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 1. 
 2. Market Updates


CMHC SAYS MORTGAGE RISKS REMAIN

It comes as alternative lending grows


By Candyd Mendoza
05 Nov. 2024
Share


As Canadians brace for a wave of mortgage renewals, a new report from the Canada
Mortgage and Housing Corp. (CMHC) revealed a concerning rise in mortgage
delinquencies, reflecting what the agency described as a “fragile financial
state” for many households.

Despite the Bank of Canada’s recent interest rate cuts, the report showed that
homeowners face mounting financial pressures, which could push delinquencies
higher into next year.

Mortgage delinquency rates — the percentage of homeowners who have missed
payments for over 90 days — rose slightly to 0.192% by the end of June, up from
0.17% at the end of 2023.



Though still below pre-pandemic levels of 0.28% in 2019, CMHC’s deputy chief
economist Tania Bourassa-Ochoa said this “sticky upward trend” could mean a
return to these pre-pandemic rates as early as next year.

“We have already been seeing this financial pressure mount up, generally
speaking, among homeowners,” Bourassa-Ochoa told Global News.


FINANCIAL PRESSURES BEYOND MORTGAGES

While mortgage payments are a priority, signs of financial stress are mounting
in other areas, which CMHC suggested could eventually impact mortgages.

Delinquency rates for auto loans climbed significantly to 2.42% in the second
quarter, up from 2.11% in the first quarter. Credit card and line of credit
delinquencies also rose in the first half of the year.

According to the report, these trends are “leading indicators” for mortgage
delinquencies, signalling potential stress ahead for home loan payments as
budgets tighten further.



The higher cost-of-living, elevated interest rates, and large mortgage balances
are all contributing to the pressure, Bourassa-Ochoa explained. She pointed out
that many Canadians will prioritize mortgage payments, treating them as the last
expense to default on.

However, with 1.2 million fixed-rate mortgages coming up for renewal in 2025, a
growing number of homeowners are likely to feel the strain. Most of these
mortgages were initially set up when rates were at or below 1%, meaning renewal
payments will rise considerably.

CMHC estimated an average 30% increase in monthly payments for those renewing
next year.


RATE CUTS OFFER LIMITED RELIEF

Although the Bank of Canada has reduced its policy rate by 1.25 percentage
points since June, bringing it to 3.75%, the impact on mortgage rates has been
limited, as the reductions have already been factored into the market. This
means that, for many, the rates available today may be as low as they’ll see in
the near future.

CMHC anticipates that housing market activity will increase in 2025, buoyed by
potential additional rate cuts and proposed federal changes to expand access to
insured mortgages and 30-year amortization options.



According to Bourassa-Ochoa, a tighter housing market can also help financially
stressed homeowners sell more quickly if needed, helping avoid mortgage
defaults.

Read next: Canada's mortgage market set for a strong 2025 - experts

However, she emphasized that Canadian households remain in a vulnerable
position.

“[Households are] in a more fragile financial state than they were before,”
Bourassa-Ochoa said.

“We’re definitely expecting the policy rate cuts to put a little bit of momentum
into the economy. And that should definitely be limiting that increase in
mortgage arrears. But it’s important to note that households are in a more
vulnerable financial position than they were before.”



Make sure to get all the latest news to your inbox on Canada’s mortgage and
housing markets by signing up for our free daily newsletter here.





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