A growing number of homeowners in Alberta are struggling to meet their mortgage payments as Calgary suffers a six-year real estate decline that is only recently showing signs of improvement.
Homeowners in the province are nearly twice as likely to fall behind than those in the rest of Canada. And the proportion struggling to make mortgage payments is the highest it has been since at least 1990, according to fresh data from the Canadian Bankers Association.
The rising rate of delinquency comes as economists warn that Canadians are under increasing pressure when it comes to servicing their debts.
As interest rates move higher in the coming months, many could find it even harder to make their monthly payments.
The main problem for the province has been Calgary's housing market, which has struggled since a boom at the start of the decade caused massive price gains in a short period. In 2005, prices were up 10 per cent. The following year, home prices surged another 50 per cent.
The gains came to a halt five years ago, when the market began to weaken. Then, when the recession hit in 2008, panicked homeowners rushed to sell in near-record numbers, flooding the market with inventory and putting renewed pressure on prices.
While other cities were able to recover quickly as the recession eased, the high number of listings has kept prices depressed. Even though Alberta's economy is back on track, Calgary's unemployment rate of 6.3 per cent is higher than the rest of the province at 5.7 per cent, and the gains have yet to trickle into the kind of confidence needed to rekindle the housing boom.
"The city really has been in an extended period of correction," said Phil Soper, president of Royal LePage. "We had expected that 2011 could see a positive correction, but that hasn't happened. I believe it's just delayed - there isn't any fundamental reason house prices shouldn't be improving."
The Canadian Bankers Association said 0.83 per cent of mortgage holders in the province had not made a payment for three months or more, a marked increase from the beginning of 2007 when 0.17 per cent of mortgages were in arrears.
The situation is worse in Alberta than the rest of the country, where, historically, default rates average 0.45 per cent. In the United States, by way of comparison, close to 8 per cent of all mortgage holders are late on their payments.
The gain comes as the threat of higher mortgage rates looms.
The Canadian Association of Accredited Mortgage Professionals found that 84 per cent of homeowners could afford at least another $300 increase in their monthly payments before falling behind. There is more than $1-trillion of mortgages outstanding in Canada, meaning even a small default rate has implications for the broader economy.
Canadian Imperial Bank of Commerce economist Benjamin Tal said the province's employment picture - and housing stock - is strongly correlated to the oil and gas industry. During the boom at the beginning of the decade, many homeowners jumped into pricey housing with low down payment loans.
"The decline in real estate values in Alberta was the most dramatic one, with a very high correlation between housing activity and energy prices," he said. "But the dramatic decline in prices led to a relatively sizable negative equity position, which explains the arrears situation. Given that the job market was also highly correlated to oil activity, you have a sure recipe for increased default rates."
There are signs this is getting better - the number of listings in April, the last month for which statistics are available, were 25 per cent lower than a year ago. Average single-family home prices also firmed in April, gaining 4 per cent from a year ago to $479,575 , although the Calgary Real Estate Board said the gains were largely the result of the sale of two multimillion-dollar properties.
"While our spring market has been a little slow to get started, we are seeing our inventory levels return to healthy levels," said Sano Stante, the president of the Calgary board.
On Tuesday, Genworth MI Canada Inc., the country's second-largest mortgage insurer after Canada Mortgage and Housing Corp., said it was dealing with higher delinquencies in Alberta. The delinquency rate in its Alberta mortgage insurance portfolio was 0.59 per cent at March 31, compared to 0.18 per cent in Ontario, 0.31 per cent in B.C. and 0.27 per cent nationally.
"It is likely that the recent improvement in oil prices and thus economic activity suggests that we are at or close to the peak in the arrears rate in the province," Mr. Tal said, adding that "this relatively volatile cycle is a clear illustration of the fact that the real estate market in the province dances to the tune of oil prices."