Can title insurance help you weather a recession in Canada?
Jul 21st, 2023 | By FCT
You invested in your home to have security and stability. To make sure that investment sees you through, you budget and spend responsibly, but the unfortunate truth is, sometimes that isn’t enough. Sometimes the threat to your investment comes from the market itself, when a recession hits.
An economic downturn is more than a string of gloomy headlines—there’s a real human cost. Who’s at risk during a recession, and how can title insurance help homeowners?
Recessions and financial vulnerability
Generally speaking, recessions are periods where the economy shrinks. They’re often thought of as lasting six to nine months, but their effects can ripple out for much longer.
For instance, the recession in Canada caused by the 2008 U.S. crash technically ended in 2010, but its impact on household debt can be felt today. Canadians’ debt relative to GDP spiked by 20% from 2008—2010, and has never come back down to its pre-recession level.1
Canada’s key interest rate fell from over 4% to under 2% during that 2008 recession, and didn’t meaningfully rise back up until 2016. In early 2020, the COVID-19 pandemic caused another downturn, and interest rates fell back down to 0.25%. Then, inflation started to rise.2
Low interest and high inflation made it more rational for people to spend and borrow than to save, since inflation would wipe out those savings anyway. Debt was historically cheap, and the BoC indicated at the end of 2020 that interest rates would stay low for some time. Then, about a year later, interest rates started raising from 0.25% toward 5%. That same debt is now 20 times harder to pay.
The impacts of economic downturns are never evenly spread. The ones most at risk during a recession are the people vulnerable to financial shocks—that’s a growing number of Canadians, as the cost-of-living crisis continues to worsen.
Financial vulnerability by the numbers
- 45% of Canadians with mortgages are finding it tough to make their monthly payments.3
- Grocery prices have risen even faster than inflation since late 2021.4
- Canadian household debt is 107% of Canada’s GDP—the highest among G7 countries.5
- One in four Canadians would have trouble meeting a sudden expense of $500.6
- A homeowner who last renewed their mortgage in 2018 is facing over double the interest rate today.
A recession makes these problems worse by lowering people’s purchasing power and putting pressure on their emergency savings. Recessions also make fraud more common as jobs disappear, and people who wouldn’t otherwise steal feel pressure to make ends meet.
Making it through successfully takes financial resiliency, the ability to weather shocks. Title insurance is an important part of that for homeowners.
How title insurance helps make homeowners resilient
Title insurance can absorb large financial shocks
Homeowners with title insurance are protected from expenses that can come out of nowhere. Without protection, homeowners can quickly find themselves stuck with losses in the thousands that a title insurance policy could have helped them avoid.
Title insurance is the best protection against fraud
Fraud has been on the rise in Canada’s real estate industry for years now. Title fraud spiked during the pandemic, and will most likely increase in a recession. By stealing your identity, a fraudster can mortgage or even sell your home.
You won’t know it’s happening until after they’ve walked away with the money, leaving you without clear title to your property. Title insurance can cover the thousands in costs and fees to restore your title.
Title insurance protects your greatest investment
In a recession, the value of most assets falls, including the value of your home. But if you can keep your home through the downturn, its value should return as the market picks back up.
Title insurance helps you by protecting that investment. You only pay for your policy once, so you can make the small investment when you have the capital, and let it keep protecting you as money gets tighter.
You can get title insurance no matter how long you’ve owned your property, with an Existing Homeowner’s Policy. Speak with your real estate legal professional about title insurance from FCT, or sign up for a policy online and start recession-proofing your greatest investment today.
1 Source: tradingeconomics.com
2 Source: tradingeconomics.com
3 Source: angusreid.org
4 Source: Canada’s Food Price Report 2023
5 Source: cmhc-schl.gc.ca
6 Source: statcan.gc.ca
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
®Registered Trademark of First American Financial Corporation.