An increasing number of Canadians are struggling with their mortgages due to financial pressure and mortgage arrears are on the rise, according to a new report by the Canada Mortgage and Housing Corporation.
Financial reserves accumulated throughout the pandemic have since been exhausted, research from the CMHC’s latest Residential Mortgage Industry Report revealed.
Additionally, mid to low-income households are now having to dip into their savings just to make ends meet.
The report forecasts that mortgage arrears will reach pre-pandemic levels of 0.25% by the end of 2024. A mortgage arrear is a payment obligation that hasn’t been received by its due date.
Canada’s high cost of living, coupled with increased interest rates and a spike in unemployment have further stretched Canadians’ pocketbooks toward a dangerous breaking point.
“These notable changes in financial behaviour, recent dissaving trends and low mortgage consumer sentiment all suggest more Canadians are living paycheck-to-paycheck and trying numerous creative ways to stay afloat,” reads the study.
“Additionally, close to half of borrowers have yet to renew their mortgage, this year and next, at a higher rate. This unprecedented context is making mortgage holders even more fragile to changing employment conditions or a major life event that would negatively impact their household income.”
The CMHC’s 2024 Mortgage Consumer Survey found that nearly 25% of respondents said they were worried about their ability to continue making their mortgage payments.
The majority of household debt in Canada is tied up in mortgages and the country’s household debt levels are currently at an all-time high.
“Policymakers and the financial sector are closely monitoring the risks to the overall economy and financial system stability, given that an unexpected shock could tip a greater number of homeowners into default,” reads the report.
Mortgage consumers will often sell off other assets to keep up with their mortgage payments.
“If a household has missed its mortgage payment for over 3 months, chances are it has been experiencing periods of financial stress for a longer time. This is because Canadian homeowners often prioritize mortgage payments over other debt payments and non-essential expenses,” the report added.
However, prolonged financial stress can lead homeowners to miss mortgage payments and mortgage arrears, making them vulnerable to default.
While mortgage arrears have been historically low in recent years, there has been a gradual increase in the first quarter of this year, with over 12,600 mortgages now having missed payments for at least 90 days.
However, should interest rates come back down as many economists expect them to over the coming months, 2025 could see a boost in economic activity that would alleviate financial stress on monthly payments.