Posthaste: These two cities are at risk of sharp rise in mortgage arrears

financialpost.com:

Canadians have shown “remarkable housing resilience” during the rapid rise in interest rates, but significant risks lie ahead, warns the nation’s housing agency.

The analysis by the Canadian Mortgage and Housing Corporation indicates that while homeowners continue to show lower credit arrears than renters and mortgage arrears remain at historic lows, they have started to increase. 

The CMHC says further increases over the next six to 12 months are likely, with the most significant in Toronto and Vancouver.

One important signal of arrears risk is the sales-to-new-listings ratio. Homeowners struggling to make mortgage payments will find it harder to sell in a buyers’ market and an increase in arrears usually comes six to 12 months after a decline in this ratio, said the study. 

A rise in non-mortgage credit arrears is another indicator. When financial problems begin, homeowners tend to pay their mortgage first at the expense of other debts. 

“However, within 6 to 12 months, early signs of trouble in non-mortgage debt are generally related to increased mortgage arrears,” wrote Mathieu Laberge, CMHC’s senior vice-president, housing economics and insights. 

The study divides nine Canadian cities  into three groups: those that may not experience sharp increases in mortgage arrears, those that may see significant increases and a mixed group that warrants further monitoring.

The housing markets in Calgary, Saskatoon and Halifax fall into the first group and mortgage arrears in these cities are expected to remain close to the low levels seen after the pandemic. 

Winnipeg falls in the third group. Though mortgage arrears appear stable for now, a sharp decline in average credit scores and an increase in non-mortgage debt