Mortgage Deferrals Could Top 20% by September

About 12% of all mortgages are now in deferral per Evan Siddall of CMHC. This includes both insured and uninsured mortgages, and that number could balloon to 20% by September, noted Siddall in a speech to members of the finance committee. Furthermore, its expected household debt to GDP ratios will blow out in the coming quarters. Canadians are among world leaders in household debt. Pre-COVID, the ratio of gross debt to GDP for Canada was at 99%. Due in part to increased borrowing but even moreso to declines in GDP, we estimate it will increase to above 115% in Q2 2020 and reach 130% in Q3, before declining. These ratios are well in excess of the 80% threshold above which the Bank for International Settlements has shown that national debt intensifies the drag on GDP growth. As a result of elevated levels of household debt and a surge in unemployment, CMHC estimates national home prices will decline between 9-18% in the coming twelve months as they meet a growing debt “deferral cliff” that looms in the fall. In the chart below, we can see the majority of CMHC insured mortgage deferrals are concentrated in Quebec, Alberta, and Ontario. IIF stands for insurance in force. So when looking at the chart, for example, Ontario accounts for 34.8% of CMHC’s insured mortgage portfolio, and 21% of the mortgages being deferred are in Ontario.

Due to growing concerns of declining home prices and elevated levels of household debt, CMHC noted they are considering pushing the minimum 5% downpayment up to 10% as they seek to reduce their risk exposure. Remember, if there is an insurance claim, CMHC will be called upon to cover the losses. They believe 2% of all uninsured mortgages could end up in default. Siddall concluded, “Our support for homeownership cannot be unlimited. Homeownership is like blood pressure: you can have too much of it.”