Time for your cheat sheet on this week’s more important stories.
Canadian Real Estate
Canada’s largest bank’s risk scenarios show a larger downside than upside for real estate. RBC’s best cast scenario shows Canadian real estate prices rising 6.1% over the next 12 months. In a worst case scenario, the bank’s risk model shows a decline of 29.6% over the next 12 months. Earlier this month, the chief’s risk officer said they expect prices to fall about 7% over the next year. This may imply the bank believes things will be worse than expected, but not as bad as things can get.
Speaking of risk scenarios, another Big Six bank shared one for real estate prices. National Bank sees home prices falling 5.2% over the next 12 months in their base case. In an upside, they still see prices falling, but just 1.5%. In a worst case, they see prices falling 9.9% over the next 12 months. The upside is more bearish than the RBC forecast, but the downside is much smaller.
Canadians are drawing on their home equity once again. The balance of loans secured by home equity reached $307.11 billion in September, up 1.05% from last year. The rate is still relatively small, but it’s no longer negative.
Canadians are borrowing mortgage credit at the fastest pace in years, in the pandemic. The balance of mortgage credit reached $1.71 trillion in September, up 5.67% from the year before. This is both a record high, and the highest 12-month growth since 2018. Part of the acceleration is due to lower mortgage rates, but the trend is also recovering from unusually low growth.
RBC filings show the majority of people on mortgage payment deferrals resumed payment. The filings also show a significant number did not. Mortgage and HELOCs worth $45.7 billion have seen their payment deferrals expire. Of those, 1.8% of the balance of deferrals have become delinquent. This isn’t all due to the pandemic though. The bank also disclosed almost a third of the delinquent mortgages, were delinquent before deferrals were given.
Statistics Canada has crunched the numbers, and found Millennials make more than previous generations. At the median age of 31, the average Millennial household took home an average of $90,047 per year. This is 18.27% higher than Gen X at the same age, after adjusting for inflation. Unfortunately they spend a whole lot more on taxes and shelter, more than wiping out the gain. Despite the fact that things are suppose to be getting better, they’re getting worse.
Canadian banks are reporting a rise in arrears, despite payment deferral programs. National arrears reported by the CBA reached 0.26% in May, up 12.63% from the same month last year. This is the highest level since 2017, when the rate was falling – not heading the other direction. Both the level of arrears and the growth rate are unusually high at anytime. However, it’s extremely odd with so many bank and government programs to help.
Canada’s Big Six banks have seen the majority of mortgage payment deferrals expire. There were just 69,900 mortgages on payment deferrals on October 31, 2020. It’s still quite a few, but down 86.3% from the previous quarter. The remainder are scheduled to expire by March at the latest.
Vancouver Real Estate
Greater Vancouver real estate prices are split – with detached homes rising, and condos falling. The benchmark price for a detached home reached $1,538,900 in November, up 1.0% from the month before. The condo apartment benchmark reached $676,500, down 1.0% from the month before. It’s a little unusual for detached prices to rise at the same rate condo apartments are falling.
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