Distressed sales are likely to continue in the months ahead, adding further downward pressure on prices.Carlos Osorio/Reuters
The Greater Toronto Area is undergoing a level of housing market stress not seen in recent history.
In August, the GTA’s average home prices fell to levels last seen in February, 2021. At the same time, housing inventory was hovering near all-time highs, while three-month moving average, seasonally adjusted unemployment rate climbed to 9.9 per cent.
In my previous piece, I noted that something new is weighing on the market: a surge in distressed sales. Currently, 3 per cent of Toronto homes on the market are power of sale listings, pointing to a growing wave of financially strained homeowners.
This makes it increasingly important to examine the state of what banks call “non-performing” mortgages in the region. A mortgage is classified as non-performing when payments are 90 days late or more.
Among Canada’s Big Six banks, only RBC publishes region-specific data on all non-performing mortgages for both the GTA and the Greater Vancouver Area (GVA). For this reason, we use RBC’s figures as a proxy for the broader market.
However, the actual number of troubled mortgages is likely higher. RBC’s lending portfolio is more conservative than average, as the bank is heavily concentrated in prime borrowers, while households with more complex credit or income profiles often turn to other lenders.
The chart above compares RBC’s non-performing mortgages across the GTA, GVA and Canada as a whole. While all regions have seen a notable increase, the GTA’s trajectory stands out.
Between the first quarter of 2017 and the second quarter of 2023, the average share of non-performing mortgages in the GTA was just 0.06 per cent. Today, that figure is approaching 0.42 per cent – a seven-fold surge in only a few years.
By comparison, the rate stands at 0.27 per cent in the GVA and 0.31 per cent nationwide.
The sharp rise reflects mounting financial stress among GTA homeowners, driven by higher borrowing costs, rising unemployment and falling property values. From January, 1996, to September, 2021, more than 90 per cent of homebuyers in the GTA saw their property values increase within a single year.
This steady appreciation provided a built-in safety net: Borrowers who ran into financial difficulty could draw on their increased equity through refinancing or a home equity line of credit (HELOC).
That option is no longer available for most buyers who entered the market in the past four years. With average GTA home prices having fallen to levels last seen in February, 2021, these homeowners have not built the equity cushion that earlier generations could once count on.
According to a recent BMO report, two-thirds of mortgage holders renewing their loans are now facing equal or higher payments. Even with the Bank of Canada’s rate cut earlier this week, most mortgage renewals over the next year are still expected to bring higher monthly costs.
Combined with other pressures – rising unemployment, weak market sentiment and record-high inventories in the GTA – this is likely to drive more distress sales in the months ahead, adding further downward pressure on prices.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
