Homeowners are having more trouble repaying their mortgage loans, confirms the Canada Mortgage and Housing Corporation (CMHC), which is seeing an increase in payment defaults, a trend expected to increase.
Already, for the first time since the pandemic began, the rate of delinquent mortgage loans has risen in Canada, according to a recent CMHC report released Wednesday.
After reaching a low of 0.14% in the third quarter of 2022, the delinquent loan rate reached just 0.17% in the fourth quarter of 2023. And by the end of 2024, CMHC predicts the situation will worsen to a rate of 0.25%.
A worn out cushion
For CMHC Deputy Chief Economist, Tania Bourassa-Ochoa, the data is clear and all points in the same direction. “The population is facing severe financial hardship and the financial cushion that households could have accumulated during the pandemic is now exhausted.”
The federal agency responsible for housing in Canada explains that rising interest rates, higher housing costs, a rising cost of living, combined with a slight increase in unemployment are leading to an increase in delinquent mortgage loans.
In absolute terms, an estimated 12,600 mortgages nationwide are currently delinquent. A loan is considered delinquent only when the borrower's payments are more than 90 days (3 months) late.
The tree that hides the forest
For economist Bourassa-Ochoa, this new situation probably hides the economic difficulties that have unfortunately been going on for some time.
for what That's because homeowners typically prioritize their mortgage payments over other debts or unnecessary expenses, she explains. Therefore, households tend to look for other solutions, such as dipping into their savings, before difficulties affect their mortgage payment.
Thus, we observe an increase in defaults on other credit products before she hits mortgage loans. For example, credit cards currently have a delinquency rate of 1.56% (failing to make three monthly minimum payments) and auto loans have a delinquency rate of 2.09%. These rates are much higher than what we observed three years ago.
Maturity mortgages
This situation does not bode well for the future. “People are vulnerable, often financially fragile. Even the smallest cost, like losing a job for a period of time, can easily derail everything. […] This financial vulnerability of borrowers' families has become one of the main concerns of CMHC.
The firm knows that nearly half of mortgage loan holders will have to refinance within two years at a lower interest rate than their current rate.
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