The real estate slowdown in Canada’s largest city is starting to show increasing signs it’s not just a blip. Greater Toronto saw a sharp climb to its mortgage delinquency rate in Q4 2023, according to Equifax data. The share of delinquent mortgages has nearly doubled in just over a year, leading to the highest rate since 2016.
Share of Delinquent Mortgages Nearly Doubled In Toronto
Greater Toronto mortgage delinquencies are rising back to normal extremely fast, after unusual low activity. The rate rose one basis point (bp) to 0.12% in Q4 2024, having climbed over 5 bps over the past year. The numbers may sound small, but this is an usually fast climb.
Toronto Mortgage Delinquencies Are On The Rise
The share of delinquent mortgages as a share of all mortgages in Toronto CMA.
Source: Equifax; CMHC; Better Dwelling.
Toronto Mortgage Delinquency Rate Climbed 71% Over A Year
To highlight just how absurd this growth is, let’s look at it in conventional terms. The share of mortgages in delinquency rose a whopping 71.4% over just one year. Nothing even close to this kind of growth has been seen in at least a decade, even during the 2017/2018 mini-correction after the rollout of a non-resident buyer tax.
Toronto Mortgage Delinquencies Are Rising At An Unusually Fast Rate
Annual growth in the mortgage delinquency rate for Toronto CMA.
Source: Equifax; CMHC; Better Dwelling.
Over a span of five quarters, Toronto’s mortgage delinquency rate went from the record low to the highest since 2016. Not all that long ago, but the speed is unsettling.
Rising Mortgage Delinquencies Typical of Investor Markets
It’s important to remember that delinquencies aren’t a sign of payer health, but demand. During real estate booms, there are plenty of people that can’t afford their mortgage. However, they can sell their home faster than the home can be foreclosed.
In markets with soft demand, it tends to take much longer to sell. That can increase the odds of delinquency and foreclosure. While the narrative focuses on people in over their head, long-term owners tend to be much more flexible, since they have an equity cushion. That allows these sellers to take a price cut if needed to accelerate a sale.
Historically, it’s amateur investors behind a sharp increase of mortgage delinquencies. They’re more heavily leveraged, and less flexible to losses, thus increasing their vulnerability. The recent boom of investors capturing first-time homebuyer market share, and a high concentration of newly minted cash flow negative “landlords,” definitely make this a possibility.
