Canadian homeowners have demonstrated resilience in adapting to higher interest rates, but new data from the Canada Mortgage and Housing Corporation (CMHC) warns of potential challenges ahead. According to CMHC’s latest Residential Mortgage Industry Report (RMIR), mortgage arrears are expected to increase in the coming months, with Toronto and Vancouver likely to see the sharpest rises.
While mortgage arrears remain historically low, CMHC’s analysis indicates that rising interest rates and economic uncertainty are creating conditions that could strain homeowners further, particularly during the mortgage renewal process. Approximately 1.05 million mortgage consumers will face significantly higher renewal rates in 2025, potentially heightening financial pressures.
The report divides Canadian cities into three categories based on their vulnerability to rising mortgage arrears. Cities such as Calgary, Saskatoon, and Halifax are expected to maintain stable arrears rates, thanks in part to stronger housing market dynamics and lower non-mortgage debt delinquencies.
In contrast, Toronto and Vancouver face significant risks. CMHC projects Toronto’s mortgage arrears rate could climb to levels not seen since 2012, while Vancouver’s arrears could mirror 2015 levels. These increases are attributed to sluggish housing markets, where a high number of listings relative to sales limits homeowners’ ability to sell properties to avoid falling into arrears.
Montreal, Ottawa, and Edmonton fall into a mixed category. While their mortgage arrears rates are expected to remain stable, non-mortgage credit delinquencies, such as those for credit cards and auto loans, are rising sharply in these cities.
CMHC’s analysis highlights a critical relationship between non-mortgage debt delinquencies and mortgage arrears. When financial stress begins, homeowners tend to prioritize mortgage payments, often at the expense of other debts. However, as non-mortgage delinquencies grow, they can signal impending challenges for mortgage payments within six to twelve months.
Additionally, the cooling housing market, reflected in declining sales-to-new-listings ratios, reduces the ability of struggling homeowners to sell properties before falling into arrears.
Beyond the housing market, broader economic factors are also at play. The labour market is softening, with rising unemployment putting additional pressure on household finances. Inflation has further eroded discretionary income, compounding the challenges for Canadians navigating the “mortgage renewal shock.”
While some financial leaders, including the head of the Canadian banking regulator, have expressed optimism about Canadians’ ability to manage these pressures so far, they caution that significant risks remain. RBC recently identified the weakening job market as a greater economic threat than rising mortgage rates.
As Canada’s housing agency, CMHC emphasizes the need for financial institutions to support struggling homeowners. The new Canadian Mortgage Charter builds on existing guidelines to ensure tailored assistance for those experiencing severe financial stress, including alternative payment arrangements.
“Complacency is not an option,” CMHC Senior Vice-President Mathieu Laberge said, urging industry stakeholders to remain vigilant.
Despite Canadians’ resilience, the coming months will test their ability to navigate ongoing economic uncertainty. As CMHC’s analysis shows, the interplay between housing market conditions, debt pressures, and broader economic factors will determine how significantly mortgage arrears rise in the near future.
For now, the industry and policymakers are closely monitoring these trends, emphasizing proactive measures to safeguard both homeowners and the broader economy in an uncertain financial landscape.
