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The Canadian Bankers Association has recently released the Mortgages in Arrears statistics through December.
Worth noting that the previous record high in November for the province of Alberta has been surpassed , and is now sitting at 0.75% (up from 0.72% in November, and 0.40% a year prior).
For the whole of Canada the rate was up just slightly, now sitting at 0.45% (up from 0.33% a year ago).
Most of the other provinces fluctuated within a mere 0.01%, except Saskatchewan, where it climbed 0.02%, but is still a national low, 0.29% (up from 0.23% a year prior).
The Atlantic provinces continue to have the second highest rate (a distant second behind Alberta), sitting at 0.51% (up from 0.42% a year prior).
British Columbia continues their slow but steady climb, and sit at 0.40% as of December, up from 0.23% a year ago.
However, when viewed in perspective, it appears that the absolute number of arrears in Canada is still very low when compared to other countries, with less than 5 out of 1,000 Canadian mortgagors being late on payments.
Also, it must be taken into account that although there are 5,699 more borrowers in arrears than a year ago, 91,986 more mortgages have been processed during that same period, out of four million active mortgages in total. These numbers show that on an absolute basis, arrears have not been excessively high in Canada.
The single factor that has always most influenced the rate of mortgage arrears is employment, more even than rising interest rates.
The chart below from Will Dunning Economic Research illustrates the relationship between Canadian employment rate and the percentage of mortgage arrears:
As it can easily be seen, when employment goes up, arrears go down, and when employment goes down, arrears go up, which makes perfect sense. It isn’t very surprising that when mortgage takers are employed they have no difficulties honoring their debts and when there are more people employed there is a larger pool of people who qualify for mortgages.
Defensive Investment
By Benjamin Tal
The news of late has been undeniably positive. But the road ahead still has a few more bumps than currently anticipated by the market. Governments all over the world will stop spending and some, in fact, will start tightening their fiscal policies. Central banks will start removing liquidity from the system and interest rates will start rising in the second half of the year. Deleveraging by consumers will continue to limit the ability of households to shoulder a strong recovery, and American banks will still have to deal with massive losses due to their existing exposure to Alt.A and Option Arms mortgages as well as the fragile commercial real estate market. Add to it the real risk that Dubai and Greece’s current troubles represent a potential wave of sovereign debt problems and you have a good reason to believe that the easy money in the stock market has been already made.
Making money in 2010 will be much more difficult. And the theme will be conservative investment. In fact, in many respects, the nature of demand will determine the relative valuation of the stock market. The vast majority of the cash sitting on the sideline in both Canada and the US is concentrated among people age 55 plus. These are also the people that now return to the labour market in order to compensate for the significant loss of wealth they have encountered in the past two years. Given the experience of the recent past and their age profile—these investors’ style will be defensive in nature.
In practical term this means that new money will flow into two main destinations. The most attractive target will be solid and established companies that pay relatively high dividends. This is a typical play for conservative investors that are unsatisfied with a GIC type investment. In Canada, dividend seekers have always looked to telecoms and utilities for healthy dividend yields, and those two sectors indeed top the pack in terms of TSX payout ratios. But there are other groups where dividends now pay out 4% or more of the share price, including real estate, media, banks, and health care. The second group of interest might be fixed income investment in general, and corporate bonds in particular, due to the pervasive focus on capital preservation and the realization that any near-term inflation risk is minimal.
How much credence should we give to credit rating agencies?
Roger S. Conrad, leading adviser on essential services stocks, bonds and preferred stocks answers the question on how much credence should we give credit rating agencies like Standard & Poor’s, Moody’s and Fitch after the recent financial crisis? After all, these are the very same credit raters that “misjudged the risk to the financial system before the crash. Their biggest mistake, obviously, was underestimating the risks from mortgage-backed securities, for which at one time they were handing out AAA ratings on like candy’.
He goes on providing more examples, “Worse, this is hardly the first time they’ve completely missed the boat on a major industry meltdown. Back in 2001, for example, S&P rated Enron investment-grade the day that company filed for Chapter 11 bankruptcy. WorldCom also held high ratings right up until it wiped out its stockholders”.
According to Conrad, “the worst time to look at credit rater research is when an industry has been strong for a long time.”
And the best?
Read the whole article at the link below:
www.kciinvesting.com
Financial Update 12/18/09
· TSX -163.98
· DOW -132.86
· Dollar -.87c to 93.43cUS
· Oil -$.01 to $72.65US per barrel.
· Gold -$28.90 to $1,106.80USD per ounce
· Canadian 5 yr bond yields -.06 bps to 2.54. The spread based on the MERIX 5 yr rate published rate of 3.99% is 1.45%
· http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Ideally lenders are looking for a spread between 1.35 and 1.55