Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
It’s that time of year where the birds are singing, the flowers are blooming, and Canadian banks are reporting they have a significant share of over leveraged clients. Four of the Big Five banks have reported that at least 1 in 4 mortgages in their portfolio have amortizations with at least 35 years left. That’s one way to improve affordability—let borrowers pay it off over an infinite amount of time, with little to no standards on lending. What could go wrong?
Canadian mortgage delinquencies are climbing and there are signs they’re just getting started. Mortgage delinquencies climbed to 0.15% in Q1 2023, the first increase since 2018. About 1 in 5 of those mortgages were 150 days past due, the point at which the lender has to consider the loan a write off. The share isn’t particularly large, but the increase is happening while banks are going to extreme lengths to prevent them. Papering over a structural issue temporarily hides it, but the erosion still occurs behind the paper.
Canadian mortgage borrowers are seeking more leverage with cheaper fixed rate products. Nearly three-quarters of mortgages issued in March had fixed repayment terms between 1 and 5 years. While this protects borrowers from the unpredictable issues observed with variable rate products over the past couple years, it also provides roughly the same increase in leverage as national home prices rose. A total coincidence, or homes are absorbing additional leverage like they have for the past 30-plus years.
Canadian Boomer homeowners won the lottery by just paying their mortgage. Stat Can data shows they’re doubling down, using their leverage to secure investment properties. Lenders, like Canada’s largest bank, now report that investors are displacing first-time buyers in their portfolio. At such a wide scale, it’s like one generation climbed the property ladder and then pulled it up before the youngest generation got on the first step… Then charged them to stand where the ladder used to be.