Collapsing Canadian Real Estate with Garth Turner

Stress Test Your Mortgage

Stress Test Your Mortgage
Nearly 20 per cent of Canadians don't know if they'll be able to make their mortgage payments if interest rates increase, according to a poll released Thursday by Bank of Montreal — disturbing findings given that BMO expects the Bank of Canada to raise its benchmark rate by at least one per cent by the end of the year. "Despite high prices, housing remains reasonably affordable due to record low interest rates," said Sal Guatieri, BMO Economics.

Housing Affordability In Canada Improved

Housing Affordability In Canada Improved
Housing affordability improved at the end of 2010 throughout Canada, a study released Thursday says, mainly due to slightly lower interest rates and slowing price gains. The RBC Housing Affordability Index has now eased for two consecutive quarters as bond yields remain relatively low, while the economy shows signs of improvement. The country has also been steadily adding jobs, bringing employment levels back to where they were before the 2008 recession. Still, the respite is likely to be short-lived. RBC economist Robert Hogue estimates housing affordability will begin to erode over the next two years, as the Bank of Canada is seen resuming its rate hike campaign this spring. However, once interest rates stabilize in about three years, housing costs are expected to advance only gradually.

Canadian Consumer Debt Up 5.9%

Credit Card Debt Dropped During Holiday Season
There was a surprising drop in the amount borrowed on credit cards by Canadians during the holiday-laden fourth quarter, but overall non-mortgage debt went up substantially across the country, a credit analysis firm reported Wednesday. TransUnion said average total debt per Canadian consumer, excluding mortgages, was $25,709 in the fourth quarter of 2010 – up 5.6 per cent from $24,346 in the comparable period of 2009.

The Student Poverty Song

Canadian Household Debt Hits 150%

Olive: The Danger In Our Savings Shortfall
And yesterday’s alarming report from the authoritative Vanier Institute of the Family confirms our national dilemma. We’re saving too little, for our own sake and our country’s....The average Canadian household is saddled with about $100,000 in debt, a record level, up 78 per cent since 1990’s $58,000. ...The average household’s debt-to-income rate has shot to 150 per cent, up from 93 per cent in 1990. Which means that for every $1,000 we generate in income, we’re burdened with $1,500 in debt.

Mortgage Delinquencies Up 50%
The report suggested the number of households behind in their mortgage payments by three or more months climbed to 17,400 in the fall of 2010, up nearly 50 per cent since the recession began.And credit card delinquency and bankruptcy rates also remained higher than pre-recessionary levels.

Shiller: Canada Is A Purely Random Success Story

Shiller: Canada Is A Purely Random Success Story
If the historical statistics serve as a guide, Canada looks to be headed for a big drop in home prices, although any decline probably won’t be as pronounced as the U.S. housing bust, he said. U.S. home prices adjusted for inflation surged 79% between 1990 and their peak in 2005. Canada’s gained about 45% over the same period and have continued marching higher, up to about a 50% gain currently, said Prof Shiller.

B.C. Most Indebted

B.C. Most Indebted
B.C. households are the most vulnerable in Canada to interestrate hikes or an economic downturn, says a new report released Wednesday by TD Economics. B.C.'s debt-to-income ratio -which compares all debt including mortgage debt to personal disposable income -is 160 per cent. That's the same level reached in the United States just before the financial crisis and housing meltdown hit....The number of clients seeking help with their debt from the society, a non-profit organization that helps people find solutions to debt and money problems, has skyrocketed in four years."In 2007 we were seeing 500 new clients a month. Now it's 2,000. In the last 90 days we've seen 50-per-cent more people looking for help. It's huge and we're going to be hiring an additional 20 staff to deal with demand," he said.Hannah said if interest rates rise by two per cent, many people will be seriously affected."In the early '80s we saw interest rates of 18 per cent. But that was on mortgages of $70,000. If rates jump to seven per cent on mortgages of $400,000 is there much of a difference?"

Students Need Help, Not More Debt

Students Need Help, Not More Debt
The federal government says it will require a transfusion of hundreds of millions of dollars to maintain a student loan program that is hemorrhaging millions as a result of loan defaults. According to budget documents tabled Tuesday in the House of Commons, the Canada Student Loans Program needs $149.5 million just to cover writeoffs of more than 60,000 unexpected defaults. On top of that, another $311.2 million is needed to meet increasing demand for loans.But pouring in increasing amounts of money isn't the solution to a student loan system that is clearly in need of an overhaul, as advocates have been urging for some time.The Canada Student Loan Debt ticker on the Canadian Federation of Students website (www.cfs-fcee.ca) shows the tally at $13.7 billion and climbing steadily. The website points out that average student debt in Canada ranges from a low of $13,000 in Quebec to more than $28,000 in the Maritimes. The rate of delinquent borrowers is rising, too, hitting 13 per cent for 2010-11, up from about 10 per cent a year earlier. That's the result of a combination of tuition fees which have spiked in recent years and a tough economy which has pounded students along with everyone else.

Madani: Canada Housing Prices To Drop 25%

Housing Prices To Drop 25%
House prices in Canada will fall over the next several years by as much as 25 per cent, creating a massive impact on the economy and possibly pushing the country into recession, says a forecast. “The recent housing boom has resulted in the largest rises in house prices ever seen in Canada, which have been similar in magnitude to those during the recent boom in the U.S.,” said Capital Economics analyst David Madani in a report released Thursday. “Unfortunately, the subsequent falls in prices could also be just as severe as those elsewhere.”Madani is predicting house prices will fall by a cumulative 25 per cent over the next several years, or “in the same ballpark as the recorded declines in the U.S. and other countries.”

CMHC Liabilities Equal 30% of Canada's GDP

CMHC Liabilities Equal 30% of Canada's GDP
CD Howe released an interesting commentary on the current role of CMHC in the mortgage market. It is well worth the read as it not only highlights the potential (and unnecessary) risks to taxpayers, which we’ll discuss, but also debunks the notion that high home ownership rates are beneficial to the broader economy.On the dominance of CMHC in the mortgage insurance market Dominating the market in Canada means that as of 2010, CMHC insures mortgages worth approximately $500 billion, almost the entire Canadian mortgage insurance market.

Nearly 11 Percent of US Houses Empty

Nearly 11 Percent of US Houses Empty
More concerning than the home ownership rate is the vacancy rate. The Census tables don't tell the entire story, but they tell a lot of it. Of the nearly 131 million housing units in this country, 112.5 million are occupied. 74.8 million are owned, and that's only dropped by about 30 thousand in the past year. 38 million are rented, but that's up by over a million year over year. That means more new households are choosing to rent.