Credit Junky Nightmare – Credit Cycles Effect on Housing Market (Part 3 of 3) May 15, 2008Posted by DustinRJay in Calgary real estate, mortgages, Uncategorized.
Tags: Calgary real estate, mortgage arrears
The cyclical average for mortgage arrears in Alberta has been about 0.4%. As affordability in Alberta is the poorest since the previous real estate peak in 1990, one would expect mortgage arrears to increase to closer to the cyclical average (or more). The current low rate of mortgage arrears is reflective of the fact that as house prices rapidly increase, people have more options available such as selling or refinancing.
As time passes, and more people have purchased properties that they can marginally afford and/or poorer economic conditions develops, the amount of mortgages arrears will increase. Credit risk typically appears after house prices have stagnated or begun to fall.
The following graph shows that Alberta mortgage arrears have only recently begun to increase:
I would highly recommend to compare this graph with Mohican’s at Langley Financial Planning and Personal Sanity who originally posted a similar mortgage arrears analysis for British Columbia.
As for timing real estate transactions, it is good investment advice to be, “fearful when others are greedy, and be greedy when others are fearful.” Look to mortgage arrears for help in timing peaks and troughs, as high amounts of mortgage arrears can indicate a good time to buy, whereas low amounts of mortgage arrears can indicate a good time to sell.
More specifically, trend direction changes in mortgage arrears from cyclical highs or lows can indicate an inflection point in the real estate cycle.