A Third of Canada’s $1.2 Trillion In Mortgage Debt Is In Toronto and Vancouver

A Third of Canada’s $1.2 Trillion In Mortgage Debt Is In Toronto and Vancouver

Canadian real estate debt has been soaring, but we only had a suspicion of how it was distributed. Lucky for us, we’ve obtained a breakdown of Q4 2017 Equifax data from the good folks at the Canada Housing and Mortgage Corporation (CMHC). Over a third of mortgage debt is concentrated in Greater Toronto and Vancouver.

Yasss! We’re Finally Being Optimists… Sort of

The data used is one of the most comprehensive mortgage data sets available, but it’s still missing a bit. As the incentive to buy real estate increases (i.e. prices are rising fast), more buyers flock to the market. Determined to not “miss out” on the profits, many people will turn to private lenders if rejected from a bank. These lenders, which often charge steep rates, are much harder to track.

Private lenders can be big companies, that have detailed risk controls, or a mom and pop that are looking to make a few extra bucks. Either way, they don’t report data to anyone, so the full extent of this form of shadow banking isn’t known. As a result, these numbers are a low, and an optimistic survey of Canadian mortgage debt. Read these numbers as a best case, low-ball estimate.

Canadians Owe $1.2 Trillion In Mortgage Debt

Canadians may have a mortgage addiction problem. Equifax data shows $1.208 trillion in mortgage debt at the end of 2017. If that wasn’t high enough, that number is nearly $300 billion lower than the Bank of Canada’s numbers, but what’s a few hundred billion here and there?

The cities with the highest concentration of mortgage debt are Toronto, Vancouver, and Montreal – in that order. Toronto households owe more than $268 billion, about 22% of outstanding mortgage debt. Vancouver households owe $133 billion, 11% of outstanding mortgage debt. Montreal households owe more than $118 billion, 9.79% of outstanding mortgage debt. That’s 42.79% of all mortgage debt, concentrated in three cities.

Source: Equifax, CMHC, Better Dwelling.

It Costs $7.32 Billion Per Month To Service This Mortgage Debt

That astronomical debt pile requires a huge amount of cash to keep going. CMHC analysts found Canadians have scheduled $7.32 billion in payments per month. Keep in mind this number was only Equifax data, which was lower than the BoC’s numbers. This means this is likely an underestimate of the amount that is needed for debt servicing.

Breaking that down, the same cities top the list for mortgage servicing, just in a different order. Toronto has monthly scheduled mortgage payments of $1.52 billion, 20.7% of the total payments scheduled. Montreal comes in second with $731.9 million, 9.99% of payments per month. Vancouver is in third with $731 million, 9.84% of payments per month. Some of you may have realized that Vancouver has more debt, but lower payments scheduled. The reason is most likely a preference for longer amortizations.

Source: Equifax, CMHC, Better Dwelling.

The concentration of mortgage debt, puts these markets in a vulnerable situation. Toronto and Vancouver, both considered “overvalued” by the CMHC, could experience a price correction. That would wipe out large amounts of equity that has been built up over the years.

Best case scenario, rates rise, and so does the amount of money going towards to servicing debt. This would lead to lower amounts of available capital for productive investments, and consumer spending. That also tends to lead to higher rates of unemployment, and lower home sales… which also leads to a loss of equity. If you don’t see the quagmire we’re in, here’s something more your speed.

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  • Trader Jim 6 years ago

    One thing’s missing from this data set that makes it even worse, Canada is an older demographic. The average age is 42.3, which means the average person bough into the market at the bottom of the real estate cycle (1996, when the average buying age was 22). These people likely have little to no debt on their house, and significant equity.

    Most of this rapid debt growth has been over the past 5 years, which means there’s a disproportionate amount of debt held by young people.

    • Bluetheimpla 6 years ago

      Double dicked. The young saddled with the debt. The old have their asset value stripped. Toss in a recession to carve out some more retirement dollars and my father will be working until he is 90 years old and I’ll have a mortgage(s) for the next 50 years. Woot!

      • vnm 6 years ago

        Might as well make that a triple, considering median incomes in Vancouver, Toronto, and Montreal rank 18th, 20th, and 22nd in Canada.

        • Ian 6 years ago

          Quadruple dicked? The whole country isn’t raising interest rates, and the Canadian dollar is plummeting because three metro areas can’t get their shit together?

          • Bluetheimpla 6 years ago

            lol…commodity prices are increasing which has taken some of the pressure off but I wouldn’t put that much value in demand side..2 (3?) major shale deposits have been found in the last 24 months with Bahrain just hitting the motherload of 80bn barrels. Gold isn’t the safety net everyone thinks as it is 2018 and not 1918. Copper is donesky, I think we have a million years of supply. Rare metals, we have none. I guess asbestos is booming? Poloz will be jacking rates in Q3. Fed needs a neutral rate of 3% and won’t stop, it is a mandate people not ‘What am I going to have for dinner?’ BD4L

      • Trader Jim 6 years ago

        Looking at another $1.08B per year on those payments if the BoC gets halfway to their target, and we start paying of mortgages at the same pace as they’re added.

        To put that in perspective, the additional interest paid from last year to this year is the amount of the Federal government’s “Supercluster” investment.

        People could literally be funding a supercluster development every year, but they’re going to be spending it on increased interest paid on mortgages. Mind boggling… then there’s the full hike back to normalization of rates.

      • Investor 6 years ago

        What’s going to end up happening is that the government will need to be bailed out of its endless debts. And people too will need being bailed out. The government tries to teach its citizens financial prudence, but look at where the national sovereign debt is at. It’s all hypocrisy.

  • Bluetheimpla 6 years ago

    “Either way, they don’t report data to anyone, so the full extent of this form of shadow banking isn’t known.”…probably the only thing that matters in this article. Using the bank/industry numbers is a fugazi. If you look at the south asian and east asian communities I think it is fair to assume there is a lot of community lending. New migrants with no credit history, but hard working and intelligent, that want to put down roots (plus some FOMO). Language and general financial comprehension can be an issue as well as an overall a distrust of the banks. Also back home in places like rural Indian and china, community lending is, in many cases, the only way to get a loan. My point and I’ll squawk it again: we’re fucked if/once the alt/shadow/community banking wheels fall off…lending money is easy when everyone is making it hand over fist. Banks are in the job of lending money and are pretty savvy and is able to mitigate risk through other financial products; your neighbour or uncle is most likely not and will lose everything. If you know anything about these practices please share your experiences. thanks in advance. BD4L

    • IOIO 6 years ago

      Community lending is getting their lunch eaten by the big banks. New immigrants have an easier time getting a mortgage than a local. New immigrant or with overseas income? No income verification. Self-employed? 7 years of tax returns.

    • MH 6 years ago

      I think you are giving banksters too much credit. Their savvy risk mitigation strategy basically amounts to: “And when it hits for real, taxpayers will bail us out because… because… because we are all in it together people so we should help each other. Here… could you hold this bag for a decade? Owe Canada…”

      • Alistair McLaughlin 6 years ago

        “I would urge the Bank of Canada to be really careful with future rate movements,” Wang said.

        Like Poloz needs encouragement to go slow on rates. It sucks that rate hikes are being delayed due to the over-indebted fools. The rest of us are being held hostage to the behaviour of the idiots who insisted on borrowing sub-prime.

        • @xelan_gta 6 years ago

          :))) Yep, that was funny how a subprime lender is giving advice to BoC.
          I will post some interesting data about one of those lenders later today on my Twitter.

          Teaser: Balance sheet grew close to 100% between 2016 and 2017

          • Xelan 6 years ago

            Sorry guys, I analyzed more data and it doesn’t look so impressive anymore. 2016->2017 growth 36% but average during last 5 years it’s only 12%.
            2018 data should be interesting but it’s not available yet.

        • Bluetheimpla 6 years ago

          Agreed AM, what the F&#$ is he doing! Carney would have let the blood spill in 2016 understanding the longer we delay the worse it will get. What a dud. I was thinking about this the other day and I have a hunch/theory/hope Poloz used the last 2 hikes as a ‘warning’. Figure your shit out or the pain is coming. His speeches essentially support this; BoC isn’t stopping their mandate but bringing in a cooler for a couple of month so people can adjust. Banks are already increasing rates independently to pad their balance sheets. It can’t stop, won’t stop….BD4L

          • Alistair McLaughlin 6 years ago

            Not sure Carney would have done anything different. Poloz cut his teeth under Carney’s tutelage after all. Now, John Crow or David Dodge – those guys would not have panicked and lowered rates in 2014-15. They’d have hiked much more aggressively much earlier in the cycle as well. David Dodge has publicly said as much.

  • @xelan_gta 6 years ago

    Thanks for the stats, I wish you include GTA and GV into the mix and it would be awesome if “Other” category can be broken down further. I understand that you need a source data for that but just in case if you find it in the future.

  • vnm 6 years ago

    Ontario’s 2017 GDP was 38.7% of Canada total
    Ontario’s population was 38.7% of Canada total.
    Toronto est. 2017 pop. = 45% of Ont. total pop=
    Toronto GDP = 40% of Ont. GDP

    From the Ont. Finance Ministry 2018 fact sheet, which wholly contradicts the RE industry propaganda that Toronto is an economic powerhouse to justify the stratospheric housing costs.
    In fact, not only do low median incomes qualify Toronto as a “have not” place to live compared to the ROC, in terms of GDP the city underperforms relative to both Ont. and Canada as a whole.
    And that’s in the middle of an extreme asset bubble, with a hugely disproportionate component of the economy artificially inflated, now on the edge of a precipice.

  • @xelan_gta 6 years ago

    Fellow bears, I started analyzing impact for +1.75% interest rate increase (BoC planned rate hike amount) along with B-20.

    Here are the results so far:
    Purchasing power of all new buyers in Toronto will drop by 27% over the next 2 years
    Debt Service Ratio of existing homeowners will increase by 14% over the next 2 years

    Link to all calculation and sources (hopefully you will be able to open it):

    Taking into account all other risks like, extreme indebtedness, further policy tightening, huge amount of speculation, potential recession in the short term it would be a miracle if RE will be able to survive that intact.

    On the other hand what potential tailwinds do we have for RE? 3% YoY income growth, untapped borrowing and savings?
    Only borrowing makes sense since people still have a lot of equity but that will increase indebtedness even further which is already highest in the world and the main concern of BoC.

  • JJ 6 years ago

    It seems to me that the only way this keeps going is continued borrowing against existing home equity.

    Barely any first time buyers have cash down payments at these price points. And move-up buyers require FTBs to fund their next moves.

    With rent controls and potential airbnb regulations to come, there will be some headwinds for condos which are the last pillar holding up the image of our housing market.

    But this will take time. We’re doing relatively well economically so without mass unemployment or rapid unplanned rate hikes, I just don’t see any major price corrections. This appears like it’ll be a slow melt. That being said, desirable neighbourhoods are still doing well. I want to live in South Leslieville and prices are still doing great. So the correction in the burbs hasn’t helped people like myself who want to live in the city proper.

  • James Wolfe 6 years ago

    What a mess, housing bubble, stock market bubble, record debt levels, personal and government, greedy PS unions, baby boomers…POP, its coming…will be fun to watch from the sidelines…suckers…lollllllllllll

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