Risks & Vulnerabilities in the Canadian Housing Market
- Olu Olu
- Jun 18
- 2 min read
Updated: Jun 19
Canadians already know that home prices are relatively high based on historical trends, average income and similar home prices in other countries. Let's review four (4) of the key risks/ vulnerabilities of the Canadian housing market.
1. Rising Interest Rates & Mortgage Renewal Shock
According to the Bank of Canada, around 60% of outstanding mortgages will come up for renewal in 2025–26. Most originated in the ultra-low interest rate environment during the pandemic and these renewals now face significantly higher payments.
Although most borrowers passed stress tests, many will still see higher monthly costs—creating financial strain and approximately 2.2 million mortgages ($675 billion) are facing this renewal wave.
2. Affordability Crisis
The Bank of Canada Housing Affordability Index (HAI) shows housing is the least affordable since 1982, with median prices now often exceeding nine times household income. (Globe and Mail)
High prices have pushed housing costs to over 60% of median income—far above the 30% affordability benchmark. (Global News)
Canada’s growing home unaffordability has contributed to a sustained decline in home prices since 2022, as reflected in the National Composite MLS® Home Price Index (HPI) - see image below
3. High Household Debt
At 173.9%, household debt grew faster in Q1 2025 than income, with mortgage debt making up about 75% of the $3.07 trillion in credit-market debt. (Statistics Canada, Canadian Mortgage Professional)
Non-mortgage debt averages $21,859 per person, escalating vulnerability to financial shocks. (Equifax)
4. Mortgage Delinquencies & Market Imbalance
Delinquency rates have risen by 50%—from 0.14% in 2022 to about 0.21% in Q4 2024, especially in major cities like Toronto. (CMHC)
The Bank of Canada warns these vulnerabilities—debt and prices—could cause financial stress to intensify if compounded by an economic downturn.
What Home Buyers & Homeowners Can Do
Despite the challenges, here are practical steps to increase financial resilience:
Shop and Prepare for Renewals: Compare rate options before renewing. Switching lenders or term structure may reduce payment shock.
Build a Buffer & Reduce Debt: Have savings to cover at least 3–6 months of mortgage payments. Prioritize paying off high-interest debt to free cash flow.
Stress-Test Affordability: Model mortgage payments under a 2%+ rate increase and aim for housing costs to stay well below 30–35% of gross income.
Consider Locking in Rates Strategically: Longer-term fixed or variable tools (for those comfortable with market shifts) can stabilize payments—balancing risk and flexibility.
Seek Professional Advice: Financial advisors, brokers, or mortgage specialists can help optimize renewal timing, amortization, and refinance decisions.
Canada’s housing market shows clear signs of strain: higher debt, stalled affordability, and the looming renewal cliff. But with proactive planning, stress-testing, and expert guidance, home buyers and owners can weather the vulnerabilities and secure stable housing futures.
Request a free consultation to set up a tailored financial plan and income solutions for you and your family.
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