History has a tendency to repeat itself, one of these cyclical factors is mortgages in arrears. Mortgage in arrears is defined as, a property that is 3 months or more behind on the mortgage payments. Current levels of delinquent mortgages are less than 1000 properties across BC. Which is the third lowest cycle of data going back 4 decades. The good news ends there.
While rising mortgages in arrears does not make the market go lower in and of itself. Rising numbers or delinquent mortgages is a symptom of the BC real estate market deteriorating.
Historically, after a market cycle initial low has been established, inevitably the next phase of the cycle will be to break the established downtrend, consolidate the base and then the creation of an uptrend which will ultimately test the previous highs and attempt to move beyond old data creating a new high on the chart.
The current data has broken the downtrend which had become dominant after the mortgages in arrears peaked in February 2011 with just under 3,000. Once the peak occurred the aforementioned staunch downtrend drove down delinquent mortgages from over 2,900 in 2013, to below 1000. The downtrend was subsequently broken in the 3rd quarter of 2018. Q3 of 2018 also was the initial low in the establishment of the base. After breaking the 5 year downtrend the base began to form around 900 with multiple tests attempting to go below but to no avail. Give the current data as of March 2020 indicates over 980 properties in arrears. Eitel Insights, is stating, the base has been put in place.
Again, most technicians will tell you after the base comes the rise. The process of discovering the low end of the cycle has occurred, and the market is likely nearing the end of the consolidation phase. The data shows an upper echelon double test occurring attempting to break above the 900- 980 current range.
Not so coincidentally the current cycle low (900 – 980) is higher than the previous cycle, which occurred between 2006 -2008. The range at that time was between 715- 805 delinquent mortgages. The 2006 -2008 cycle was higher again than the previous cycle low during 1990 – 1995. When the range was 200 – 500. Which will lead to the future cycle low likely to finalize higher than our current low range likely around 1100 – 1250 mortgages in arrears around 2029.
2029 is a long time away, so let’s stay with what the BC short term forecast is for now. Now that the base of the cycle low has been put in and the upper echelon of the cycle low is being tested, a breakthrough above 1,000 delinquent mortgages is upcoming. While little in life is certain, based on the chart I would be willing to say that the forthcoming data will look very similar to the last two uptrends. The upcoming climb will make many homeowners themselves, feel like Sisyphus.
The rise to over 3000 delinquent mortgages will likely occur by 2023. Many of these upcoming delinquent mortgage will inevitably be from purchases made during 2016 and 2017 while prices were peaking. As property values continue to fall for the largest market in BC. Greater Vancouver prices have fallen from peaking at 1.830 Million during 2017 to just over 1.6 Million in July 2020. That loss of $230,000 tied in with the economic troubles, add it all up and the result will likely show in an all-time highs for delinquent mortgages transpiring in the not too distant future.
While 3000 properties in arrears may not sound like that high of a number, and it isn’t. The significance is, a major portion of these properties will be forced to come onto the market. With business shutting down and active participation in the work force way down, the possibility of the homeowner working their way out of the financial problem is unlikely. The additional weight of distressed properties hitting the market will force current sellers to become more aggressive as the buyers’ mentality shifts from bargain hunting at current prices and a fear of overpaying for a depreciating asset becomes more prominent.
Given the fact that history repeats, now that you are aware of a strong likihood of distressed property numbers rising, a need to sell that is growing stronger by the month with the bills piling up and the CERB running out. Eitel Insights advises potential real estate investors to bide your time. Yes, location matters…. but timing is everything.
Eitel Insights offers real estate market forecasts in every major area across BC, and all major areas right across Canada. To become a client visit our website and gain access to our analytical interpretation offering actionable intelligence to our clients.
