Canada Mortgage and Housing Corp. (CMHC) has issued a cautionary report highlighting persistent risks in the country’s mortgage market. The agency’s latest analysis points to mounting challenges, such as increasing delinquency rates, a surge in alternative lending, and the impending pressure on borrowers who must renew their mortgages at higher rates.
Despite higher interest rates and economic uncertainty, the overall housing market has shown resilience. However, CMHC’s data reveals that mortgages over 90 days delinquent made up 0.19 per cent of the market in the second quarter of 2024. While this figure is up from the historic low of 0.14 per cent in 2022, it remains below the pre-pandemic level of 0.28 per cent.
The alternative lending sector, which serves borrowers with less favorable credit or irregular income, is experiencing particular strain. Borrowers in this category often face higher interest rates due to the associated risk. Delinquency rates at mortgage investment corporations, which are key players in this sector, have climbed to 1.15 per cent in the first quarter of 2024, up from 0.88 per cent a year prior.
Alarmingly, for single-family home borrowers within the top 25 mortgage investment corporations, more than 60-day delinquency rates surged to five per cent in the second quarter—up sharply from 1.7 per cent in the fourth quarter of 2022. CMHC’s report emphasizes that the alternative lending market is expanding quickly, with a notable uptick in defaults and foreclosures.
The agency also highlighted the increased risk exposure of alternative lenders, who now hold fewer first-rank mortgages and are dealing with higher loan-to-value ratios compared to a year ago. Assets under management for the top 25 mortgage investment corporations grew by 4.9 per cent year-over-year in the second quarter, outpacing the overall residential mortgage market’s growth of 3.5 per cent.
Looking ahead, CMHC is concerned about the 1.2 million mortgages set to renew in 2025. A significant 85 per cent of these were initiated when the Bank of Canada’s rate was one per cent or lower, suggesting that many borrowers will face higher financial strain. Although the Bank of Canada has already reduced its key rate four times this year to 3.75 per cent, it remains a substantial increase compared to previous years.
The broader economic picture is also troubling, with rising delinquencies on auto loans and credit cards indicating financial struggles for many Canadians. CMHC projects further increases in mortgage delinquency rates in 2025, fueled by high household debt and looming renewals at elevated interest rates.
“This remains a concern for the Canadian economy,” CMHC stated, underscoring the potential impact on financial stability as borrowers adjust to the new economic landscape.