Report shows mortgages remain a priority for Canadians, defying predictions that defaults would skyrocket due to pandemic
This year was one of change for the labour market, as COVID-19 caused a dramatic rise in global unemployment, with 2.7 billion workers affected by lockdowns world-wide.
According to a report from Canadian Mortgages Inc. (CMI), which you download in full by clicking on this link, Canada alone saw millions of workers displaced as COVID-19 ravaged the Canadian labour market and the overall economy. Canada’s unemployment rate peaked at a record high of 13.7% in May, before declining over the summer.
“Gross domestic product shrank the second most on record in the second quarter as the economy officially entered into a recession,” the report said.
With millions of Canadians out of work, many economists were worried that mortgage defaults would send the housing market into a spiral. However, despite a weakened demand for housing at the beginning of the pandemic, sales and prices sprang to record highs in subsequent months.
This demonstrates the strength of the Canadian housing market. And with employment and economic activity heading into recovery, Canadians are unlikely to be defaulting on their mortgages en masse unless “another unexpected disaster strikes.”
According to CMI, Canadians as a whole have a good track record in keeping their mortgages up to date, even under trying circumstances.
“For starters, many Canadians have remained gainfully employed during the pandemic, with recent data indicating that younger, low-wage workers were most likely to be affected by lockdowns,” reads the report. And although youth unemployment is a serious issue, this demographic is one of the least likely to even own a home on which to default their mortgage payments, which ultimately lowers the overall chances of a rise in defaults for this demographic.
Indeed, according to a report from TD Economics, the composition of jobs lost during the pandemic played a big role in keeping the “dire housing market predictions” from coming to pass.
“In fact, housing trends rebounded faster than many had expected due to pent-up demand and a rise in new listings,” reads the report, which added that support from the federal government also boosted homebuyer sentiment.
Another major factor the CMI report emphasized is Canadians’ ability to stay up to date on their mortgage payments. CMI pointed to a 2019 report from Statistics Canada which showed Canadians have been putting in large amounts of money towards paying off their mortgages. The agency reported that in 2019 borrowers were spending 14.9% of their disposable income on debt servicing. This includes interest and capital payments.
“It was estimated that 92% of Canadian homeowners have at least 25% equity in their property,” read the report. “With so much equity, many homeowners seek refinancing or home equity loans to access cash.”
While many borrowers did take advantage of deferral relief programs during the pandemic, their payments resumed as normal when the programs expired. Scotiabank, for example, said 99% of mortgage borrowers whose deferrals have expired are current on their mortgage payments.
Ultimately at the height of the pandemic, CMI says mortgage defaults remained at just 0.28% at major financial institutions. However, CMI acknowledges Canada and the world have a long road to recovery from the COVID-19 pandemic.
“Organizations and consumers have used the current crisis to make gradual changes to their business and lifestyle, respectively,” reads the report.
Economic activity could return to normal levels as early as the second half of 2021, according to a report from Deloitte, and a broadening economic recovery bodes well for the average Canadian homeowner, while also lessening the risk of a major default crisis in the country’s mortgage market.
But the data show that Canadians continue to prioritize mortgage payments and homeownership, and will tend to continue to do so even during a major crisis.
