The only way this province and the country will face a U.S.-style housing crisis is if the employment situation takes a drastic turn for the worse, the head of the Mortgage Brokers Association of B.C. said yesterday.
Brian Peterson said Canada's stronger loan underwriting practices didn't leave Canadian lenders as exposed as their U.S. counterparts, who have watched hundreds of thousands of people default on their mortgages in the last year and a half.
"If we are going to see some problems going ahead they will likely be recessionary, related due to the decline in the overall economy rather than problems in the financial system," he said, noting Canadian lenders have a very strong track record when it comes to mortgages in arrears.
Recent figures from the Canadian Bankers Association show the percentage of mortgages in arrears -- 90 days past due -- in this country is hovering between 0.25 and 0.27 per cent, while the U.S. reported 4.5 per cent of its mortgages were in arrears as of the second quarter of this year.
According to the Canadian Association of Accredited Mortgage Professionals' most recent report -- the Annual State of the Residential Mortgage Market in Canada, released this week -- in recent months there has been a small rise in the arrears rate, to 0.28 per cent as of August 2008. That means about 20,000 to 25,000 of the eight million home owners in Canada are in arrears.
The report said the small rise in the national arrears rate was concentrated in Alberta, where the rate increased to 0.3 per cent from 0.15 per cent a year ago.
There has also been a slight increase in B.C., from 0.14 per cent to 0.18 per cent.
According to Will Dunning, chief economist for the CAAMP, the Canadian arrears numbers could be higher if all mortgages were taken into account. The ones making up the data come from the major mortgage lenders, and not from those who may dabble in the subprime market.
Of the $833 billion in residential mortgage credit outstanding in Canada, only five per cent is made up of the subprime market, compared with 20 per cent in the U.S.
Jim Murphy, president and CEO of the CAAMP, said that is due to the nature of the Canadian market.
"In Canada we have different products. One of the big problems in the U.S. was the teaser rates, where people qualified for the mortgage, but just barely, and when the mortgage was reset two or three years later -- now and last year -- there were all sorts of people that probably should never have been in a mortgage to begin with and that drove the U.S. default, arrears and foreclosure rates," he said. Foreclosure, though a rarity in Canada, does happen on occasion, he said, "but nowhere near the same degree as the U.S.
"Canadians are conservative and tend to pay down their mortgages," he added, noting average Canadian homeowners have 70 per cent equity in their home. "And a lot of it is related to the overall economy and until recently the Canadian economy, and certainly in B.C., has been fairly positive in terms of employment levels and that really drives things like house purchases."
The fact that Canadian lenders tend to have tougher guidelines than their American counterparts is being credited with keeping the market in this country stable, and Murphy expects that will continue.
"I would argue the underwriting principles were tougher to begin with, and in light of what's happened in the U.S., people are going to be much more thorough than they were," Murphy said.
Peterson, however, did warn the number of Canadian mortgages likely to go into arrears in the coming months could increase, but it's unlikely to have anything to do with the kind of loans being written.
"I would expect if the employment situation changes those arrears will change, but not dramatically," he said. "People in business for themselves now experiencing a slowdown may have some trouble, as will people being laid off in industries like forestry, which is in rough shape, or mining, which is slowing."
He was bullish on B.C. as a whole, however, noting the economy and jobs are still being buoyed with preparations for the Olympics, while the province remains a desirable place for people to relocate to and vacancy rates in the major centres remain very low.
"It means if you have an unsold unit there is a rental market for it, and interest rates are low and going lower so it is cheaper to carry things," he said. "All this will cushion us from a really bad downturn. We will have a bit of a slowdown, but it might be relatively short-lived."
Andrew A. Duffy, Times Colonist
Published: Thursday, November 20, 2008
aduffy@tc.canwest.com
http://www.canada.com/victoriatimescolonist/news/story.html?id=25f6879c-27c5-42bc-af35-2bfb2a37c249&p=1