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JOELLE HAMILTON: Borrowers are shifting strategies.

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JOELLE: What are we seeing this spring?

ALED AB IORWERTH: What Canadians seem to be doing is moving away from that traditional five-year fixed rates.

JOELLE: What are the key risks to Canada's economy?

ALED: We have a lot more macroeconomic uncertainty now than we thought last year. The concern remains that any higher payments on mortgages will lead to a further slowdown in the Canadian economy.

JOELLE: If you're wondering what's happening in the residential mortgage market, this episode is for you.

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JOELLE: You're listening to In-House, Canada's housing podcast, where we share the latest on Canada's housing market.

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JOELLE: Welcome back to In-House. I'm your host, Joelle Hamilton. And today we're breaking down the key findings from the spring 2025 Residential Mortgage Industry Report, or RMIR for short. If you're wondering what's happening in the residential mortgage market, whether you're a lender, a homeowner, renter, or policy maker, this episode is for you. And joining me in the studio today is Aled Ab Iorwerth, one of CMHC's Deputy Chief Economists. Welcome back.

ALED: Thank you.

JOELLE: So before we dive into a set of questions, I'm hoping that you can give us a, like, a very quick snapshot of what the spring 2025 RMIR Report is and why it matters.

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ALED: Well, what we're really trying to do in this report is give a high-level picture of lending in mortgages and so forth, borrowing patterns in Canada and across the provinces. It's really just an overview of the trends, what maybe we're a little bit concerned about, what are--what's going on.

JOELLE: So let's start with mortgage debt. Last fall, mortgage, like, debt growth was slow, but it was steady. What's happening now?

ALED: Well, it's still going on. Obviously, there's a lot of macroeconomic uncertainty, but the level of mortgage debt is increasing. It's now around $2.3 trillion.

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ALED: So it's still a very large amount. It's very large relative to the size of our economy as well. And indeed, probably the largest in the G7. So the growth in mortgage debt has slowed, but there's still--it's a significant amount, and perhaps, as we'll dig into later, it is a bit of a vulnerability for the Canadian economy.

JOELLE: And I know from reading the report that borrowers are shifting strategies and they're moving away from the longer-term fixed-rate mortgages. What are we seeing this spring?

ALED: Well, first, I'll dig into why that is happening. So, as you said, they are moving away from that. And I think what our people are guessing is that mortgage rates, interest rates are on the way down or maybe won't spike as much. And that obviously links back to what I said earlier about macroeconomic uncertainty. Yes, the Bank of Canada has been lowering rates, and there's concern that with macroeconomic uncertainty, they'll be reducing interest rates a bit more. That's obviously difficult to call right now. There's concerns about inflation.

But on the other hand, there is also concern about the potential for weak economic growth. So it's a bit of a hard call. So what Canadians seem to be doing is moving away from that traditional five-year fixed rates. They're moving towards a greater proportion of variable rate mortgages. And fixed mortgages, yes, but for less than five years, so maybe a three to five-year mortgage. So, I mean, to oversimplify a bit, it's almost a third, a third, a third between these five years plus, three to five years on the variable rate mortgages. So, Canadians really are thinking that interest rates are not going to go up too much in the short term and they're moving their mortgages towards those where they could take advantage of lower interest rates.

JOELLE: Last year, delinquency rates on mortgages and other credit products like car loans or credit cards, they were climbing. Are we seeing this same trend now?

ALED: We are seeing the same trend. I would caveat by saying they are still very low. So we are talking about very low numbers of delinquency rates, of arrears, but they are going up. And so they're--in percentage terms, they're going up by quite a bit, but they are still quite low. So it's something we're keeping an eye out for. It's certainly true, as you said, the auto loans have gone up a lot. And there's some research that suggests that auto loans are an early warning indicator of trouble. So it's something we're keeping an eye out for. But again, the level of arrears, the level of delinquencies are quite low by historic standards, but it's trending in the wrong direction.

JOELLE: So with rising delinquency rates and that high debt level, that $2.3 trillion that you mentioned earlier, and then that macroeconomic uncertainty, what are the key risks to Canada's economy?

ALED: Well, it comes from that macroeconomic uncertainty. Now, interest rates, it depends a little bit on what the Bank of Canada will do with inflation.

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ALED: So whether they will be being very concerned about any potential uptick in inflation. So it's really conditional at the first instance on what the bank will do. A second obvious impact on the housing system is that any spike in unemployment rates will really transfer into rises in delinquencies and arrears because obviously Canadians really prioritize paying their mortgages, but if they don't have a job, then that creates a challenge.

So there's a risk of that if we have quite a bad economic outcome. And on top of that, we do have a lot of people renewing their mortgages over the next couple of years. I think it's about 2 million that are renewing. I think it's about 2 million that are renewing. And so… if the economy trundles along, there's still 2 million that… that will renew, now interest rates have come down quite a lot. So maybe we won't be as concerned about that renewal as before, but there is obvious risks there as so many people are renewing and interest rates are probably higher than they were during the pandemic periods.

Now, I don't think that will be a major risk, but the concern remains that any higher payments on mortgages will lead to a further slowdown in the Canadian economy.

JOELLE: Now, you mentioned earlier that the Bank of Canada has been cutting interest rates since June of last year and that there may be an expectation by Canadians that interest rates could continue coming down. Are households seeing any relief with these interest rate cuts?

ALED: Well, certainly they are, yes. And certainly relative to where we were thinking, inflation might--or interest rates might be a year or two ago. So when we were here last year discussing the RMIR, we were really quite concerned about the renewal of mortgages, but that is not as big a challenge as we thought might be the case last year now. The downside of that is that we have a lot more macroeconomic uncertainty now than we thought last year. Overall, if the economy remains functioning relatively well, there are concerns, but at the moment, they seem contained.

JOELLE: Thank you, Aled, for walking us through the spring edition of the Residential Mortgage Industry Report. And to our listeners, thank you for joining us In-House. To explore more of the data, visit our interactive Residential Mortgage Industry Data Dashboard and read the full report online. All you have to do is copy and paste the link in the episode description into your browser.

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JOELLE: Reach out. Let us know what you think. Thanks for listening and see you next time.

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