Although today’s article will deal with primarily Alberta; the ramifications could spread out to the rest of Canada. Unfortunately one of my earliest memories in the mortgage business reminds me eerily of today’s market. At Robert Floris’s Mortgage Architects office we try to share what as a reader we would want to know. Although today will not be about higher home prices or low mortgage rates, we really believe it pertains to the average homeowner.
Most people do not remember MICC. This was the Mortgage Insurance Company of Canada. Today the comparison would be Genworth, they are a mortgage insurer like CMHC. During the last oil depression, MICC was forced to close similar to what is happening in Alberta.
What happened you may ask? Alberta is the only province in Canada which allows strategic defaults. What are strategic defaults? It allows Albertan homeowners who may have lost jobs or are carrying high debts to handing in their keys to the bank with no recourse. That is correct with no repercussions. In the 80’s 500,000 residents left their homes without hurting their credit. If oil prices continue to decline for a long time (and I believe they will), more homeowners will walk away with no recourse and will put further pressure on the prices which will lower the overall market.
Can it happen again? Yes, in fact Gran Prairie and Fort MacMurray has started to see homeowners give up. This is just a start. Beware if this phenomena hits Calgary or Edmonton, prices will only head in one direction, down. As an Albertan having a “strategic default” system is unique and in a society of save yourself, this can only end badly.