Mortgage Defaults Jump 175% in 2010
According to the Canadian Banker’s Association,
by mid 2010 Canadian mortgages in arrears
increased 175% from just 3 years ago. Is this
the start of a similar US housing meltdown with
numerous Canadians at risk of foreclosure?
Well, let’s back up a few steps. Like so many
media headlines these days, we may want to
examine the data behind the headline a little
closer before we jump to conclusions.
First of all, Canada had extremely low arrears
rates a few years ago. We were in a housing boom
resulting in a seller’s market. If someone
couldn’t make their mortgage payment, they put a
For Sale sign on the lawn in the morning and by
dinner the unconditional offer took care of the
seller’s arrears dilemma. Thus the Canadian
Banker’s Associations’ low arrears numbers three
years ago in 2007.
2007 was a very buoyant, extreme and unnatural
market spike in favour of sellers. Looking
further back in history, the early 90’s mortgage
arrears peaked around .64% and again at .68% in
1997. Today, Canada sits around .42% with its
lowest rate in the last decade of .24% in 2007.
175% increase from the low of .24% to .45% today
may not be as alarming as first thought
considering historical patterns.
Secondly, during a down or flat market cycle,
foreclosures are always higher due to higher
unemployment and slower credit markets which
result in tighter lending parameters, increased
housing inventory and slow housing sales. This
type of market is less liquid for sellers to
move their property quickly resulting in
increased arrears. Good for buyers, not so good
The current arrears in Canada are less than half
of 1% and during the peak arrears years in 1990
and 1997 the rate was still less than 1%. Over
99.5% of Canadian mortgages are still in good
standing today, despite current difficult
economic times. So for every 2,400 homes in
Canada, 1 person is behind on payments. In the
US, 1 in every 371 homes are behind on mortgage
payments. Default rates would have to increase
600% in Canada to equal the current US default
So are we in a housing meltdown with widespread
panic of homeowners on the brink of losing there
homes in Canada? Well, Canada has fewer
mortgages in arrears than the previous two
recessions and even at those peaks, over 99% of
homeowners were still making their payments on
time every month. That’s normal during a
recession. I suspect we’ll see the same pattern
this time around as well.
The fact still remains that yes foreclosures are
on the rise and yes they are likely to continue
as they always do during economic downturns.
Foreclosures are a trailing indicator of what
has happened in the past. During an economic
downturn, it typically takes 6 to 18 months once
someone has lost their income and uses their
savings and credit before defaulting on their
If history repeats itself as it usually does and
we continue to see a slow housing market for the
next while, then we may see mortgage default
rates increase from the current .45% to between
.6% or even .7% as seen during the early 90’s
and again in 1997 before retreating back. Again,
still less than 1% of total Canadian mortgages.
So before you believe all the media headlines,
look closely at the data, check back to
historical patterns to see what may be
considered normal. Then put it into perspective.
We are a long ways away from mortgage default
rates as seen south of the border in the USA.
And, even though we’ll likely see more defaults
resulting in more foreclosed homes on the market
in the near future, the remaining 99% will
weather the storm just fine and they’ll get
through this down turn just like the ones