Canadian Mortgage Credit Growth Grinds To A Halt, Worst Growth In 18 Years

The Canadian real estate market is slowing down, and it’s hitting mortgages. Bank of Canada (BoC) numbers show mortgage credit grinded to a halt in July. The annual rate of mortgage growth fell to the lowest level in nearly 18 years, and is set up to go lower.

Canadians Owe Over $1.52 Trillion In Mortgage Debt

Canadians set a new dollar record for outstanding mortgage credit at institutional lenders. The outstanding balance stood at $1.52 trillion in July, up $4.95 billion from the month before. Households sent the total $54.22 billion higher than the same time last year. On the upside, lenders are primed to receive a whole lot of interest payments. On the other hand, if we look closely – we see the rate of growth is actually shrinking very quickly.

Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

Canadian Mortgage Credit Falls To Lowest Growth Since July 2001

The growth of mortgage credit fell to its lowest levels in almost two decades. The $54.22 billion increase from last year comes in at just 3.7% growth. That still sounds pretty decent, until you realize it’s only 0.68% in real terms. The annual pace of growth is now the lowest it’s been since July 2001. For historical context, a then new artist named Shaggy topped the charts with It Wasn’t Me when mortgage growth was last this low. Of course most of you have no idea who he is, so ask your mom for the best explanation. Then tell her mortgage levels fell to Shaggy-era levels of growth, and email us her take.

Canadian Outstanding Mortgage Credit Change

The 12 month percent change, and 3 month annualized change, of outstanding mortgage credit.

Source: Bank of Canada, Better Dwelling.

Mortgage Growth Likely To Head Lower

Looking at the short-term trend, these numbers will likely come in lower for at least a few more months. Annualizing growth over the past 3 months, we get just 1.7% – lower than inflation. This means if the annual growth rate came in at the same pace as the past 3 months, the rate would fall to 1.7%. Until this number rises above the annual pace for a while, expect the rate to continue to fall.

Canada is coming off of record sales years, and interest rates are quickly climbing. That’s dropping demand for new loans, and tightening credit requirements. It shouldn’t be a huge surprise that mortgage growth is on the decline, and likely to slide further.

TL;DR Flippers are going to be caught red-handed, creeping with the house next door.

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  • Sammy 6 years ago

    The zero chance of rate hike indicator. The CB’s biggest clients are commercial lenders, and if they aren’t issuing loans, he’ll hold off on raising rates for as long as possible.

    • It's Supply, Stupid 6 years ago

      I’m not even sure why the Bank of Canada would be hiking rates so soon after the last hike. If it takes 6 to 12 months, why are we cramming them together month after month?

      • Mackenzie 6 years ago

        Because a recession requires ~150 bps in cuts to stimulate. If we don’t, we have a negative policy, which would lead to huge CAD outflows. Psychologically, it makes a huge difference. We’ll probably get 2 or 3 more before a recession kicks in next year.

        • @xelan_gta 6 years ago

          Traditionally recession requires around 500bps cut.

    • Ahmed 6 years ago

      The CB gets less choice in these matters than you think. They have to keep with market demand, which is actually falling even though they’ve started to remove yield suppression measures. The yield inversion indicator may be broken, but that doesn’t mean the outlook is good. Far from it.

    • Grizzly Gus 6 years ago

      Using your logic. If banks aren’t growing their revenues by lending growth, what’s an easy way for them to increase profitability? Oh Yeah! charge more for all the loans already outstanding. Let’s just let the dollar collapse and hope we can inflate away a lot of the debt burden? What does that do to the profitability of the big banks who have most of their assets in CAD? Now how much sway do you think they have over the BOC?

      • @xelan_gta 6 years ago

        Exactly. Mortgage portfolio of banks will suffer badly from high inflation.

  • Mica 6 years ago

    Ahem… I think we all know who Shaggy is… thanks to Netflix. Mortgage brokers are going to be sounding a lot like him (it wasn’t me). 😂

  • Dan E. 6 years ago

    Wow, what happened in 1996 that growth was so low?

    • Mackenzie 6 years ago

      It was the bottom of the last real estate market, when demand fell to a “low.” Although we had a lot of cash from Hong Kong pouring in right around there, which helped to keep it positive.

  • True Dope 6 years ago

    It’s all due to B-20 regulations. The Federal government has no clue what they’re doing.

    • Ahmed 6 years ago

      Regulations follow a slip in demand. When credit is growing, risk is lowered due to the fact that the asset prices attached to the credit will grow. When credit is shrinking, they put on new measures to ensure bad borrowers are eliminated from the market.

      Most of the country isn’t impacted by B-20, because the house multiple isn’t as high as it is in Toronto and Vancouver.

    • Moss 6 years ago

      B-20 regulations were put in place to ensure that the crash was as “soft” as possible. The crash was going to happen no matter what, but without B-20, we could have seen another year or two of bubble growth, followed by an even more catastrophic pop. Anyone who thinks housing prices were going to grow YoY by 10-30% in perpetuity is nuts. There were never any economic fundamentals that underpinned this level of price growth, other than the fact that interest rates were at near-zero for almost a full decade.

      • @xelan_gta 6 years ago

        Moss, you got it right. B-20 is protecting financial institutions (and taxpayers exposure) from risky loans during “soft landing” or potential “hard lading”.

  • GLM 6 years ago

    I dont think the rates will go up today, but i wouldn’t be surprised if they do, Poloz has already hinted he would even if he did not have to.

    • Ahmed 6 years ago

      The market is pricing in no hike today, buy 80% for next meeting. Still have my doubts about next meeting, but he might due to currency dropping so quickly.

      • neo 6 years ago

        No need to doubt it. There will be a hike in October. We are still a few rate hikes behind the U.S. and the tightening cycle still has another 75 to 100 basis points in it before we start to enter recession in late 2019/ early 2020 and give ourselves some runway to lower them again.

  • Enough of this 6 years ago

    Well done, Daniel!

    I LOVE the last line.

    Very witty..

    Party is officially over

    • Ian 6 years ago

      BAHAHA! I didn’t realize that was a joke until I looked up the song up. Well played. 😂

  • Julie 6 years ago

    Wow, I love this blog! It provides me with so much interesting information and the added humour makes me smile! Keep it up 🙂

  • Andy 6 years ago

    It’s getting messy out there. I’m seeing people taking 2nd’s and missing first payments.
    Power of sales are increasing by the day.

    If a young buck is reading this, get into the gym…and become a debt collector/eviction officer – you will be busy for years to come.

    • Paul 6 years ago

      We should ask Lego to build repo man kits, so our kids can look forward to the new career options that will bloom.

      • Vijay Stevens 6 years ago

        Meanwhile realtors are scoffing at any slow down – immigration population growth and supply issues are CONSTANTLY offered as explanations for GTA strength.

        • Wales 6 years ago

          As an immigrant myself, I won’t be taking a mortgage. Housing prices are just ridiculous all over Toronto and GTA. These areas account for a large chunk of skilled migrants.

          Am better of renting and buying property in saner markets

    • AJ 6 years ago

      Is this just anecdotal? Any specific examples??

  • Joe Rathwell 6 years ago

    Buy Silver

Comments are closed.