Canada’s largest real estate market is turning into a headache for the country’s largest bank. RBC’s Greater Toronto Area (GTA) mortgage portfolio has seen serious mortgage delinquencies (90+ days) soar in Q3 2024. Toronto real estate may seem boring these days, but cracks are very quickly starting to appear in its foundations. Home prices in the region have barely budged in response, causing many to dismiss the issue. However, the fact that sellers are falling into delinquency instead of lowering prices reveals a much more disturbing trend.
RBC is starting to experience some turbulence in the country’s largest market. The serious delinquency rate climbed to 0.27% for its GTA portfolio in Q3 2024. This represents a whopping 42% increase from the previous quarter, now 170% higher than last year. Slightly higher than the national average for the bank, and higher than anything seen going back to the 2017 mini-foreign buyer bubble. It’s the speed at which this breakdown is occurring that’s a more pressing concern.
Government tools to mitigate delinquencies during a period of high scrutiny are partially behind the move. Artificially lowering the delinquency rate through temporary state-endorsed resources doesn’t eliminate the issue. It only delays the problem, eventually amplifying the negative consequences. Intervention may kick the can down the road, but it’ll still be there with more cans later. Rather than having the issue spread out, it will amplify the problem for others who could have escaped with fewer consequences.
It’s important to remember that mortgage delinquencies are primarily a liquidity issue. People try to sell before defaulting and only default after failing to do so. The delayed cohort isn’t fixed but gets distributed with the rest of the natural cohort. Sellers trying to exit before they’re distressed now have to compete with seriously delinquent ones, amplifying competition and the number of people who can’t exit gracefully.
Toronto real estate prices haven’t moved much in response, showing how many problems are piling up. There’s always a buyer for a property, but falling into delinquency first means the price was out of reach for anyone to realistically consider. The fact that prices haven’t made a significant decline indicates most of these mortgages are likely recent buyers (most likely investors), who have seen their equity wiped out and would need to pay to sell at a lower price.
