Last Updated on November 22, 2024 by CREW Editorial
In early November, the Canada Mortgage and Housing Corporation (CMHC) released its Residential Mortgage Industry Report (RMIR) for Fall 2024, offering insights into the latest trends in the Canadian mortgage market, from mortgage debt growth and borrower behaviour to investment property trends and delinquency rates.
Sluggish Mortgage Growth
Canadian residential mortgage debt reached $2.2 trillion in July 2024, reflecting a modest 3.5% year-over-year increase. This slow growth rate below both recent and historical averages highlights the cautious stance many homebuyers have adopted throughout the year. Elevated borrowing costs and high home prices have kept potential buyers on the sidelines, with many waiting for more favourable conditions.
However, the CMHC suggests the outlook could shift in the coming months. The Bank of Canada (BoC) has made consecutive interest rate cuts since June, including a notable 50-basis-point reduction in October. These cuts are intended to stimulate economic activity; according to CMHC Deputy Chief Economist Tania Bourassa-Ochoa, these cuts could “spark an uptick in mortgage activity through the rest of 2024 and into 2025.”
Shifts in Mortgage Terms and Borrower Preferences
One of the key trends observed in 2024 has been a shift in borrower preferences towards shorter-term fixed-rate mortgages. With expectations of further rate cuts, many borrowers are reluctant to lock into the traditional five-year fixed-rate mortgages. Instead, over half of newly extended mortgages in July were for terms of three to less than five years, driven by a minimal difference in rates between these shorter terms and the standard five-year options. For context, the rate difference between these terms was no more than 0.1% during the first seven months of the year. Meanwhile, variable-rate mortgages have fallen out of favour, comprising only 9% of new mortgages in July, down from 20% earlier in the year.
Renewals in 2025
A significant portion of the mortgage market faces potential turbulence in the near future, with approximately 1.2 million fixed-rate mortgages totalling over $300 billion up for renewal in 2025. Of these, more than 85% were originally contracted when the BoC’s policy rate was at or below 1%. These borrowers will encounter much higher interest rates upon renewal, which could significantly impact their financial stability, especially in the context of already elevated household debt levels. The industry and policymakers are keeping a close eye on this renewal wave, which could lead to increased financial strain for many households.
Mortgage Delinquency Rates
The mortgage delinquency rate has seen a slight uptick in 2024, rising from 0.17% in Q4 2023 to 0.19% in Q2 2024. Although this increase signals a trend toward higher financial stress among borrowers, it remains below pre-pandemic levels and well under the historic average since 1990. Notably, the delinquency rate on other credit products, such as auto loans and credit cards, has also risen, suggesting broader economic pressures that may continue to affect mortgage performance into 2025.
Despite the rise in delinquency rates, mortgage holders have been more resilient than non-mortgage holders, who have experienced sharper increases in delinquencies across other loan products.
Growing Share of Mortgages for Investment Properties
An evolving trend in the Canadian mortgage market is the increasing share of mortgages directed toward investment properties. Data from chartered banks indicates a gradual decline in the proportion of mortgages used for owner-occupied homes, dropping from 75% in Q3 2019 to 70% in Q3 2023. During the same period, the share of mortgages for investment and rental properties rose to 17%, up from 13% four years earlier.
Alternative Lenders and Market Share Dynamics
Alternative lenders have been gaining momentum, particularly in the first half of 2024. These lenders, including mortgage investment corporations (MICs), saw their assets under management grow by 4.9% year-over-year in Q2 2024, surpassing the overall mortgage debt growth rate of 3.5%. However, according to the CMHC, the increased activity comes with higher risk, evidenced by a rise in defaults and foreclosures, particularly within the single-family home segment.
Traditional lenders like the Big Six banks have maintained a dominant position in the market, holding 73.1% of outstanding mortgages. However, their share of newly extended mortgages dropped to 54.5% in Q1 2024.
