Market Memo: Market correction consequences – February 2026

The, so-called, “mortgage cliff” that started causing consternation a couple of years ago has, thankfully, not materialized.   

The wave of renewals of cheap, pandemic-era mortgages is expected to crest this year.  More than one million are coming due.  As those ultra-low rate loans roll over at significantly higher – but more traditional – rates there were fears a lot of home buyers would find themselves maxed-out and under water as the market corrects.  (That is, owing more on their mortgage than their home is worth.) 

Fortunately, the worst-case scenario did not come to pass, but there have been consequences. 

Arrears Anxiety 

The most dire sounding repercussion is a marked increase in mortgage arrears.  A recent report from Canada Mortgage and Housing Corporation shows that between the third-quarter of 2023 and the third-quarter of 2025 there has been a seven basis-point increase in mortgage arrears – borrowers who are 90-days, or more, behind in their payments. 

As usual, Toronto and Vancouver are having the biggest influence on the numbers.  In the GTA the arrears rate has more than quadrupled since late 2022.  In the GVA the rate more than doubled in the same period. 

As mentioned earlier, it sounds dire.  But – and it is a big “but” – the actual number of borrowers that have fallen behind is at historically low levels: Toronto - 0.26%; Vancouver - 0.18%; Canada - 0.22%. 

Dedicated to Home Ownership 

Canadians, in the main, are very serious about keeping their homes.  They will make strong efforts to manage their money and household budgets to make sure the mortgage gets paid.  CMHC also credits regulation, including the mortgage stress test, for helping to prevent homebuyers from getting in over their heads. 

Unintended Consequences 

None the less, Canadian households are heavily indebted.  Many have been relying on credit to help make ends meet.  The latest Statistics Canada reading puts the household debt-to-disposable-income ratio at 176.66%.  In other words, Canadian households owe about $1.77 for every dollar of after-tax income they have. 

Plenty of homeowners try to lighten the burden of that debt by taking advantage of equity built up in their home when they renew their mortgage.  They transfer the amounts of their high-interest loans (i.e.  credit cards or car loan) to their lower interest mortgage.  But, because of the current market correction, some of those households are having their options limited. 

Falling home prices can mean reduced equity and more restrictive borrowing limits. 

“Renewal is often treated like a reset button, but for many borrowers it reflects decisions made years earlier," mortgage broker Leah Zlatkin told the Financial Post. "If spending and debt growth outpace home equity, refinancing options can shrink quickly."