Canada

Toronto, Vancouver, and Montreal See Delinquencies On Large Mortgages Rise

Canadian real estate owners with large mortgages are falling behind on payments. Canada Mortgage and Housing Corporation (CMHC) data shows a climbing delinquency rate on large mortgages in Q1 2019. The rate remains relatively low, but does show the trend is reversing, and the market peak is behind us.

What Are You Looking At?

Today we’ll be looking at mortgage delinquencies, sorted by size at origination. The rate of delinquency is a lagging indicator, and means lower liquidity. That makes sense, since if someone can’t afford their house, they list if for sale. If they can sell before they fall behind on their payments, it’s not an issue that shows up in stats. It’s when people slow their buying habits, or prices drop, that an issue arises. The trend usually starts with more expensive homes, which have a smaller pool of buyers to begin with.

The data is segmented by size at origination, from small to supersize. The CMHC segmented the mortgages at $100k breakpoints. Mortgages under $100k are the smallest bracket, and those $400k and higher are the largest. Smaller mortgages were more common 5 or so years ago, when home prices were much lower. Recent and older luxury purchases are most likely represented in the highest segment.

Toronto’s Large Mortgages See Delinquencies Rise

Toronto real estate is seeing delinquencies on larger mortgages increase. Mortgages between $300k and $400k at origination had a delinquency rate of 0.10% in Q1 2019, up 25% from last year. Those $400k and higher at origination also had a delinquency rate of 0.10%, also up 25% over the same period. Both segments are still relatively low, but the trend is heading higher. We have to go back to 2016 to see the rate of delinquencies at this level.

Toronto Residential Real Estate Mortgage Delinquencies

The delinquency rate of residential mortgages in Toronto, sorted by size at origination.

Source: CMHC, Equifax, Better Dwelling.

Toronto is seeing the opposite trend with smaller mortgages, and delinquency rates. Mortgages less than $100k at origination saw the delinquency rate fall to 0.11% in Q1 2019, flat from a year before. Those between $100k and $200k at origination reached a delinquency rate of 0.10%, down 9.09% from a year before. Mortgages between $200k to $300k reached a rate of 0.08%, down 11.11% from a year before. If the are older mortgages like we suspect, the holders are benefiting from falling rates. Lower payments mean a lower chance of delinquency.

Vancouver Mortgage Delinquencies Rise In Most Ranges

Vancouver is seeing a similar trend, with a more varied range on defaults. Mortgages between $100k and $200k at origination saw the delinquency rate rize to 0.14% in Q2 2019, up 16.67% from last year. Those between $200k and $300k reached 0.12%, up 33.33% over the same period. Mortgages $400k and larger at origination hit a delinquency rate of 0.11%, up 22.22% from the year before. The first two segments are the highest rate of delinquency for the segments since the end of 2017. The rate of delinquencies for mortgages $400k and over is the highest since the end of 2016.

Vancouver Residential Real Estate Mortgage Delinquencies

The delinquency rate of residential mortgages in Vancouver, sorted by size at origination.

Source: CMHC, Equifax, Better Dwelling.

The rate of delinquency was flat or improved in two size brackets. Mortgages less than $100k at origination stayed flat at 0.16% in Q1 2019. Mortgages between $300k and $400k at origination reached 0.09%, down 18.18% from a year before. Both segments are now the lowest they’ve been since 2018.

Montreal Mortgage Delinquencies Are Almost 3X Toronto

Montreal mortgage delinquencies are almost 3x higher than  Toronto, and are rising. Mortgages less than $100k at origination had a delinquency rate of 0.22% in Q1 2019, up 4.76% from a year before. Mortgages between $100k to $200k at origination reached 0.32%, up 6.67% from a year before. Those between $200k and $300k reached a delinquency rate of 0.29%, up 3.57% from a year before. Mortgages $400k or larger hit a delinquency rate of 0.30%, up 3.45% from a year before. This is a little surprising considering the rising sales and prices seen in this market.

Montreal Residential Real Estate Mortgage Delinquencies

The delinquency rate of residential mortgages in Montreal, sorted by size at origination.

Source: CMHC, Equifax, Better Dwelling.

Montreal only saw one bracket where the delinquency rate didn’t rise from last year. Mortgages between $200k and $300k at origination had a delinquency rate of 0.32% in Q1 2019, flat from a year before. The rate was last this low in 2018 Q3, so not too long before that.

Canada’s largest real estate markets are seeing rising delinquencies on higher priced homes. Once again, the overall rate is still relatively low. However, a rising rate on larger mortgages may indicate liquidity problems are brewing.

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24 Comments

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  • Winnie The Pooh 3 weeks ago

    They should’ve did a stress test. 😂

  • Trevor 3 weeks ago

    The weakened Canadian dollar will make it make it more attractive for Mainland Chinese buyers though, so expect a surge from foreign investment.

    • Big Black Cub 3 weeks ago

      lol – it’s all relative weakness friends in the context of global economy – check out GBP due to Brexit ongoing – it’s down 30% in L3Y – and London prices down 10-20% during same period – China investors are now snapping up UK assets left right centre like there is no tomorrow think it might get cheaper but the bottom is probably close there – Canada not even close – oil price is going to continue to get wacked – US shale + Iran, etc – pumping like no tomorrow – as global growth hence demands continues to slow – prices going to go down back to 2016 levels – CAD will then tank alongside – add Canada recession by then – that will be the time foreign buyers might start looking at Canada again

  • Ian 3 weeks ago

    Anyone want to clarify why $100k to $200k mortgages defaults are rising in Vancouver? Seems like a low enough mortgage they could refinance or dump the asset before defaulting.

    • MH 3 weeks ago

      You think that’s the only debt they carry?

      Also have you seen the debt to income ratios? Those numbers look so abstract as long as the music keeps playing…

  • Jupiter 3 weeks ago

    Young families needs to understand the system is rigged against you. The whole system is a wealth transfer system from the young to the boomers via high taxation on your income to keep boomers alive. By the time you get old there will be no health care to support you from all the cuts. After the heavy taxation you still have to pay extra taxes everytime you buy something. What little remains you have to pay for sky high unaffordable housing. Is there any dignity left for young Canadians? You and your young family is forced to take on high levels of debt because you need a place to life. Which is basic human right, you should be very angry. Don’t let predatory real estate “investors” shame you into shutting up. Speak up and fight back, no more predatory real estate practices in Canada. No “investment” residential real estate should be allowed when housing in unaffordable to most. Time to put a predatory tax on non primary residential real estates. Time to fight for your dignity and future guys, it’s election time. It’s now or never, speak up to your friends and family. Let’s do this

    • Brad 3 weeks ago

      Election time. You have Trudeau putting a new floor into the market to keep it propped up… or Scheer deregulating the entire sector and scrapping B20 making it rocket with more fuel than 2015. Of course the BoC having to start cutting soon and the bond market turfing is even more impactful as it’s cratering rates, which has always been the sole driver.

    • vnm 3 weeks ago

      The thing is, boomers are living much longer on average than previous generations. Its kinda like not their fault.
      The super low interest rates are also increasingly a catastrophe for many seniors. Many can’t “cash in” on their houses because even if you put a million dollars in the highest interest savings account, you wouldn’t be able meet the rent for an apartment with the interest earnings.
      The historic advice for seniors was that at over 65, you should reduce your dependence on the stock market, and invest as low risk as possible.
      The way things are, that’s a virtual impossibility. The only choice left is to pump up asset bubbles. Sure there are boomers wealthy enough to be insulated against near nothing interest rates and asset corrections, but most aren’t.

      • Ethan Wu 3 weeks ago

        Everyone in the generation isn’t doing it, but they’ve been able to control the policy that puts Millennials behind and heavily indebts them to the point where they can’t have children, putting further tax burdens on them.

        Look at it this way. Why does inflation exist? To keep money moving, so money is used for productive wealth. Why did Boomers get 20% inflation, and millennials got 2%? So they could more rapidly acquire wealth, and Millennials could more rapidly acquire debt. The reversal of interest were placed so Boomers were rewarded for saving, and Millennials were penalized for not having enough debt.

        The only problem is, monetary systems only have a lifeline of about 40-50 years before needing a major overhaul. We’re just approaching the 40 year mark, that’s going to require a massive modernization of finance.

    • Chester Pape 3 weeks ago

      University and college grads are working for free to find a way to get their job in corporations, while Toronto Boomers have become millionaires overnight and most don’t even have a Grade 8 education.

      #Work for free is the new minimum wage in Toronto. Ask Centennial College, Seneca College and Humber college.

      • rustinpeace 3 weeks ago

        its nice to walk around the parking lot at work. There are people doing the exact same job but with totally different cars. Only difference is they bought property prior to 2015. One of my colleagues drives an M4 I drive a honda civic. He bought a 2 bedroom condo in 2014 and has made some absurd amount of money. Productivity wise he doesn’t do much and is ranked at the bottom of our work group . Question is do the majority of homeowners in Toronto deserve BMWs. Probably not there are more productive cities out there that deserve wealth. Toronto is not one of them. New home buyers are taking on the risk of this uncontrolled spending. During the 2008 recession I remember losing my first job but my rent was only 800 a month so I managed to get by with EI until landing on my feet. Same place rents for 1800 now. I would have gone bankrupt in 6 months and left the country.

  • cto 3 weeks ago

    Hey guys…
    I’m not a boomer, more “X gen”. I originally came from a small town up north, found a decent job in municipal, ….GTA, however, i have often thought about this…
    IMO or observations, a lot of young people seem to idolize Toronto or Van as “the be all end all!”….wrong!
    I have had these types of conversations with younger people and, truth is generally, there is work all over Ontario or… Canada.
    Just observe average wage per municipality stats and you will find the underlying truth.
    Want to get back at boomers??? move out of the City (Toronto) and find work in smaller Cities that need YOU for all kinds of different Careers and roles. There are lots of jobs in Barrie, Guelph, Oshawa, London, North Bay, Sudbury, Kingston, St Catherines, etc, etc,etc. The wage is the same or maybe less. Hugely better lifestyle!!! Time to enjoy living. Housing is 1/2 the cost and usually better services that are not saturated and over-run. Its your choice….?

    • zamolxes 3 weeks ago

      The thing is the further you are from Toronto, the slimmer your cultural and entertainment opportunities. There is simply less to do outside a dormitory lifestyle, and maybe the occasional provincial park visit. For a young professional Sudbury is a social death sentence.

      Sure, if you are married with children, those places may be options. But wait until your children become teens, and the cycle repeats. There’s a reason small cities are drug and alcohol abuse havens. Even if your children will leave the small town, you are just offloading that responsibility onto them.

      So yeah, if I ever have to move out of Toronto, I sure am not going to North Bay. I hear there are plenty of jobs in my field in the US or even the EU, with either higher salaries or lower costs of living.

      • Pete 3 weeks ago

        There’s marginally more to do in Toronto than there is in any other small city. The restaurant turnover at “peak” economy is shockingly high, and a good portion will disappear next year.

        Look at Queen East, around the Beaches. Store fronts are piling up. Downtown is even being reduced to a single movie theatre. We can stand at the dock and wave at government subsidized rubber ducks once every few years, and watch a Raptors game though.

        • zamolxes 3 weeks ago

          Toronto has the Canadian Opera Company, the Toronto Symphony Orchestra, and a large number of concert venues. That’s what I meant by entertainment. That’s not something that can be said about basically any other city in Ontario.

          I have to agree with you on the empty store fronts, I noticed more and more of them as well. And that definitely goes back to the high cost of living in general, and housing in particular.

        • Chan-Hwa 2 weeks ago

          Good Points Pete. And might I add too that there is really nothing incredibly special about downtown Toronto either (that you can’t do anywhere else in other cosmopolitan cities around the world).

      • Chan-Hwa 2 weeks ago

        I liked the last part of your comment and praise you for your honesty because this is exactly how I feel. I too have the US or the EU on my radar. I’m also open towards Australia and New Zealand.

        Meanwhile, conversations with such young professionals were less than civilized when I mentioned how Canada technically is boring and that there’s a wider world out there worth seeing and experiencing especially for people with such potential. In fact many almost bit my head off for that.

        Maybe on the outside, everything is alright and they’re progressing and making doe versus the exact opposite in a smaller city. But internally, they are hurting badly and it shows. Conclusion: the big city is now screwing you to death on wages and cost of living.

        Having that said and taking immigration criteria hurdles into account, I still don’t understand this “bad love pedestaling” for Toronto or Canada for that matter. Maybe they’re trying to save face. That may explain all the passive aggressiveness I encounter frequently working customer service.

  • Tom Wolfe 3 weeks ago

    Who the heck has a $100,000 mortgage??? People have $25,000 visa limits. These numbers make no sense when compared to the price of housing. Houses are still listed at $1,500,000 in many cases. I think the fundamentals are so messed up it’s impossible to have a realistic conversation.

    • Tik Tok 3 weeks ago

      Average insured mortgage is $250k this year, so it’s not unreasonable to assume a mortgage of $100k was pretty common just 10 years ago. They implied that in the article, when they say larger mortgages are more recent or luxury.

      • Tom Wolfe 2 weeks ago

        Suggesting that most people purchasing a house currently in Toronto have mortgages of $250,000?

        Therefore they bring $1,250,000 cash and borrow $250,000? I don’t think that is the case. I’m betting that the average mortgage in Toronto is around $500,000 to $700,000.

        Heck, in 2015-2017 mortgages were in the millions, and are accruing interest today. Those people are dumbstruck at the thought of a $100,000 mortgage. Especially when $250,000 is a common HELOC – and $25,000 is a common VISA – on top of a mortgage of probably half the value of the house, probably stretching the person to the last penny they can afford to repay. Defaults have yet to really begin, I think.

        This is why I say the fundamentals are a mess. It’s not real, not in the Toronto I’m familiar with at least.

        • Paul 2 weeks ago

          I would love to see what the average mortgage is in Toronto.

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