Canadian Mortgage Delinquencies Fall In 26 Cities, As Markets Flood With Cheap Credit

Canada may have elevated unemployment levels, but mortgage delinquencies are dropping. Canada Mortgage and Housing Corporation (CMHC) data shows mortgage delinquencies for Q4 2020. The majority of cities, 26 in total, saw the rate of delinquency lower than last year. Only 5 markets saw the rate rise, as a combination of low rates and mortgage deferrals mean there’s little reason for mortgages to become delinquent –  even if a household can’t pay the bills.

Mortgage Delinquencies

First a few quick notes on mortgage delinquencies, and some direction on how to read them. Rising rates are more important than high levels, because it signals changes. Likewise, falling rates are more important than low rates. This serves as confirmation of where the market is going, and what degree of stress accompanies the moves.

Markets function within a range, with some rates always higher or lower. Montreal is a good example, where the market can be on fire –  but still have an arrears rate higher than Toronto. Same with Vancouver, which even in a bad downturn or crash, would be unlikely to hit Montreal’s level. Regional differences in defaults are a thing.

The pandemic also throws an extra bit of unpredictability into these numbers. Delinquencies were expected to be lower throughout the pandemic, due to payment deferrals. If a household was going to default, they could have requested a deferral. Even if you started missing payments before the pandemic, apparently.

The BoC also flooded the market with cheap mortgage credit, creating liquidity. Mortgage delinquencies are usually due to not being able to sell fast enough. By arming Canadians with cheap credit, few people asked why someone was selling. Instead, they were more likely to engage in a bidding war, even with a motivated seller.

In fact, there’s so much liquidity and few reasons to default – no change in the arrears rate might be a concern. Why would a market perform flat when policy is this loose? This is especially true if the rate is flat due to rapid issuance of new mortgages, averaging the rate down. Not the actual number of delinquencies actually falling.

Only 6 Canadian Cities Saw Higher Delinquencies

Few real estate markets are seeing higher mortgage delinquencies from a year ago. London (+30%), Kelowna (+11%), Abbotsford (+11%), Victoria (+9.1%), Brantford (+7.1%), and Kingston (+5.9%) are the only cities to see an annual increase, according to the CMHC. Just the six markets. The rest were flat, or saw the delinquency rate fall.

Canadian Mortgage Delinquecies

The rate of delinquencies for selected Canadian census metropolitian areas (CMA). Source: CMHC, Equifax, Better Dwelling.

There Were 26 Cities With Falling Mortgage Delinquencies

There were 26 major real estate markets with a lower rate of mortgage delinquency. We’ll spare listing them all for you, but the 3 largest declines were Kitchener (-45.5%), Saint John (-34.6%), and Trois-Rivieres (-33.3%). All three of these markets have seen real estate sales rise significantly recently.

The Prairies Have The Highest Delinquency Rates

The Prairies still have high delinquency rates, but they are dropping fast. Regina’s delinquency rate fell to 0.58% in Q4 2020, down 6.5% from a year before. Edmonton’s rate fell to 0.47%, down 14.6% over the same period. Saskatoon fell to 0.44% in the same quarter, down 30.2% from a year before. High levels, but all seeing sharp improvements.

Canadian Mortgage Delinquecy Change

The 12-month percent change in the mortgage delinquency rate for Q4 2020. Source: CMHC, Equifax, Better Dwelling.

Southern Ontario Has The Lowest Delinquency Rates

The lowest rates, which may indicate overly hot markets, are all in Southern Ontario. Guelph had the lowest rate in the country at 0.05% in Q4 2020, down 28.6% from a year before. Kitchener had the second lowest rate at 0.06% in the quarter, down 45.5% from a year before. Hamilton and Toronto were both tied for third at 0.10%, both down 9.1% from a year before.

Montreal and Vancouver, two of the biggest markets, didn’t fit in any extremes. Montreal’s delinquency rate fell to 0.20% in Q4 2020, down 25.93% from a year before. Vancouver’s rate was a lower 0.13% in the quarter, flat from a year before.

Mortgage delinquency rates are expected to fall for as long as policy is loose. Especially as record mortgage growth helps to average down rates in hot markets. It’s not exactly clear when policy may tighten, but it may not be as far as we think.

Banks are already reporting some markets with higher rates, just a month later. For example, CIBC’s quarter ended in January, just a month after the Equifax data. The bank’s uninsured delinquency rate for Toronto is 70% higher than Equifax’ year end Q4. Uninsured mortgage delinquencies are also generally lower than insured mortgages. CIBC might just be having an odd quarter, but banks tend to have better than average risk controls.

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