Canadian Mortgage Credit Accelerates To The Fastest Growth Since 2008

Canadians aren’t just borrowing a lot of mortgage debt, they’re doing it at one of the fastest rates ever. Bank of Canada (BoC) data shows outstanding mortgage credit hit a new record in August. It wasn’t just the balance, which is now larger than the gross domestic product (GDP) of most countries. The rate at which the debt pile is growing is rising to rarely seen levels. Mortgage debt hasn’t grown this fast since right before the Global Financial Crisis. 

Canadians Owe Over $1.7 Trillion In Mortgage Debt

The balance of Canadian mortgage debt reached a new record high, with huge growth as well. Institutional mortgage lenders held $1.76 trillion in August, up 0.86% ($15.01 billion) from the month before. Compared to last year, the balance is now 9.72% ($155.93 billion) higher. It wasn’t just a record high for mortgage debt, but it grew at one of the fastest rates in recent history. 

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt held by institutions.

Source: Bank of Canada; Better Dwelling.

Canadian Mortgage Debt Hasn’t Grown This Fast Since 2008

Mortgage debt is growing at a rate not seen in a very long time. The annual rate of 9.75% reported in August, marks the sixth consecutive month of acceleration. It’s twice the rate of GDP growth, and the largest seen since 2008. Back then the debt pile was nearly half the size, so it was much easier to see growth. People aren’t just borrowing a lot of debt right now, they’re doing it like it’s running out of style.

Canadian Mortgage Debt Might Be Near Its Peak Growth This Cycle

The party might not end in the next report, but a top is beginning to form for annual growth. A look at the 3-month (annualized) growth shows it fell to 12.8% in August, down for a second consecutive month. It peaked at 14.15% in June, the highest rate since the 2007 credit frenzy. We know, that means absolutely nothing to you right now, but it will in a second.

Canadian Residential Mortgage Credit Growth

The 12-month and 3-month (annualized) rate of growth for Canadian mortgage credit.

Source: Bank of Canada; Better Dwelling.

By annualizing a short period of growth, you can tell how recent performance stacks up. When analysts do this, they’re taking the most recent data, and projecting it as though it were a whole year. This gives two comparable numbers that can be benchmarked against each other. We used 3-months because that’s what the BoC uses, but any period that divides neatly into a year can be used.

Annual growth can’t grow for very long if the 3-month annualized rate is lower. Likewise, it can’t fall for much longer if the 3-month trend is above it. Think of the 3 months of recent data as a leading indicator for an annual trend. The 3 months of recent information are much more important than the 9 months before, when looking at 12 months of data. 

In this case, the 3-month growth is decelerating, but still higher than annual growth. That implies annual growth still has a little more steam for the next few months. However, they’re on a collision course. If the 3-month trend doesn’t abruptly change course, it means it’ll fall below annual growth. Recent slowing of activity will essentially drag the whole annual trend.

All that said, mortgage debt doesn’t typically grow this fast for very long. Otherwise it would consume a country’s economy… even further in this case.

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4 Comments

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  • Ethan Wu 2 years ago

    A common reason for the 2008 comparison is the liquidity injection. Crazy amounts of liquidity are being injected to get people to buy homes because they know what happens the second people stop paying 10% y/y for these hunks of junk.

  • Ben 2 years ago

    5 years down the road when rates normalize and everyone is on mortgage renewals, this is going to be some really nice bank profits reported.

    • Kate Wright 2 years ago

      The banks always win. We’ve constructed society around the concept of them lending loans at the right rate. It’s actually hilarious and terrifying at the same time.

    • D 2 years ago

      There’s a sucker born every minute. Anybody that bought after 2011 is getting creamed if they haven’t finished off their mortgage.

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