The Ontario Housing Market Crisis: Growing Real Estate Insolvencies in Canada

Real estate insolvencies have skyrocketed. Just this year insolvencies are up 57% compared to 2023, rates higher than the financial crisis of 2009. And those numbers don’t include issues with developers who can’t pay their bills.

What happened? Rising borrowing costs, higher construction expenses, and a slow housing market all play a part. For many, the once-thriving Ontario housing market is now a heavy burden for many homeowners. It looks like there are some bigger economic problems at play.

Rising Insolvencies in Real Estate

First, the number of insolvent real estate companies and projects has surged. From January to May this year, Canada averaged 20 real estate, rental, or leasing insolvencies per month. At that pace, the country could see about 240 real estate insolvencies this year—13% higher than in 2009.

Ontario homeowners contributed to the issue. Over 3,000 mortgages in Ontario were in “severe delinquency” by the end of Q2 2024, according to Equifax® Canada’s latest Market Pulse Consumer Credit Trends and Insights Report. Combine a rising unemployment rate (now at 6.4%), loans defaults, and a high cost of living and you can see a real squeeze in the real estate market.

The High Cost of Carrying a Mortgage

Second, the cost of debt increased. For years, low interest rates made it easy for many Canadians to buy homes in Ontario. Cheap Canadian household debt helped inflate mortgages and home prices. But now that interest rates are up, the same mortgage is much more expensive.

In 2024, high interest rates impacted mortgage costs, with 15-20% of renewals experiencing a monthly payment increase of over $300. That’s nearly double the 8% rate in 2019.

As a result, many homeowners in these provinces are extending their amortisation terms to manage higher costs. Rebecca Oakes, Vice President of Advanced Analytics at Equifax Canada, said:

“Homebuyers who secured homes in 2020 and 2021 with low interest rates and high loan amounts, could face challenges. Even with recent rate cuts, these individuals may need to prepare for significant increases in monthly payments and extended amortization terms. Those with low renewal affordability and negative equity may find it especially difficult to navigate these changes.”

As of February 2024, 76% of mortgages come up for renewal between 2024-2026.  Homeowners renewing their mortgages during this time may experience a payment shock, especially those who got their mortgages when interest rates were lower between 2020 and 2022. This shock could be particularly severe for households with high levels of debt and those with variable-rate mortgages.

Delays in New Housing Supply

Third, there are not enough new houses. High construction prices, a shortage of workers, and strict regulations slowed or halted many projects. Plus, it made the economics of building unattractive to investment or development. Higher prices for materials, labour, and supply chain issues disincentivize supply-side growth. A shortage keeps home prices high and hurts market affordability.

The Impact of Immigration

Fourth, population increase added more pressure on real estate demand. With open immigration, there are more people in search of more homes. While such policies are critical for economic growth, high demand causes bidding wars and drives up prices even more.

The Rise of Mortgage Defaults and Possible Solutions

As more homeowners struggle with higher mortgage debt, the number of people unable to pay their loans will likely rise. When you can’t make your mortgage payments, you might face foreclosure and lose your home. That financial trouble can cause you to lean more on other forms of debt.

Temporary solutions: Mortgage Payment Deferral and Refinancing

To cope with the financial stress, some homeowners use short-term fixes. For example, you could use deferred mortgage payments to pause payments for a while. But this adds to the home loan balance, which means higher costs later. Or, you could use mortgage refinancing to change your mortgage terms, like getting a lower interest rate or extending the mortgage repayment period. While this can help, it can also stretch your debt and cause financial pressure for longer.

Permanent solutions: filing Consumer Proposals or Bankruptcy

If the financial pressure becomes overwhelming, there are other debt relief solutions.

You could declare Bankruptcy. Yes, filing Bankruptcy is a serious decision that can have long-term effects on your financial health. But there are Bankruptcy exemptions that allow you to keep some of your assets. In Ontario, certain assets like a portion of home equity might be protected, depending on your situation.

You can also file A Consumer Proposal. A Consumer Proposal is another debt relief option that allows you to negotiate a repayment plan with creditors, usually involving reduced payments over a longer period. Unlike Bankruptcy, a Consumer Proposal lets you keep your assets (including your home) as you work toward paying off your debt.

To file a Consumer Proposal or Bankruptcy, you need a Licensed Insolvency Trustee (LIT). A Licensed Insolvency Trustee is a federally regulated professional who helps individuals and businesses navigate the insolvency process, ensuring that all parties are treated fairly. If you need to reorganise your debt to protect your home, talk to a LIT first.

The Future of the Ontario Housing Market

The Ontario housing market may be facing some headwinds. It is a tight market with little room for mistakes, for all parties involved (real estate agents, buyers, and developers). These challenges will likely impact the overall provincial economy. Limits on discretionary spending, inflation, and changes in employment levels are all connected. Luckily, there is a positive outlook as the Bank of Canada appears poised to initiate safety rate cuts and provide some breathing room for lenders as inflation starts to subside.

Mortgage Renewal Help

If you’re concerned about your mortgage renewal with the recent rise in interest rates, we can help. Our team of Licensed Insolvency Trustees at Adamson and Associates is here to find the best solutions for managing your debt. We provide credit counselling and government-approved debt solutions. Call us today for a free consultation at 519-310-5646.