Over 1 million homeowners are facing high interest rate renewals! In 2025, Canada will experience a wave of property sales!

A new report from the Canadian Mortgage and Housing Corporation (CMHC) warns that over one million homeowners will face mortgage renewals in 2025 and will see "significantly higher interest rates," with approximately 85% of fixed rate mortgages being signed when the Bank of Canada's interest rate is 1% or below.

According to a report released by CMHC on Monday, there will be a large number of mortgage renewals in 2025 and 2026, with 1.2 million and 980000 fixed rate mortgages respectively.

Most of these mortgages will have interest rates higher than their initial signing rates when renewed, and it is expected that at least 1.05 million fixed rate mortgages due in 2025 will be signed during periods of ultra-low interest rates. Currently, the benchmark interest rate of the Bank of Canada is 3.75%.

Economists say that this wave of renewals may lead to a surge in listed properties, as homeowners under pressure may choose to sell their properties.

Michael Davenport from Oxford Economics said, "In the fourth quarter of this year and early 2025, renewals will cause the growth rate of the second-hand housing market to exceed the growth rate of demand during the same period. As interest rates continue to decline and mortgage policies relax, housing demand will significantly increase by mid-2025

The increase in mortgage defaults and defaults in the private lending market has led to some 'selling' in the market. This is because private lending rates are higher and regulations are more relaxed.

The default rate will continue to rise

The CMHC report states that in the second quarter of 2024, the risk profile of alternative lenders has expanded, with a particularly significant year-on-year increase in single household home defaults and defaults. In the second quarter of 2024, the default rate for single household residential properties with 60 days or more is 5%, higher than 1.7% in the fourth quarter of 2022; The redemption rate increased from 1.3% to 3.5% during the same period.

Tania Bourassa Ochoa, Deputy Chief Economist of CMHC, stated that due to the tight and liquid real estate market, especially in Toronto, it is possible to sell homes relatively quickly and at a higher price, providing an alternative option for homeowners who want to avoid defaults.

He said, "In the alternative lending market, more and more people are choosing to sell their properties

The report states that the overall mortgage default rate continued to rise in the first quarter of 2024, slightly increasing to 0.19% in the second quarter, higher than the record low of 0.14% in 2022, but still far below the pre pandemic 0.28% in 2019.

Before the mortgage defaults, other payments such as car loans, credit cards, and payment bills will be affected first, and these overdue payments will significantly increase.

The delinquency of credit cards and car loans may be a leading indicator of mortgage default rates, so these trends indicate that mortgage default rates may continue to rise until 2025."