Canada’s national arrears rate ticked up from its all-time low in October, according to data from the Canadian Bankers Association.
The arrears rate, which tracks mortgages that are behind payments by three months or more, rose to 0.15% from 0.14%, where it’s been since June. That works out to just over 7,400 mortgages in arrears out of a total of over 5.1 million.
This is well below the highs seen during the pandemic, when the arrears rate reached a peak of 0.27% in June 2020. The rate is highest in Saskatchewan (0.60%) and Alberta (0.37%) and lowest in British Columbia (0.10%) and Ontario (0.10%).
With interest rates continuing to rise and a high possibility of a recession by the end of the year, expectations are for arrears to rise to more historical levels.
In his latest monthly Housing and Mortgage Report for Mortgage Professionals Canada, analyst Ben Rabidoux of Edge Realty Analytics noted that arrears is a lagging indicator that “tells us more about how consumers were faring 9-12 months ago than it does about the near future.”
Still, he added that it does tell us “households are likely going into a potential recession in a better position than during other downturns.”
Origination volumes down in November
Mortgage originations slowed to a seasonally adjusted growth rate of 0.29% in November, according to data from Statistics Canada.
According to Rabidoux, that’s the weakest growth rate since mid-2019.
On an annual basis, growth slowed to 7.5%, and is expected to decline further before the end of the year.
“I believe mortgage growth will fall well below the [Guideline] B-20 lows of 4% year-over-year later in 2023 based on new origination trends, which saw 34% year-over-year declines in November,” Rabidoux noted in his Edge Realty Analytics newsletter.
Variable-rate borrowers plan to cut back on spending
Canadian consumers across the board are cutting back on spending and postponing purchases due to high inflation and rising interest rates.
But that’s especially true for variable-rate mortgage borrowers and those with other debt such as lines of credit, who are “feeling the pinch of higher interest rates,” the Bank of Canada noted in its fourth-quarter consumer expectations survey.
“The growing costs of food and other necessities are a key concern for Canadians,” the report noted. “Coupled with rising interest rates, these increased costs mean consumers are spending a larger share of their budget on necessities.”
Most consumers anticipate a mild to moderate recession within the next 12 months, the survey revealed. Of those who expect to be affected by a recession, more than half believe they will have difficulty paying bills or will face other financial impacts, though less than one-sixth expect to lose their jobs.
Access to credit is also posing a challenge for many, with about 60% saying they are having more difficulty accessing credit compared to a year ago. They attribute this to higher interest rates and stricter financing terms.
“Some consumers’ difficulties obtaining credit are leading them to anticipate weaker house price growth,” the report noted. “Still, many believe the housing market will slow only modestly because they see a shortage of houses for sale in their neighbourhood.”
Rising interest rates weighing on businesses
Nearly three quarters of businesses say rising interest rates are negatively impacting their operations.
That’s according to the Bank of Canada’s fourth-quarter Business Outlook Survey, which found overall sentiment among Canadian businesses at its lowest level since the pandemic.
Most businesses that are negatively affected expect their sales growth to weaken and in many cases decline. “Signs of softening demand are most pronounced in sectors that are highly sensitive to interest rate changes, such as those tied to housing activity and consumer spending,” the Bank of Canada noted.
The business outlook indicator fell to 0.07 in the quarter, down from a revised 1.74, with 70% of businesses anticipating that the economy will enter into a recession. However, a majority believe it will be a mild recession and are therefore not making major changes to their operations.