The survey represents 1/6th of the mortgages funded in 2009 ($10B out of the $60B) and we aren’t given the breakdown for individual provinces.

We don’t know the percentage of those 15% who are “pushing the envelope” that are on fixed-rates (and for how many years) or on a variable rate. This would stagger the timing of any forced listings.

Let’s assume Calgary adheres to the 10% risky mortgage average as pointed out by the CAAMP.

In 2009, ~ 14,000 SFH changed hands and ~10,000 condos changed hands. That’s roughly 24,000. In 2008 those numbers were ~13,000 and ~6,000 for a total of roughly 19,000.

Generally speaking that is 43,000 sales. If 10% are high risk, that is 4,300 homes at risk and only includes the last 2 years. Over 5 years it is likely closer to 10,000 (keeping the math really simple…4300*5/2).

If rates increase and these individuals cannot adjust accordingly, there is a chance that many of these homes would be forced to sell. If it occured for 50% in the same year, then 5,000 properties could hit the market. I think that would be about a 25% of the yearly listing average (looks like it was around 25,000 in 2009) and would cause a very swift shift from a demand based market to a supply based one.

Basic economics dictacts what happens in that situation…

Anyone have thoughts on this….am I out to lunch or what?

A separate cause of mortgage default, which is considerably less significant in Canada, is “over-extension” – debt levels were reasonable at the time of getting the mortgage (as evidenced by GDS/TDS ratios), but credit was added after the fact, such as lines of credit, credit cards, and buy-now-pay-later retail offerings.

There is no reason to believe that over extension is becoming more prevalent, especially based on the caution shown by the vast majority of mortgage borrowers.

However, if you go back to CAAMP’s November report you’ll find the following statistics:

-18% of mortgage holders took out equity from their homes or increased the amount of the mortgage principal within the past year

-The average amount taken out was about $41,000

-52% indicated that the money would be used for debt consolidation or repayment.

However one thing ‘seemed’ cut-and-dry and that is that 10% (4,000 of 40,000) are at the economic limit and very risky considering interest rates can only move in one direction over the next 5 years. That seems like a pretty high number.

The report also indicates mortgage debt has been increasing more than 10% a year (60% over 5 years), far outpacing income growth. Not sure where you’re working Ed, but where I work (at one of Calgary’s largest O&G companies) we are looking at the second straight year of no raises and are expecting less than average bonuses this Feb as well. I would love to see my salary increase by 25-30% to help keep pace with these house prices but not really seeing that yet….I think people will have to stop losing their jobs first, and no strong signs of that occuring in Calgary or Alberta very soon.

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Mike Fotiou says: In the CAAMP report, future risk assessments were calculated assuming a 2.5% annual wage increase. Reason being:

Jim Murphy, the association’s president said the longer terms and borrowing less than the maximum goes contrary to the perception that Canadians are taking on too much debt to take advantage of low interest rates.

CAAMP undertook the study in response to concerns about a bubble forming in the market as Canadians take advantage of historically low interest rates to take on mortgage debt.

According to the survey about 4,000 households appeared to take on maximum debt along with short-term rates.

“Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase,” Will Dunning, chief economist said. “Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada.”

I need to examine the report carefully, but isn’t the 4,000 households out of the survey of 40,000, not out of the 13.25 million homeowners total? That would mean 10% of new loans in 2009 were risky.

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Edit: You can read the entire release here.

From the report:

It is true that some home buyers are pushing-the-envelope of their affordability. But, it should be recalled that the households in this dataset, representing primarily first-time home buyers, represent about 2.5% to 3% of Canadian households. If up to 15% of this group of households is pushing-the-envelope, they represent less than one-half of a percent of all Canadian households.

My reading comprehension skills are not up to par this morning. Does that mean 15% of new loans (“in this dataset” assuming the survey of 40,000) are risky, but are saying it pales in comparison to the total of all Canadian households?

Virtually every Canadian who is in a position to buy a home and qualify for a mortgage is well-educated and capable of assessing what is in their best interests, of looking forward, and of anticipating threats to their financial well-being.

I assume “virtually every Canadian” means everyone except the 15% of 2009 buyers that are “pushing the envelope.”

The Canadian mortgage lending industry is amply incentivized to avoid making bad loans and to optimize risk exposures.

According to Table 1, those with GDS/TDS ratios higher than the limit somehow were still approved for mortgages.

As this study has attempted to illustrate, very few Canadians are at risk of unaffordable increases in mortgage payments.

Ah. The report had an editorial slant from the beginning and did not just intend to report the facts

The supply and demand rules of money itself will make the price of everything to increase, no matter the minimium salary or materials. Don’t use CPI to measure inflations. When I came to Calgary in 2002, I spent $50 a week for a trunk load of grocery. Now how much do you spend for a week’s supply? Look at th CPIs during these years, there isn’t any meaningfull inflations at all.

The problem is that we do not have other clue other than housing to pull us out of the recession. Sad!

Now the house market is back, so what’s wrong? i.e., doesn’t a doctor expect to see a recovered patient at all?

Unless a huge increase in house price, which of course I don’t know how big will consist a ‘huge’ increase, I believe what we see today is exactly what BOC has been hoping for -> by injecting the money into the economy, to inflate the price of everything, so that the debt ( our main problem), on the other hand, is essentially reduced, and everybody is back on track of a happier life. It is a win-win-win thing.

Flaherty himself mentioned changing the CHMC criteria and I’m sure he doesn’t want the BOC to raise rates right now so really it is up to him. I think mentioning the potential of the CMHC changes without actually implementing them was a mistake.