The Canadian mortgage market is not out of the woods, says CMHC

According to the Canada Mortgage and Housing Corporation (CMHC), 1.2 million fixed-rate mortgages will have to be renewed next year, and their holders will face higher rates than when they signed them. had contracted.

This observation, contained in the report published Monday by the SL on the residential mortgage sector, illustrates that risks remain in the country’s mortgage market.

The authors of the report say that 85% of fixed-rate mortgages due for renewal in 2025 were taken out when the Bank of Canada’s prime rate was at or below 1%.

Last week, the Bank of Canada reduced its key rate by 50 basis points, from 4.25% to 3.75%; good news for borrowers. Further declines are expected over the coming months.

But the SL notes that the financial pressure on households across the country is reflected in delinquent mortgage rates. Indeed, for the first time since 2020, the start of the COVID-19 pandemic, the rate of delinquent mortgages began to increase at the end of 2023.

Higher interest rates at renewal this year helped push that delinquent mortgage rate to 0.19% in the second quarter, compared to a record high of 0.14% in 2022.

However, the SL specifies that it remains well below the rate of 0.28% before the pandemic.

While rates on these delinquent accounts have remained low for banks and credit unions, they are rising at mortgage investment entities to surpass pre-pandemic levels after reaching 1.15%, in the first quarter.

The rise came as nontraditional lenders also reported faster growth in mortgage debt than the broader market in the second quarter.

Households in a more vulnerable situation

The economic context in the mortgage sector has changed since last spring, explains Tania Bourassa-Ochoa. The deputy chief economist at the SL affirms that the financial pressure is felt by both renter and owner households.

In the case of the latter, this pressure manifests itself in delinquency ratesi.e. situations where borrowers have not made a payment on their mortgage loan for at least 90 days.

This increase in the delinquency rate is expected to continue, at least until the end of the year and into next year.says Tania Bourassa-Ochoa.

This rate cut [d’intérêt] should inject a little “momentum” into the economyaccording to her. And this will take some pressure off some households.

Even if people are expected to be able to make their payments, households are in a much more vulnerable situation.

Rates higher than at the start of the pandemic

The approximately two million people who will have to renew their mortgage loan in 2025 and 2026 will be offered higher rates than those they were offered at the start of the COVID-19 pandemic.

On the fixed rate side, the drop will be noticeable, but not as much as on the variable rate side, continues Ms. Bourassa-Ochoa.

Last week, Doug Ford’s government in Ontario said it expected 6,000 fewer housing starts this year and next year, and a thousand fewer in 2026, compared to what was forecast in the annual spring budget. last. And this, in the midst of the country’s housing crisis.

Last year, the rise in interest rates had a downward impact on housing starts, explains Tanya Bourassa-Ochoa: there could have been 30,000 more housing starts, had it not been for this rate increase. That’s another part of the problemshe admits.

Slowing debt growth

The authors of the report released Monday by the SL further note that in July 2024, residential mortgage debt increased by 3.5% compared to July 2023, to reach $2.2 trillion. High borrowing costs and moderation in home purchases explain the slowdown in debt growth.

However, the slowdown in inflation and the subsequent reduction in the Bank of Canada’s key rate should stimulate the mortgage sector and promote its growthaccording to the SL.

Long payback periods are popular

Another finding from the report: borrowers favored a fixed mortgage rate with a duration of three years or more, but less than five years. As of July 2024, these mortgages accounted for more than half of all newly originated mortgages by chartered banks ($24.3 billion out of $43.7 billion). Only 12% of newly issued mortgages in July 2024 were fixed rate for five years.

Adjustable rate mortgages have also grown in popularity after hitting exceptionally low levels last summer.

Finally, mortgage loans with long amortization periods are favored by borrowers: nearly two in three recently issued mortgages had an amortization longer than 25 years in the second half of 2023, compared to just half in 2020.

With information from Philippe De Montigny.

With information from The Canadian Press