Canada’s low mortgage arrears rate isn’t as easy to unpack as it usually is. The Canadian Bankers Association (CBA) mortgage arrears rate dropped in November. That’s generally a good thing, but there’s a little more to it this time.
Mortgages in arrears are rising in Ontario and B.C., but the rate is low due to a growing mortgage market. The number of mortgages falling into arrears is scaling with new mortgage growth. To say this is unusual is an understatement. Especially considering mortgage deferrals were handed out like candy.
The CBA Mortgage Arrears Rate
The CBA’s mortgage arrears rate is the percentage of mortgages behind on payments. For a mortgage to be in arrears, the borrower needs to be more than 90 days behind on payments, without an agreement. The ratio is then the share of total active mortgages that are in arrears. It’s not complicated, but the data included and what it means is a little more nuanced.
This rate includes only the largest CBA members, and is not comprehensive. Included banks are BMO, CIBC, HSBC Bank Canada, National Bank of Canada, RBC Royal Bank, Scotiabank, TD Canada Trust, Canadian Western Bank, Manulife Bank, and Laurentian Bank (as of October 2010). These are the majority of mortgages, but not necessarily the majority of those in arrears.
Mortgage borrowers that are higher risk are likely to borrow elsewhere. If you fail to meet the bank’s criteria, or income is difficult to document, it’s often easier to use small lenders. These lenders tend to specialize in risk, and handling a higher mortgage arrears rate.
Why is this important? Because high risk borrowers are documented elsewhere. This is distinct from the US reporting rates that Canadian analysts often compare. In the US, these numbers are often reported in aggregate. In Canada, different lenders report and document arrears differently.
Quick, but important note. People with a payment deferral during the pandemic, were not in arrears. This means most people that would have fallen into arrears, avoided it. In fact, at least one bank said a good portion of people that were in arrears before the pandemic, took a deferral. This is going to be an interesting point to keep in mind, when we look at Ontario and B.C.’s numbers.
Canada’s Mortgage Arrears Rate Falls To 1990 Low
The rate of arrears across Canada is a little lower. The rate fell to 0.22% in November, down 1 bp from a month before, as well as a year before. The rate is now at the lowest level since 1990. Considering banks went out of their way to avoid classifying mortgages in arrears, the falling rate doesn’t surprise.
Canadian Mortgage Arrears Rate
The rate of mortgages in arrears at Canada’s largest CBA member banks.
Source: CBA, Better Dwelling.The fact the number of mortgages in arrears didn’t fall more, is a bit of a surprise. There were 11,002 mortgages that fell into arrears in November, down only 1.12% from a year before. Growth for mortgages in arrears this past June, hit the highest rate of growth since 2010. A spike still occurred, despite unprecedented lender and income assistance from the government.
Canadian Mortgage Arrears Annual Change
The 12 month percent change of mortgages in arrears, compared to the change in total mortgages.
Source: CBA, Better Dwelling.Ontario’s Mortgage Arrears Rate Makes A Small Climb
Ontario’s mortgage arrears rate made a small increase from last year. The rate climbed to 0.10% in November, flat from a month before. The rate is 1 bp higher than the same month a year before. Not so much of a record set in either direction, but there’s a lot interesting details with this number.
Ontario Mortgage Arrears Rate
The rate of mortgages in arrears across Ontario.
Source: CBA, Better Dwelling.The number of mortgages to fall into arrears in Ontario is actually higher. There were 2,008 mortgages in arrears this past November, up 10.69% from last year. The rate is high, but down from the 34.45% growth last June. The reason the rate has fallen, is because the number of new mortgages has increased so rapidly. The increase is enough to cause the rate to stagnate.
Ontario Mortgage Arrears Annual Change
The 12 month percent change of mortgages in arrears, compared to the change in total mortgages.
Source: CBA, Better Dwelling.B.C.’s Mortgage Arrears Rate Makes A Small Hike
B.C.’s mortgages in arrears rate is higher than Ontario, but hasn’t moved much either. The rate reached 0.15% in November, down 1 bps from a month before. The rate is 1 bp higher than a year ago. Once again, no records set in either direction, and a mostly stable rate.
B.C. Mortgage Arrears Rate
The rate of mortgages in arrears across B.C.
Source: CBA, Better Dwelling.The number of mortgages in arrears across BC did climb a lot, it just scaled with the number of new mortgages. There were 1,015 mortgages in arrears this past November, up 12.40% from a year before. The climb is huge, but largely hidden by the increase in the number of mortgages as well.
B.C. Mortgage Arrears Annual Change
The 12 month percent change of mortgages in arrears, compared to the change in total mortgages.
Source: CBA, Better Dwelling.Canadian mortgage arrear rates don’t look all that interesting at first glance. In fact, at the national level it hit a multi-year low, which is usually an optimistic data point. There’s a lot to consider when looking under the hood though.
In major markets like Ontario and B.C., the mortgage arrears rate stayed flat. The rate staying flat with a multi-year high for new mortgage growth means a big increase in arrears. If you’re a bank, there’s no issue if more people fall into arrears, as long as you can replace them in your book. If you’re society, it means more people are defaulting in Ontario and B.C..
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Locked inventory hypothesis. The government won’t allow lenders to take possession of the houses either, so there’s less inventory than possible.
Also probably why there’s so much pressure to keep the economy locked down, even in regions where the per capita infection rate is low.
Same with rental inventory. Can’t kick people out, but landlords have to pay the rent. As much inventory is in the market, there’s even more that can’t be accessed.
Who says the banks can’t take possession of houses?