Canada mortgage defaults and foreclosures rising

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Millicent Wong
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Canada mortgage defaults and foreclosures rising

Mortgage brokers are starting to see more defaults on privately funded loans and an increase in selling power as the central bank hikes interest rates on an unprecedented scale.

“We’re starting to see some selling strength in the market in the GTA, and we’re also starting to see some people defaulting on some personal mortgages as well,” Leah Zlatkin, mortgage broker and expert at leastrates.ca told Financial Post Larissa Harapyn .

Zlatkin spoke just days after the Bank of Canada raised interest rates by 50 basis points to 4.25 percent when they were near zero 11 months ago. Gov. Tiff Macklem is walking a delicate balance between bringing down inflation rates not seen in four decades and preventing the economy from sliding into recession.

While higher interest rates have taken some of the heat off the country’s housing market, economic numbers are coming in stronger than expected. Consumer price growth has slowed but is still close to 7 percent. The unemployment rate is at 5.2 percent, a level most economists think is full employment – meaning everyone who wants a job has or can get one – at a time when demand for labor is not waning.

“We’re still seeing very high inflation and a lot of well-employed Canadians, and the recession clearly hasn’t hit,” Zlatkin said. “At this point, the Bank of Canada may have no choice but to hike rates again in the new year.”

That could cause further problems for the country’s interest-rate-sensitive housing market, and people with home equity lines of credit and uninsured mortgages should consider speaking to a realtor to discuss refinancing, Zlatkin said, adding that she’s seeing more people reach their trigger rates.

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Home prices have fallen for nine straight months, falling 11.5 percent from the February peak, the Canadian Real Estate Association reported Thursday. The reference price for a home in November was $744,000.

Higher interest rates could drive home prices even lower as speculators try to time the market bottom while those who don’t qualify for mortgages also sit on the sidelines.

The Office of the Superintendent of Financial Institutions, Canada’s banking regulator, maintained the mortgage stress test, citing the need for caution amid economic uncertainty.

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