CMHC CEO Insights: Canadian Mortgage Market Resilience in the Face of Rising Interest Rates

The President and Chief Executive Officer of the Canada Mortgage and Housing Corporation (CMHC), Romy Bowers, recently offered valuable insights into the state of the Canadian mortgage market during a speech at the House of Commons' Standing Committee. Bowers, who is set to step down from her role at the end of the year, shed light on the impact of high-interest rates on Canadian homeowners and the overall mortgage landscape.

CMHC, as a mortgage insurer, is well-equipped to monitor the state of the mortgage market by closely observing its balance sheet. Bowers acknowledged the challenges that high interest rates are posing to Canadians. On CMHC's books, approximately 6,000 households hold what are described as "highest risk mortgages" in the current interest rate environment, constituting about 2% of all mortgages insured by CMHC.

While these 6,000 households are considered to be at the "greatest exposure of loss," Bowers expressed optimism that Canada is not necessarily headed for a wave of mortgage defaults. She did, however, emphasize that a significant increase in unemployment could alter this outlook. Bowers noted that CMHC's arrears are at historic lows, and as long as the employment situation remains robust, they do not anticipate widespread defaults.

In fact, Bowers highlighted that the number of Canadian mortgages in arrears currently stands at a mere 0.25%, a significant drop from the 0.5% recorded in December 2022. This decline is attributed to various factors, including rising house prices in certain markets, homeowners' increased equity, and a strong employment landscape for homeowners.

One notable trend contributing to the resilience of Canadian mortgage holders is the increasing popularity of longer mortgage amortization periods. Many lenders now offer extended amortization options, provided that borrowers make an initial down payment. This flexibility is proving to be a lifeline for many Canadians in managing their mortgage commitments.

For instance, RBC's third-quarter report to shareholders revealed that 43% of its residential mortgages now have amortization periods exceeding 25 years. Similarly, Toronto-Dominion (TD) Bank's third-quarter report showed that 48% of its mortgages now have amortization periods greater than 25 years. Notably, both RBC and TD reported a growing trend of amortizations being extended to more than 35 years, surpassing the typical amortization period in Canada, which is 25 years.

This evolving landscape indicates that Canadian homeowners are adapting to changing economic conditions by exploring more flexible mortgage options. While there may be some challenges in the market, the data suggests that Canadian borrowers are navigating these waters with resilience and adaptability.

Romy Bowers' insights into the Canadian mortgage market underscore its stability and the resourcefulness of homeowners in the face of rising interest rates. As the real estate landscape continues to evolve, borrowers are exploring longer mortgage terms to manage their financial commitments effectively. This adaptability is a testament to the strength of the Canadian housing market and its ability to weather economic changes.