Fewer homeowners default on mortgages here - Bruce Constantineau, Vancouver Sun
Published: Tuesday, August 19, 2008
Canadian households have piled up more debt than wealth in the past year but B.C. consumers are holding their own, posting the lowest mortgage arrears rate in Canada and the second-lowest rate of personal bankruptcies, a CIBC World Markets report said Monday.
The report noted that despite "ultra-expensive" B.C. real estate, the mortgage arrears rate in the province is just 0.16 per cent - compared with a national average of 0.27 per cent. A mortgage is in arrears when the borrower falls behind in payments.
"That suggests the B.C. economy is still solid," report author Benjamin Tal said in an interview. "The fact B.C. is losing some momentum doesn't mean the economy as a whole is weak."
Tal noted many Metro Vancouver properties are owned by foreign residents whose ability to repay mortgage loans is not affected by Canadian economic cycles.
The report said the number of B.C. personal bankruptcies fell four per cent in the year ended June 2008, compared with a national average increase of 3.8 per cent. Only Manitoba and Saskatchewan - where personal bankruptcies fell 10.7 per cent - had lower bankruptcy growth rates than B.C. Even Alberta posted a 4.2-per-cent increase in personal bankruptcies.
"I think Alberta is losing momentum faster than B.C. because it has been gaining momentum faster than B.C.," Tal said. "The higher you go up, the faster you go down."
But he expects B.C. bankruptcies will increase by a "small single-digit number" next year.
"There's no major cause for concern, though, because it will be just a cyclical story as opposed to a structural story," Tal said.
Personal loan growth in B.C. has increased by 11.6 per cent in the past year - compared with 7.4 per cent across Canada - but Tal feels the slowing housing market indicates consumer spending and consumer credit are due to weaken.
"The housing market has been a very important source of strength, but that market is starting to weaken, which will be enough to weaken the consumer a little bit," he said.
The report said Canadian households have taken on more debt than wealth in the past year due to a stock market correction and a slowing housing market.
The level of household borrowing remains impressive, but recent figures suggest the Canadian credit market is reflecting developments in the real economy, where growth has stalled and job losses have started to outweigh job gains.
The Canadian mortgage market is still expanding by 13.4 per cent, but the report said that will likely slow considerably due to the correction of overheated housing markets and the tightening of federal mortgage-lending restrictions.
There are also signs the growth in non-mortgage consumer credit is slowing and the report predicts consumer credit growth will also slow from its current 10-per-cent annual pace.
Tal said that's a good thing.
"If household credit were to continue to rise by 13 per cent a year, at some point I would become concerned because you would have too much credit and not enough wealth to support it," he said. "You don't want a gap between the growth in credit and the growth in the economy with credit growing and the economy slowing."
Canadian household debt rose by about three per cent during the first quarter this year, while personal disposable income rose by two per cent. That caused the debt-to-income ratio to rise to 130 per cent from 122 per cent last year.
Some analysts have downplayed concern about steady increases in the debt-to-income ratio of Canadian households because their debt-to-asset ratio had been declining. But that key ratio is now rising as well.
In the first quarter of this year, household debt rose by about three per cent while the value of household assets barely changed, the report said."With the recent correction in the stock market and a slowing housing market, Canadians are seeing their net wealth position shrinking," it said, noting debt is rising faster than assets and that has pushed the debt-to-asset ratio of Canadian households to a five-year high of 18 per cent.