Analysis of the Canadian residential mortgage market

Despite the resilience of many homeowners, mortgage arrears are expected to continue rising in the short term, with Toronto and Vancouver facing the highest risks. Data indicates that financial pressures may persist for some time, impacting these key markets.

November 14, 2024

Mathieu Laberge
Mathieu Laberge

Mathieu Laberge — Senior Vice-President, Housing Economics and Insights

Mathieu Laberge — Senior Vice-President, Housing Economics and Insights

The head of the Canadian banking regulator recently said he was "pleasantly surprised by how well Canadians managed mortgage payment increases" . This was echoed by others in the financial sector, who also noted the resilience of Canadian homeowners. This resilience will be needed over the next 24 months, as they continue to navigate the impact of higher interest rates and economic uncertainty when they renew their mortgages.

Overall, homeowners continue to show lower credit arrears than renters, and while mortgage arrears remain low by historical standards, they have started to increase.

Recent CMHC analysis shows that further increases in mortgage arrears (see Glossary for full definitions) over the next 6 to 12 months is likely, with more significant increases in Toronto and Vancouver. In these 2 cities, mortgage arrears rates may reach levels consistent with those recorded between 2010 and 2015.

Using data obtained from Equifax, our team assessed the best predictors of mortgage arrears in 9 major Canadian markets: Halifax, Montreal, Ottawa, Toronto, Winnipeg, Saskatoon, Calgary, Edmonton and Vancouver.

Two main findings emerged from this analysis:

  1. The health of the resale housing markets plays a critical role in predicting mortgage arrears

    When sales activity slows, signaling a "cooling" market, homeowners struggling with mortgage payments have fewer options to sell and avoid falling into arrears. The sales-to-new-listings ratio is an important indicator of mortgage arrears. We normally see a decline in sales-to-new-listings 6 to 12 months prior to an increase in arrears.

  2. Arrears in non-mortgage credit products, such as credit cards and auto loans, are an early predictor of mortgage arrears

    Initially, there is negative correlation between changes in non-mortgage and mortgage arrears when observed with an 18-month lag. This suggests that when financial pressures begin, homeowners often prioritize keeping up with their mortgage payments at the expense of other debts.

    However, within 6 to 12 months, early signs of trouble in non-mortgage debt are generally related to increased mortgage arrears.

A tale of 3 stories

Three distinct groups of cities emerge from our analysis:

  1. housing markets that may not go through sharp increases in mortgage arrears
  2. housing markets that may go through sharp increases in mortgage arrears
  3. a mixed group that deserves further monitoring

Calgary, Saskatoon and Halifax are in the first group. Mortgage arrears rates in these cities are expected to remain close to their low post-covid levels. We expect relative stability in their mortgage arrears rates over the next few months.

Winnipeg also appears stable, though recent trends show a sharp decline in average credit scores and an increase in non-mortgage credit arrears which could signal upward pressure on mortgage arrears in the future.

Toronto and Vancouver are in a completely different situation and arrears rates are expected to increase in these cities. Our modelling shows Toronto may reach mortgage arrears rates unseen since 2012.  

While arrears rates are not expected to rise as much in Vancouver, they could reach levels like 2015. The high number of listings relative to sales in Toronto and Vancouver is likely limiting the exit strategies for current homeowners seeking to sell their unit, diminishing market fluidity.

This, combined with increasing non-mortgage arrears, creates conditions likely to result in increasing mortgage arrears in the future.

This could potentially be avoided if mortgage rates decrease more than expected or if market conditions, as measured by the sales-to-new-listings ratio, revert into sellers' market territory, where there are significantly more buyers than sellers. 

Montreal, Ottawa and Edmonton are showing mixed results and warrant further monitoring as conditions evolve. While their projected mortgage arrears rates are expected to remain within their post-Covid range, we anticipate sharp increases in non-mortgage credit product delinquencies for all 3 cities.

Mortgage Delinquency Rates Dynamics in selected CMAs
(100=Q3 2012, Forecast 2024 Q3 – 2025 Q4)

Source: Equifax, Statistics Canada, Bank of Canada, CMHC

Note: Forecast uses contemporary variables, 4Q moving average where data points are missing, assuming Policy rate gradual decrease by end of 2025.

Text Version

Mortgage Delinquency Rates Dynamics in selected CMAs
(100=Q3 2012, Forecast 2024 Q3 – 2025 Q4)
Date  Halifax Montréal Ottawa Toronto Winnipeg Calgary Edmonton Vancouver Saskatoon
2012 Q3 100 100 100 100 100 100 100 100 100
2012 Q4 97 100 105 98 111 95 95 101 108
2013 Q1 99 104 107 96 114 89 90 106 106
2013 Q2 101 99 116 88 105 80 80 108 102
2013 Q3 103 96 117 86 113 74 77 106 101
2013 Q4 120 99 120 86 110 72 69 108 103
2014 Q1 117 106 132 92 115 65 73 108 106
2014 Q2 128 104 131 81 99 59 63 102 97
2014 Q3 129 105 130 79 100 54 57 102 82
2014 Q4 133 113 142 78 106 52 54 101 104
2015 Q1 134 117 158 79 119 52 55 101 111
2015 Q2 132 115 145 69 115 50 55 97 132
2015 Q3 135 114 147 64 112 53 58 85 138
2015 Q4 133 116 152 63 131 54 58 78 146
2016 Q1 140 119 157 63 135 59 67 78 150
2016 Q2 147 115 150 57 144 61 73 68 166
2016 Q3 148 110 144 53 144 65 84 59 184
2016 Q4 146 104 147 50 143 67 87 53 195
2017 Q1 136 105 147 47 144 70 91 48 202
2017 Q2 127 103 140 41 134 65 91 43 211
2017 Q3 128 92 135 39 130 65 91 40 205
2017 Q4 120 85 129 38 119 64 90 38 212
2018 Q1 130 86 127 40 121 66 90 37 200
2018 Q2 122 86 120 41 127 62 86 34 212
2018 Q3 111 88 117 41 126 62 86 36 217
2018 Q4 107 94 128 43 141 68 91 39 220
2019 Q1 100 89 116 41 141 66 92 40 220
2019 Q2 96 84 110 43 137 69 95 40 227
2019 Q3 95 83 105 45 142 71 91 42 236
2019 Q4 93 80 102 46 156 70 90 42 239
2020 Q1 80 77 98 44 158 74 92 45 229
2020 Q2 78 73 93 45 159 74 92 50 216
2020 Q3 81 74 92 49 146 71 89 53 199
2020 Q4 65 60 77 42 118 62 78 46 166
2021 Q1 62 57 71 44 118 60 79 47 168
2021 Q2 57 48 62 37 105 57 77 43 160
2021 Q3 51 44 49 35 99 59 72 38 144
2021 Q4 42 40 50 30 94 57 76 36 134
2022 Q1 38 36 45 28 94 52 70 35 123
2022 Q2 34 30 40 27 87 46 64 30 120
2022 Q3 38 28 34 25 84 40 59 29 132
2022 Q4 32 29 37 28 83 39 57 27 134
2023 Q1 34 28 42 32 92 40 59 29 131
2023 Q2 31 30 41 34 92 38 56 31 109
2023 Q3 31 32 42 40 92 37 53 33 111
2023 Q4 35 39 52 52 98 38 53 41 110
2024 Q1 38 44 54 61 103 39 57 46 128
2024 Q2 41 45 59 65 99 38 57 50 117
2024 Q3F 43 52 55 74 98 37 58 55 128
2024 Q4F 42 54 55 82 99 39 58 61 120
2025 Q1F 44 58 64 93 99 40 70 67 124
2025 Q2F 45 60 63 102 96 41 68 71 120
2025 Q3F 47 64 58 108 95 42 71 77 126
2025 Q4F 47 66 58 115 94 43 73 80 124

What to expect next?

When interest rates started rising in 2022, many experts cautioned that the full impact of monetary tightening would not be felt for 18 to 24 months.

Even though rates recently started decreasing, we are still very much in restrictive monetary territory, and it will take several months before the full extent of easing is felt across Canadian housing markets.

Meanwhile, many Canadian households will continue to experience the burden of the "mortgage renewal shock" along with the effects of inflation, which have eroded discretionary income and made it more challenging to cope with rising mortgage costs.

Our most recent Residential Mortgage Industry Report revealed that at least 1.05 million mortgage consumers face a renewal in 2025 at significantly higher interest rates than when they were contracted.

At the same time, the labour market is easing, and unemployment is rising nationally. This shift could increase financial pressures for many Canadian households, potentially pushing some into arrears as they struggle to make ends meet.

RBC recently stated they saw the Canadian job market as a bigger risk to the economy than mortgage renewal. This combined with the increase in non-mortgage arrears across many centres and buyers' market conditions in Toronto and Vancouver reinforces our view that we need to keep a close eye on mortgage arrears over the next 6 to 12 months.

Even if Canadians continue to draw on their remarkable housing resilience, significant risks still lie ahead in this uncertain economic environment.

As Canada's Housing Agency, it is our responsibility to look forward with our eyes wide-open and encourage our peers from the financial industry to continue supporting Canadians who may be struggling: alternative mortgage payment arrangements exist for homeowners facing financial challenges.

In addition, the new Canadian Mortgage Charter builds on The Financial Consumer Agency of Canada's existing Mortgage Guidelines and expectations on how financial institutions should provide tailored support to consumers with mortgages who are experiencing severe financial stress.

As an industry, complacency is not an option. To paraphrase once again the head of the Canadian banking regulator: we can't declare victory quite yet… but after early 2027 maybe we will.

Methodological notes

In this analysis, a separate Ordinary Least Squares (OLS) regression is performed for each census metropolitan area (CMA), and a Pooled Fixed Effects model, to explore factors related to mortgage delinquencies. For each CMA, individual regressions are conducted with their own sets of differenced variables including employment variables, gross domestic product (GDP), housing market and credit variables.

This analysis offers an initial understanding of factors that are related to mortgage arrears and is based on data from Equifax, 2012 Q4 to 2024 Q2. It does not capture causal effects, rather it provides a view of leading indicators of mortgage delinquencies.

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Mathieu Laberge
Senior vice-president of Housing Economics and Insights

Mathieu Laberge leads a team of experts in housing economics and insights whose work informs Canada’s efforts to address key housing issues including housing affordability.

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Date Published: November 14, 2024