Canadian Mortgage Delinquencies Are Climbing, But Stress Is Greatly Overstated

Canadian mortgage rates are climbing and may be creating a little more stress for borrowers. Equifax data reveals mortgage delinquencies have climbed from record lows in Q2 2023. That may present some concerns, until some context is provided. Yes, the delinquency rate is climbing from lows, but the rates remain much lower than they were pre-pandemic, when interest costs were less than half the current level. 

Canadian Mortgage Deliqnuencies

A mortgage is considered delinquent when it steals your car. Kidding. In Canada, a delinquent mortgage is at least 90 days past due (DPD), reaching the point the lender can pursue remedy. It’s often seen as an indicator of weak households, but in reality it’s more likely a sign of liquidity. 

There’s no shortage of people struggling with payments during a real estate boom. However, a distressed borrower can usually sell their property fast, preventing the need for a mortgage to fall into delinquency. In a slow market, it takes much longer. The longer it takes to sell, the more likely one is to default. 

Another issue to keep in mind is that default rates are relative. Since it’s a share of mortgages in a region, it doesn’t make sense to compare two different regions that may have different rates of ownership or properties without a mortgage. Consequently, what seems like a low delinquency rate in Montréal may be astronomical in Toronto. To yield any real insight, it’s best to just compare the same measurement over time. 

Canadian Mortgage Delinquencies Are Rising, But They Aren’t High

Canadian mortgage delinquencies are off the record low, but remain very low in contrast to historical trends. The national delinquency rate was 0.15% in Q2 2023, flat from the previous quarter and a year prior. It’s 0.01 points higher than the record low, but still nearly half the 0.28% delinquency rate in Q1 2020 (in the before times). 

Canadian Mortgage Delinquency Rates

The share of mortgages at least 90 days past due across Canada, and the 3 largest real estate markets.

Source: Equifax; CMHC; Better Dwelling. 

In short, the market is slightly weaker than it was at its strongest. However, the worries of mortgage stress appear far overblown since this rate is much lower than it was when interest rates were less than half the current level. 

A similar trend can be observed in the big three real estate markets. In Toronto, the delinquency rate was 0.08% in Q2 2023, 0.02 points higher than the record low it was sitting at a year ago. This is just 0.01 points from the pre-pandemic levels in Q1 2020. It seems quite normal, despite market chatter related to the number of Power of Sale properties hitting the market. 

In Vancouver, the delinquency rate climbed to 0.09% in Q2 2023, just 0.01 points above the record low. The number of delinquencies would need to rise by 55% to get back to the 0.14% delinquency rate the market saw in Q1 2020.  

Montreal is on another planet in contrast to pre-pandemic delinquencies. The rate reached 0.1% in Q2 2023, 0.01 points from the record low observed in the three prior quarters. It’s just over a third of the 0.25% delinquency rate seen in Q1 2020, so there’s that. 

Higher interest rates are most certainly not making life easier for households. They aren’t exactly causing a widespread failure for mortgage borrowers. In fact, borrowers are currently doing better than they were when interest rates were less than half the current level.