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The rate of mortgages overdue by three months or more in Canada has been gradually increasing but remains historically low, according to the Canadian Bankers Association.
As of April, the arrears rate stood at 0.18%, down slightly from 0.19% in March. This translates to 9,252 out of over 5.02 million mortgages being in arrears. Although the rate has risen from a low of 0.14% in 2022, it remains below the peak of 0.27% seen in June 2020 and significantly lower than the all-time high of 1.03% in 1983.
Provincial differences are notable, with Saskatchewan experiencing the highest arrears rate at nearly 0.60%, while Ontario boasts the lowest rate at 0.13%, followed by British Columbia at 0.16%. Economic factors such as rising joblessness and resetting mortgages are contributing to an increase in home loan defaults. However, most Canadian mortgage holders are managing to make their payments by reducing other expenses or extending their mortgage terms.
The national unemployment rate rose to 6.4% in June, with 1.4 million people unemployed. It is projected to reach 7-7.5% by the end of the year. Additionally, mortgage renewals at higher rates pose a challenge, potentially raising payments by 34% by 2027. Despite the expected rise in arrears, it is unlikely to reach the long-term average of 0.40%. BMO predicts that arrears will peak at 0.34% by mid-2025 and then drop to 0.28%.
Income support programs and strong home prices have helped keep arrears low. If unemployment rises to 9%, the arrears rate might slightly exceed the long-term average. However, falling interest rates are expected to support the economy and house prices, easing the strain from mortgage resets. The mortgage stress test, introduced in 2016, will be crucial in managing this period.
This blog was inspired by and based on the article "Will the Bank of Canada deliver another 175 bps in rate cuts? TD and CIBC say yes" from Canadian Mortgage Trends.