Mortgage and Consumer Credit Trends: Q4 2021 Data

Our latest release of Mortgage and Consumer Credit Trends data tables cover the fourth quarter of 2020. Here are some key highlights from the data:

Delinquency rates edged lower across all credit types

Mortgage delinquency rates in Canada edged lower to 0.25%. This is the lowest level in the five years that CMHC has reported mortgage delinquency rates. Rates in the major CMAs were below the national average and have fallen to:

  • 0.10% in Toronto
  • 0.14% in Vancouver
  • 0.20% in Montréal

Delinquency rates trended lower across all non-mortgage credit types compared to Q4 2019 to:

  • 1.18% for credit cards (down by  44 basis points)
  • 1.70% for car loans (down by 29 basis points)
  • 0.55% for lines of credit (LOC) (down by 9 basis points)
  • 0.15% for home equity lines of credit (HELOCs) (down by 2 basis points)

Mortgage holders continue to have lower delinquency rates for all other major credit types compared to consumers without a mortgage. That said, the gap between the two groups shrunk.

Mortgage delinquency rates trended lower across all age cohorts:

  • The 25 to 34 year olds, who are typically first-time homebuyers, saw their rate decline to 0.20%, the lowest level of any cohort. This age group accounts for 15% of all mortgage holders.
  • Seniors aged 65 and over, who account for 12% of all mortgage holders, registered the highest delinquency rate of 0.33%.

Delinquency rates declined across all mortgage loan amounts. The highest delinquency rate, at 0.32%, remained for mortgages with the lowest value at origination that is less than $200,000.   

Borrower credit scores trended higher

The share of outstanding and newly originated mortgages held by consumers with a high credit score (700 and above) continued to edge higher. For the outstanding mortgage loans, this share reached 87.71% which is the highest level in the last five years it has been reported by CMHC. For the newly originated mortgage loans this share edged up to 86.06%.

Compared to a year ago, 83.79% of mortgage holders and 83.56% of consumers without a mortgage either maintained or improved their credit scores. The average credit score increased to:

  • 765 for mortgage holders
  • 753 for non-mortgage holders

The average Bankruptcy Navigator Index is a ”predictive” score that estimates the likelihood of a consumer to become insolvent in the next 24 months. Higher scores indicate a lower risk. The score for both mortgage holders (938) and non-mortgage holders (923) reached the highest level over the past five years. This suggests a lower probability of bankruptcies. 

Non-mortgage outstanding balances declined

Total non-mortgage outstanding balances declined compared to Q4 2019. The most notable decline was for credit card outstanding balances:

  • 14.17% for mortgage holders
  • 13.76% for non-mortgage holders

This is followed by lines of credit outstanding balances, which decreased by:

  • 10.72% for mortgage holders
  • 10.14% for non-mortgage holders

Compared to the previous year, average monthly payment obligations declined for all non-mortgage loans with the exception of car loans. Monthly car loan payment obligations increased by:

  • 1.5% for mortgage holders
  • 1.3% for non-mortgage holders

Mortgages accounted for a larger share of consumer debt

Newly originated mortgages as a share of all mortgage loans edged up to 4.94% from 4.39% the year prior. New mortgage loans accounted for 6.93% of outstanding mortgage dollar balance compared to 5.73% in Q4 2019.

Mortgages with a higher loan amount ($400,000 and over) at time of origination as a share of all outstanding mortgages increased. In Q4 2020, these mortgage accounted for 41.42%, up from 37.98% the year prior.

Mortgage loans accounted for a higher share of total outstanding consumer credit balance, which increased to 68.91% from 66.85% a year ago.

Effects of the COVID-19 pandemic

The COVID-19 pandemic has had significant social and economic impacts in 2020 throughout Canada.  We have observed unprecedented declines in employment, and increased financial stress for households. The pandemic poses a major risk to housing and financial markets. CMHC continues to monitor the economic impacts associated with the severity and duration of COVID-19.


Bank regulator proposes higher mortgage stress test level, making it harder to qualify for home loan

Canada’s top banking regulator is proposing to raise the mortgage stress test level to 5.25 per cent or two percentage points above the market rate, whichever is higher.

That’s a hike from 4.79 per cent, which is the current average posted rate at Canada’s biggest lenders.

Thursday’s change by the Office of the Superintendent of Financial Institutions (OSFI) means borrowers will need to prove that their finances can pay for the loan at that higher rate, regardless of what a lender is willing to lend them. This would make it harder to qualify for a home loan, shrinking the pool of qualified borrowers and ultimately bringing down some of the upward pressure on house prices in the country.

The regulator says it is seeking submissions from stakeholders about its proposal until May 7th, before the new rules would be put into place for uninsured loans as of June 1.

Known colloquially as the “stress test,” the rules came into force in early 2018 and had the effect of cooling down what was at the time an overheated property market — although after they were announced in late 2017, there was a flurry of last-minute buying by people trying to get in before they would be locked out of buying.

Once they were in place in early 2018, the frenzy died down.

While there are a number of different facets to the rules, officially known as the B-20 Guidelines, they boil down to essentially one principle: would-be home buyers would have their finances tested to see if they could cover their mortgage payments should rates rise much higher than they were at the time they signed up for the mortgage.

The testing bar was set at whatever was higher: two percentage points higher than the mortgage rate they were offered, or whatever the average five-year posted fixed rate is at Canada’s big banks. 

Functionally, that five-year average rate has been the bar that most uninsured borrowers have been asked to meet, since market rates have been much lower than two percentage points below that level for almost the entire period of the stress test’s existence.

A look at the numbers

Currently, the average posted five-year big bank mortgage rate is 4.79 per cent, but it’s not difficult to find a loan at about half that rate, a little over two per cent, by shopping around.

A look at the numbers shows how easy it is to get in over your head.

At two per cent, a 25-year mortgage of $300,000 would cost $1,270 a month. But if rates were to rise to 4.79 per cent, where the big bank posted rates already are, that monthly payment goes up by almost $500 a month, to $1,709.

That’s an increase of almost 35 per cent to a borrower’s monthly budget. 

At 5.25 per cent, the new stress test rate, the monthly payment would jump to $1,788 a month.

If the numbers show that a borrower’s finances wouldn’t be able to withstand a significant rate hike, the borrower fails the stress test, and a lender isn’t allowed to lend them money. 

COVID-19 changed the plan

The banking regulator was looking into perhaps setting some other sort of benchmark for the stress test prior to COVID-19, but the pandemic shelved those plans.

In addition to the higher rate, OSFI also says it plans to “revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment.”

The move by OSFI comes as the average price of a Canadian home rose by 25 per cent in the year up until the end of February.

That’s prompted a flurry of calls for policymakers to step in again to make sure borrowers aren’t getting in over their heads.

“The current Canadian housing market conditions have the potential to put lenders at increased financial risk,” OSFI said in a statement Thursday. “OSFI is taking proactive action at this time so that banks will continue to be resilient.”

While the regulator’s goal is to ensure the stability of the system for banks, not for borrowers, James Laird, co-founder of and president of mortgage brokerage CanWise Financial, says ultimately the move may be what’s best for homebuyers, too.

“In the near term, this change will make it more difficult for first-time homebuyers to qualify for a mortgage,” Laird said, adding that the move will have the effect of lowering buyers’ purchasing power by about five per cent once it’s in place in June.

“However, if this policy has the desired effect of slowing home value appreciation, it may be a good thing for first-time homebuyers in the long run.”

Sherry Cooper, chief economist at Dominion Lending Centres, says the move may well take some of the froth out of market in the long term, but in the short term it’s likely to make this year’s feverish spring market even hotter.

“This all but ensures that the current boom in home buying will accelerate further in the spring market — providing an impetus for borrowers to get in under the June 1 deadline,” she said. “OSFI’s move will trigger an even hotter spring housing market as demand is pulled forward just as it was before the January 1, 2018 implementation date of the current B-20 ruling.”

Weekly Showing Report

Since the markets were more or less turned off this time last year, we took a look at the ten year averages to compare instead of comparing year over year. The total amount of sales across Alberta in March exceeded the ten year average for the month by 56%.

The hot spots in the Province continue to be the bedroom communities such as Cochrane, Okotoks and Airdrie…plus Canmore.  The markets across the Province are all moving quite well with most out performing the ten year averages for sales.

The big question right now is how long this can last, and will the newly implemented restrictions have an impact. The truthful answer is that no one knows for sure as anything can, and has happened in Real estate….and then you add a Pandemic to the mix.  We continue to be in unknown territory.

However, given that we have come through the past year without the bottom falling out of the market, consumer confidence has returned to Real Estate. All indications support the strong markets to continue as the first time home buyers are fuelling the market, allowing teh move up buyers to make a move up the property ladder. With incredibly low interest rates, increased savings and limited options as to where to spend money, people are choosing Real Estate.

While the current pace is not fully sustainable, there are currently more buyers than homes available. Based on the fact that we had just under 14,000 showings on CIR Realty’s listings alone for the month of March, that suggests that there are many buyers still seeking homes.

Busy is an understatement as CIR Realty’s activity continues to skyrocket!  While showing activity has continued to taper down across the Province, we had 13,908 showings on CIR Realty’s listings in the month of March!!! The week over week showings have slowed coming into April, but that is not the case for transactions. To put it into perspective, March was our busiest month in company history by over 55% the last company record!!  In the first week of April we are 10% ahead of the first week in March which suggests that it is going to be an even busier month to come!

Airdrie had one of the best months on record for total transactions in the month of March!   In fact, the sales numbers were 96% higher than the ten year average for sales in March. The increased sales activity, and lower inventory has kept most of the market in a sellers market, with the exception of the Apartment style condos which are edging towards a balanced market. These trends continue to lower days on market, and are having upward pressure on pricing.

The sales in Brooks were 62% higher in total sales compared to the ten year average for the month of March.The market remains to be in very balanced conditions, which is helping lower days on market and the total months of inventory.  With sales occurring in the higher price ranges, the pricing has risen but that does not seem to be indicative to the values in the area, just which price points are currently selling.

Calgary’s sales in all price ranges have greatly exceeded the recent years past for the month of March! In fact, the total volume of sales exceeded the ten year average for the month of March by 55%.  With the lower inventory levels, and increased sales, the months of supply continues to lower as all sectors with the exception of Apartment style condos have moved into the sellers market territory.  This has led to lower days on market and increases in prices across the board.

The hot streak continues in Camrose as sales in March exceeded the ten year average for the month by 84%!  The starter and move up markets are both doing well and we are seeing prices continuing to edge upwards as inventory levels remain low.

Canmore has now moved all sectors of its market into a sellers market as the months of supply are all below 2 months.  Interestingly enough, as the price points in the market increased from $200,000 to $1,000,000+, so did the number of transactions. With sales in the town exceeding the 10 year average for March by 140%, it continues to be one of the hottest markets in the Province!

Cochrane continues to be one of the hottest markets in Alberta, as the total number of sales in March exceeded the ten year average by 122% and hit all time new records for both sales and new listings coming onto the market!  With the steady performance of the market over this past year, each sector has moved into a sellers market with the exception of the Apartment style condo which remains in balanced territory.  The increased sales combined with lower inventory is leading to lower days on market and increases in prices.

Crowsnest Pass had another large jump in activity with the sales in March exceeding the ten year average for the month by 109%!  With the continued performance in sales, and lower inventory rates, the months of supply have dropped and are helping stabilize pricing in the area.

Lethbridge’s market continues to be carried by most of the sales occurring in the $200,000 – $400,000 price range, but sales did increase across all price ranges.  In fact the sales for the month outperformed the ten year average for the month by 61%.  The detached and semi detached markets continue to rise while the row and apartment style are still lagging behind with the row housing remaining balanced, and apartment style still well within a buyers market.

Okotoks continues to have low inventory levels and sales are trending well above average which has led to sellers market conditions in all sectors.  The sales in March exceeded the ten year average for the month by 81%.  Home prices have continued to rise in the detached, semi detached and row sectors due to the market conditions, however the apartment style condos have yet to see increases but we anticipate that to change with the low inventory and active market.

Olds is one of the slower markets in the Province….which sounds funny to say because sales are trending 23% higher than the ten year average for sales in March.  With inventory levels being lower than years past, combined with the heightened sales, the months of inventory continue to lower bringing the market closer to a balanced market. We are seeing prices stabilize and anticipate balanced conditions coming into Spring.

Red Deer’s market continues to be a very busy balanced market for across all sectors except for the Apartment style condos that are still in buyers market territory.  The total sales for the month of March exceeded the ten year average for the month by 37%, and listing inventory remains low which is contributing to the market picking up. There are upward trends on pricing in the detached sector as a result of the low months of supply.  We expect these trends to continue into the Spring market.

Rocky Mountain House had the strongest sales in March since 2014 with sales exceeding the ten year average for the month by 33%. With the sales activity and the lower inventory, it has helped lower the months of supply, and the days on market. While the market remains to be more of a buyers market, these improvements are moving it towards a balanced market which is stabilizing pricing.

The Strathmore market continues to strengthen as sales in March exceed the 10 year average for the month by 69%.  The large portion of the market selling is in the $200,000 – $400,000 range.  Given where the most sales are occurring will likely explain the benchmark price lowering month over month but if this activity continues we do anticipate stronger pricing around the corner.

Stettler had a great March with sales trending 25% higher than the ten year average for the month. What we are seeing in Stettler is different from much of the rest of Alberta as there is a relatively normal amount of inventory on the market for this time of year. This is a result of more new listings coming onto the market which should help keep market conditions balanced.

Sundre’s sales continued to climb in 2021 as the transactions in March were 25% higher than the ten year average for the month.  The steady sales, and low inventory is leading to improvements in pricing as the Benchmark price rose month over month.

-Steve Phillips, CIR Realty

What’s behind your mortgage rate

Here’s what determines the interest rate on your mortgage—and why that rate can go up and down.

Buying a home is probably the biggest purchase you’ll ever make. If you’re like most people, you won’t pay cash—you’ll borrow most of the money by taking out a mortgage. And over the life of the mortgage, you’ll pay a lot in interest.

Small changes in interest rates can make a big difference in how much you’ll pay. So it’s important that you understand what determines the interest rate on your mortgage, even if you already own a home.

Many factors go into the interest rate you pay.

Some factors are part of the cost of all mortgages

Think of a mortgage as a product you buy. Any business that sells you something tries to make a profit. To do that, the price they charge for the product has to be higher than the cost to make it. A lender profits on your mortgage because you pay more in interest (the price it charges) than what they paid to borrow the money themselves (their funding cost).

This funding cost makes up most of the interest rate on your mortgage. Other factors include your lender’s operating costs and how much the lender needs to cover the risk that you won’t repay the loan. But funding cost is the most important factor.

So, what determines funding cost?

The state of the economy, in Canada and elsewhere, matters a lot

The money that banks lend out comes from depositors and investors, both here in Canada and in other countries. So, funding cost is largely driven by the interest rates in these places. And these rates move up and down for several reasons.

Strong economic growth means more demand for money

In general, strong economic growth tends to lead to higher interest rates, while weak growth leads to low interest rates. Here’s why: When the economy is strong, more companies want to borrow from investors to expand their business. So, a mortgage provider has to pay a higher interest rate to get investors to lend to it. And when the economy is weak, the reverse is true.

The global economy matters

Many Canadian banks borrow money in other countries, particularly the United States. And keep in mind that the world’s financial markets are interconnected. Interest rates in Canada respond to what happens elsewhere. For example, foreign interest rates fell during 2019. Interest rates for Canadian five-year fixed mortgages dropped in response.

The Bank of Canada influences interest rates

The Bank of Canada also affects interest rates, mainly through changes in our policy interest rate.

When the economy is strong, we may raise this rate to keep inflation from rising above our target. Likewise, when the economy is weak, we may lower our policy rate to keep inflation from falling below target. Changes in the policy interest rate lead to similar changes in short-term interest rates. These include the prime rate, which is used by the banks as a basis for pricing variable-rate mortgages. A policy-rate change can also affect long-term interest rates, especially if people expect that change to be long-lasting.

In the past, high and variable inflation eroded the value of money. In response, investors demanded higher interest rates to offset those effects. This increased funding costs for mortgage lenders. But since the Bank of Canada began targeting inflation in the 1990s, interest rates and uncertainty about future inflation have declined. As a result, funding costs are now much lower.

Mortgage rates and the pandemic

It looked like a puzzle: As the COVID-19 pandemic spread, central banks—including the Bank of Canada—quickly cut interest rates to cushion the blow. But rates on new mortgages didn’t decline much, and some actually went up. Why?

Remember that your lender’s funding cost determines most of the mortgage rate. The cost of funding jumped in the early days of the pandemic as investors became nervous. Many simply wanted to hold on to their cash given how uncertain everything was. So, the funding that is normally easy for lenders to get slowed to a trickle. This drove up the funding cost, even as the Bank of Canada’s policy interest rate fell.

The Bank of Canada has taken many steps to help financial markets work better during the pandemic, along with the federal government and other public authorities. The goal is to ease strains in funding markets, so lenders can keep supplying credit to households and businesses.

These steps include launching programs to make sure lenders can access the funding they need. As a result of these actions, funding costs fell and some mortgage rates on new loans started to decline.

Keep in mind: existing mortgages didn’t become more expensive during the pandemic. They either have an interest rate that is fixed until its next renewal, or a variable interest rate that declined along with the Bank of Canada policy rate.

You and the characteristics of your mortgage also affect how much you pay

Your past credit history and some of the features you choose for your mortgage determine how much risk lenders face when lending to you. More risk means a higher interest rate.

Repayment or credit risk

The most important risk for the lender is that you won’t repay the loan. A high credit score can help lessen this concern, as it shows the lender you’ve been good at repaying your debts. So, you may pay a lower interest rate than those who have a lower score.

If your mortgage is worth more than 80 percent of the value of the home, you’ll have to buy mortgage default insurance. But since insurance protects the lender from the risk of default, you may get a lower interest rate than if you go for an uninsured mortgage with a bigger down payment.

Interest rate risk

Most mortgage loans in Canada are renegotiated every 5 years, but they can be as short as 6 months or as long as 10 years. The more often you renegotiate, the more often you face the risk that the new interest rate will be different than the old one. If you are more comfortable with having your rate fixed for as long as possible, prepare to pay a premium for that peace of mind.

Prepayment risk

The lender risks losing money if you repay your mortgage early—known as prepayment risk. That’s because the lender won’t be able to profit as much from the funds they raised, particularly if interest rates have dropped since the mortgage started. So, an “open” mortgage, which lets you repay all of the loan early, usually has a higher interest rate than a “closed” mortgage, which limits how much you can prepay.

It’s important to shop around!

You’ll most likely find a lower interest rate if you do your homework and are willing to negotiate. Remember, you have a choice of lenders—large banks; smaller, regional banks; credit unions; or mortgage financing companies.