As a telling sign of the times, Canada’s mortgage debt is seeing its slowest growth in 23 years. According to the Canadian Mortgage and Housing Corporation (CMHC), the country’s total residential mortgage debt hit $2.16 trillion in February 2024, up 3.4% from February 2023.
Not surprisingly, CMHC pointed to high mortgage costs and uncertainty about the timelines for a decrease in interest rates from the Bank of Canada (BoC) resulting in a softening of home sales and prices across many parts of Canada in the second part of 2023 – something that’s outlined in CMHC’s latest Residential Mortgage Industry Report (RMIR), released yesterday.
According to CMHC, however, the slowdown in mortgage growth could be short-lived, thanks to higher home sales and prices in the coming years. As CMHC points out, this will be fuelled by the anticipated and long-awaited drop in mortgage rates, strong population growth (something facilitated by record-breaking immigration numbers), and increases in real disposable incomes. All of these factors combined will likely result in faster mortgage debt growth.
It’s a tough time on the bank account for countless Canadians. As the report highlights (not surprisingly), Canadian households are under an increasing amount of financial stress. While delinquency rates are still near historic lows, CMHC’s latest figures reveal an uptick in homeowners having difficulty making monthly mortgage payments. For the first time since the pandemic, Canada’s mortgage delinquency rates are trending up.
“Vulnerabilities first detected in credit card and auto loan markets are therefore moving into the mortgage market as well,” reads a CMHC-issued press release. According to CMHC, Canada’s mortgage delinquency rate hit 0.17% in Q4 2023, up from a low of 0.14% in Q3 of 2022. These stats suggest that any extra savings accumulated during the pandemic are running thin for some households.
“In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern,” says Tania Bourassa-Ochoa, CMHC Deputy Chief Economist. “As homeowners find it more difficult to manage their monthly budgets, policymakers and the financial sector are on high alert when considering risks to the financial industry and the economy.”
In another report released yesterday, Homeowners Turn to Savings as Financial Pressure Mounts, Bourassa-Ochoa says that low to mid-income Canadians are turning to their savings to make ends meet.
“Changing credit behaviours, negative savings rates, and rising delinquencies on credit card, auto loans, and line of credit payments are among the current indicators that Canadian mortgage holders may not be as financially sound after all,” writes Bourassa-Ochoa in the report.
Bourassa-Ochoa says that we can expect Canadian mortgages in arrears (mortgages where payments have been overdue for more than 90 days) to reach pre-pandemic levels (0.25%) by the end of the year. However, Bourassa-Ochoa says that more favourable employment in 2025 and tight housing market conditions should limit this increase.
As for interest rates, all eyes will be on the Bank of Canada on June 5th for their anticipated rate announcement. Economists are forecasting a (slight) drop in rates, something that will surely come as a relief to countless Canadians.
