Canadian mortgage delinquencies are rising. As reported last week, the latest CBA arrears rate hit 0.28% in February, double the record lows over the past 4 years. It hasn’t surprised many, especially those in the industry who have been sounding the alarm. However, most will be surprised to learn who’s falling behind—especially regulators.
Mortgage Delinquencies Usually Concentrate In Smaller Loans
Mortgage delinquencies tend to concentrate around smaller loans. Historical Canadian data shows this usually holds true. The smallest mortgages (< $200k) have had the highest delinquency rate from at least 2013 to 2022. This segment had a delinquency rate of roughly 0.19% in 2022, over double the rate of the largest mortgages. As we’ve been pointing out, that’s changing very fast.
Canadian Mortgage Risk Inverts As Larger Delinquencies Surge
Canadian mortgage delinquency rates by mortgage size.
Source: CMHC; Equifax; Better Dwelling.
Canada saw an inversion in late 2023, and the gap is rapidly expanding. Mortgage delinquencies on loans $850k or greater have surged to 0.55% in Q4 2025. That rate is now more than double the 0.24% rate for the smallest mortgages, a rate that remains relatively unchanged. This isn’t just an “aww, poor rich folks” story; it’s a warning that’s only clear to a handful of credit and risk analysts.
Mortgage Risk Inversion Is A Bigger Problem Than Just Pricey Homes
Traditional risk expects much lower delinquency rates on larger mortgages. After all, wealthier borrowers have more financial resources and are more likely to seek professional advice. They benefit from more income streams, diversified investments, significant equity, and—often in Vancouver—richer parents. These aren’t low-income borrowers where sudden job loss can send them spiralling. They tend to pose the least risk because they have a larger financial cushion. However, that’s not the only reason.
Lenders also tend to mitigate risk more in this area. Large non-conforming loans represent concentrated risk, so they tend to be more careful. Traditionally, that means tighter standards and more scrutiny regarding valuation. After all, a default on an $800k mortgage is the equivalent of four $200k mortgages. The combination of wealthier borrowers and lender scrutiny traditionally means fewer delinquencies. When it doesn’t, we have a problem known as risk inversion.
Risk inversion is when the expected outcome flips upside down. All risk mitigation resources are concentrated in an outperforming segment. At the same time, the segment that wasn’t expected to crack is forming cracks, catching the system off guard. This is what tends to turn a routine housing correction into a much larger event. It’s also part of the reason the US housing downturn in 2008 turned into a financial crisis, a reason only revealed much later.
Overleveraged investors or money launderers bailing? No one seems to be asking how anyone replaces the laundered cash that just suddenly stops flowing into housing. Or did it stop?
Now you know why the gov needed to expand “first-time buyer” maximums to $1.5 million.
Rest assured, our taxes will cover any risk.
Hopefully leading to lower construction costs, but reducing rents will offset thereby still stifling new starts.
As for new family size condos becoming the rebirth of the condo market? Forget it. A good 3br needs 1,000sf minimum at $1,000/sf is still $1mil. ( plus condo fees, taxes, utilities, blah blah). Out of reach for most young families with 2 kids.
Risk inversion = regulatory failure. I had such high hopes for OSFI under Routeledge, but I guess he just learned the job is really seat warming position.
The heavens have not yet opened, Just wait a little
You know it’s coming, lol.
How many times over how many years can we utter the words, “regulatory failure” and still think the anarchic nature of capitalism can be held in check by applying the ‘right rules’ with ‘diligent enforcement’ of the ‘free market’? At what point does our utopian wonderment give way to the recognition that capitalist “experts” don’t have a clue and cannot regulate their own system?
We know, or at least should know that what Carney said about the “rules-based order” international relations is utter crap. The same thing needs to be said about the vulgarity of the ‘rules-based order’ within capitalist states, but Carney cannot afford that level of honesty.
The idea that markets–external or internal–can be tamed for the benefit of the majority is a fine bedtime story intended to put toddlers quietly to sleep with a minimum of fussiness.