The Latest in Mortgage News: New Data on Financial Distress in Canada

A significant number of Canadian households reported being late on a debt payment or missing it entirely, according to a new report from Statistics Canada.

The 2016 data from the agency’s Survey of Financial Security shows that more than 1-in-10 Canadians (11%) with some form of debt reported skipping or making a late non-mortgage payment.

According to StatsCan, those more likely to miss or skip a debt payment include:

• Those aged 55 to 64 years old (8.1% missed payments compared to 3.9% of 24-to-44-year-olds and 4.2% of 45-to-54-year-olds.)
• Those in the lowest quintile of income groups (6.8% missed payments compared to 2.1% of those in the highest quintile)
• Those living in the Prairies (6.8% missed payments compared to 3.2% of those in Ontario and 3.4% of those in Quebec)
• Lone-parent families (9.4% missed payments compared to 2.4% of those with no children and 4% of couples with children)

Debt-to-asset ratio as a measure of financial distress

The report also noted that a high debt-to-asset ratio is a better indicator of a household’s financial distress compared to the commonly reported debt-to-income ratio (which reached a near-record level in Q1 of this year).

“Families with a higher debt-to-asset ratio are more likely to report having experienced a variety of financial problems, like skipping or delaying payments, or using payday loans,” the report reads.

Case in point:

• About 16% of families with a debt-to-asset ratio above 50% of their assets missed or delayed a non-mortgage payment
  • vs. 7% of families with a debt-to-asset ratio of less than 25%
• About 1.7% of families in the lowest debt-to-asset category missed or delayed a mortgage payment
  • vs. about 7% for those with a debt-to-asset ratio above 50%

Overall, 4% of those with a mortgage skipped or delayed a mortgage payment in the year preceding the survey.

But as RateSpy’s Rob McLister noted in a post, “That said, actual mortgage arrears are just 0.25%, meaning only 2.5 out of 1,000 are 90+ days past due on their mortgage. This suggests that some of the folks who skipped a mortgage payment presumably used their lender’s skip-a-payment feature.”

And in other news…

Two-Thirds of Canadians are Concerned About Country’s Housing Market: Poll

The survey was based on a poll of 1,000 Century 21 real estate agents who were asked to gauge the mood of their clients.

Slightly more than 68% said their clients are “somewhat” or “very concerned” about current market conditions (18.1% being very concerned). On the flip side, just 15.6% reported their clients as being “optimistic” or “excited.”

Buyers were found to be significantly more optimistic compared to sellers, with 57.7% of buyers reporting to be excited or calm about prices and taxes and 28.8% being concerned, compared to 38.6% of sellers who reported being excited or calm and 38.7% being concerned.

A slow housing market in the West—particularly Calgary and Edmonton—is clearly taking a toll on the mood of clients. The survey found the Prairies to be the most pessimistic region, where 77% were reported as being somewhat or very concerned.

B.C. Home Sales Forecast to Rise in 2020: BCREA

Residential home sales for 2019 are expected to be down 9% compared to last year, but pent-up demand is expected to lead to a turnaround in 2020, according to the British Columbia Real Estate Association (BCREA).

It forecasts a decline to 71,400 units this year before rising 14% in 2020 to 81,700 units, shy of the 10-year average of 84,800 units.

“The shock to affordability from restrictive mortgage policies, especially the B-20 stress test, will continue to limit housing demand in the province this year,” said BCREA’s chief economist, Cameron Muir. “However, a relatively strong economy and favourable demographics are likely creating pent-up demand in the housing market.”