Canadian Bankers Association statistics indicate the proportion of residential mortgages in B.C. three months or more in arrears was 0.47% in May 2011, down from a recent high of 0.49% in February. This is slightly above the national average of 0.41%. (A mortgage that’s three months or more in arrears is liable to proceedings by lenders.)
The proportion of mortgages in arrears in May 2008 was just 0.15%, but has risen steadily with just one month’s interruption in April 2010.
The good news is that today’s borrowers face neither the double-digit mortgage rates of the late 1980s and early 1990s nor the sharp correction in home prices that contributed to the woes of 1991-92. The economy has also held its own, unlike 1998-03 when arrears were north of 0.5% of all mortgages.
However, the danger today is that historically low rates and relatively stable economic conditions have lulled buyers into an idyll. With fear roiling stock markets this month and casting economic growth in doubt, homeowners should recognize the danger stagnant wages and job losses pose.
Bryan Yu, an economist with Central 1 Credit Union, says the recent increase in mortgages in arrears was linked to a rise in job losses during the 2009 recession. The incipient decline in the arrears rate reflects the province’s modest employment growth.
“We have seen lower employment growth and, historically, if you look at not only the mortgage in arrears but also the bankruptcy levels, both of them are highly correlated with the employment picture and the labour market picture,” Yu explained. But with the U.S. announcing last week that it would hold the line on interest rates well into 2013 and the Bank of Canada likewise expected to hold off hiking its prime rate until 2012, Yu expects homeowners to enjoy low interest rates for the foreseeable future.
“That would be a positive in terms of this mortgage arrears number,” he said. “That would probably bring us down even further.”
The rebound in housing markets of the past two years has given many developers the gumption to surge ahead with new construction, but MPC Intelligence Inc. believes there’s reason for caution.
While interest rates look to remain in buyers’ favour, the latest edition of the Condo Market Opportunities Report points to slowing in-migration figures to warn that household growth is slowing.
While sales of condominium apartment and townhomes is set to be 73% greater in 2011 than in 2009, net migration to B.C. was 50% lower in the first three months of this year versus the same period of 2010. And projections indicate it could end 2011 down 40% overall from last year.
MPC argues this could translate into a 10% to 15% drop in new condo sales in 2012, leaving developers with excess inventory.
“Overall, we see prices and sales sort of pulling back in 2012,” said Jeff Hancock, senior manager with MPC. “A big red flag for us was the migration numbers, which really took a bit of a dive.”
Developers have been disciplined with respect to pricing, even cutting prices at projects that launched this summer in response to slowing sales. But that might not be enough to keep demand in balance with supply if potential buyers haven’t moved here.
Add in economic uncertainties and Hancock says developers need to be cautious and understand the markets where they’re hoping to build lest they contribute to the gathering headwinds.
“It’s going to be an oversupply or some unforeseen economic catastrophe that could really push the market over the edge,” Hancock said. “It’s not necessarily pricing, because we’ve seen pricing come down and we’ve seen the market respond to it.”
According to the report, Fraser Valley builders should be particularly aware of over-supply possibilities.
A million-dollar upgrade to the Lake Okanagan Resort just north of Kelowna on the west side of Lake Okanagan is one sign of the investment B.C. hotel owners are making in their properties. Rooms at the resort, which sits on 300 acres, have been renovated and a 158-slip marina has been added to the property.
Calgary’s Northwynd Resort Properties Ltd. acquired Lake Okanagan Resort last summer during the restructuring of Fairmont Resort Properties Ltd. Its portfolio includes other former Fairmont properties in Nevada, Mexico and Belize.
Other buyers have also been active in the province this year, with Colliers International Hotels reporting eight properties trading in the first half of 2011. That compares with six in the same period last year and 12 hotel sales overall in 2010.