Toronto

Ontario’s Late Mortgages Are Now At The Same Level Before The 1990 Crash

Ontario’s Late Mortgages Are Now The Same Level Before The 1990 Crash

Toronto’s booming real estate sector took Ontario late mortgage payments to a new low. Canadian Bankers Association (CBA) stats show that late payments are at 1990 levels. If you’re unaware, the last low was just before a real estate crash that took 13 years for prices to recover in Toronto.

Mortgages In Arrears Drops 18.4%

The number of mortgages in arrears fell for another month in April. Mortgages in arrears, which are those with late payments in excess of 90 days, have dropped across the province. April saw 2,229 of the 1,988,089 mortgages fall into arrears, an 18.4% decrease from the same month last year. Note the CBA only has data for ten of the largest banks in the country. So alt-lenders, and private mortgages would not be included in this number.

Source: CBA.

Same Level As January 1990, Right Before They Started Soaring

The number of mortgages in arrears matches the lowest number in the province’s 27 years of data. It represents 0.11% of all mortgages, which is the level last attained in January 1990. This was right before the last provincial real estate crash. The average over the past 27 years is 0.36%, so this is a really good number…possibly a little too good.

Either Wages Are Growing Faster Than Prices, Or It’s A Bubble

This could mean a few things, but most likely it means the economy is in hyperdrive or the market is in a major real estate bubble. If the economy is in hyperdrive, wages are growing at such a a rate that prices are being easily absorbed. There’s some evidence that wages in and around Toronto are higher than most people think. Whether they grew enough to absorb the massive increase in prices in places like Toronto and Guelph, we won’t know for a couple of years. That’s when Statistics Canada will give us a thorough update on 2017’s wages. Although, early indicators like the LFS aren’t showing robust wages growth.

Source: TREB.

Real estate bubbles tend to lead to a similar situation. We’ve explained this as mortgages in arrears were dropping, but I’ll touch on this for new readers. In a bubble, people don’t fall behind on payments because it’s easy to sell your home. Any home, regardless of quality or location, will sell within a few weeks or even a few days. If you can sell your home before you fall into arrears, you walk away with a wad of cash instead of becoming a negative statistic.

As the market cools, it becomes more difficult to sell your home. It doesn’t mean you won’t, but as buyers take their time, your chances of falling into arrears increases. The irony being when arrears start upticking, buyers start taking even more time. This leads to falling prices, and higher levels of mortgages in arrears. How fast these mechanics play out determines whether it’s a correction or a crash.

In my opinion, this number is already artificially low. but it doesn’t mean it can’t go lower. I didn’t think Vancouver condos could get a massive price increase right now, but here we are – up to $150,000 more than the month before. What is for sure is this number will have to pop back up closer to the average at some point. The lower it goes, the faster it will climb higher.

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4 Comments

  • Reply
    Mike K. 1 month ago

    Great article, you guys are really nailing this.

  • Reply
    Ahmed 1 month ago

    Haha, Dan! Don’t give anyone a slice of hope, it’s obvious that people in Canada aren’t seeing a huge increase in pay. This thing’s going to come tumbling down any day now.

  • Reply
    Allen 1 month ago

    @Ahmed. But the wage increases will happen soon. Ontario going $15 and hour. Other provinces will surely follow. Pretty sure we will have a 4.5CPI sooner than we think.

  • Reply
    Dan 1 month ago

    I don’t think there is any correlation between lowest number of missed payments and bubble burst. In any growing market the number of defaults will keep decreasing (and this would happen irrespective whether it’s slow growth of 5% or bubbly growth of 30%). We could have reached the same percentage of missed payments as long as there is steady growth…
    The reason why there was a sudden increase in missed payments in 1990 is because of sudden jump of interest rates to 19%. People could not afford to buy, no one could sell and at the same time all variable rate mortgages sky-rocketed (so people could no longer afford monthly payments).

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