House prices in many parts of Canada have been soaring for years. Mortgages are growing larger and the number of households with extreme levels of debt is multiplying rapidly.
So you’d think that we would be seeing an increase in the number of households that are having a hard time paying off their mortgages.
Not so. In fact, the opposite is happening. The rate of mortgages in arrears in Canada has fallen to its lowest in more than a decade. Just 0.24 per cent of mortgages were three months or more past due in November of 2017, the latest month for which data is available, according to the Canadian Bankers Association.
Somehow, the situation is even better in the provinces with the highest house prices. In British Columbia, 0.16 per cent of mortgages were in arrears, the lowest since 2008. And in Ontario, the arrears rate is at an all-time low — a tiny 0.09 per cent.
In other words, just about everyone is making their payments.
There are a number of reasons for this. First and foremost, mortgage rates have been at or near record lows for almost the past decade, helping to keep mortgage payments stable even as house prices rose. We may be taking out huge mortgages, but we’re making relatively small payments on them.
Another likely reason is the 2016 tightening of mortgage rules for those who put down less than 20 per cent. These highest-risk borrowers now have to pass a stress test to ensure they can afford higher rates. So in theory, the most recent crop of borrowers should be better able to handle their debt.
But as this Better Dwelling blog points out, there is another reason: We have a very “liquid” housing market these days, meaning it’s very easy to convert your home to cash if you can’t afford your mortgage. In a tougher market, where it’s harder to sell a home, many more mortgage holders would be stuck with a debt they can’t afford.
And so here’s the bad news. The experts are forecasting a slowdown for the housing market. National Bank of Canada recently predicted that both Toronto and Vancouver will see falling prices this year, largely thanks to tougher new mortgage rules and higher mortgage rates. In the wake of British Columbia’s budget and its 30-point plan to cool home prices, TD Bank is predicting a 5-per-cent decline in prices in Vancouver.
If the market softens, it may not be quite as easy to offload a home in the coming months as it has been recently. Couple that with the fact that about half of Canadian mortgages will renew this year, into an environment of rising interest rates, and it’s easy to see trouble ahead.
So let’s be thankful Canadians are handling these heavy debt loads right now, but let’s not get complacent. The days of easy credit and easy home sales won’t be around forever.