🇨🇦 Household Debt Meets the Mortgage Wall: Are Cracks Forming in Canada’s Real Estate Foundation?

Realist Admin
6 days ago
4 min read

Canada’s household debt has reached an all-time high of $2.55 trillion, and we’re staring down the barrel of a nationwide mortgage renewal cycle unlike anything we’ve seen before. As more borrowers lean on one credit facility to pay off another — with 29% of mortgage renewers doing just that — the question isn’t if we’re in trouble, but how deep it goes.

Welcome to the “Great Renewal.”

A Nation of Borrowers, Strained to the Limit

According to Equifax and CMHC, Canadians are not just taking on more debt — they’re struggling to manage it. The average consumer now holds $21,859 in non-mortgage debt, and delinquency rates are climbing across the board:

📈 Mortgage delinquencies (90+ days past due) in Ontario have surged 71.5% year-over-year, the sharpest increase since tracking began in 2012.
👥 Young Canadians are being hit the hardest: delinquency rates, missed minimum payments, and auto loan defaults are all rising fastest among those under 35.
🔁 Nearly a third of mortgage renewers are using debt to pay debt, a clear signal of systemic financial stress.

This is more than just consumer anxiety — it’s a shift in the underlying risk structure of the housing market.

The Quiet Crisis: Refinancing, Not Buying

It’s easy to mistake rising mortgage activity for a housing market comeback. In Q1 2025, mortgage originations spiked nearly 58% year-over-year — but most of that growth came from renewals and refinances, not purchases.

🏦 28% of borrowers switched lenders at renewal, while 50% shifted between major banks, chasing better rates.
💰 Loan sizes have grown 7.5%, while payment relief remains minimal — despite recent rate cuts.
⚠️ Even with first-time buyer activity up 40% from Q1 2024, affordability constraints and economic volatility are keeping many on the sidelines.

This isn't a market charging forward — it's one trying to survive.

Rising Delinquencies ≠ Rising Defaults (Yet)

There are early signs of consumer caution. Canadians are spending $107 less per month on credit cards compared to last year — the lowest level since March 2022. But beneath that prudence lies a sobering reality: minimum payment behavior is rising, particularly among the under-35 cohort.

Here’s what that looks like:

🔻 Average credit card pay rate fell 392 basis points among borrowers under 35.
🚗 Auto loan delinquencies for the same group surged 30%.
💳 Credit card delinquencies are up 21.7%.

This growing bifurcation — between cautious savers and financially stretched borrowers — is creating a fragile consumer landscape.

Ontario: Canada’s Economic Bellwether

Ontario’s role in this story is critical. With the highest housing costs, property taxes, and cost of living, it’s also where the risks are most concentrated.

Mortgage delinquencies are up 71.5%.
Non-mortgage delinquencies are up 24%.
Unemployment is rising and housing starts are down over 30% year-over-year.

If Ontario sneezes, the rest of Canada may catch a cold — especially the banks.

Why This Matters for Real Estate Investors

The Canadian housing market depends on more than bricks and lumber — it’s built on credit, confidence, and capacity. CMHC’s own research shows that:

70% of borrowers fear economic shocks could lead to default.
46% worry about job loss.
24% are already concerned about their existing debt.

Investors need to understand: this is not a demand-driven downturn — it’s a debt-driven one. And that’s harder to fix with interest rate cuts or government grants.

Governments Are Flunking the Housing Test

Adding insult to injury is the failure of policy leadership at all levels.

The "More and Better Housing" coalition recently released a sobering report card grading Canada’s provincial and federal governments on 140 policy recommendations tied to housing supply, affordability, and climate resilience:

No province scored above a C+
Ontario received a C for slow progress on affordability and density
Alberta flunked with a D+, due to inaction on building codes and flood-zone development
Even the federal government, which received the highest grade, only managed a B

This is a crisis that requires alignment — and instead, we’re seeing bureaucratic infighting, overlapping jurisdictional mandates, and policy paralysis.

Banks Are Strong — But Are They Immune?

Canada’s big banks are still delivering decent results, thanks to strong capital buffers and global diversification. But they’re not without risk. Here’s what to watch:

Rising loan loss provisions
Surging delinquency rates in Ontario and BC
Weak consumer credit performance
Tightening credit conditions

Some banks, like TD and BMO, may be shielded by their U.S. exposure. But those heavily concentrated in Canadian real estate and consumer lending face a rockier road.

Calgary: A Market to Watch

While much of Canada stares down rising debt and falling affordability, Calgary is moving the other way:

📉 Sales down 17%, but listings are up — giving buyers breathing room
🏡 Benchmark price down 3%
🧭 The market is fractured: some areas remain hot, others are oversupplied

Smart investors will double down on local research and focus on value pockets — Calgary’s volatility is also its opportunity.

What Reddit Tells Us About Sentiment

In one /r/RealEstateCanada thread titled "Is anyone else holding off buying right now?", the tension between caution and FOMO was clear:

“I can’t justify trading my $2,000 rent for a $4,000 mortgage.”
“Prices won’t drop much more.”
“Desperation sales are coming.”
“I waited and ended up paying $100K more.”

This isn’t just internet noise — it’s a reflection of real indecision in the market. Sentiment is shifting, but so are fundamentals. Debt loads, policy failure, and macro uncertainty are causing even the most seasoned buyers to pause.

Final Thoughts: The Real Estate Market’s Balancing Act

The Canadian real estate market isn’t collapsing — it’s recalibrating.

For investors: this is not a time for panic, but precision.
For policymakers: this is not a time for half-measures, but overhaul.
For buyers: this is not a time for fear, but financial clarity.

There’s opportunity in chaos — but only for those who know their numbers, understand risk, and stay nimble.