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. 

11 Comments

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  • Chris R 4 months ago

    Yeah, meanwhile >20% of mortgages with TD, RBC & BMO are negatively amortized.

    Sounds like everyone’s gonna be just fine.

    • Michael Ko 4 months ago

      and how many of those are investor mortgages where the risk is assumed? RBC already said they only had a tiny share of first-time buyers over the past few years, they were outbid by investors.

      I know the real estate industry really wants people to believe society collapses if home prices stop rising, but it’s just not true. They outplayed bears and weaponized them to advocate for easing conditions. LOL

  • Dan P. 4 months ago

    “…borrowers are currently doing better than they were when interest rates were less than half the current level. ” …What type of gaslighting s that ?

    • Omar 4 months ago

      Not really gaslighting. We know the increase in mortgage rates only impacted 10% of households, and half of those were investors over the past 3 years. Welcome to market risk, it’s a part of being an investor. Just ask Nortel shareholders.

      • Dan P. 4 months ago

        Ok help me out then. When rates were at 2%, borrowers were paying more of the principal and less interest. Now with rates around 5%, borrowers are paying less principal and more interests. So regardless of how much you still owe for your mortgage, how are borrowers doing better now ?

        BTW I don’t have a dog in the fight, but that statement simply doesn’t make sense to me.

  • Ray 4 months ago

    They’re called shadow foreclosures and they’re BS-ing everyone. It’s a lot worse than they’re letting on. Eventually it’s all going to implode when they can no longer hide it.

  • Kate 4 months ago

    Well, I guess the trick is to extend your mortgage amortization for 100 years and miracle you do not have a delinquency.

  • Sharon Sommerville 4 months ago

    The fourth quarter data for the GTA & GVA will be of interest.

  • Jay 4 months ago

    Napkin math time.
    ~250B of sub prime mortgages on banks books that had amortization extended.

    Divide by median home price ~700k

    250,000,000/700 (iPhone calculator zeros limit) ~= 357143 loans. Add on the people refinancing. Add on all the precondition coming to market.

    Supply be going up real fast in the next two years.

  • Kristin 4 months ago

    Most people are still locked in low rate. Wait until they have to renew. I don’t know about anyone else but I would cut back on everything else before defaulting. However the bank may have different ideas of my options. My mortgage is way less than rent even with a big interest rate jump. Rental costs are insane. Yet some people will have to sell and rent given the interest rates.

  • J Mannor 4 months ago

    I think you need to look into something called the curing of default mortgages. Explore more here by looking into the annual reports of SagenMI and CMHC. What they are doing is injecting money into defaulting mortgages and bringing them back to current status. This means, they may pay 1-2 months payments instead of the complete loan and there by make payments current. This also reduces delinquency numbers but in fact all it does is push it down the road.
    Read more here.
    https://www.reddit.com/r/canadahousing/comments/172q3id/no_one_is_listening_not_a_conspiracy_theory/

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