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[Speaker: Aled Ab Iorwerth]

Arrears rates are going up across the country. Delinquencies are going up. These are still at low levels, but they are increasing quite rapidly.

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[Speaker: Joelle Hamilton]

What’s happening in this space that we should be mindful of?

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[Speaker: Aled Ab Iorwerth]

One thing that’s clear is that the 5-year fixed-rate mortgage is a thing of the past.

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[Speaker: Joelle Hamilton]

What are the risks that we should watch for?

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[Speaker: Aled Ab Iorwerth]

Housing is a risky investment. Prices can go down as well as up. The returns are still uncertain over the long term.

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[Speaker: Joelle Hamilton (voiceover)]

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

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[Speaker: Joelle Hamilton]

Welcome back to In-House.

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[Visual: A box that reads “Joelle Hamilton, Communications & Marketing — CMHC” appears briefly.]

[Speaker: Joelle Hamilton]

I’m your host, Joelle Hamilton, and today we’re looking at the key findings from the Fall Residential Mortgage Industry Report, or “RMIR,” for short. Joining me today is Aled Ab Iorwerth, one of CMHC’s Deputy Chief Economists. Welcome back, Aled.

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[Speaker: Aled Ab Iorwerth]

Thank you. Good to be back.

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[Speaker: Joelle Hamilton]

To start off, I’d first like to ask you to give us a quick overview of the key findings of the Fall Report.

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[Speaker: Aled Ab Iorwerth]

There are several items of interest in the Report. Obviously, we’re against a background where Canadians have a high level of household debt. There are some signs of lower debt overall, but there are also some negative signs as well.

Arrears rates are going up across the country, delinquencies are going up. These are still at low levels, but they are increasing quite rapidly. That’s why we’re continuing to monitor and report on the housing system and the credit related to that.

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[Speaker: Joelle Hamilton]

In the spring, when you were here last to talk about the residential mortgage industry, borrowers were shifting from fixed-rate mortgages to variable-rate mortgages. Are we still seeing that trend? Is it still strong?

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[Speaker: Aled Ab Iorwerth]

There are a lot of mixed patterns within the data. One thing that’s clear is that the 5-year fixed-rate mortgage is a thing of the past. There are people with more fixed-rate mortgages, but of a shorter duration — 3 to 5 years. There are now quite a lot of people with variable rates as well. So there’s a lot of mix and changing in the decisions that households are making.

I think that’s a response to the macroeconomic uncertainty. Some people may be responding by saying they need certainty for the next few years. Others may be saying, “We think the economy is not so strong, so we’re going to opt for variable-rate mortgages.” A lot of different decisions are being taken across the country.

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[Speaker: Joelle Hamilton]

Earlier this year, we talked about how Canada’s mortgage debt had grown to over $2.3 trillion, and that now makes Canada the most indebted G7 country. We’ve also seen the household debt-to-income ratio ease a little bit or increase a bit, and interest rates have fallen. But household debt is still high, and with so many renewals coming, there are a number of risks.

So my question to you is, are Canadians in a stronger position this fall?

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[Speaker: Aled Ab Iorwerth]

It’s a difficult call, to be honest. Canadians have a lot of debt. I think they are taking actions to try and reduce that level of debt. They are helped a little bit by lower interest rates, as you mentioned. But there’s also a negative side to that, in the sense that lower interest rates are there because the economy is weaker. So, it’s a very difficult call.

I think what we can hope for is that Canadians continue to lower their debts. But again, there is a negative side to this: that if Canadians devote more of their income towards paying down debt, that does lower consumption and leads to broader weakness in the Canadian economy.

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[Speaker: Aled Ab Iorwerth]

It’s concerning, and it’s not very clear how this will pan out.

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[Speaker: Joelle Hamilton]

So now my big question is — and I think you touched on it a little bit in your overview of the key findings — are delinquency rates still rising, and/or has there been some relief?

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[Speaker: Aled Ab Iorwerth]

Delinquency rates are still rising, arrears rates are going up… This is for housing credit, but we’re also seeing signs of concern in other credit types, such as auto loans, credit cards, and so forth.

I think, despite the very large increase in delinquencies and arrears, we can take a bit of comfort in the fact that levels are not outside of historical norms at the moment. So it’s concerning, but this is why we’re hoping that the economy will recover — because arrears and delinquency rates are going in the wrong direction at the moment.

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[Speaker: Joelle Hamilton]

And is that across the country, or is it more prominent in specific regions?

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[Speaker: Aled Ab Iorwerth]

It’s a pattern across the country. It’s a little bit worse in some provinces — Ontario, for example — but it’s a consistent pattern across the country. Arrears and delinquencies are going up. Still relatively low, but going in the wrong direction.

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[Speaker: Joelle Hamilton]

You mentioned earlier, and I also mentioned it, that we are the most indebted of all G7 countries. How does housing, though, continue to shape wealth? Because a lot of us have mortgages, which are a debt, but it’s housing debt, which contributes to wealth. And what are the risks that we should watch for?

00:05:49:00

[Speaker: Aled Ab Iorwerth]

I think Canadians have put a lot of their wealth into housing. It’s now up to around a third of Canadians’ wealth, on average, overall, in housing.

On the one hand, that’s an important source of wealth for their retirement – and they’ve built up a lot of equity in their homes, which is a good thing, in the event that there is some sort of credit risk. Canadians will have this home equity to fall back on if there are really hard times. So I think that’s very comforting.

There is a longer-term concern, however: people need to understand that housing is a risky investment. Prices can go down as well as up.

00:06:29:00

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[Speaker: Aled Ab Iorwerth]

It’s risky to put such a big share of their income into housing, because the returns are still uncertain over the long term.

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[Speaker: Joelle Hamilton]

This concludes our podcast today, Aled. Thank you so much for giving us the key insights from the fall edition of the Residential Mortgage Industry Report.

And a big thank you to our listeners for joining us In-House. If you want to explore more, check out CMHC’s interactive Residential Mortgage Industry Data Dashboard and the full report. We’ve included the link in the episode description below.

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[Speaker: Joelle Hamilton (voiceover)]

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[Speaker: Joelle Hamilton (voiceover)]

You can now find us on Spotify, Apple Podcasts, and Amazon Music.

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[Speaker: Joelle Hamilton (voiceover)]

Don’t miss our next episodes for more real, data-driven discussions. If you’re learning from and/or enjoying this podcast, please share this episode, follow us, or subscribe. Reach out. Let us know what you think.

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Thanks for listening and see you next time.

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