May 9, 2012, Mortgage arrears rate highest in Alberta

CALGARY — The mortgage arrears rate in Alberta is by far the highest in the country, according to the CIBC Household Credit Analysis report released Wednesday.

In January, the rate in Canada was 0.4 per cent while in Alberta it was 0.7 per cent.

“This reflects the fact that, on average, homeowners in Alberta are younger and less established,” said the report authored by Benjamin Tal, deputy chief economist at CIBC World Markets. “As well, the pre-recession period in Alberta had seen activity surging rapidly — leading to a higher percentage of consumers overextending themselves to speculative investment activity and excess.”

In March, the average sale price of a home in Alberta was $358,988, the third highest in the country behind British Columbia at $522,663 and Ontario at $389,342. The Canadian average was $367,821.

The CIBC report said there are some early signs of moderating activity in the Canadian mortgage market.

“The recent modest softening in mortgage activity is coinciding with a reduction in the mortgage arrears rate, which as of January 2012, stood at under 0.4 per cent after reaching close to 0.5 per cent during the recession,” said the CIBC of the national picture. “Note that the current rate is still double the rate seen before the recession but is significantly below rates we have seen in previous recessions.”

The CIBC said there is no debate about the fact that the housing market is “overshooting.”

“The only question is what will be the nature of the adjustment. It appears that we are at a turning point in the real estate market. Recent signals from the market suggest that activity is slowing down,” said the CIBC.

“We continue to call for a gradual softening in the market, with prices potentially falling by around 10 per cent in the coming year or two. Other factors that will work to soften activity in the market are ongoing changes in the mortgage market with increased scrutiny from regulators regarding risk management practices, as well as the increased use of full-scale appraisals as part of the adjudication process.”

The report said Canadians are putting the brakes on spending with outstanding consumer credit now rising at the slowest pace since the early 1990’s.

“Regardless of how you measure it, there is a clear slowing trend in the pace of growth in household credit,” said Tal. “The pace of growth is no longer a reason for the Bank of Canada to move from the sidelines any time soon.”

On a year-over-year basis, total household credit (consumer credit plus mortgage outstanding) is now rising by just over five per cent — the slowest pace since 2002, said the report. The key is the rapid softening in the pace of consumer credit. As of March 2012, overall consumer credit outstanding rose by only 2.3 per cent on a year-over-year basis — the slowest pace since the early 1990s. On a rolling month-over-month basis, consumer credit is now rising by only 0.1 per cent — the slowest pace since 1993, it added.

Francis Fong, economist with TD Economics, said in another report released Wednesday that excessive debt levels remain the economy’s largest domestic medium-term threat but a combination of slowing credit accumulation, gradual increase in interest rates and efforts to lock-in at still-low fixed rates will help ease the adjustment on households.

“While the majority of Canadians appear to be well-positioned to absorb a rate increase of around two percentage points, there is a substantial minority that cannot,” said Fong. “According to the Canadian Association of Accredited Mortgage Professionals, roughly 21 per cent of current mortgage holders, equating to roughly 1.2 million mortgages in Canada, may face financial difficulties with such an increase.”

mtoneguzzi@calgaryherald.com

© Copyright (c) The Calgary Herald

Read more: Calgary Herald