I had a look at the Canadian Bankers Association data on mortgages since 1990 and thought I'd compare it to housing prices. I suppose this data shouldn't shock anyone but I thought I'd post it anyway for discussion. The data seems to indicate that arrears on mortgages, that is those mortgages that are at least 90 days late on payments, increase substantially when house prices have fallen. Conversely, mortgage arrears are low when house prices are rising.
This makes sense logically as home prices rise, refinancing options are plentiful to all mortgage holders who run into trouble making payments. When house prices are stagnant or falling the mortgage holder has very few options and may or may not have equity to draw on to cushion the loss of payment making ability.
As home prices fall, look for a significant upswing in the percentage of mortgages in arrears. Even a subdued decrease in home prices could unfortunately put the screws to a lot of mortgage holders - witness the mid-90s as an example.
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