Month: October 2018

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25 Oct

Seniors the first to crack as rising rates crank up debt stress

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Posted by: Frederic Pichette

The storyline that debt levels in Canada are big but manageable is starting to unravel.

Oddly, it’s seniors who are showing the first signs of serious debt stress. In the second-quarter edition of its National Consumer Credit Trends Report, the credit-monitoring company Equifax reported yet another year-over-year decline in the percentage of people falling behind on their debts. The one group to buck the trend was seniors.

The overall delinquency rate for non-mortgage debt fell 3.1 per cent in the second quarter compared with the same period of 2017. Among people aged 65 and older, the delinquency rate jumped 4 per cent.

“We actually think that’s the start of some of the impact of higher interest rates,” said Bill Johnston, vice-president of data and analytics at Equifax Canada.

Seniors, with all their life experience and their fixed retirement incomes, are the last group you’d expect to see leading a trend in debt vulnerability. A reason why this is happening is that they borrow differently than people in other age brackets.

Mr. Johnston said 55 per cent of non-mortgage debt for seniors is in lines of credit, compared with 43 per cent of the rest of the population. Credit lines are at the sharp end of interest-rate increases. When the Bank of Canada raises its benchmark overnight rate and major banks respond with identical increases in their prime lending rates, credit lines are immediately adjusted higher. Variable-rate mortgages, too.

The rise in delinquencies for seniors is notable because this is a demographic that looks comparatively good on debt management. The actual delinquency rate in the second quarter was 1.1 per cent overall and 0.9 per cent for seniors. The average debt was $23,271 for all and $16,086 for seniors, the lowest of any population group outside 18- to 25-year-olds (their average debt was $8,454).

Another oddity is that while delinquencies by seniors have risen, the demographic groups you’d expect to be under the most pressure are doing well. The biggest year-over-year drop in the delinquency rate for any group tracked by Equifax was for 36- to 45-year-olds, at minus 4.9 per cent.

The second biggest drop in delinquencies was among 26- to 35-year olds, at minus 4.6 per cent. For now, people getting into the housing market and then starting families are staying on top of their debts.

Could it be that younger people have been more sensible than seniors about taking on debts that they can handle? Remember, retiring with debt is still a newish phenomenon. It’s possible that people are complacently carrying debt into retirement and then finding it’s not as manageable as it was in their younger years. Question for further study: Are seniors going into debt to pay for their own consumption, or to help their adult children buy houses and cover expenses?

 There’s just the faintest hint of debt stress in the broader population. While the delinquency rate dropped on a year-over-year basis in the second quarter, it rose to 1.1 per cent from 1.08 per cent from the first quarter to the second.

Mr. Johnston found another sign of debt stress in the falling proportion of people paying their card bills in full. Fifty-seven per cent paid in full in June, compared with 58.6 per cent in the same month of 2017.

The average non-mortgage debt rose 3 per cent in the second quarter on a year-over-year basis. Overall growth in credit seems to be slowing, but there’s still strong demand for loans for big-ticket items such as cars and home renovations.

How this plays out in delinquencies will depend on two things, the first being interest rates. It’s quite likely borrowing costs will rise after the Bank of Canada rate-setting announcement on Oct. 24, and more increases are possible.

The pace of debt growth also has an effect on the delinquency rate. A modestly rising number of delinquencies can be masked if people are rushing to sign up for new credit lines, credit cards and loans.

Mr. Johnston said Equifax sees delinquency numbers edging higher, rather than surging. “I don’t think we fall off a cliff without a recession.”

9 Oct

Montreal real estate sales hit 9-year high for September, extending hot streak

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Posted by: Frederic Pichette

The Montreal real estate market is on a roll.

Residential sales rose eight per cent in September compared to the same month last year, with condominiums making up the bulk of the increase, according to the Greater Montreal Real Estate Board.

The 3,220 home sales represent a nine-year high for the month of September.

The median price of single-family homes hit $336,000, up seven per cent year-over-year. Duplexes and similar multi-unit dwellings jumped six per cent to $504,000, while condos climbed four per cent to $263,000.

Sales have been increasing for 43 months straight, said real estate board president Nathalie Begin.

Mortgage stress tests and higher interest rates imposed over the past year haven’t dampened Montreal’s real estate market, even as sales have slowed in Vancouver and Toronto.

In Vancouver, year-over-year sales dropped from February through August. A 20 per cent foreign buyers’ tax, a heightened education tax on $3-million-plus properties and a proposed speculation tax have all put the brakes on home-buying, said Brad Henderson, chief executive of Sotheby’s International Realty Canada.

“It’s provincial intervention,” he said.

“There is also the fear for many buyers that the prices are maybe too high,” said Paul Cardinal, manager of market analysis at the Greater Montreal Real Estate Board. “This is a preoccupation that we don’t have in Montreal.”

There, strong migration, consumer confidence, economic growth and public infrastructure projects as well as low unemployment are fuelling the surge, he said.

“It’s a seller’s market.”

Rising interest rates could dull the spike, “but then again, it maybe has a counterintuitive effect,” Cardinal said.

“There are some other people who decided that it was the time — now or never — to buy a property, because now the interest rates are going up and prices are still going up, so if you wait six months or one year from now maybe you’ll pay more.”

Year-over-year condo sales leaped 23 per cent to 1,206 transactions in September.

“Before, people were getting condos because that was the only thing they felt they could afford. Now there’s a wider range of condo forms and values, so people are finding it more attractive,” Henderson said.

A broader range of buyers is fanning demand, including first-time homebuyers, young families, investors and people that are buying homes more appropriate for their needs.

Single-family home sales in September sat virtually unchanged at 1,660. Year-over-year sales of plexes nudged up one per cent to 349.


3 Oct

CMHC passes stress test for severe scenarios such as cyber attack and earthquake

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Posted by: Frederic Pichette

Linda Nguyen, The Canadian Press
Published Tuesday, October 2, 2018 11:09AM EDT 

TORONTO — Canada Mortgage and Housing Corp. says its mortgage loan insurance and securitization businesses are stable enough to withstand several extreme scenarios.

In its annual stress test, the housing agency says its capital holdings are sufficient to weather against severe financial stress, a sustained low oil price and a global trade war.

It says it would also be able to fare well against a cyber attack on a Canadian financial institution, an earthquake and a major volcanic eruption.


“As a responsible risk manager, we seek out extreme almost unimaginable situations and ask ourselves ‘What if?”‘ said Steve Mennill, the agency’s chief risk officer. “That’s the goal of our stress testing, to measure how we would stand up to these unlikely shocks.”

He told a conference call Tuesday that CMHC is in a “better position” now than it was last year to fare against these scenarios.

Mennill added that one of these situations also accounted for an interest rate hike, a move anticipated to happen later this month when the Bank of Canada meets.

The Bank of Canada’s trend-setting interest rate currently sits at 1.5 per cent after four increases since the middle of last year.

“We are quite confident we can withstand even fairly extreme increases in interest rates,” he said, noting that the agency factored in a scenario where the posted mortgage rate was 7 per cent for a sustained time period.

“That’s a considerable increase over where rates are now.”

CMHC first began releasing its stress test results publicly in 2015.

The agency provides mortgage loan insurance for home buyers as well as securitization guarantee programs to help financial institutions.