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Arrears in Context

Arrears-MortgageThe Vanier Institute issued a report today on Canadians’ finances. This line made a lot of headlines:

The number of households which have fallen behind in their mortgage payments by three or more months climbed to 17,400 in the fall of 2010, up nearly 50% since the recession began.

50% is certainly attention-getting, but that number needs perspective.

In and of itself, an increase in arrears generally isn’t alarming. Arrears have wide fluctuations over time and are largely random on a month-to-month basis. Moreover, arrears always increase in recessions (as people lose their jobs). That is a completely natural phenomenon in our business cycle.

In the recession just past (Q4 2008 to Q2 2009), homeowners weathered the storm far better than in prior recessions. The 51% increase in arrears was considerably less than in the April 1990-April 1992 recession. In that downturn, arrears soared over 260%!

As it stands, the latest data shows that arrears have actually fallen in the last year.

More importantly, the numbers in question are tiny on an absolute basis (a 5,927 increase in people 90+ days behind on their mortgage…out of more than 4,000,000 mortgages).

The-Vanier-InstituteAs a side note, the October 2010 arrears data used by Vanier isn’t new. It’s been out for a while and reported elsewhere. Here’s the source data (PDF) from the CBA.

For the most part, arrears are just a normal reality of the mortgage market and our current 0.44% rate should generate no concern.

On the other hand, if arrears were to break 1.02% (the modern day high from 1983), or even 0.65% (the 90-92 recession high), then that would be worthy of headlines.

Sidebar: Vanier’s report has a few other mortgage-related data points. We won’t cover those as they’ve been reported widely in the media. Here’s more from CTV.

Rob McLister, CMT