TITLE: Largest housing bubble of all time!
here are the video notes from this weeks topic
Canada sitting on the largest housing bubble of all time? (aug 22)
A BNN Bloomberg report this week
- Stretched Housing Prices
- Weak Affordability
- Over-leveraged mortgage borrowers
- “Canada is probably sitting on the largest housing bubbles of all time.”
- 2 decades of easy money – monetary policy
- “The worst part for a housing bubble is when you have a credit bubble underneath it”
- “There is definitely a risk here that if mortgage rates go higher or unemployment were to rise or we hit the next recession, then this thing does end up in a deleveraging cycle,” he said.
Phillip Colmar – Global Strategist at MRB Partners.
Statscan: Variable interest payments grew 12.6% quarterly OR 69.7% (Q1 2022 – Q1 2023)
Decline in household disposable income
- Household credit debt as a portion of household disposable income is up to 184.5% Q1-2023 from 181.7% Q4-2022
RBC reported residential mortgages with AM’s surpassing 25yrs was up 40% YoY
TD reported annual rise of AM’s surpassing 25yrs was up 35% YoY
BOTH banks have seen spikes of loans extended over 35 years Amortization Anything is possible.
However to combat this claim:
Canada packed on 11.2B in mortgage debt 2023 Q1 - statscan-
Relatively slow quarter for borrowing following record high Q2 2021 & Q2 2022.
- The people taking these mortgages are qualifying with current stress tests at these levels on fixed rates OR variable with the potential to move and can cover the difference. – new morgages not contributing
- Most exposed people are variable rate holders who have adjusted and will be renewing at a higher rate. Typical loan terms are 5 years. So 1/5 of the market is turning over every year for the most part.
- (statscan). JANUARY 2022 56% (PRE RATE HIKE) of mortgages issued were variable rate
- April 2023 – 8% issued were variable
The most recent figures from the Canadian Banking Association show that the national rate for mortgage defaults is at a historic low. As of Jan. 31, 2023, 0.16% of Canadian mortgages were in arrears. That translates to 7,909 mortgages in arrears across Canada.
- Government has intervened with mandates for the bank to pass down to borrowers the option to tap into relief plans, payment deferrals, extending amortizations. July 13th video – The endless mortgage amortization
HOW are relief measures going to play out:-
- Waiving prepayment penalties on lump sum payments / to avoid neg-AM / property sale-
- Waiving internal fees and costs-
- Not charging interest on interest (resulting from negative amortization) ? -
- no further interest over the fixed payment amount is owed-
- BANKS will not offer less advantageous rate @ renewal based on consumer’s inabilities. -
- At risk consumers credit report does not reflect a late payment or delinquency (not effected)-
Extending amortization -
- when amortization period extension is in order, they try to structure for the shortest amount of time possible.-
- Make sure Amortization period is reasonable.-
- Include info about options to restore amortization to its original period.-
- Include assessment & communication of the potential long-term negative financial implications of this change.
- Communicate all of this in a manner that is clear, simple & not misleading
- Higher average income in Vancouver than other provinces (stats can 2020)
Alberta - $77k
Ontario - $73k
B.C - $68,500
canada – $66,800
I have seen other charts when average income in Canada is 60k & Vancouver is as high as 80k…..
- Canadians hold onto their mortgages at the expense of all other credit outlets. The mortgage will get paid when it comes due and take priority over any other credit bill outstanding.
- Finally - 50% home owners are mortgage free as discussed 2 weeks ago.
- These points are what is keeping mortgage defaults at a minimum currently.
- Are all of these aspects simply kicking the can down the road for mass defaults? Or can they hold on long enough until rates begin to come down and ease the monthly pressure on the variable rate holders to get them out of defaults way?
- There is a 50-50 split with economists who believe a recession will happen within the next 2 years.
- What is a recession and why is it bad? Oxford dictionary:
- a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Does that matter? Only if you loose your job does that matter.