Canada’s Mortgage Boom Is Almost Entirely Uninsured As Investors Take Over

Canadian mortgage debt has been soaring, and it’s entirely due to uninsured borrowing. Bank of Canada (BoC) data shows mortgage debt was still rising in May, despite falling home sales. Drilling down into the numbers reveals it was entirely uninsured mortgage growth. The insured segment, with smaller down payments and often first-time buyers, is falling. Earlier this year, a bank exec warned the rise of investors was at the expense of first-time buyers. This is yet another data point giving weight to that narrative. 

Canada’s Uninsured Mortgage Debt Recently Topped $1 Trillion

Canada’s uninsured mortgage market has seen a surge of growth and it’s still climbing. The outstanding balance reached $1.0 trillion in May. It represents a jump of 1.4% (+$13.9 billion) for the month, and it’s a whopping 18.7% (+$160.2 billion) higher than last year. It’s an astronomical amount of debt, and that’s just the uninsured portion of what’s owed. 

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt owed by households.

Source: Bank of Canada; Better Dwelling.

Uninsured mortgage growth is decelerating , but it’s still unusually high. The 18.7% annual growth in May marked the fifth consecutive month of deceleration. Growth for the cycle peaked at 21.7% back in September 2021. It’s tapered, but it’s still an increase of a fifth every year at this rate. At this pace, Canadians could buy a company the size of Wells Fargo every year… and that’s just the uninsured mortgage debt.

Canada’s Insured Mortgage Debt Has Been Declining For At Least 7 Years

Canada’s insured mortgage market is a totally different story, and falling sharply. Outstanding debt in this segment fell to $0.4 trillion in May. That’s down 0.6% (-$2.5 billion) for the month, and the balance is 7.0% (-$30.5 billion) lower than last year. That’s right, it’s lower than last year. As in, the insured mortgage market isn’t growing, it’s actually contracting.

Canadian Residential Mortgage Credit Growth

Annual growth of Canadian residential mortgage credit owed by households.

Source: Bank of Canada; Better Dwelling.

The decline isn’t anything new, it’s been in a long-term decline going back almost a decade. Annual growth first went negative in April 2021, and continued into May 2022. Over the past decade, the segment has only seen positive growth in the months immediately before the recent slide began. From July 2020 to March 2021, insured mortgages showed positive growth. Outside of that period, it declined for at least the 7 years of bank filings. 

Falling insured mortgage debt might surprise, but it shouldn’t since there were signs. Insured mortgages are required for those with minimal down payments, typically first-time buyers. As investors play a larger part of Canada’s market, they’ve been displacing first-time buyers. Some people are still skeptical that they could displace them, but even the banks say it.

Earlier this year, RBC explained that they had seen a surge of investor mortgages. They explained to analysts that this share came at the expense of first-time home buyers. At the time, they said it was a “sad commentary” on the state of Canada’s real estate market.

20 Comments

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  • Yoroshiku 1 week ago

    Am I the only one here who doesn’t know what an ‘insured mortgage’ is? (Long time renter!)

    • Mortgage Guy 1 week ago

      Possibly? I guess people that have never heard of the CMHC wouldn’t know, but any mortgage with a downpayment of less than 20% have to be insured.

      For it to be a rental property the buyer needs to generally put down 35%, so as investors outbid first-time buyers they can’t use them. Fewer first-time buyers = fewer insured mortgages.

  • Ron Bruce 1 week ago

    I would guess this is why my Bank gives me less than 1% on my savings account. They’re trying to find depositors with some money to offset all the mortgage loans they have approved, which may already be underwater. Creative accounting is used by the Bank and property buyer(s). Not all the names of investors will show on the mortgage loan application. But runaway real estate prices bring out the gamblers. However, gamblers play by the House rules (aka the Bank), and depositors’ accounts are unknowing participants (50% of city dwellers are Renters).

  • Renter 1 week ago

    Can Foreign Investors get a mortgage from a Canadian Bank? Do the banks get some kind of security from the Borrowers’ assets or business assets from their country they reside in?

    If a Foreign Investor goes underwater and into foreclosure, does the Canadian bank take a “loss”?

    What is the total amount in mortgages have Canadian banks lent out to Foreign Investors?

  • Lisa 1 week ago

    So……being insured, what is the difference if you are uninsured. Say you have a mortgage with TD..is that insured?
    I just dont get any of this.

    • Trevor 6 days ago

      If you have 20% or less for the downpayment you need to buy mortgage insurance, so if you default on the home the lender can recoup the losses.

      Taxpayers ultimately back any deficiency, but the premium is to help reduce the amount that would be needed in an emergency.

  • G 7 days ago

    People have realized it is better to put 20k to paying off the mortgage, than to pay that in insurance.

  • Jared Webster 6 days ago

    So there are a couple of reasons for being uninsured.
    1. You have a 20% down payment. (Not sure what happens when you’re underwater even with that size.)
    2. The home is worth over $1million CMHC won’t insure it….wait a minute…that’s pretty much everything that sold over the frenzy!

    So are we headed for a financial crisis? Will we need to bail out the banks?

  • Aj 6 days ago

    Is the number of insured mortgages perhaps dealing because of the ridiculous 4 percent they charge? With 5 percent down you effectively have a 1 percent down payment…..

    • Fazid 6 days ago

      The fees barely cover the payouts to lenders in normal circumstances. We subsidize them enough already.

  • Aj 6 days ago

    Falling*

  • Aj 6 days ago

    Bank bail ins are already law. Hope you don’t have money in your bank account.

  • Bubble realtor 5 days ago

    This bubble has to burst . Real estate has been slowly inflating since 2008. People buying homes hundreds of thousands over asking that’s insane . We need a Paul volker to raise interest rates above inflation that’s the only way to slow this inflated money frenzy down. CMHc will have a fun time trying to get their cash back once people start defaulting. Who’s fault is it ? Banks for encouraging home ownership at low interest rates . Realtors don’t care they just want the sale. Lawyers get their fees on closing . The balloon can only hold so much air until it pops. People that bought in last 4 years get ready to move back with your in laws lol.

  • ned 5 days ago

    “Bank bail ins are already law.”…I think that applies only to bank shareholders, not depositors..I hope so anyhow, will need to investigate…anyone know?

  • Aj 3 days ago

    So I guess you have no investments???

  • Keith Uthe 2 days ago

    The Federal Government and CHMC got what they asked for which is fewer insured mortgages that they were responsible for and now that that is happening they turn around and say that fewer insured mortgages are a problem. They blame the consumer, who they identify as investors being the source of the problem.

    The frustrating part of this article and the comments from BoC and RBC is that neither of them references the government-operated policy changes by OSFI, CMHC and the Federal Government. The policy changes by both over the past 6+ years created further limitations and access for first-time home buyers. As a result, many borrowers were forced into the uninsured mortgage market.

    Insured Mortgage limitations such as:
    – Benchmark or contract +2% qualifying rate
    – No insured mortgages on properties over $1M (This eliminates most homes in the Toronto and Vancouver markets so not a surprise there are more uninsured mortgages)
    – Higher minimum DP required on insured mortgages of $500K-$999,999
    – Insured mortgages maximum 25-year amortization
    – Insured mortgage premiums increase
    – Lowered allowed bank leverage against deposits
    – Failed Home Buyer Incentive program that does not help first time buyers in all markets in Canada

    It is extremely frustrating to hear the Government now complain about the number of uninsured mortgages when they themselves created the policies to force it that way. The government-backed CMHC has been trying to lower their exposure for years and now that they have the government now complains it is bad.

    What about noting the positives that more Canadians have homes with 20% equity which increases net worth and that Canadians showed they can save by having to save more to purchase homes with 20% down?

    If the housing supply was anywhere near where it need to be there would be fewer renters and lower rental demand. Like anything in basic economics if you increase the supply relative to the demand then the relative pricing related to that product will come down. This is the biggest problem we have with inflation right now is our supply chain is broken yet the Federal Government has done nothing to try and rectify this problem by improving the movement and access to goods.

    • Ethan Wu 2 days ago

      You read the first chapter of the Econ 101 text book but didn’t flip down further to the whole “government incentive” and “monetary policy” influence on the demand of goods that incentivizes excess use.

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