David Rosenberg: Canada's menacing mortgage math means crisis looming

financialpost.com:

The macroeconomic math relating to Canada’s looming wall of mortgage renewals should be terrifying for the Bank of Canada. A large increase in average monthly mortgage payments will arise from the nearly $1 trillion in renewals due by 2026, triggering, in turn, a large demand shock and putting stress on the housing market in particular and the economy in general. The central bank will need to ease aggressively before the shock strikes to avoid turning a slowdown into a crisis, positioning Government of Canada bonds for outperformance in 2024.

It has been widely reported that around two-thirds of the Canadian mortgage market will renew their terms between 2024 and 2026. Given that the vast majority of fixed-rate mortgages and fixed-payment, variable-rate mortgages had locked in low interest rates before or in the early stages of the 2022/23 hiking cycle as consumers shifted away from fully variable mortgages, renewals will force mortgage holders onto much higher average interest rates.

This looming “mortgage renewal cliff” is common knowledge in Canada, but nobody has followed the macroeconomic math through to its full conclusion. We triangulated various data sources to trace the impact of mortgage renewals through the system. While perfect accuracy is impossible, the broad direction and magnitude of the impact are both knowable and alarming.

Combining the data from the Bank of Canada’s most recent Financial Stability Review with Canada Mortgage and Housing Corp. (CMHC) data on average balances, we confirm that around two-thirds of mortgages (by value) will renew by 2026. The distribution is somewhat backloaded, with a bit more than half coming in 2024 and 2025, and the remainder in 2026. We can use the rise in average