Auto loan defaults saw a sharp increase during the second quarter of 2024, raising fears for the worst for mortgage lenders.
According to the Canada Mortgage and Housing Corporation (CMHC), which has just published its most recent report on mortgage loans, the rate of delinquent auto loans reached 2.42% in the second quarter, ending June 30. .
This increase follows a year and a half of relative stability, with rates fluctuating from 2.02 to 2.11% between the fourth quarter of 2022 and the first quarter of 2024.
Furthermore, the rates of overdue credit cards and lines of credit also increased, between the end of 2023 and the end of June 2024. They went from 1.56 to 1.70% and 0.00% respectively. 72 to 0.84%.
Delinquent auto loan and credit card rates “can be leading indicators of delinquent mortgage rates,” says CMHC. Thus, these trends suggest that the rate of delinquent mortgages will continue to increase in 2025.
Buyers on the sidelines
CMHC observes slow growth in residential mortgage debt in Canada compared to recent years. It only grew 3.5% year over year in July 2024, reaching $2.2 trillion.
This weak growth could be explained by the fact that many future buyers remained on the sidelines for most of the year, held back by the high costs of housing and borrowing.
The expected drop in short-term mortgage rates, as the Bank of Canada makes key rate cuts, would also have encouraged potential buyers to wait before applying for a mortgage loan during the first six months of 2024.
Although currently below recent and historical averages, mortgage debt growth has been higher than inflation and could intensify in a more affordable financing environment. The recent outlook from the Canadian Real Estate Association actually showed an increase in sales after each reduction in the key rate.
More details will follow.
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