Edmonton Housing Bust

Wow, this year has just flown by. It’s already that most holy of holidays, that’s right, Festivus! I bet you all have been good little boys and girls, so come on up and get your presents… not so fast, Ernst & Young, you got some ‘splainin’ to do!

I was thinking of doing a “Naughty and Nice” list, an airing of grievances if you will, but that sounds like a lot of work, and I have a Christmas party to get to. The punch bowl isn’t going to spike itself, and without that my creepily hanging out underneath the mistletoe later in the night awkward and lonely. Hard work, but someone’s gotta do it. Instead I come bearing gift, an update on the mortgage arrears numbers. I know, I know, it’s not a Best Buy gift card, but it’s better than socks!

As you can see, we’ve hit yet another new high. Eclipsed the 0.80% mark even. Up from 0.78% last month, and 0.69% a year ago. Cue the chorus, we’re still WAY above the national average of 0.43%, or even the next highest regions, which is a position shared by B.C. and the Atlantic Provinces. Our eastern and western extremes might not have a whole lot in common, but they do share an 0.45% arrears rate.

On the opposite end of the spectrum, Manitoba continues to enjoy the lowest rate in the country at 0.29%. As Manitoba has largely remained unscathed by the housing foolishness that much the rest of Canada has experienced the last few years, I suspect they’ll hold that position for a long while. Saskatchewan comes in at 0.31%, good for second, but they are starting to creep up, and I suspect we will see that rise a fair bit as they’ve had quite a bubble of their own, nominally maybe not as large as ours, but proportionately maybe even larger.

And just for good measure, Ontario and Quebec reside in the middle, and both sit at 0.35%.

So, I’ll send you off on your holidays with that. Hope you’re done your Christmas shopping, or are at least ready for a good scrap for what’s left. I knocked mine out in a mere couple hours last Friday. Fortunately being a young single guy, I enjoy low expectations when it comes to presents. In other words, liquor and gift cards for everyone! I may be lame, but at least I’m self aware.

If you get a chance tonight (or better yet, fire up the PVR), check out a little flick on Movie Central called “Coopers Camera”… it’s a riot of a Christmas movie. It’ll send you into the horror of a weeks worth of family get togethers with a smile on your face, especially those other children of the 70′s/80′s out there! Be warned though, this isn’t one for the kiddies. Happy holidays everyone!

The CBA rolled out their September mortgage arrears figures this week. Seems they may be plotting to perhaps reverse course again, as while they were technically up, it was only by a trace amount. For all intents and purposes it remained effectively unchanged from August in Alberta, at a national high of 0.78% (up from 0.67% a year ago).

Seems to be much the story all across this land on Grey Cup Sunday, as most regions remained unchanged, or at most were up/down no more than 0.01%. Nationally the rate remained at 0.42% for the 5th consecutive month, which is down 0.01% from a year ago. We won’t get into all the provinces numbers this time around, you can read the linked to report for your self should you be so inclined.

Instead, to shake things up a little bit I’m going to take a look at the numbers from a bit of a different angle today for Alberta. Rather than just report the rate, we’ll look at the two numbers that compose said rate, the number of mortgages outstanding, and those in arrears… and specifically, how they change year-over-year.

We can only go back as far as 2004 for this, as while the CBA has numbers going back to 1990, the number of institutions reporting has increased over time, and thus when a major one comes online this of course causes a major skewing of the nominal numbers. It’s not a big issue with the rate itself though, as you would expect the new numbers to somewhat fall in line with the previously reporting institutions.

As it doesn’t look like they’ve had any major changes in this regard since mid-2002, we can thus report the numbers from mid-2003 on, but just for presentation purposes we’ll start at January, 2004. Unfortunately for us this doesn’t provide us with a baseline number, as by 2004 the housing market was already starting to amp up, but what ya gonna do?!

Hard to draw any definite conclusions from that graph, but we can see some general trends around the times that the arrears totals start changing course. First we see it in early ’07, as the growth in number of mortgages starts to fall off prior levels, and the number of arrears starts to head up (granted it’s still very much negative at this point.

Eventually arrears hits positive territory, and continues growing until early ’09… and we all know what happens then to interest rates, and the responding goosing of the housing market. At this point mortgage numbers again start trending up, and arrears growth plateaus, and eventually reverses course and starts dropping off.

This was the sort of behavior I was looking for in the rate itself but didn’t really surface. Arrears just by it’s nature is something of a lagging indicator, and it appears that trends and momentum in the underlying figures may play a larger role in deciding the actual rate than I expected. Making it something of a lagging indicator or a lagging indicator if you will.

From here on out perhaps I should start checking in on that year-over-year nominal change in mortgage arrears, it seems to be a bit better barometer for the mood of the market than the arrears rate.

The CBA pumped out another update on arrears while I wasn’t looking… and as of August they’re up again, now sitting at 0.78%, the highest level on record. This is up 0.02% from July, and 0.13% from a year ago.

Seems consumer sentiment shifting again in the spring may have gotten us back on our earlier trajectory after the little reprieve in the aftermath of central banks collapsing prime rates.

In contrast, Nationally the rate held for the forth consecutive month at 0.42%, down from 0.43% a year ago. Another interesting development is that B.C. is just about to overtake the Atlantic region for the second highest rate in the country (behind Alberta), they are both listed at 0.45%, but B.C. is still a tad lower when we go to further decimal places.

Quebec remains at 0.35%, while Ontario is down a tick to 0.36%, and Saskatchewan is up a tick to 0.30%. Manitoba remains the lowest in Canada at 0.27%, up from 0.26% in July, but unchanged from a year ago.

Sorry about the lack of updates, I’ve been more than a little busy. I’m in the midst of changing careers as well as relocating (moving about an hour outside the city). Was originally hoping I wouldn’t have to start until the New Year, but they didn’t want to wait that long, so rather than a few months, I have one month (of which only a couple weeks are left now).

So, yeah, my life has been a little bit crazy… add to that a girlfriend that is beyond pissed off and seemingly doing everything in her power to make my life even more difficult, and needless to say my spare time has become nearly none existent. Not entirely sure whether she is more pissed about my moving out of the city, or that I’ll be making a lot less money for a couple years until I finish articling. I imagine it’s probably the money, I doubt she’ll miss me!

As far as the blogging goes, hopefully I’ll have more time to dedicate to it once I get settled. I imagine the first six months will be pretty stressful, but as I don’t know anyone there I may end up with an awful lot of free time too. I guess we’ll find out.

Anyway, enough about my sad little life though, on to the stats! The July mortgage arrears numbers were released today, and to continue our theme… those too are “movin’ on up!”

After topping out in December with a new high we’ve been kind of range bound. After the meteoric rise over the prior couple years, we witnessed a sudden reversal over the winter, but then we started creeping up again in the spring, and as of July we had broken through to set another new record high, hitting 0.76%. Up from 0.73% in June, and 0.62% a year ago.

I imagine this is a probably the result of the softening of prices since April, but who really knows, at this point I still thinks it’s too early to officially declare we’re out of our range bound stage. If we continue to see significant declines in prices over the fall and winter though, I would not be surprised to see the rate climb beyond even our current levels, perhaps even significantly.

Nationally the rate continues to hold at 0.42%, unchanged MoM and YoY. The Atlantic provinces continue to run a distant second for highest regional rate, coming in at 0.45% (up 0.01% MoM, down 0.03% YoY), but BC is closing in on them at 0.43% (up 0.01% MoM, up 0.08% YoY).

The next tier consists of Ontario at 0.37% (unchanged MoM, down 0.06% YoY) and Quebec at 0.35% (unchanged MoM and YoY). The our prairie compatriots make out the bottom end, with Saskatchewan rating 0.29% (up 0.02% MoM, up 0.06% YoY), and finally Manitoba is low man at 0.26% (unchanged MoM, up 0.01% YoY).

I apologize, I’ve been kind of missing in action here the last week. I had been waiting for some specific numbers, and then didn’t come out, and didn’t come out, and still haven’t come out. Even after getting fed up of waiting I tried writing something, but suffered from some writers blocks. Sad, I know, depriving you all of my rapier like wit. How did you ever survive?!

Anyway, today the latest mortgage arrears numbers came out, and I’ve been spurred back to action. Before we get to that, but on a related note I heard a couple things on the radio on the way to a meeting today that left me shaking my head.

First a BMW spot promoting that you can drive in luxury for zero down, and zero due at signing. Shudder. I’m sure there is great money in providing financing, but that is a sad statement about our culture when we’re pushing status symbols to those with no money whatsoever… not to mention, kind of stains their branding as a prestige item. Maybe it’s just me, and judging from the behavior around me, it is, but I’m of the opinion if you’re pushing 30 and you can’t buy a car with straight case, you can’t afford that car… and that goes double to luxury vehicles.

Then there was a guy call in bragging about owning an $80,000 boat… the term “owning” is being used very loosely in his case, apparently he and three buddies went in, financed it to the hilt with an extra looooooong term (“way longer than for a car”, so 10+), and can evidently enjoy a few weekends at the lake for a mere $400 a month, each, all year, for many, many years. This is a guy in his mid-to-late 30′s, and thinks he is one of the smart ones. Shudder again.

So. Yeah. This is going to end well. Anyway, enough naval gazing, lets get our stats geek on!

Arrears continued to creep up, but remains in that 0.70-to-0.75% range that we’ve been in since last fall. We’re now back at 0.74%… up from 0.73% in May, and 0.60% last June. As we’re still range bound there isn’t much else to say that hasn’t been said before… but perhaps one notable item is that the total number of mortgages outstanding (included in this survey anyway) exceeded 500,000 for the first time.

On the national front, the rate held at 0.42%, equal to where it was a month earlier, and year earlier for that matter. I guess we’ll work our way west-to-east this time, BC also sits at 0.42%, no change MoM, up from 0.34% a year ago… Saskatchewan sits at 0.27%, down from 0.29% MoM, up from 0.22% YoY… Manitoba maintains lowest rate in the nation at 0.26%, same as in May, up from 0.25% YoY… Ontario sits at 0.37%, up from 0.35% MoM, down from 0.43% YoY… Quebec sits at 0.35%, down from 0.36% MoM, no change from a year ago… and finally the Atlantic provinces saw their rate drop to 0.44%, down from 0.46% MoM and YoY.

Interesting to see the Atlantic provinces continue to improve relative to the rest of the country… actually their rate hasn’t changes much, but the other provinces have seen theirs rise. Until Alberta’s meteoric rise, the Atlantic provinces has held the dubious distinction of highest arrears rate in the country for much of the last decade.

It did for in May anyway, but one month does not a trend make.

The CBA released their latest mortgage arrears figures today, and they sit at 0.73%, up from 0.71% the month before. It had peaked in December at 0.75%, then suddenly reversed course in January, and it had been slowly declining until May apparently.

We’ve been range bound between 0.70-0.75% for the last six months, so until we see a break one way or the other I’d hold off getting excited. We’re still at generational highs, and the highest in the nation by a country mile, but we have seemed to level off at least for the time being. Year-over-year we’re up 0.25%, up from 0.58% last may.

The national rate fell 0.01% month-over-month to sit at 0.42%. It also peaked in December at 0.45%, just a tick below a decades high. A year ago the national rate stood at 0.41%. As per the other regions, the Atlantic provinces are at 0.46% (-0.01% MoM, equal YoY)… Quebec at 0.36% (-0.01% MoM, +0.01% YoY)… Ontario has had the biggest drops MoM (-0.04%) and YoY (-0.08%) and sits at 0.35%… Manitoba has the lowest rate in the country at 0.26% (-0.01% MoM, +0.02 YoY)… Saskatchewan comes in at 0.29% (equal MoM, +0.06% YoY)… and finally B.C. rates at 0.42% (+0.02% MoM, +0.09 YoY).

Kind of displays just how steep the increase has been in Alberta, when even after a six month plateau our year-over-year increase still laps even the second highest multiple times. Going forward though I have no idea what to expect when it took over six months for the effects of low interest rates and high sales to show up… so even though the market has again turned, there could still be some residual effects yet to show up.

Yesterday the CBA released the March mortgage arrears numbers, and as far as Alberta is concerned we are continuing our plateau that seemed to have arrived with 2010.

As of March we are not sitting at 0.72%. Obviously extremely high historically, but this recent plateau is in distinct contrast to the remarkably smooth run up that got us to this point. It’s interesting that we didn’t see this plateau arrive until the current real estate rush was in it’s last gasps. After interest rates were collapsed a year ago we were expecting something of a plateau, or at least slowing, as =sales rocketed back to record levels and prices started trending up… but arrears continued it’s prior trajectory for the better part of a year before signs finally started showing up in January.

As I seem to say every time we review this stat, this will be interesting to follow going forward, as the market again turns down, sales soften and prices drop. It’s also worth noting that the previous high-water mark set in the mid-90′s was in the wake of a significant (though brief) rise in interest rates… currently we find ourselves in a situation where we should be seeing a significant rise in interest rates for a sustained period and our starting point is already at an all-time high.

Even with rates still at obscenely low levels (though now above rock bottom) market sentiment is turning. It seems the interest rates have brought as many buyers forward as it can, and now it’s a question of if, or how much, future demand was cannibalized… as well as how high will rates get, and how will the populous respond.

While we’re on this topic, I should address a tangent that I get a lot of e-mails about… that being, Alberta’s status of having non-recourse mortgages. Those of you who have followed the U.S. housing collapse know that states with large run ups and non-recourse mortgages have had far bigger problems with foreclosures than states with similar run ups but recourse mortgages.

For the uninitiated, recourse/non-recourse is the distinction between whether the lender can come after the borrower for the difference on what they owe should they be foreclosed on/walk away from their mortgage. Lets say someone owes $400,000, goes through foreclosure, after which the house only garners $300,000 at resale. If it’s a recourse mortgage, the lender can go after the borrower for the $100,000 difference… on the other hand, if it’s non-recourse the lender is shit-outta-luck.

Basically non-recourse mortgages allow borrowers in negative equity to walk-away with no direct consequence (though I believe they may have to pay tax on the difference as if it was income, still preferable to eating the loss)… whereas recourse borrowers are on the hook for any deficiency. So you can see why non-recourse states would likely have bigger problems with arrears/foreclosures, than recourse states.

It’s also true that Alberta generally has non-recourse mortgages as stated in the Law of Property Act… but before anyone starts thinking about doing the jingle mail thing, you should bear in mind the in the case of high-ratio mortgages insured by the CMHC (basically all mortgages with less than 20% downpayments), that the federal law would trump provincial law, and the federal law basically decrees that all those mortgages are recourse in nature.

Obviously, those with high-ratio mortgages would be most at risk of negative equity should prices decline since they have so little equity… but because they would be CMHC insured, they are subject to recourse rules, so borrowers cannot just walk away. Beyond that, even those of us who are bearish on the current market are really only pegging prices to drop 25-30% to return to historic means long term, for those in the non-recourse category they would have at least 20% equity, and likely would have accumulated even more equity since taking on the loan… thus the risk of hitting negative equity is small, and even for the few that could, it’s hardly worth turning one’s life on it’s ear and screwing up your credit rating on account of being underwater a couple percent.

So, long story short, while in theory Alberta mortgages are non-recourse… de facto they are recourse in nature.

Here is a quick post for the weekend. Yesterday the CBA released the February mortgage arrears numbers…

… and, as per Alberta, it held at 0.73% from January. So, after a remarkably consistent run up we appear to have plateaued, at least for the time being. We’re obviously still well up year-over-year (from 0.48%). Still wracking my brain trying to figure out what external factors would have caused this change of course the last couple months though, as the usual suspects, prices, sales, employment and interest rates really weren’t anything unusual compared to the month leading into the winter.

Perhaps the threat of impending interest rates rises finally got some off the fence to refinance, but insofar as that goes the offerings were nothing that couldn’t have been six-to-nine months prior… so I don’t think that’s it either, and the CMHC changes hadn’t even been proposed until February. In any case, it will be interesting to keep an eye on this as the interest rates climbs we’ve seen in April and that will continue through the spring/summer will being to affect arrears.

Across the country, it was a fairly tame month on the arrears front month-over-month. Nationally the rate held at 0.45% for the third month. Ontario and Manitoba also held, at 0.42% and 0.31% respectively. Everyone else was up 0.01%… the Atlantic provinces now sit at 0.52%… Quebec at 0.38%… Saskatchewan at 0.31%… and B.C. at 0.41%

Here is a little surprising news… the arrears rate dropped in January!

Dropping from 0.75% to 0.73%. Obviously one month does not a trend make, and this could just be fluctuation (as we can see from earlier spikes, they’re typically quite jagged)… but coming off of a remarkable run 27 consecutive months of increases, it is notable if for nothing else breaking up an amazingly smooth curve.

So have we peaked? Probably not, but I suppose it’s possible. We could even see a few months of declines or going sideways as perhaps the effects of ultra-low interest rates, high sales and the small rally in prices are showing up in arrears data. We were expecting the arrears growth to at least slow last year as the market heated up… but there was no signs of that, as it continued to increase at a spectacularly consistent pace despite near record sales levels. Perhaps now it’s finally showing up.

Of course I’ve speculated long and loud that I figured even if the interest rate induced rally created a short term slowing or reduction in arrears, it was only doing so at an even expense problems down the road when interest rates returned to more historic norms. So, this will be very interesting to watch just to see if there will be some further declines, or if it was just an aberration, as well as what’s going to happen long term.

And to celebrate one year anniversary of us tracking arrears here at EHB (I believe the gift for such an occasion is paper, I prefer mine in the $20 bill variety, so you can fire those off in the mail as soon as possible. Just kidding. You’ll just owe me!). So, to ring it in, I figured we’d see how the provinces fared comparatively over that year.

As you can see from the graph, we’ve won that one in a walk with a 0.27% increase, pretty much had it wrapped up by May, more than double the next closest, B.C. at 0.13%, and three times the national average (and this is after ours went down in January). Manitoba came in at the national average, then Saskatchewan and Quebec registered 0.06% increases, the Atlantic provinces had a 0.05% increase and Ontario actually had the smallest change at a mere 0.03% (possibly as a result of their incredibly frothy housing market). Obviously we can see none were on the good side of that measure though.

For those curious for how everyone stacked up month-over-month and overall. The Atlantic provinces continue to have the second highest rate, holding at 0.51%… Ontario held at 0.42%… B.C. held at 0.40%… Quebec dropped 0.02% to sit at 0.37%… Manitoba and Saskatchewan were both up 0.01% to sit at 0.31% and 0.30% respectively… and the national average held at 0.45%.

The CBA released the mortgage arrears numbers through December on Friday, and guess what? Yeah, they’re up! Hard to believe, I know, it’s only the 27th consecutive month. As we surpassed the previous record high with the November figures, obviously that record has been reset, now sitting at 0.75% (up from 0.72% in November, and 0.40% a year prior).

That’s a rather scary trend line isn’t it? And is showing no sign of slowing down… and considering what went on this past summer with the defacto teaser rates that the central banks of the world prompted, and house lusting young people only concerned with carrying costs and who couldn’t even spell amortization much less understand it, it’s going to get a lot worse before it gets better. For those of us patient and informed though, it will be highly entertaining at least.

Nationally the rate was up just slightly, now sitting at 0.45% (up from 0.33% a year ago). Most of the other provinces fluctuated within a mere 0.01%, except Saskatchewan, where it climed 0.02%, but is still a national low, 0.29% (up from 0.23% a year prior). The Atlantic provinces continue to have the second highest rate (a distant second behind Alberta), sitting at 0.51% (up from 0.42% a year prior). BC will remain the province to really watch going forward though, especially now that the Olympics will soon be in their rear-view… they continue their slow but steady climb, and sit at 0.40% as of December, up from 0.23% a year ago.