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A fresh wave of layoffs is pushing Albertans to the edge — and in danger of losing their homes

Financial Post logo Financial Post 2020-10-26 Geoffrey Morgan
a sign on the side of a building: Even before the coronavirus pandemic, Alberta’s housing market had been under pressure. © Provided by Financial Post Even before the coronavirus pandemic, Alberta’s housing market had been under pressure.
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Suspecting a crisis ahead, Peggy asked her bank to defer payments on her house out of an abundance of caution when the COVID-19 pandemic hit this spring. That caution, it seems, was warranted as her family’s economic outlook deteriorated as the months progressed.

Peggy had survived previous rounds of layoffs in recent years, but lost her job at one of Calgary’s largest integrated oil companies in July as the company cut costs following the pandemic. Peggy’s situation is not uncommon in the province these days as one in five Albertans have sought to defer their mortgage during the current crisis, but her finances have been particularly devastated as her husband had already lost his job in the oilpatch two years ago.

“We have three children. I have no concept of when we will ever find a job. Measuring compared to January, there’s probably a level of mental degradation,” she said, adding her family’s situation has become “extremely stressful.”

There’s invariably a minimum of 600 other prospective applicants when Peggy sees a job posting for an oil and gas company on the professional network website LinkedIn. A growing number of Albertan recruiters and placement agencies are calling these job postings “the lottery” as the chance of securing employment is miniscule.

The Financial Post agreed not to identify Peggy as she shared many personal financial details that could affect her ability to negotiate a salary with potential employers. But she is among thousands of Albertans grappling with an 11.7 per cent unemployment rate (compared to the national average of 9 per cent) due to an industry crisis that goes as far back as the 2014 oil price crash.

High unemployment has led to a higher rate of mortgage deferrals and mortgages in arrears in Alberta than elsewhere in the country. Economists say that as the mortgage deferral grace period is coming to an end, and support programs such as the Canada Emergency Response Benefit (CERB) wrap up, the next few months could potentially lead to more turmoil in the province’s housing market.

The persistent economic pressures in Alberta is causing anxiety to skyrocket, especially as unemployed workers fear they could lose their house.

When they worked in the oilpatch, Peggy and her husband’s benefits packages included access to counselling and therapy. Now, as their stress and anxiety mount, they’ve tried to access counselling from Alberta Health Services but have found a months-long wait list. “They are so backlogged,” she said.

To cut down on expenses, she has cancelled piano lessons for her kids as well as participation in organized sports. The family has cashed out their registered retirement savings plans. Peggy said that in the medium-term, her family has enough in savings to keep their home but she may need to sell it depending on how long she and her husband are out of work.

“A family of five – originally with two working professionals — cannot survive on one EI payment. There are a certain amount of bills you have to pay every month,” she said, noting that her husband’s EI payments have long expired.

a large body of water with a city in the background:  CMHC’s most recent forecast expects home prices in Calgary to decline between 2.5 per cent and 12 per cent in 2020. © Brendan Miller/Postmedia CMHC’s most recent forecast expects home prices in Calgary to decline between 2.5 per cent and 12 per cent in 2020.

Alberta has the highest mortgage deferral rate in the country at 18.9 per cent, according to Canada Mortgage and Housing Corp, a Crown mortgage insurer. That rate is five percentage points higher than the next highest province, which is neighbouring Saskatchewan at 13.9 per cent, and more than double Ontario’s 8.9 per cent deferral rate and Quebec’s eight per cent deferral rate.

It’s still too early to tell how many deferred mortgages will take the next regressive step of moving into arrears as grace periods come to an end in the coming months, CMHC deputy chief economist Aled ab Iorwerth said in an interview on the situation in Alberta.

Many mortgages have a 90-day period at the end of a deferral before a mortgage goes into arrears, then into foreclosure.

“I can’t put a number on it, but I would expect to see delinquency rates go up,” ab Iorwerth said.

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Troublingly, the data shows mortgages in arrears are trending up in Alberta through the end of June — even before the deferral period ends. The CMHC’s second quarter financial update shows 0.74 per cent of mortgages in Alberta were in arrears at the end of the second quarter, which is up 16 per cent from 0.64 per cent of mortgages during the same period a year ago. Only Saskatchewan had a higher number (1.18 per cent) among provinces.

Even before the coronavirus pandemic, Alberta’s housing market had been under pressure, largely as a result of the prolonged decline in investment in the Canadian oil and gas industry. CMHC forecasts show the average price of a home in Calgary and Edmonton has been through a gradual decline since at least 2018. The mortgage insurer’s most recent forecast expects home prices in Calgary to decline between 2.5 per cent and 12 per cent in 2020.

In both of Alberta’s major cities, home prices are expected to decline through the end of 2022, at which point the CMHC expects prices to stabilize.

Data from the Canadian Real Estate Association shows the price of a house in Calgary and Edmonton was flat this year, while the average price of a home across Canada rose 17.5 per cent. Outside of Alberta’s major cities, housing prices in the province appreciated by 4.5 per cent, according to CREA.

Even as houses are cheaper in Alberta’s largest cities than most other major cities, people in the province are still carrying higher debt loads than elsewhere.

“When we talk more specifically about Alberta, one of the biggest problems we have is that already through the pandemic, the average household debt was the highest in Canada,” said Charles St-Arnaud, chief economist at Alberta Central, a financial services company for credit unions.

Albertans had the highest-debt-to-income ratios in the country heading into the pandemic, as people in the province owed 207.6 per cent more than their income. Nationally, Canadian households owe 181.6 per cent more than they own, according to data from Alberta Central.


But there are also some positive signs in the market. Albertans have had the highest savings rates of any province in recent years, possibly in reaction to a stressful period in 2014/2015 when oil prices crashed, St-Arnaud said.

At the same time, personal insolvencies have fallen during the pandemic — including in Alberta — and disposable incomes have risen, but largely as a result of government supports such as CERB payments.

“One of the most important charts of the current environment is how powerful all the government programs have been. It’s the first time in Canada’s history where you have a recession and job losses, and employment income declining sharply, where you actually have disposable income rising sharply,” St-Arnaud said.

However, those government supports can lead to “misleading” assumptions about the underlying health of the economy. As the unemployment rate remains elevated, St-Arnaud said he’s expecting personal bankruptcies to “converge back to where they were pre-pandemic.”

Insolvencies in Alberta have fallen 38 per cent so far in 2020 compared with 2019, according to data from Innovation, Science and Economic Development Canada.

However, those numbers began to increase over the summer, when business and consumer insolvencies in the province rose nine per cent month-over-month. The increase was led primarily by consumer insolvencies.

The province faces a concerning trend and much larger challenge than the rest of the country in regaining the jobs lost during the pandemic, Business Council of Alberta chief economist Mike Holden said.

“In Canada, 71 per cent of jobs have come back. In Alberta, it’s 65 per cent. To the extent that Alberta’s unemployment record continues to lag behind everybody else, that would create added risk for those deferrals to turn into something worse,” Holden said.

In Calgary, where the local unemployment rate is expected to remain over 10 per cent for the next year, there has yet to be a dramatic uptick in houses listed for sale, though the local real-estate board is concerned about the deferral rate.

“It definitely raises concerns but we know that not everyone who has deferred will default,” said Ann-Marie Lurie, chief economist at the Calgary Real Estate Board.

If Albertans begin to sell their houses in a financial panic, we could start to see defaults happening as early as this year, but more likely in the first half of 2021, she said.

Still, Lurie’s concerned about both the number of mortgage deferrals in the province and the unemployment rate.

a sunset in the background:  As the downturn in Alberta’s energy sector has dragged on, professionals have become more open to permanently leaving the oil and gas business. © Postmedia As the downturn in Alberta’s energy sector has dragged on, professionals have become more open to permanently leaving the oil and gas business.

The number of Calgarians calling human resource placement agencies has skyrocketed as the year has worn on, erasing the optimism that had returned to the energy sector in 2019 when companies had begun contemplating growth projects once again.

“There started to be a little bit of hope entering the energy sector and there was a little bit of optimism. Then, boom, we’re hit by this pandemic and it’s like being hit by a bus,” said Jackie Rafter, chief executive of Higher Landing Inc., a Calgary-based HR company that trains out-of-work energy professionals for their next job.

Peggy, the out-of-work Calgary mom-of-three, is currently one of Rafter’s clients and hopeful the experience will help her find a job by the spring. She’s looking beyond the oil and gas industry at positions where her skills can be quickly put to work, but is still bracing for a tough winter.

In Rafter’s experience, professionals from the oil and gas industry that aren’t willing to make a career transition and switching to another industry are often stuck being unemployed for a longer period.

“Those that were not open to change, some of them are still out of work,” Rafter said. “These are the people that have lost their homes, their families, their health.”

As the downturn in Alberta’s energy sector has dragged on, professionals have become more open to permanently leaving the oil and gas business, accepting lower paying jobs in other industries, further weakening the province’s housing market.

Now, she said, a growing number of her clients are also looking to permanently leave Alberta as they look for work, potentially causing a “brain drain” in Alberta. Net migration into the province dropped a staggering 116.8 per cent by the second quarter, compared to the same period last year.

“We’re seeing this domino effect that’s going to impact the job market. You’re going to see more people leaving Calgary. I think it’s going to apply to younger people and younger professionals, too.”

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