Canada's mortgage market – examining what's hot and what's not

Consumers are turning away from one type of rate, according to report

Canada's mortgage market – examining what's hot and what's not

Several key insights stood out in the latest edition of Canada Mortgage and Housing Corporation’s (CMHC) Residential Mortgage Industry Report, with analysis revealing the current condition of the mortgage market.

There was a deceleration in mortgage growth as interest rates increased in the second quarter of the year, according to the CMHC update, with year-over-year growth slowing since March 2022. However, households still recorded high levels of real estate debt and, as of August 2022, residential mortgage debt was at $2.05 trillion, up 8.8% from the previous year.

Consumer preference for variable rates has also gone down. Since June, financial institutions were found to have lent more funds for fixed-rate mortgages compared to those under variable-rate agreements. 

Furthermore, ratios of mortgage loan approvals to applications have declined in the first two quarters of the year, CMHC said, reflecting how borrowers are finding it “increasingly difficult” to qualify for loans that are subject to stress tests. Even with this lower ratio, the report observed that today’s mortgage approval levels are still higher than they were pre-pandemic.

Additionally, the share of mortgages in arrears, such as those considered delinquent for 90 days or over, remained on a downward trend at the end of the Q2. This was true across all lender types, with credit unions recording the lowest rate at 0.10%.

The CMHC report also looked into delinquency in other credit types. Among mortgage holders, CMHC noted an improvement in delinquency rates for lines of credit (LOCs) and auto loans between Q3 2021 and 2022. However, credit card debt was found to have increased during this same period.

Additionally, CMHC found that alternative lenders have outpaced conventional lenders in terms of mortgage lending growth, with Canada’s top 25 mortgage investment corporations (MICs) seeing their assets under management increase by over 22% in Q2. Moreover, mortgage borrowers were revealed to be “more likely” to renew their loans with these lenders as rapid interest hikes make it more difficult for them to qualify with more traditional options.