Canadian mortgage delinquency rates are falling, except in the country’s most expensive markets. Canada Mortgage and Housing Corporation (CMHC) crunched data from Equifax, and found mortgage delinquencies dropped in Q4 2019. Two notable exceptions to the trend were Toronto and Vancouver – where delinquencies increased to multi-year highs, before the pandemic.
Mortgage Delinquencies
People think of mortgage delinquencies as a sign of affordability, but it’s mostly about liquidity. In a hot market, when someone can’t afford their mortgage – they list it for sale. It sells in a few days, and the delinquency rate stays low. When the market starts to stall, and sales take longer – that’s when delinquencies start to rise. High default rates reflect the inability to exit your real estate in a timely fashion.
Like in all commodity markets, liquidity chases liquidity. Rising default rates deter people, causing default rates to rise further. Fast sales cause FOMO, tending to increase liquidity with each faster sale. Since we’ve already gone through this before, we won’t dive too deep. The most important note is the speed of growth is more important than the size of rate. In other words, velocity usually trumps size.
Canadian Mortgage Delinquencies Generally Fall
Mortgage delinquencies across Canada have been on the decline, generally speaking. The rate of delinquencies reached 0.29% in Q4 of 2019, down 3.34% from the previous quarter. This is also down 3.34% from the same quarter last year. This is the lowest the rate has been across the country since Q3 2017.
Canadian Mortgage Delinquency Rate
The delinquency rate for mortgages across Canada, reported on a quarterly basis.
Source: Equifax, CMHC, Better Dwelling.
Toronto Mortgage Delinquencies Rise 20%
Toronto’s mortgage delinquency rate is lower, but has been climbing over the past few quarters. The rate for the region fell to 0.12% in Q4 2019, up 9.09% from the previous quarter. This represents an increase of 20% from last year. Mortgage delinquencies in the region are now at the highest level since Q4 2016.
Toronto Mortgage Delinquency Rate
The delinquency rate for mortgages across Toronto, reported on a quarterly basis.
Source: Equifax, CMHC, Better Dwelling.
Vancouver Mortgage Delinquencies Rise 18%
Vancouver is also seeing mortgage delinquencies rise from record lows. The rate reached 0.13% in Q4 2019, up 8.34% from the previous quarter. This works out to an increase of 18.18% from the year before. Vancouver’s mortgage delinquencies are now at the highest rate since Q2 2016, and climbing.
Vancouver Mortgage Delinquency Rate
The delinquency rate for mortgages across Vancouver, reported on a quarterly basis.
Source: Equifax, CMHC, Better Dwelling.
Montreal Delinquencies Are Falling
Montreal mortgage delinquencies are still falling, having lagged the Toronto and Vancouver sales boom. The rate fell to 0.26% in Q4 2019, down 3.7% from the previous quarter. Compared to the same quarter a year before, the rate is down 16.13% from last year. This is the lowest it’s been since Q3 2017, but keep in mind it’s still twice that of Toronto or Vancouver.
Montreal Mortgage Delinquency Rate
The delinquency rate for mortgages across Montreal, reported on a quarterly basis.
Source: Equifax, CMHC, Better Dwelling.
Toronto and Vancouver typically lead the national real estate market. If delinquencies continue to rise in those markets, the direction of the national rate should reverse. Near term, growth should slow down, since banks are easily accepting mortgage deferrals. Currently 15% of mortgages at Canadian banks have been deferred.
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These numbers are Equifax, so they also exclude private lenders scooping up properties. Some nice power of sale homes these days, although I wouldn’t touch them with a ten foot pole in the middle of the highest unemployment since the 30s.
Commercial mortgage sharks are circling. HBC missed their April payments for Saks.
https://business.financialpost.com/pmn/business-pmn/saks-owner-hbc-missed-april-payments-on-commercial-mortgage-debt
No, private lenders are getting screwed this round. They have serious cash flow issues for the next 2 years. Do you even know where their funds come from? No one will buy over priced real estate in Toronto anymore.
Isn’t this the reason the government tried to sucker first-time buyers into getting into the real estate market? Provide leveraged investors with liquidity, so they don’t have to take a loss.
Got most of it. The high-use, low-use allocation is also a generational thing. Older people closer to retirement are usually the owners of multiple properties. Those people are less likely to be able to take a loss, without an impact to their retirement.
The issue is most older Canadians don’t have any capital outside of real estate, so they aren’t retiring either. They leveraged right to the teets, because the government backstops any losses. Over the past 5 years, it’s worked out really well.
What governments didn’t plan on is brain drain, and skilled labour moving out of the high traffic corridors. Commercial real estate is looking at a huge correction.
I blame the BOC for this mess and it’s continued effort to lower rates ( now zero) and free up more borrowing.
Their reasoning has indebted CDNs beyond any chance of recovery.
Not just in real estate but in over purchase of vehicles that have little value other than in the 1st month of ownership.
The BOC has backed itself into a corner and if history proves right …this course of action only leads to one out come…. a currency failure.
Is this percentage below 1 a real concern in the financial industry? What could have been the percentage during the previous recessions? I know of several cases where immigrants close to retiring age doing 2-3 minimum wage part time jobs taking 0.5 Mn mortgages and using equity to buy investment condos.
No, because 1% in a quarter would be more than the number of homes on the MLS listed for sale in Toronto. The issues is the impact on marginal sellers.
If one looks at the US delinquency rate before, into, during, and following the Great Repression, the back of the napkin calculation is a doubling in delinquencies during the Great Recession. We have to look at the relative numbers here not the absolute numbers.
By extending credit and keeping rates low over the past two decades, we have artificially inflated housing prices and multiplied those effects via hypothesized speculation and laundering . The median Canadian is able to qualify for mortgages that realistically are beyond their means if you consider a balanced financial plan that includes adequate saving habits month over month. People ignore savings when relying on property that they have erroneously labeled as an investment vehicle. Your ad-hoc experiences speak to that.
The catalyst to delinquencies is available cash flows. Can the average mortgage payer cover their costs right now either through employment income or savings? That is the question. We know that the average savings rate is very low. We know that the average net worth is inflated by current housing valuations. We know the average retirement savings is inadequate for retirement. And finally, we know that there has been a huge influx of unemployment in recent weeks.
So the crux is the extended question, how many people can’t cover their costs right now, are holding on as long as possible, but will be looking to extract cash flow from a property sale in the near future. If the number is high enough, the fly wheel will be activated.