The deluge

Across the nation about a third of homeowners have a mortgage.

Yeah, seriously. People are in excellent financial shape with two-thirds of Canadians free from mortgage payments, renewals, interest rate changes and maybe a load of stress. They probably live longer, love deeper and have dogs. All good.

But look at the cities. Different story.

In Toronto, for example, more than half – about 58% – of people with houses also have mortgage debt. Across the metro region there are about 1.7 million homeowners. Collectively it’s estimated they owe close to a trillion dollars, or close to half the mortgage debt of the entire country.

We also know that average real estate values have fallen by a fifth in the past three years. Sales continue to run well below long-term averages and more than 20,000 new condo and low-rise units remain unsold. Condo pre-sales have declined almost to zero with projects cancelled. A normal detached home in 416 selling for over $2 million at the tail end of the pandemic currently trades for $1.61 million.

Now for the scary part.

The Bank of Canada is projecting almost one in ten of those households holding a mortgage will fail to qualify for a loan renewal or refinancing with a new lender within the next year. This is because the value of their real estate has dropped by 20% or more while the mortgage principal shrank by far less. That equity loss means they’re offside in terms of debt – and will stay that way unless prices see a big rebound.

Folks borrowed too heavily. They paid too much. They got FOMO. They were greater fools.

Nationally the CB says about 4% of Canadians are in this boat. In Toronto, the proportion more than doubles.

It’s therefore bad news that the next interest rate move by the Bank of Canada will be up, not down. Higher rates will exacerbate the problem, making it harder and more costly for families to refinance at the same time it throws another bucket of water on valuations.

Where are we now? Why would the cost of money rise when Canada has just slipped into a feeble recession?

The next rate setting is Wednesday. Expect nothing to change this week. It’s too dangerous for the Bank of Canada to shift off its current 2.25% mark. The Iran war, energy costs, tariffs and the AI hysteria are all stoking inflation. Meanwhile Friday’s jobs report indicated 88,000 new hires in a month. That’s hard to believe but, if true, points to an economy that’s busting out, not contracting,

However at the same time the jobless rate of more than 6.5% is too high. Youth unemployment is a mess. The GDP has been static or shrinking. Alberta is bristling with secessionists. Immigration has choked off. The CUSMA trade deal seems headed for heartbreak. And we can’t even get the damn Gordie Howe bridge opened after spending $6 billion to build it. Sheesh.

If the CB lowers rates it will throw gas on the economy and send that 2.8% inflation number skyward. Mortgages get cheaper. House price declines reverse. Groceries become more expensive. Not good. But if rates increase, credit is cooled, real estate tanks and jobs vanish.

Unfortunately, the BoC won’t have a lot of choice, Mr. Market says. The odds of a rate increase in the US soared to 70% last week, and nine out of ten times our guys follow those guys. Estimates have American inflation raging past 4% when the official number is released this week. The Iran thing seems to be getting worse. Trump is out of control. The American budget deficit is staggering. Gas prices have soared. Explosive elections are coming in five months. Over $700 billion is being shovelled into AI data centres. Stock prices are at record levels. And the Fed – America’s central bank – must ride herd on all of this.

We live in a time when things change fast. But if our central bank is correct and 9% of the 1.7 million homeowners in our biggest real estate market can’t refinance their loans in the next year this could this blow up the market. If those people had to sell, it’d mean 153,000 new listings. If only half bailed, those 76,500 properties coming to market would still be unprecedented. A tsunami of supply.

To compare, the current number of MLS listings in the GTA: 26,900. The latest monthly sales: just over six thousand.

Do the math.

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Source: https://www.greaterfool.ca/2026/06/08/the-deluge-2/