Canadian mortgage debt is growing at a rapid pace, but it’s not exactly a healthy trend. Bank of Canada (BoC) shows mortgage credit hit a new record high in May. The high was hit with accelerated growth, but this isn’t the bullish trend it normally is. Hundreds of thousands of mortgages had their payments deferred, helping debt growth.
Canadians Owe Over $1.68 Trillion In Mortgage Debt
Canadian mortgage credit pushed to another all-time high, at a rapid pace of growth. The outstanding balance of mortgage debt reached $1.68 trillion in May, up 0.6% from a month before. This represents an increase of 6.0% compared to the same month last year. All of those numbers are very large, but with lowered sales volume – what gives?
Canadian Outstanding Mortgage Credit
The outstanding balance of Canadian mortgage credit.
Source: Bank of Canada, Better Dwelling.
There’s two obvious trends contributing to high growth, the comparison period and payment deferrals. The 6.0% year-over-year growth is the highest since July 2017, but is also compared to a year with very low growth. Last May was the slowest YOY growth for the month since 2001.
As for deferrals, they topped 743,000 this month at just 12 of the major lenders. This trend means at least three-quarter of a million people aren’t paying down their mortgage, just racking up interest. It’s easy to see a debt pile grow if people aren’t hacking away at it. More important is it means a very different thing in contrast to market driven credit growth.
Mortgage Credit Growth To Continue Into Next Month
Growth over the past few months has been soaring, almost making a vertical print. The annualized 3-month rate of growth reached 8.2% in May, the highest level since 2010. An annualized rate of growth is when a short period is projected as though it were the whole year. When this number is higher, the year-over-year rate will almost always follow in that direction. If the number falls below the year-over-year rate, then it reverses direction. So far, the indicators in front of us show near-term growth.
Canadian Outstanding Mortgage Credit Change
The 12 month percent change, and 3 month annualized change, of outstanding Canadian mortgage credit at large institutional lenders.
Source: Bank of Canada, Better Dwelling.
There’s some odd dynamics in this market, that make this a less than ideal trend for households. Sales volumes are down, even compared to last year’s exceptionally weak numbers. This trend is also echoed in new construction, which further shows a softness for new loans. On the other hand, we know more households have stopped making payments, helping balances to rise.
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That’s a lot of people without liquid funds to cover their mortgages, that are going to magically have funds in a few weeks.
People are not stupid in Canada. Anyone who pays off their mortgage faster is a fool. Are the people from 25 years ago happy they paid of their huge 100,000 mortgage faster and saved a whopping couple thousand dollars? Point is what seems like big money now will look like peanuts when you’re older. Instead of paying off your 2% something mortgage, take your extra money and make 5-6% right now on safe blue chip companies. Making double the return then trying to pay off your mortgage faster. Better Dwelling is making people financially illiterate one article at a time.
Safe Blue Chip? Uhmm.. Okay
Buy I agree, no sense paying off mortgage fast, as inflation pays off most of the mortgage
Why not do both? Paying a mortgage off gives you a sense of financial freedom unlike many other things in life. The best advice would be to strike a balance of paying down debt with the eventual goal of debt freedom and investing. It’s not as simple as one or the other.
If mortgage sales are up, and everyone is getting their job back, why are we spending billions more on extending CERB?
Higher mortgage balances may not mean higher sales. It also occurs when people refinance and withdraw equity. About $80 billion last year was done this way.
CERB+CEBA+wage subsidy and gov tax revenues way down.
What % of private/tax producing econ is functioning without government support?
Office buildings are not open, food courts are closed, lots of firms have gone belly up. I’m in a small suburb of 60 000….and its shocking how many firms have gone belly up in our town. All those jobs are gone. Hence the need for CERB.
What are you talking about? Not everyone is getting their jobs back. Not one person that was put on temporary leave due to Covid 19 has been brought back to my office, including myself.
Can you please show more graphs using a logarithmic scale? It will help us better digest data that goes back 50 years. Thanks a lot!
An arithmetic scale is the correct chart for the dollar amount, when presenting growth in a separate scale. You’re fooling yourself if you think a log chart shows growth better than the actual growth chart just under it.
It’s appropriate to use an arithmetic scale for the “Canadian Outstanding Mortgage Credit” chart that only goes up and to the right and spans 5 decades?
The purchasing power of a dollar in 1971 is definitely not the same as it is today and should not be reflected as such.
Logarithmic charts are actually better for assessing % change
A sign that banks are now pushing to have heloc loans made into Mortgages.
For all intents and purposes HELOC’s *are* a second mortgage, but rather than taking the full requested balance out at once it is usable like a credit card. So I’m not sure what you mean that they want them made into mortgages?
I think Straw Walker is suggesting that banks are rolling the HELOC ‘second mortgage’ into the first mortgage, thereby increasing the banks security and reducing the banks eventual foreclosure costs.
Fair enough, I read his comment the wrong way.
Banks hope to dump more garbage on the taxpayer the way they dumped 150 billion worth of sub-prime garbage on the taxpayer – with CMHC as a willing conduit.
There is NO ONE in govt protecting taxpayer interests.
Again this is a complete lie as the CMHC did *not* buy sub prime mortgages as they were investment grade. Please stop lying to further your narrative, I’m a bear on real estate but this is a flat out lie.
You are totally clueless.
600 billion of sub-prime mortgage garbage that CMHC insures is “investment grade” only because all losses are billed to the taxpayer. You could have Enron listed as investment grade if the taxpayer is forced to pay stock holders if the stock goes down.
The whole reason banks want taxpayers on the hook for this garbage is so they can :
1) Profit from creating and issuing sub-prime mortgage garbage loans by the hundreds of billions.
2) Make taxpayers (via CMHC) insure the massive risk of mortgage default while ensuring no private insurer is allowed to set the real risk premium on that insurance CMHC charges banks.
3) And the best part – banks can then package and sell off that sub-prime garbage guaranteed against all losses on the backs of taxpayers as “investment grade” mortgage backed securities.
This scam has already been played out in the US back in 2008.
How have you *still* not clued in ?
Why do you think banks were eager to dump these “investment grade” trash on the taxpayer as quickly as possible at the start of the pandemic.
You just can’t afford a house and so you’re angry. The big banks don’t hold sub prime and are highly regulated.
You really should look up the regulations as you’re comparing US mortgages to Canadian and there is nothing similar whatsoever between the regulations… and Canada’s big six can not issue sub prime.
Zalzon is bang on. I have been in the industry for a while and discovered that some institutional private (Mortgage Investment Corp) loans are considered to be investment grade. They are bundled according to a minimum beacon score and loan to value into investment pools, bulk insured and sold off. It’s not a huge amount relative to Alt-A and A business that the Banks and B lenders sell but it does happen.
I’m no expert but the higher debt could be an indication of renewed confidence in the economy and robust real estate sales. According to Zoocasa it’s still a seller’s market in most places and bidding wars are back. So people may be taking advantage of low rates and getting into the market.
The only solution is to let housing prices come down atleast 50% in Vancouver and Toronto or we are looking at hyper inflation. Let the housing bubble absorb all that extra printed money.
Zalzon is on POINT! The big short 2.0 CANADA STYLE!