Mortgage Payments Are the New Gym Membership—Everyone’s Trying to Cancel

New data shows a big jump in mortgage arrears at Canadian banks, which could mean trouble for the housing market and the economy. According to the Canadian Bankers Association (CBA), 10,480 mortgages were in arrears in November 2024, the highest level since March 2021. That’s 44% more than the record low two years ago.

While the absolute number is still relatively small, the speed of increase is notable. The arrears rate went up 4 basis points to 0.21% in November, 50% higher than two years ago. The last time the rate was this high was in the spring of 2021, and this trend is up not down.

Meanwhile Canadian banks are experiencing a rare shrinkage in their mortgage holdings. The CBA has 5.01 million mortgages on its member banks’ books in November, down 36,500 from last year. Annual growth has been negative since April 2023, which is unusual for Canada. Historically it’s happened only seven times between 2018 and 2019. Banks haven’t held fewer mortgages since 2021.

And this is happening despite a lot of effort to get people to borrow. The combination of arrears growing and the mortgage market shrinking is concerning especially given how much resources are being thrown at lending. The rapid arrears growth even with policy interventions is a problem for the housing sector.

The Canada Mortgage and Housing Corporation (CMHC) is also seeing an increase in mortgage delinquencies. In the first quarter of 2024 the delinquency rate was 0.188%, up slightly to 0.192% in the second quarter. While these rates are below the pre-pandemic level of 0.28% in 2019, the trend is up and up.

assets.cmhc-schl.gc.caThere’s regional variation in the numbers. For example, the Greater Toronto Area has seen a big jump in mortgage delinquencies. The delinquency rate was 0.16% in the second quarter of 2024, up from 0.08% the same time last year and the highest since 2015. That’s a big increase even with all the measures put in place to prevent it.

Looking ahead, Fitch Ratings expects mortgage arrears to keep rising. They project the arrears rate to be between 0.25% and 0.3% by the end of 2024, 50% higher than last year. That’s still low by global standards but a big change for Canada.

Several factors are at play. The economic environment with higher interest rates and living costs is straining household budgets. So more homeowners are struggling to pay their mortgages. The cooling housing market in cities like Toronto and Vancouver has limited options for homeowners to sell their properties to avoid arrears. There are more listings than sales in these markets so it’s harder for distressed homeowners to sell their properties.

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The broader economic picture makes things worse. Canada has seen a decline in per-capita national income relative to the US and large increases in food and energy costs. That’s led to a 40% increase in bankruptcy filings in Canada. en.wikipedia.org

In response to this Canadian banks have put in place measures to help struggling homeowners. Mortgage deferrals, refinancing and extended amortization have been offered to provide relief. But we’ll have to see how effective those are if the economy doesn’t improve.

In summary, the recent increase in mortgage arrears at Canadian banks shows the housing market and the economy are getting more vulnerable. While arrears rates are low by historical and global standards, the speed of increase and the shrinking of mortgage portfolios is something to watch. Policymakers and banks need to be proactive in supporting homeowners and maintaining financial stability as the economy evolves.