I had a look at the Canadian Bankers Association data on mortgages since 1990 and thought I'd compare it to housing prices. I suppose this data shouldn't shock anyone but I thought I'd post it anyway for discussion. The data seems to indicate that arrears on mortgages, that is those mortgages that are at least 90 days late on payments, increase substantially when house prices have fallen. Conversely, mortgage arrears are low when house prices are rising.
This makes sense logically as home prices rise, refinancing options are plentiful to all mortgage holders who run into trouble making payments. When house prices are stagnant or falling the mortgage holder has very few options and may or may not have equity to draw on to cushion the loss of payment making ability.
As home prices fall, look for a significant upswing in the percentage of mortgages in arrears. Even a subdued decrease in home prices could unfortunately put the screws to a lot of mortgage holders - witness the mid-90s as an example.
14 comments:
I think we should be prepared to see a much greater rise this time as people are much further extended.
It is interesting to see that largely, BC arrears run inverse to Canada's as a whole.
If I had the patience to mine for data, and the knowledge of spread-sheets and graphs, I might be tempted to look for a case of BC generally moving contrary to the rest of the country.
Alberta has been seeming to move in a different direction to BC vis-a-vis RE prices, while the rest seem to be comparatively normal. I also noticed when I first came here in '88 that RE prices were markedly "inexpensive" compared to Ontario.
Is it the Olympics? (pshaw!) Oil & Gas? (but what about Alberta?) Mining? The weed? Pacific Rim influences?
From time to time, I get a chance to speak with banking officers from various parts of Canada. They basically call us the "Wild Wild West". It seems that people in Vancouver and Victoria mortgage their homes to the hilt, while those from other parts of the country are relatively more conservative in using their homes as an investment vehicle.
Most of Vancouver and Victoria lenders tell me that the number 1 and number 2 reason for Vancouverites and Victorians refinancing their homes is for debt consolidation, followed by that of purchasing another property.
I also noticed when I first came here in '88 that RE prices were markedly "inexpensive" compared to Ontario.
That's because BC and Ontario market cycles have been out of whack. BC was just getting out of a bust while Ontario was in a bull market, with a bust soon to follow in the early 90's. Historically Vancouver and Toronto have been about the same on average. Vancouver is now 70% more than Toronto and the latter is by no means cheap.
the number 1 and number 2 reason for Vancouverites and Victorians refinancing their homes is for debt consolidation, followed by that of purchasing another property.
Funny that sounds familiar, where else have people been doing that?
...debt consolidation, followed by that of purchasing another property
Funny that sounds familiar, where else have people been doing that?
HAHAHA thanks Patriotz for a belly laugh.
Billy 2Bolz
Have you seen this? Look at this and tell me which market looks the most out of place.
Average single family house price by city (2007):
Vancouver $795,250 +12.4%
Victoria $425,000 +11.8%
Calgary $429,889 +5.2%
Edmonton $336,786 +12.8%
Saskatoon $292,500 +55.2%
Regina $229,200 +52.4%
Winnipeg $214,494 +20.8%
Toronto $413,375 +8.9%
Ottawa $308,583 +5.6%
Montreal $229,314 +5.4%
Moncton, N.B. $151,000 +2.7%
Fredericton $155,000 +1.3%
Saint John, N.B. $196,500 +43.4%
St. John's, N.L $157,667 +9.7%
Charlottetown $152,000 +4.8
----------------------
Canada $337,555 +11.6%
Source: Royal LePage Real Estate Services
2 years left on the mortgage! The light at the end of the tunnel is not a train…The interest is finally getting small enough to be called “cute”….LOL
Congrats livingsword on the mortgage paydown. It is an accomplishment many will never live to see because of their overconsumption and wasteful lifestyle.
condohype - nice list - um the appreciation numbers for saskatoon and saint johns NB are standouts but - - - hmmmm . . . . vancouver at 2 to 5 times more expensive than other major cities in canada really takes the cake - - and the wallet too.
Hi Mohican!
Interesting how well your comment goes with the article I have up at my blog Life on the Blade right now, it could almost be a comment on my blog!
Vancouver $795,250
Montreal $229,314
And people called me crazy for saying Vancouver SFH should be in the range of 242k if the market were behaving rationally. There is NO reason for Vancouver to be more than a few percent off of Montreal prices. Both big cities, decent standard of living, good food.
More proof that the bubble began in 1987.
I visited Montreal a couple months ago. Very nice place! Pretty streets, beautiful old buildings, lots of character and culture. Very reasonable property prices, too.
There is NO reason for Vancouver to be more than a few percent off of Montreal prices.
There are a few good ones actually:
- Montreal has a static population. In particular it gets very few affluent immigrants.
- Quebec has high income taxes and Montreal has high property taxes. Thus house prices should be lower for the same incomes.
- The old separatist bogeyman, which is currently dormant but may return. Higher risk which justifies higher yield (rent/price).
Proper comparison for Vancouver is Toronto, which historically has been comparable in price. And even Toronto is overpriced today. Shouldn't be much more expensive than Ottawa really.
condohype - nice list - um the appreciation numbers for saskatoon and saint johns NB are standouts ...
From what I recall we are middle of the pack when it comes to incomes, which means that places like Ottawa must have much lower affordability.
And that is an interesting thought. We are so used to having squeezed affordability that:
1. We almost assume that prices are undervalued when because owners can free up some affordability breathing room by using hijinks such as 40 year mortgages. Nowhere else would people think that prices MUST go higher because you have the PHYSICAL ability to pay a few more dollars.
2. Locally we have stopped thinking the perceived value of houses. Am I getting $730,000 dollars worth of value out of this house? Clearly this is not the mindset in markets such as Portland which has higher incomes and prices a third of hours. And the funny thing is that they perceive their prices to be high too.
3. As a result we have inelastic demand. The only thing that will stop prices from going higher is the PHYSICAL inability to pay more. A uniquie Vancouver problem. The end could come when lenders realize how much regional risk they are exposed to and tighten LOCAL standards. Or when we run out of desperate home hunters.
I don't know how all this will turn out, but I think that we will have the highest peak to trough decline of any major metro in North America. For reference, San Diego is already down 20% nominally.
Freako
"From what I recall we are middle of the pack when it comes to incomes, which means that places like Ottawa must have much lower affordability."
http://www40.statcan.ca/l01/cst01/famil107a.htm
Of the 28 biggest cities in Canada we rank 6th from the bottom.
(2005 figures, median family income)
St John's 59,800
Vancouver 58,800
Montreal 58,600
St John 57,000
Sherbrooke 56,100
Abbotsford 55,700
Trois Riveres 55,100
Other cities to note,
Ottawa 80,300
Halifax 64,700 (for god's sakes, HALIFAX blows us away!)
Patriotz:
I don't buy the whole "rich immigrant" thing, for every wealthy immigrant coming to Vancouver there's 100 poor ones, I think it balances out.
Tax will account for a proportionate amount. So, as I said a few percent. (ie not 350% difference, all factors included I'm thinking 10-20% tops).
I don't think the separatist threat is a big factor right now.
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