Canada’s banks scrambled to issue hundreds of thousands of mortgage deferrals, and new data shows why. Bank of Canada (BoC) staff calculations show a significant number of households would struggle to cover just a few months of mortgage payments without income. Nearly a quarter of households don’t have enough liquid to pay their mortgage for just 3 months.
About The Data
If you’re not a statistics nerd, you’re going to need a quick explanation on median values and quartile ranges. A median value is the central value in a data set, with half of values above the median, and half below. A median divides the data in half. A quartile is a similar concept, but divides the data into four. That much you probably know, but you’ll need to know that for this next term – interquartile range.
An interquartile range of the range between the two middle quartiles. The BOC data shows the high and low values of the interquartile range of months of mortgage payments. Before the interquartile’s low value, is where a quarter of households fit. After the interquartile’s high value is where another quarter fits. The range is everyone from 25th percentile to the 75th.
1 in 5 Households Have 2 Months of Mortgage Payments Available
Most Canadian households can draw liquid assets to cover payments for less than a year. The BOC estimates the median household can cover 9 months of mortgage payments. Using the range, we can see a quarter of people have less than 3 months of mortgage payments liquid. The central bank’s analysts specified 20% of households can make 2 months of payments or less. They also add a third of households have just four months of payments available. All of these numbers assume no additional debt being carried, which would lower the value.
Canadian Months of Mortgage Payments Liquid
The estimated number of monthly mortgage payments a Canadian household can cover with liquid assets. This assumes no other debt repayments.
Source: BoC, bank filings, Better Dwelling.
A Quarter of Households In 5 Industries Have Less Than 2 Months
As you may have guessed, not all professions are affected the same way. A quarter of people in business administration, commodities and agriculture, manufacturing and utilities, sales and services, and trades and transport have less than 2 months worth of mortgage payments available. A quarter of people in all professions have fewer than 4 months of payments.
Most households could withstand mild shock, but longer term income stalling is more problematic. Now it makes more sense as to why banks were scrambling to give deferrals to households. Had they not, we would have seen defaults soar just a few months after full income stopped coming in.
Bank deferrals aren’t expected to relieve all of this pressure. Many industries expect the pandemic fallout to last more than a year. This is why the BoC, amongst other organizations, expect the arrears rate to rise 6 months after the pandemic was declared.
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