Gen Z and millennials’ debt has grown $28 billion over two years: report

Credit & Debt DAZADA DIAMOND 29 May

Gen Z and millennials’ debt has grown $28 billion over two years: report

The delinquency rate for credit cards is expected to reach 3.8 per cent later this year, according to TransUnion Canada

Genworth MI Canada is prepared to weather the COVID-19 pandemic

Credit & Debt DAZADA DIAMOND 28 May

Genworth MI Canada is prepared to weather the COVID-19 pandemic

Genworth MI Canada is prepared to weather the COVID-19 pandemicA leading private-sector residential mortgage insurer said that its fundamental robustness will allow it to survive the COVID-19 pandemic.

In its report covering the first quarter, Genworth MI Canada Inc. said that its net income for that period amounted to $95 million. Net operating income was at $117 million, with an operating return on equity of 13%.

Genworth MI saw $3.2 billion in new insurance written from transactional insurance during the quarter, representing a 10% annual increase. Meanwhile, new insurance written from portfolio insurance on low loan-to-value mortgages stood at $1 billion.

“We were pleased with our first quarter results, including positive top line momentum, a 14% loss ratio and 13% operating return on equity,” said Genworth MI President and CEO Stuart Levings. “That said, the environment has changed significantly in the face of the COVID-19 pandemic and resulting economic shutdown, introducing a higher level of uncertainty.”

Levings said that Genworth MI has fully shifted to an all-remote operational model, which will allow it to continue serving its clients despite the mobility restrictions currently in place. This came in the wake of similar transitions in brokers’ organizations across Canada.

“We take comfort in the strength of our business model and capital position, along with our disciplined risk management and proven loss mitigation strategies as we manage through this period of economic stress,” Levings said.


Nanos: Consumer confidence in housing market still low

Credit & Debt DAZADA DIAMOND 27 May

Nanos: Consumer confidence in housing market still low

Nanos: Consumer confidence in housing market still lowWhile Canadian consumer confidence is steadily recovering, the same cannot be said about the public’s views towards the housing market, according to the latest Bloomberg Nanos Canadian Confidence Index.

Polling found that 48.54% of respondents are anticipating a decline in home prices within the next few months – a level approximately three times above the average for this metric, Nanos Research said.

“Even as sentiment has improved around the economic outlook and personal finances, expectations around real estate are weakening,” Nanos said.

The overall confidence index went up for the fourth consecutive week, reaching 39.3.

“While the index remains near its worst-ever readings recorded last month, the rise in confidence in recent weeks suggests negative sentiment may be finding a floor amid talk of reopening the economy,” Nanos said. “Regionally, the gains in sentiment have been mostly in Western Canada, aided by a recent rebound in oil prices and relatively fewer coronavirus cases.”

Overall confidence remained at near-record lows in Ontario and Quebec, however.

Sentiments toward personal finances over the past year have soured to 36.7%, from 42.3% last month.

There was less pessimism towards the economy, although the overall level was still quite high. Around 73% of respondents said that the economy will worsen within half a year, down from 80% last month.


Quebec and Alberta represent the bulk of mortgage deferrals

Credit & Debt DAZADA DIAMOND 26 May

Quebec and Alberta represent the bulk of mortgage deferrals

Quebec and Alberta represent the bulk of mortgage deferralsWith Canadian institutions’ mortgage deferrals in full swing, Quebec and Alberta accounted for more than half of postponed payments nationwide, according to Canada Mortgage and Housing Corporation.

CMHC said that deferrals comprised around 12% of Canadian mortgage holders. As of mid-May, 27% of all deferrals came from Quebec, and 26% were from Alberta.

Ontario represented 21% of those who put off their mortgage payments, while British Columbia accounted for just 7%.

In a statement to the Standing Committee on Finance last week, CMHC CEO Evan Siddall said that while the current deferrals set-up is a welcome reprieve for a consumer base already wrestling with significantly reduced incomes due to COVID-19, this does not come without its own risks.

If the Canadian economy does not restart on time, up to 20% of all mortgages could become delinquent accounts by September, Siddall said.

“A team is at work within CMHC to help manage a growing debt ‘deferral cliff’ that looms in the fall, when some unemployed people will need to start paying their mortgages again,” Siddall said. “As much as one fifth of all mortgages could be in arrears if our economy has not recovered sufficiently.”

This will represent yet another burden to the struggling Canadian financial system.

“Just as governments are taking on more debt to finance the COVID-19 response, mortgage deferrals are adding to already historic levels of household indebtedness,” Siddall said. “The resulting combination of higher mortgage debt, declining house prices, and increased unemployment is cause for concern for Canada’s longer-term financial stability.”


Risks to Economic Outlook “Overblown,” But Rates to Stay Low: Poloz

Banks & Bank of Canada DAZADA DIAMOND 25 May

Risks to Economic Outlook “Overblown,” But Rates to Stay Low: Poloz

Canada’s economy may prove surprisingly resilient in its recovery following the COVID-19 lockdown, according to Bank of Canada Governor Stephen Poloz.

In his final press conference before stepping down as BoC Governor next month, Poloz said, “I’m relatively optimistic…compared with what the talk is.”

His more positive assessment comes just one week after the head of the CMHC shocked many with a surprisingly bearish forecast for Canada’s economic prospects.

While Poloz said the central bank needs to be prepared for any range of outcomes, he remains confident that the Bank’s extraordinary fiscal stimulus measures—including cutting rates to near-zero and injecting more than $300 billion into financial markets—will allow large parts of the economy and many Canadians to pick up where they left off prior to the crisis.

Bank of Canada Governor Stephen Poloz
Bank of Canada Governor Stephen Poloz

“We have to be able to manage the risks around those things, so I’m not going to dismiss” pessimistic scenarios, Poloz said during an online media roundtable. “But, me personally, I do think on balance what I’m hearing, the flow that I’m hearing, is a little too dire, a little bit overblown.”

Poloz added that he doesn’t see this economic crisis as following the same path as previous recessions or depressions, largely due to the historic income supplements provided by the government, mortgage payment deferrals provided by the banks and other lenders, and the Bank of Canada’s foray into quantitative easing.

Additionally, he noted that the current economic crisis was caused by government-imposed shutdowns as opposed to behavioural factors. As a result, the economy is currently tracking the Bank’s best-case recovery scenario of a sharp drop in output of 15%.

Once the economy is fully “turned back on,” in the coming weeks, “you should see a very rapid return to production,” he added.

When asked about a potential second wave of the virus, Poloz said the economic impact could be similar to that estimated in the Bank’s worst-cast economic scenario, where Q2 GDP plunges by 30% compared to Q4 2019.

Interest Rates to Remain Low

Canada’s key lending rate is currently at 0.25% following the 150 basis points in interest rate cuts the Bank delivered in March. And Poloz suggested rates will remain historically low for the foreseeable future.

“We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really, but they’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz said. “So central banks will have less room to maneuver.”

There has been speculation as to whether they may yet fall further.

Overnight index swaps markets are currently pricing in a 17% chance of a quarter-point cut at the Bank’s June meeting, and a 25% chance of a cut before the end of the year.

Senior RBC economist Josh Nye agreed with the BoC’s assessment of a “reasonable bounce-back in economic activity once containment measures are lifted,” but cautioned that a full recovery could be years away, which would work to suppress interest rates longer term.

“Excess supply should keep inflation below the BoC’s target (and) monetary policy is currently focused on improving financial market functioning,” Nye wrote. “But as we enter the recovery phase, QE and low interest rates will be relied upon to stimulate growth.”


Why does CMHC’s Evan Siddall think Canada is headed for a ‘deferral cliff’?

Credit & Debt DAZADA DIAMOND 22 May

Why does CMHC’s Evan Siddall think Canada is headed for a ‘deferral cliff’?

Why does CMHCIn comments delivered to the Standing Committee on Finance on Tuesday, Canadian Mortgage and Housing Corporation CEO Evan Siddall laid out a potentially bleak scenario for the country’s homeowners. Siddall told parliamentarians that by September, if Canada’s economic recovery fails to generate enough momentum, 20 percent of mortgages could be in arrears.

“A team is at work within CMHC to help manage a growing debt ‘deferral cliff’ that looms in the fall, when some unemployed people will need to start paying their mortgages again,” Siddall said during the Committee’s videoconference. “As much as one fifth of all mortgages could be in arrears if our economy has not recovered sufficiently.”

It was one of many disturbing claims made by Siddall, who also told the Committee that the nominal house price in Canada could fall by as much as 18 percent over the next six to 12 months, with the biggest losses expected in oil-driven economies like Alberta and Saskatchewan and in overheated markets like Toronto. If prices fall by 10 percent, Siddall said first-time buyers could lose as much as $45,000 on a $300,000 home.

But the deferral issue didn’t seem to phase him.

“Canadians do a very good job of paying their mortgages, even when they’re under water, so our loss forecasts are not extreme,” he said in an exchange with Progressive Conservative MP Pierre Poilievre. When asked by Poilievre for CMHC’s potential loss forecast, Siddall estimated that it could be as high as $9 billion.

According to DLC’s Dr. Sherry Cooper, Siddall’s claim that 20 percent of mortgages could be delinquent by September borders on the ridiculous.

“It’s kind of bizarre to me,” she says. “Most economists are finding fault with it.”

An arrears rate of 20 percent would essentially mean that the Bank of Canada’s efforts to ensure the availability of credit and the federal government’s pumping of billions of dollars into the economy to prevent business closures and forced bankruptcies will actually accelerate the rate at which Canadian mortgages are turning sour.

“The Bank of Canada estimates that the delinquency rate could possibly move up from .25 percent to .8 percent. And now we’re talking about 20 percent delinquency rates?” Cooper says. “Give me a break.”

When asked if there was a possibility that Siddall was referring to deferrals when he used the word “arrears”, Cooper was doubtful.

“No, he’s a very smart guy,” she says, despite the unlikelihood of his prediction.

“It’s not going to happen. The highest delinquency – which is what ‘arrears’ is – rates we’ve ever seen in history are nowhere near [the projected 20 percent],” she says.

Centum FairTrust owner Jimmy Hansra agrees with Cooper’s assessment.

“The government has been pretty proactive in terms of providing as many programs as they possibly can to weather the storm,” he says, adding that there’s “no way” Siddall’s arrears projection is accurate.

“Even his comments about CMHC seeing housing prices falling by 18 percent I think are overblown, too,” says Hansra. “Nobody knows what’s happening with house prices.”

Hansra isn’t preparing for the kind of worst-case scenario Siddall laid out. Instead, he says his team is readying themselves for a potential, although still unlikely, stream of borrowers looking for refinancing or equity take-out solutions that will require private money.

“I don’t see it happening,” he says, “But if it does, I think that’s the only way mortgage professionals are going to be able to provide financing for their customers. Because if they’re not going to be able to make their mortgage payments and they have equity sitting in their home, either people are going to look to use home equity lines of credit to make those payments or they’ll look for some sort of second or third mortgage financing.”

Hansra stresses that projections like Siddall’s, particularly when they’re made at a time with no parallel in human history, need to be taken with a few million grains of salt.

“It’s all a guess,” he says.

If CMHC did envision a 20 percent arrears rate by fall, a fair question to ask, says RateSpy founder Robert McLister, is why they are not acting now to mitigate what would be an utter catastrophe for the Canadian economy.

“I think that if the government really thought there was going to be 20 percent arrears, they would take action,” McLister says. “You can’t have one in five homeowners not paying their mortgage, with a large percentage of those leading to liquidation. You know what that would do to home prices. You know what that would do to the economy. It’s not going to happen.”


Canada Mortgage and Housing Corp: House Prices To Decline 9 – 18%

Banks & Bank of Canada DAZADA DIAMOND 21 May

Canada Mortgage and Housing Corp: House Prices To Decline 9 – 18%

The Canadian Mortgage and Housing Corporation (CMHC) has recently issued an update regarding its ongoing efforts in the Canadian housing market as well as Canada’s overall financial system.

Prior to the onset of the economic crisis stemming from the coronavirus pandemic, the CMHC has decided to bring back the Insured Mortgage Purchase Program as a means of alleviating some of the financial pressure that banks have been faced with. Under this program, the CMHC will be able to purchase upwards of $150 billion worth of insured mortgages, as well as be able to increase the delivery of conventional securitization programs.

Furthermore, CMHC, along with private mortgage providers, has allowed mortgage holders to defer their payments up to six months – with approximately 12% of borrowers already entering forbearance. In addition, the CMHC is also responsible for distributing the federal government’s Canada Emergency Commercial Rent Assistance aimed at small businesses. Under this program, qualifying businesses are able to to forgo 75% of their rent.

However, given these circumstances, CMHC is predicting that household debt will soon significantly increase. Eventually, the mortgage holders currently in forbearance will have to start making mortgage payments again, which by then there will already be an excessive debt-deferral cliff mounting. As a result, household debt could reach 115% of GDP by the second quarter, and go as high as 130% of GDP by the third quarter of 2020. To bring those figures further into perspective, prior to the coronavirus pandemic, the level of gross debt to GDP was only at 99%.

The Bank of International Settlements sets the critical ratio of when national debt begins dragging down GDP growth at 80% – a ratio which will surely be surpassed given the direction of current levels. When such high debt ratios are present, then future consumption is diminished, and is instead allocated towards debt service payments.

But that’s not the worst of it. CMHC is also anticipating that house prices will also decrease substantially. Over the next 12 months, average housing prices could decrease anywhere between 9 to 18% – meaning that those individuals locked in mortgages prior to the pandemic will be subject to a decrease in their home’s value.

As a result of an impending increase in household debt, as well as a substantial decrease in housing values, which are all fueled by increased unemployment rates, the CMHC is concerned with the country’s financial stability in the long run. Therefore, the CMHC will be reducing its available borrowing, and will instead be taking action to increase the supply of rental housing through the National Housing Strategy. The CMHC’s efforts to make rental housing more available will be coupled with the federal government’s contributions towards affordable housing, which is expected to be in the billions of dollars.


Alberta housing markets may surprise investors post-recovery – report

Latest News & Economy DAZADA DIAMOND 20 May

Alberta housing markets may surprise investors post-recovery – report

Alberta housing markets may surprise investors post-recovery – reportShould COVID-19’s impact be moderated and the Albertan economy restarts in the next few quarters, the Calgary and Edmonton housing markets might see recovery sooner than expected.

“All major metropolitan economies are forecast to contract in 2020,” The Conference Board of Canada said in its latest economic forecast.

Calgary’s real GDP will likely shrink by 5.5%, while Edmonton will likely see a 5.6% decline, CTV News reported.

“However, assuming the virus’ spread is contained, and firms can return to normal operations over the summer months, a recovery should begin in the second half of the year, leading to sharp rebounds coast-to-coast in 2021,” the board said.

The organization is predicting GDP increases of 6% (Calgary) and 6.2% (Edmonton) by next year, which should bode well for the province’s long-burdened housing market.

According to figures from the Alberta Real Estate Association (AREA), the region’s average home price stood at $371,022 as of March, falling by 2.64% year over year. Sales activity weakened by 8.5% during the same time frame.

The number of new listings shrank by 14.54%, while the stock of homes available in the province declined by 5.76%.

“This is an unprecedented time with a significant amount of uncertainty. It is not a surprise to see these concerns also weigh on the housing market,” said Ann-Marie Lurie, AREA chief economist.


Mortgage misery awaits too many Canadian families

Banks & Bank of Canada DAZADA DIAMOND 19 May

Mortgage misery awaits too many Canadian families

Ian MadsenThe shutdowns ordered by Canadian governments to slow the spread of COVID-19 have caused unemployment to leap. And put mortgages in peril.

Many of the millions of workers laid off have been low-income and lower-middle-income earners. They’re just the sort of people who qualify for home mortgages insured by the federal Canada Mortgage and Housing Corp. (CMHC).

As potential home buyers, these Canadians had too little savings for a normal down payment, too low an income, or too short or erratic an income or credit history to qualify for uninsured bank borrowing.

In a valuation study by the Frontier Centre a couple of years ago, a sensitivity analysis was conducted to see what the effect would be of an increase in unemployment on mortgages insured by CMHC, which is a Crown corporation.

Retail clerks, hairstylists, waitresses, hotel housekeeping staff and flight attendants might not, on their own, have even the reduced down payment to purchase a small home. But they’re often part of a household whose members, combined, might qualify.

Now, having been laid off, they no longer qualify. Or, if they have already received a mortgage thanks to CMHC, they may not be able make their mortgage payments on a reduced income.

In addition, other unskilled, lower-paid workers, such as non-trades construction workers and factory workers, may soon be unemployed as lower demand and lower sales multiplier effects ripple through the economy.

FROM THE ARCHIVES: CMHC nudging more aggressively into housing market by Ian Madsen

Plus, all the energy-related workers – and those dependent on their spending – who have lost their jobs in Alberta, Saskatchewan and elsewhere in the country find themselves in the same predicament.

The valuation study concluded that, as a cash-generating business, CMHC’s intrinsic value ranges from $7.47 billion to $29.9 billion, with a median (mid-point of the array of calculated values) of $12 billion and a mean (simple average) of $13.6 billion.

However, a severe recession, such as is now devastating workers in this country, could bring about 13 per cent unemployment.

That would lead to mortgage default rates as high as 50 per cent in the Greater Vancouver and Greater Toronto regions, where home prices were over-inflated and unaffordable to most people. In other parts of the country, default rates could be in the range of 10 per cent.

In such a scenario, the CMHC value range drops to somewhere between $6.2 billion in the red to $16.2 billion to the good, with both the median and mean in negative territory.

That would mean insolvency on the horizon for CMHC.

Using market-comparison valuation methods, the results are similar. The no-recession values are a median of $27.7 billion and a mean of $27.5 billion. In a full recession scenario, the value drops to a minimum of $0.94 billion – barely above negative – and a median of $14.1 billion and a mean of $13.9 billion.

So a severe recession such as the one we’ve entered will be substantially harmful for CMHC.

If income replacement programs enacted by the federal government are insufficient to help homeowners with CMHC-insured mortgage payments, the Crown corporation could require a financial injection in the realm of several billions of dollars.

That would ultimately be paid for by Canadian taxpayers, if not immediately, then in the future. This will drag on the economy, perhaps for a decade or more, just as the austerity measures of the 1990s did well into this century.

It’s unclear what the delinquency rate will turn out to be for CMHC’s mortgage portfolio. It may end up being significant but not solvency-threatening.

Plenty of study, including a post-mortem after this downturn have receded, will be required for CMHC to determine how best to avoid such crises in the future. Will it need to change its standards and requirements in order to lower its risks in future recessions, whether caused by pandemics or anything else?

It’s already too late for this economic debacle. Taxpayers will be on the hook for its effects.

And overextended home buyers will lose their dwellings, adding an extra measure of misery to that brought on by their unemployment.


Mortgages take up largest slice of Canada’s household debt

Credit & Debt DAZADA DIAMOND 15 May

Mortgages take up largest slice of Canada’s household debt

Mortgages take up largest slice of CanadaCanadian household debt has reached $2.28 trillion in total as of March, with mortgage payments accounting for a significant slice of the growth, according to data from the Bank of Canada.

This represented a 0.44% uptick from the February level, and a 4.6% increase from March 2018. Government-mandated mobility restrictions to prevent the further spread of COVID-19 might have played a role in these growth segments during that month, observers said.

Outstanding mortgages comprised $1.64 trillion of this volume, rising by 0.49% monthly and 5.3% annually. Mortgage payment growth has reached its highest level since November 2017, Better Dwelling reported.

Meanwhile, consumer credit represented $638.56 million of the March total, up 0.31 monthly and 2.7% annually.

The coronavirus pandemic is shaping up to be a worse economic and housing shock than anything encountered before, and it is likely to aggravate the already-heated conditions surrounding Canada’s household finances.

A late March survey commissioned by Postmedia Inc. found that 47% of Canadians will not be able to afford the current work stoppages as they have neither back-up funds nor benefits. Another 23% said that they are afraid of losing their jobs.

“The income level of these people is simply not going to be there, so the question is how can governments respond to it,” said pollster John Wright. “People are now going to start evaluating what this all means to them personally.”