Canada’s housing market is facing a reckoning. Years of unchecked speculation, fueled by aggressive policies from the Bank of Canada, have pushed real estate prices to unsustainable levels. Now, as interest rates climb and investors struggle to cover their debts, banks are preparing for a surge in mortgage defaults.
The warning signs have been building for months. Mortgage delinquency rates have started to rise, particularly in major cities like Toronto and Vancouver. The Real Estate Institute of Canada reports that the national mortgage delinquency rate has climbed to 0.20 percent, up from 0.14 percent just two years ago. While these numbers may seem small, the pace of increase is alarming.
Private lenders are feeling the pressure. Unlike Canada’s major banks, which have stricter lending standards, private mortgage lenders have been taking on riskier borrowers. These lenders now account for nearly 17 percent of new mortgages, and their default rates have exceeded 2 percent. Many of these loans were issued to investors who bet on endless price appreciation.
The Bank of Canada played a central role in inflating the bubble. While the Federal Reserve in the United States took a more cautious approach, Canada’s central bank encouraged speculative buying with low interest rates and loose lending policies. Investors flooded the market, driving prices beyond what most working Canadians could afford.
Now the consequences are unfolding. Homeowners who stretched their budgets to buy at peak prices are struggling to keep up with payments. The BoC estimates that borrowers renewing their mortgages will see monthly payments jump by 20 to 40 percent. Many will not be able to absorb the increase, forcing them to sell or default.
The broader economy is at risk. Canada’s Big Five banks hold nearly $1.5 trillion in outstanding mortgage loans, representing 40 percent of their total loan portfolios. If defaults accelerate, financial institutions could face serious losses. Regulators are monitoring the situation closely, but intervention may come too late.
Sources:
https://www.reic.ca/article-feb7-2025.html
https://www.cwbwealth.com/en/news-and-stories/insights/have-canadas-big-banks-mortgaged-their-future
https://www.mortgagesandbox.com/news/canadas-housing-market-a-bubble