Is the State of Mortgage Arrears a Cause for Concern for Homeowners?

Latest figures for Alberta real estate indicate a significant spike in the number of homeowners falling behind their mortgage commitments in the last 3 years. What is quite disturbing for industry observers is the highest rate of mortgage arrears posted by Alberta real estate markets.



In a recent report released by the Canadian Bankers Association, 0.74% of the 500,429 mortgages, or 3,707, were falling behind in their payments for at least 3 months. For the same period in 2007, mortgage arrears were equivalent to 0.14 percent or a total of 659 in arrears from a total of 458,044 mortgages. This is in stark contrast to the national figure, which is equivalent to 0.42% for the same period, or a total of 17,090 mortgages.



Another critical national survey on the labor front that is deemed significant has just been released. The results of the study concluded that average Canadians are literally surviving on a payday-to-payday basis and that their disposable incomes in recent months are getting hit seriously. Most Canadians are now more concerned about how the current level of interests and overall state of the economy will impact on their personal finances as well as their financial position when they finally reach retirement age.



This annual national survey on the Canadian working class, which was conducted under the auspices of the Canadian Payroll Association, has shown that nearly 6 out of 10 respondents believe that they are facing challenges in their personal finances if their paychecks will be delayed by even just a week.



In terms of age, working Canadians belonging to the 18-34 age bracket have exhibited the highest level of susceptibility when it comes to disposable income. 65 percent of the respondents that fall under this age bracket believe that they will not be able to meet their expenses and other financial obligations if they don’t received their paychecks on time.



In a separate report released by the Organization for Economic Cooperation and Development, the concern over the fragile position of the real estate in Canada as evidenced by the rise in house prices and level of indebtedness by Canadian homeowners has been raised. Specifically, the OECD report cited the significant increase in the ratio of household debt to Gross Domestic Product over the last ten years.



The same report has also cited the record levels of debt-to-asset and debt-to-income ratios of Canadian households. The significant rise in the levels of credit of Canadian households is largely due to the increase in the amount of their mortgages. On the bright side, this market development is primarily responsible for the resiliency of the real estate markets in Canada especially during the height of the global financial crisis.



Several economic experts and industry analysts have raised their concern over the level of indebtedness of Canadian households. This dovetails with the capacity of Canadian household in weathering future shocks and disruptions in their financial positions. Economists are stressing the need for households to take a rein on their credit as such will significantly define how household spending and investment of hard assets will play out in the coming months.



These leading and coincident indicators are definitely serious issues that we have to manage, and we have to take the necessary steps in order to avert further escalation and future complications. However, notwithstanding the downside indicators, these do not justify the sounding of alarm bells.



We need to assess these figures in their proper context. For instance, the figures on the mortgages in arrears will have to be defined within the overall scheme of things as we tend to blow things out of proportion if we develop "tunnel vision" when looking at the overall state of Canadian household mortgages.