Canadian mortgage borrowers are finding out fast that Toronto real estate isn’t always a path to riches. Equifax data shows Toronto mortgage delinquencies climbed in Q1 2024, and now sit at the highest rate in 8 years. Except back then the rate was falling as the market improved, and it’s heading in the wrong direction now. As investors try to unload into the weakest demand balance on record, the rate is likely to continue rising in the near term.
Toronto Mortgage Delinquencies Double, Highest Rate Since 2016
Toronto mortgage delinquencies are climbing at a very rapid rate, as investors flee. The rate climbed 0.02 points to 0.14% in Q1 2024, representing a 0.07 point increase since last year. Over the past year the rate has doubled, hitting the highest level since 2016.
Toronto Mortgage Delinquencies Hit Highest Level Since 2016
The delinquency rate for mortgaged properties in Toronto CMA, as reported to Equifax.
Source: Equifax; CMHC; Better Dwelling.
Toronto’s Borrowing Surge Means A Lot More Bad Mortgages
Trying to understand what this means? The interpretation depends on who’s looking at the data and for what purpose. From the perspective of a bank, delinquencies are heading in the wrong direction but they remain a relatively small share of total loans. Since it’s a rate, more people can default as long as they write new loans at a much faster rate. This loss is simply the cost of doing business.
Those concerned with the social impact may be a little more concerned. The rate isn’t just climbing, but so is loan volume. From Q1 2019, Toronto mortgage debt reported to equifax climbed 41.4% higher to $421.6 billion by the end of 2023. If all mortgages were the same size over that period, a 0.15% delinquency rate in Q1 2024 would include 41% more households than the same rate in 2019. It may not be much from a cost perspective, but it does mean a sharp increase in social liabilities.
Toronto Mortgage Deliquencies Rise As Fewer People Rush To Buy
Mortgage delinquencies are generally misunderstood and commonly believed to indicate affordability. Not exactly—affordability erodes much more sharply while prices are rising. There are still a lot of people who can’t handle their mortgage during a hot market, but it’s much easier to sell. If a home sells within days of listing, a distressed owner can sell and walk away with a profit instead of a delinquency.
Delinquencies only rise when borrowers are unable to dispose of the asset. Toronto’s recent slowdown and inventory surge as investors exit, has left the region with one of the worst demand balances on record. Predictably, delinquencies are climbing as liquidity dries up.
Canadian mortgage data is locked down so it’s hard to determine which borrowers are having trouble. However, an analysis of US housing bubble data shows investors are the most likely to default on their loan. Researchers found investors defaulted at a much higher rate, while low income subprime borrowers largely continued to pay their mortgage.
This makes sense since a low income household still needs a place to live, and a mortgage is the last bill an end user defaults on. Lenders also provide more assistance and tools for families than investors, helping them mitigate their debt issues more easily than investors.
Considering the recent marketplace in Toronto, this would make a lot of sense. Investors captured a significant share of the housing market, displacing first-time buyers. Most using a mortgage are now taking possession of new units that have negative cash flow, meaning they need to top up rents to cover the mortgage payments on the unit. Combined with slow sales and rising rental vacancies, liquidity is drying up while pressure is rising.
Mortgage deliquencies are a trailing indicator. Most fi s don’t report a delinquent mortgage for 60-90 days. Then the process to remove them takes another 90-180 days. So this is the tip of the iceberg.
The big concern is that a dumping of thousands of foreclosures will damage the market, which will end up with lots of people in negative equity. This will lead to a major drop in prices, putting a large segment if the population in trouble.
The other problem is interest relief would require people to be solvent to maintain prices. If not it’s a disaster. Once 2 Mos behind a 50bp drop in September doesn’t help.
The other major problem is that the dimwit in Ottawa who kept telling us that this was a supply problem? Obviously that wasn’t even remotely correct. So now instead of having billions to support borrowers, they wasted it paying developers to build more? The problem is subsidizing construction will only create more pruce pressures?
So it’s Like e a class 5 credit hurricane coming.
Care to elaborate on “This will lead to a major drop in prices, putting a large segment of the population in trouble.” You are saying that a drop in price is a bad thing, really ? And btw this will actually affect only a very small portion of the population, i.e. those who were outbidding/overbidding each other these last few years, plus investors. No tears to be shed for any of them.
In Canada, a decrease in house prices is considered a bad thing, since 70% of the households own houses, and use them for retirement. This is quite unfortunate, and I was also surprised when I learned this a few years ago. I think this mindset will change in maybe 10 years from now
Raul, you got it all wrong brother. It’s the exact opposite. Think about it. Most homeowners already have their houses paid for (no mortgage left). If their house is valued at 500k, they can sell it and buy another one, which will also be fairly evaluated. Now, if that same house is now valued at 1 Million, he’s not richer, if he wants to buy another house, he’ll have to pay more for that one too. And it’s the next generation that is getting screwed now (your kids and my kids) if there is no MAJOR correction to this madness. Think about it, we’re the 2nd largest country in the world, yet we are in the 2nd biggest real estate bubble in the world (after New Zealand). Makes no sense. We have so much space. Time for a reset, and for the minority of those who overpaid for houses these last few years, well, tough. They should have thought better.
Agreed, and most people seem to have no idea it’s coming.. including those who are supposed to know, including the regulators, the government (tho no surprise there), and the banks themselves.
This is interesting, “more people can default as long as they write new loans at a much faster rate. ” Real estate sales are slow which means that mortgage demand is down. What kind of impact will this have on banks? And, they won’t be able to easily sell the property in default, that is a lot of baggage.
Good catch. I’m guessing that’s why OSFI is dumping stricter standards and we’re starting to see blanket appraisals and CMHC-backed developer loans that don’t properly assess the lifespan of the buildings.
Dangerous waters being treaded here when they’ve very obviously trying to mitigate any issues by hoping they’re temporary, and no major shock will expose them.
The flight from TO is real. Lived here my whole life and never been seen downtown this empty except for the weekend.
MP Fraser and his goons manipulated the region into his vision of a tourist spot for people to visit rather than the city that was actually working.
Canada’s Gen Z has the funniest opportunity rn. Imagine if they all just left to Alberta and the investor slums the gov is helping build just completely collapse?
Tick tock, bully 50% offers and see who bites. Realized loss now rather than later with years of dragged on carrying coats.
All it takes is a few fire sales to start the frenzy exit rush.
CANADA’S DEVELOPMENT INDUSTRY IS LIKE A SELF CLEANING OVEN
BOTTOM LINE – THROW 142 MILLION USA HOMES AND FARMS INTO THE MIX AND CANADA IS FINANCIALLY DESTROYED
CITY HALLS MAKE NO MONEY
REALTORS MAKE NO MONEY
BANKERS MAKE NO MONEY
BUILDERS AND DEVELOPERS MAKE NO MONEY ETC.
Ron Butler@ronmortgageguy
High Interest, high land cost, high construction costs & massive Government fees, taxes & crazy approval process has simply broken the Industry
People can’t afford the units or cannot rent them for what they need to cover the monthly nut
Hence New Construction collapse
why do you keep posting rubbish