Canada’s national housing agency is bearish on real estate over the near term. The CMHC’s latest forecast shows Canadian Bankers Association (CBA) mortgage arrears climbing into 2027. The trend is driven almost entirely by a surge in Ontario. That suggests they might be underestimating the fallout, since home prices in other provinces are only just starting to correct.
Canadian Mortgage Arrears Have Climbed Aggressively
The arrears rate at Canada’s banks is on an aggressive climb. The share of mortgages in arrears hit 0.29% in July, up 6 basis points (bps) from last year. That’s the highest rate since 2015, more than doubling from the record low less than 5 years ago. It isn’t over either.
Canadian Mortgage Arrears Forecast To Keep Climbing
Canadian mortgage arrears rate (90 days past due) and CMHC forecast.
Source: CBA; CMHC; Better Dwelling.
The CMHC forecasts the arrears rate will continue to rise through mid-2027. They expect it to hit 0.33% by February and hold there through June 2027, the end of the forecast period. That would push arrears to the highest level since 2012.
Why The CMHC Might Be Underestimating Arrears
A closer look at the forecast reveals the agency might be underestimating the stress. The projection is primarily driven by a 58% surge in arrears in Ontario, one of 2 provinces ending the forecast at a cycle high. Slow real estate sales, a rocky job market, and a price correction are cited as the drivers. However, they’re missing a key detail—other provinces haven’t seen a correction yet.
Canadian home prices made a substantial correction after most markets slipped in 2022. However, Ontario and BC are the only provinces to see a major correction, and only the former’s drop is bigger than the national average. Despite prices across the country getting a massive lift from the low-rate boom, all but 2 remain just off record highs. Slow sales are lingering as a result of market inefficiencies that still need to correct.
These provinces don’t appear to be immune to gravity, though. Last month, prices in regions that largely resisted the correction began making near-record declines. The declines have only just started in most of the country, potentially spreading Ontario’s climate to more markets. That would prove to be a major headwind for arrears in those regions.
