Soaring Canadian real estate prices have made it “normal” to borrow supersized mortgages. Mortgage distribution data showing the size at origination has shifted to the right. Low rates and higher home prices have facilitated households borrowing a lot more to buy a home. Just five years ago, the largest segment of borrowers had been borrowing less than $300k to buy a home. Now the largest segment is over $600k as the only risk buyers see is not owning a home.
Canadians Are Borrowing A Record Share of Large Mortgages
The share of mortgages with large outstanding balances at origination hit a record. Balances greater than $600k represent 23.8% of mortgage originations in Q4 2021, up from 19.0% a year before. Five years ago, this share had only been 11.6% of mortgage debt, so it’s more than doubled since then. The over $600k crowd is now the largest distribution range for new mortgages. Needless to say, this is a record for Canadians borrowing in this range.
The trend towards larger mortgages can be seen in the $400k to $600k distribution range as well. Originations in this range were 23.5% of mortgages in Q4 2021, up from 22.5% a year before. It’s also a new record and a substantial climb from the 17.7% of mortgages five years ago. It’s worth taking note both of these ranges have made similarly large shifts over the same period. The ranges used just five years ago may have to be consolidated and moved higher soon.
Canadian Mortgage Origination Distribution
Canadian mortgage distribution by the dollar size at origination in Q4 for each respective year. Expressed as a share of total originations in the quarter.
Source: Equifax; CMHC; Better Dwelling.
Smaller Mortgages Were Common, But Have Fallen To A Record Low
Smaller distribution ranges used by Canada’s CMHC are starting to hit record lows. Balances between $300k and $400k represented 18.1% of mortgages in Q4 2021, down from 19.4% five years ago. The originations between $200k and $300k also fell to 19.1% of mortgages, down from 26.0% over the same period. In just five years the latter lost its top spot for most popular distribution range.
As for those borrowing less than $100k, that fell to 2.8% in Q4 2021, down from 4.7% in the previous month. Half of borrowers needed less than $300k to buy a home five years ago. Mortgage rates were only a little lower back then, but only Toronto and Vancouver saw a surge in demand. Now it’s turned into a national problem.
The distribution of mortgage debt has shifted towards larger numbers recently. Only five years ago, half of Canadians had been borrowing less than $300k, about 3x the median household income to buy a home. Now nearly a quarter are borrowing over $600k to buy a home, over 6x the median income. Many assume the larger mortgages are due to higher home prices, but there’s mounting evidence showing it’s the reverse. The Bank of Canada has mentioned in passing they’ve found buyers pay more to buy a home with extra credit.