Toronto's housing slowdown is not just a flash in the pan. And Canada's largest city is seeing an even more dangerous spike in mortgage delinquencies.
Mortgage delinquencies in the Greater Toronto Area spiked sharply in the fourth quarter of 2023, according to Equifax, according to BetterDwelling. In just over a year, the percentage of mortgages delinquent has nearly doubled to its highest level since 2016.
Toronto's mortgage delinquency rate doubled
Amid an unusually sluggish housing market, the mortgage delinquency rate in the Greater Toronto Area rose one basis point (bp) to 0.12% in the fourth quarter of 2024, compared to climbing more than 5 basis points over the past year.
These numbers may seem insignificant, but they are actually climbing very quickly and could signal a wave of defaults.
Mortgage delinquency as a percentage of all mortgages in the Toronto CMA.
Mortgage delinquency rate soars 71% in a year
How outrageous is this growth? Let's look at it in traditional terms.
In just one year, the percentage of mortgages in default has soared by 71.4%. For at least 10 years, there has not even been a close increase to this increase during the 2017/2018 minor adjustment following the introduction of the non-resident buyer tax.
Over the course of five quarters, Toronto's mortgage delinquency rate rose from an all-time low to its highest since 2016.
This pace has unnerved many in the industry.
Investment homeowners have seen an increase in loan delinquencies
The increase in delinquency rates is a sign of an unhealthy economic situation for mortgage holders, especially if the housing market slows.
Because during the real estate boom, there may also be a lot of people who can't afford a mortgage. But because of the hot housing market, these people are selling their homes faster than they can be foreclosed.
And in markets with weak demand, sales tend to take longer. This may increase the likelihood of delinquency and foreclosure.
In order to speed up sales, they have sold houses at lower prices
While the narrative focuses on those who can't afford to make monthly mortgage payments, long-term owners tend to be more flexible because they have equity cushions. This allows these sellers to take price reduction measures when they need to expedite their sales (sell their homes as soon as possible). Ontario detached houses were listed for 5 times and could not be sold, and finally sold at a loss of $500,000
Historically, amateur property investors have been the main demographic for a sharp rise in mortgage delinquencies.
Because these homeowners are more leveraged and less flexible to losses, they increase their vulnerability.
Due to low interest rates in recent years, property investors have taken the market share of first-time home buyers in the proportion of home ownership, and the interest rate hike has caused many investment types of homeowners (landlords) to generate new negative cash flows. The Chinese landlord in Toronto blew up his monthly "upside down" $1800...
This has fueled a possible wave of defaults, with many people having to sell their homes passively, and the recent major changes to the capital gains tax in the federal budget have led many people to consider selling their investment and vacation homes. Canada's homeowners are getting more and more in debt!
Do you think that if a large number of houses are sold at a reduced price, there will be a pick-up man?