The Great Canadian Real Estate Downturn isn’t easing—in fact, it’s accelerating beneath the surface. Canadian Bankers Association (CBA) data shows the mortgage arrears rate climbed again in August, hitting the highest in nearly four years. However, the more important issue is flying under the radar: an unprecedented contraction in total mortgage volumes at banks. A shrinking credit base implies tightening liquidity—amplifying risk if investors realize the exit is closing faster than expected.
Canadian Mortgage Arrears Rate Highest Since 2020
Canadian mortgage arrears rate at CBA member banks.
Source: CBA; Better Dwelling.
Mortgage arrears at Canada’s largest banks climbed to a multi-year high. The arrears rate reached 0.24% in August, up 1 basis point (bp) from the previous month and 4 bps higher than last year. It’s now at the highest rate since September 2020, with most Big Six banks reporting even higher rates in recent filings.
The rate rising 4 bps may not sound like much, but it shows 20% growth in arrears relative to total mortgages. Mortgages in arrears hit 11,661 in August, up 15.9% (+1,597) from last year. The trend points to mounting credit stress that could be made worse by total mortgage volume.
Canadian Mortgage Market Shrinks As Households Step Back From Steep Prices
Total residential mortgages at CBA member banks.
Source: CBA; Better Dwelling.
One of the more unusual signals in the CBA data is the steady decline in total mortgages. Member banks held 4.94 million mortgages in August, down 1.7% (-86.2k) from a year ago. This isn’t a blip, but mortgage counts peaked at 5.12 million in June 2022 and have since fallen 3.5%, marking the lowest level since October 2020. Year-over-year growth has remained negative since April 2023, the first sustained contraction since records began in 1995.
The rising arrears may not warrant much attention at this point, but when paired with a shrinking mortgage base they do. This signals a shift from household stress to market-level liquidity risk. Arrears are backward-looking—they rise when owners can’t sell fast enough to avoid default. Fewer new mortgages means fewer buyers, tighter liquidity, and a growing risk that the market can’t absorb distress without triggering deeper losses.
There is a lot of info packed in this statement. Can someone please simplify… what does this mean: “Fewer new mortgages means fewer buyers, tighter liquidity, and a growing risk that the market can’t absorb distress without triggering deeper losses.” Thanks…
Fewer new mortgages means fewer buyers:
Imagine there is only one bank in Canada that has 100 mortgages on its balance sheet. Every year you have a number of mortgages maturing and rolling off, let’s say 5 out of the 100. You need 5 new buyers entering the market (and opening 5 new mortgages) for the number of mortgages to remain stable. If only 3 buyers enter the market the number of mortgages on the bank’s balance sheet will decrease to 97. Therefore the fact that the number of mortgages on the Banks’ balance sheets in Canada is decreasing and has been decreasing for the past 3 year (since 2022) mean that the number of buyers has been decreasing year over year.
Tighter liquidity:
Since every year you have fewer buyers and thus smaller amount of credit (money) being spent on real estate, the liquidity in the sector is decreasing (getting tighter). This makes it harder to sell and buy real estate and also makes price discovery (figuring out the fair market value of an asset) harder.
A growing risk that the market can’t absorb distress without triggering deeper losses:
All this leads to a higher risk for those who want to participate in the market. Because as a participant whether a buyer, seller or lender, you don’t really know what the fair market value is, whether the price will go up or go down etc.. In a climate such as this, market activity will go slow down, and the only thing that might entice buyers and lenders back into the market are lower prices to safeguard against the greater risk they are taking.
Fewer new mortgages = fewer homes are being purchased
Which = fewer buyers
Which = tighter liquidity = homes are less liquid because there are fewer potential buyers
Growing risk (to sellers and economy) that the market can’t absorb distress without triggering deeper losses (not enough buyers can/will buy homes at the current prices)
Summary: demand is low which is putting downward pressure on house values and that’s causing increasingly large problems for home owners
Sure thing. Housing prices remain higher than they are actually valued + continued economy uncertainty by the Libtards = fewer home buyers = fewer new mortgages.
Fewer new mortgages means fewer buyers:
Imagine there is only one bank in Canada that has 100 mortgages on its balance sheet. Every year you have a number of mortgages maturing and rolling off, let’s say 5 out of the 100. You need 5 new buyers entering the market (and opening 5 new mortgages) for the number of mortgages to remain stable. If only 3 buyers enter the market the number of mortgages on the bank’s balance sheet will decrease to 97. Therefore the fact that the number of mortgages on the Banks’ balance sheets in Canada is decreasing and has been decreasing for the past 3 year (since 2022) mean that the number of buyers has been decreasing year over year.
Tighter liquidity:
Since every year you have fewer buyers and thus smaller amount of credit (money) being spent on real estate, the liquidity in the sector is decreasing (getting tighter). This makes it harder to sell and buy real estate and also makes price discovery (figuring out the fair market value of an asset) harder.
A growing risk that the market can’t absorb distress without triggering deeper losses:
All this leads to a higher risk for those who want to participate in the market. Because as a participant whether a buyer, seller or lender, you don’t really know what the fair market value is, whether the price will go up or go down etc.. In a climate such as this, market activity will go slow down, and the only thing that might entice buyers and lenders back into the market are lower prices to safeguard against the greater risk they are taking.
Thanks for the great explanations guys… I understand better. Looks like a lot is precipitated by reduction in number of mortgages. More than just house prices, a significant impact seems to be the inability to predict valuation of real estate… which causes uncertainty and the further erosion of value. This is interesting… so it is NOT just supply and demand like ‘they’ keep trying to make us believe.
To make this simple, housing price in canada went from an inflationary spiral, to a deflationary spiral in 24 mos. Pre 2023, it was fomo that guided buying, now it’s fear of buying a house that will drop 25% in the next year.
So people aren’t buying. This is an issue for our banks who ceased operating with a good ratio between mortgages, commercial and instutional dedebtand just went all in on the consumer.
For banks liquity means how much money they can conjure under basel 2 and 3 to lend out. So basically as deflation begins, even though houses are cheaper, the risk is they will end up upside down and lose money, so they stop lending.
So credit will get harder to get accelerating the correction.
Finally we have the go ernment that should the helping, but isnt. Carney and co keep taking bad mortgages off the banks books and puttimg them on the taxpayers.
So much like 2009, we have banks without liquidity, tightening debt, a mortgage insurer that is onsolvent and owned by the government,ent, and a govt whose debt just got downgraded. Pretty bad….
To make this simple, housing price in canada went from an inflationary spiral, to a deflationary spiral in 24 mos. Pre 2023, it was fomo that guided buying, now it’s fear of buying a house that will drop 25% in the next year.
So people aren’t buying. This is an issue for our banks who ceased operating with a good ratio between mortgages, commercial and instutional dedebtand just went all in on the consumer.
For banks liquity means how much money they can conjure under basel 2 and 3 to lend out. So basically as deflation begins, even though houses are cheaper, the risk is they will end up upside down and lose money, so they stop lending.
So credit will get harder to get accelerating the correction.
Finally we have the go ernment that should the helping, but isnt. Carney and co keep taking bad mortgages off the banks books and puttimg them on the taxpayers.
So much like 2009, we have banks without liquidity, tightening debt, a mortgage insurer that is onsolvent and owned by the government,ent, and a govt whose debt just got downgraded. Pretty bad….
I hope chilly con carney can hang on long enough for the s*#t to really hit the fan. I wonder who they’ll blame this time? He’ll use his loan from Xi to buy up all the distressed stock…
Maybe that was his plan all along. Good strategy to making a forever renter.
Drum up some biz for the new Brookfield rentals.