Metro Vancouver mortgage holders prove resilient

Delinquency rates lowest in Canada despite highest prices and plunging sales

Photo: Chung Chow

Despite having the highest home prices in Canada, rising lending costs and plunging home sales, Metro Vancouver mortgage holders have the lowest mortgage delinquency rate in the country, according to a February 26 report from Canada Mortgage and Housing Corp. (CMHC).

Only 0.1% of outstanding mortgages in Vancouver were delinquent in the 2018’s third quarter, down from 0.11% in the same period a year earlier.

A mortgage is deemed delinquent if three consecutive monthly mortgages are missed.

Vancouver’s delinquency rate has been declining steadily since 2014 and is now below the average provincial average of 0.16%. It is also less than half the national average of 0.28%.

Since 2014, the benchmark home price in Metro Vancouver has increased 65%, but it has fallen 4.5% in the past year. In January, the composite benchmark price for a home in Metro Vancouver remained at $1.01 million, the highest in the country.

CMHC reports that 63% of Metro Vancouver homeowners had mortgages of $600,000 or more. This compares with a national average of $208,000.

The CMHC survey, however, also found that Vancouver homeowners with the lowest mortgage debt had consistently higher delinquency rate, approaching 0.2% for those with mortgages of $200,000 or less.

“This suggests that smaller-sized mortgages are generally held by borrowers with lower incomes and/or less stable employment than borrowers holding larger mortgages,” the CMHC report states.

Mortgage brokers argue that the survey confirms that the federal government “overshot” with recent mortgage restrictions, such as the mortgage stress test that requires all new mortgage applicants to qualify at rates 2% higher than what is readily available.

“It is clear that the stress test is overly aggressive and arguably punitive to the very people the government is trying to help – such as first time homebuyers,” said Peter Kinch, Port Moody-based president of the Vine Group and a mortgage broker with Mortgage Alliance.

Since the mortgage stress test was widened in January 2018 to include all homebuyers, housing sales in Metro Vancouver plunged 39.3% to 1,103 in January 2019, the lowest level for that month in 10 years.

Metro Vancouver homeowners are proving a resilient lot in the face of these headwinds. According to Equifax, the average credit score for Metro Vancouver mortgage holders is 776, which is considered   “excellent” in Equifax ratings.

“The stress test came from a place of paranoia to begin with and it’s now clear that the government overshot the mark,” Kinch said. “We anticipate that the government will re-evaluate this in the upcoming [federal] March budget. Our expectation is that the stress-test will be reduced to 1%.”

Sherry Cooper, chief economist with Dominion Lending Centres, concurred, noting that the stress test was primarily sold as reducing risk to lenders and concern about a “housing bubble” in Metro Vancouver and Greater Toronto.

Clearly, there is nothing safer than the Canadian banks’ mortgage book. Canadian mortgage holders are typically very good credits and always have been,” Cooper said.

The current stress tests are too stringent,” she stated in an email to BIV, noting that interest rates have increased three times in the past year, slowing housing markets across the country.

“There is now a buyers’ market in [Vancouver] and a balanced market in [Greater Toronto]. The tightened stress test qualification rate is no longer necessary,” Cooper stated.