argument’ to win but the reality of the situation and the fact that good, hard-working Canadians are going to lose a lot and many have already lost too much since the banker fleecing. You can retort however you want but similar to a Liam Neeson/elephant hybrid: I never forget and I won’t stop.
See you tomorrow my friend. And yes I do live in my parent’s basement where I dedicate my time to BD, hamster pant designs and masturbation, natch!
Yes it was in US (Bay Area). But I think similarity is there from what I experience then in US and what I see my parents experienced back in the 80-90’s to what I see now in Toronto . The hardest hit I saw back then was consumer industry, bank and real estate. Car dealership giving out crazy deal just trying make end meet.
Look around in Toronto today and I see most people work in these industries. From what I see, it may be even worse than what happened 10 years ago in US. I went to Toronto Auto show last week and at cafe area during lunch time, I overheard two car salesman chatting about flipping condos. One of the salesman is so proud and brag openly about how easy to make a 6 figure salary as a car sales these days and he put his money on 3 condos. 2 of them already rented out on negative cash flow. And one more to be close in a year. I know more than enough of friends and families in Toronto in the same boat and think RE will never go down. All of them share the same mentality of thinking they are RE genius and have some special tricks/skills to pick the best deal in town and making loads of money. It is easy to say this time is different but in reality most people react irrationally when comes to personal finance.
Mmr; 171% level for personal debts in Canada = a Ponzi scheme, when the credit access is shut down, people will default coz you cannot run a Ponzi scheme without constant influx of $$$ (credit in Canadian RE and money laundering)
High debt level in Canada is align with majority of high income countries. It might be little higher. 2008 financial crisis did not crash housing market in Canada unlike USA. People did pay there mortgage here. I bought two real estate in Toronto in 2009 and I know price did not crash back then despite recession. Every situation is different. If you compare with 1989 interest rate back then was above 10 percent now even it go up and that only big if it might increase 0.5 percent this year. Don’t mean people will go bankrupt. Unless it went up by 5 percent. I don’t even think bank will increase this year cause we already losing jobs in January unless economy is growing rapidly don’t expect any rapid change in interest rate. There will be continue correction on price but nothing like 2008 in usa.
So are defaults not going to happen because the economy is doing good and people won’t lose their jobs?
Or
Are interest rates not going to go up because we just lost 90 000 jobs in a single month?
time will tell. But nothing like 2008 in USA that’s my point. To market to crash you need something extreme. Interest rate up by 1 percent over two year period and losing job in one or two month after creating 400k job will not make any difference.
Well if you create 400 000 jobs over 2 years (24 months) and then give 90 000 of them back in a single month………… that’s almost a 25% correction in 1/24th of the time. And how much of that new job creation is perhaps related to housing. I know that the number of active RE agents in Toronto has more than doubled from about 20K in 2005 to around 45 000 today. Has their perhaps been equal job growth in RE lawyers, contractors, developers, mortgage brokers, mortgage divisions in banks, ETC. If transaction volume (not even price) drops by 10-15% does that translate into a 10-15% haircut for these individuals? How many of the individuals leveraged up to get into the market? I am sure some of them drank their own kool-aid (otherwise they are just liars). Remember, anyone who has only come of age and joined the work force in the past 10 years has never had to go through a deleveraging cycle
Also another major difference between us and the United States. Their national (country wide) index dropped 30-40%. Even NY and Manhattan lost this much (30%) from peak to trough…….. HOWEVER…….. Ground zero for their bubble was in places like Florida, Vegas, Arizona and other “up and coming” regions. Those areas grew faster and then fell by over 60%.
Ground zero in Canada will be Toronto and Vancouver……………….
I do agree with you though that it wont be as bad as the US…… I do not think our entire economy will come as close to collapse as theirs did. I do not think our big banks are as leveraged, and our shadow subprime game is not as intense……… Recent articles about mortgage fraud are starting to make me question this theory however.
Potential Mitigating Factors
– If US economy takes off and NAFTA survives we could get a big boost to our exports
– A global drought that actually forces everyone to want to move here due to our water reserves
– War in the middle east that drives oil back up – provided we are not sucked into this war and/or interest rates do not sky rocket
Potential Increasing factors
– A financial crisis or economic slow down in China – natural resource prices would collapse. Could also see a bunch of their oversees investments getting dumped onto local markets
– A financial crisis or economic slow down in the US – They still buy most of our stuff
– Termination of NAFTA- same as above
That’s what I said it will not be like USA 2008. I hope not. It will destroy families, people losing jobs in millions….lose everything on stock market and pension wipes out no one want that. I think it real estate will keep correcting slowly for coming years and policy makers should make sure impact of it don’t spill over other part of economy.
Unlike the 1989 bubble, where the runup was scarcely 3 years, the run up this has allowed time for a really significant over-dependence on real estate to build up.
Dude, just stop it. You don’t have the elegance to provide a convincing counter argument. I’m not even sure if you’re real or a troll but regardless, everything you’re mentioning is so 6 months ago. 80s argument. Only a ‘crash’ will impact housing. This time is different. Rate were +10% and will never go that high. What’s next, rifling of garbage about Manhattan real estate in the 60s? Immigration stats?
Btw: there were some parts of southern Florida that had the housing sell for pennies on the dollar. Not 30% or 50% or 80% below peak…fucking 10 cents on the dollar. 10% just so the banks didn’t have to pay taxes or bulldoze them and paid for the admin. So yes, we won’t have a fire sale but the hurt could be extreme depending on how much you overpaid for your property.
lol here you go. When ever heard some thing that don’t full full agenda is a troll. If you want 2008 crash keep dreaming unless Canada goes to a war or something severe happen. Price will correct as it should but not crash. Stop referring USA I heard that thing since 2009 when I bought real estate here. This people keep telling me same for last 10 year.
We’re sitting on the biggest credit bubble in Canadian history. Debt levels are through the roof. Yet salaries have hardly budged. If you think there are no consequences for that, then you are ignoring the reality in front of your face. If you really are sitting on two properties purchased in Toronto in 2009, then for God’s sake put them on the market and take your profits. You’ve made a fortune in property appreciation over the past 9 years! Why leave that money sitting on the table? Just to prove to people that they’re still wrong about a potential housing bust? Cashing in your chips and taking your money to the bank will serve you a lot better than coming here to argue that prices won’t crash. You’re preaching to the unconvertible. You’re losing money and arguments every time you delay selling to make another post here. Now get your realtor on the phone and list while you are still sitting on a good profit.
Not going to sell….my mortgage is almost paid off and I get lot from rent…I believe in our economy and I think we as a country will be fine. Be positive my friend. If crash happen it will hurt ordinary hard working Canadian the most. Not foreign speculators.
If crash happen it will hurt ordinary hard working Canadian the most. Not foreign speculators.
Which is precisely what our concern has been all along. I’m pretty sure none of us shows up here to express concern about the welfare of foreign speculators. However, you seem to think that we have an almost moral obligation to remain positive because a crash will hurt ordinary people. That’s exactly the sort of head in the sand attitude that got us to this point. It’s gonna hurt ordinary people whether we’re positive or not. The least we could do is warn them.
Regardless of whether or not your property is almost paid off, Toronto has one of the worst price-rent metrics in the world. Would it not make more sense to sell in Toronto, then purchase maybe 2 or 3 times the rental units in a smaller city where price-rent metrics are more favourable? You seem entirely unwilling to question the wisdom or remaining invested in Toronto. Which just convinces me all that much more of how bad the bust will be. Even the allegedly moneyed landlord class does not seem to have any clue what might be coming down the pipeline.
Interesting article in the Globe today. Although insolvencies/bankruptcies have been down we are starting to see a large increase in consumer proposals.
Need to be subscriber unfortunately;
https://www.theglobeandmail.com/report-on-business/top-business-stories/canadians-rush-to-restructure-debts—and-stave-off-bankruptcy—but-cost-can-beghastly/article38142878/
My big (simple minded) takeaway. Consumer proposals were up 7.5% in 2017.
– I find this interesting considering the market didn’t turn until half way through Q2. Also the first rate hikes did not start until Q3.
Americans are actually saving again. Millennials in the US are not using credit cards like their parents. There is a bit of debt caution in the U.S. from 2008 and Canadians have completely thrown caution to the wind. I think it is actually worse than the U.S. At least they let a little air out of the housing tire. We went full tilt for another 10 years.
Correct. Household debt as percentage of GDP is about 80% in US, down from around 100% in 2008. In Canada, we are at 101.5%. We’ve gone opposite directions over the past decade.
All you Vancouver real estate bears, March just might be the moment you can pop that bottle of champagne you’ve had on ice for the last several years. Feb 2018 was way slower than an already slow Feb 2017… Sales are way down and listings are way up everywhere … and the weather wasn’t even snowy. Looks like the tide is out.
“Limited supply and snowy weather were two factors hampering this activity.” March 2017 – Dan Morrison, Real Estate Board of Greater Vancouver (REBGV) President.
Excited to see what new pile of b.s. REBGV will throw against the wall in the next day or so.