Canada

Canadian Mortgage Credit Growth Makes A Slight Dip, Previous Month Revised Lower

Mortgage debt is one of the only economic indicators growing these days. Bank of Canada (BoC) data shows the outstanding balance of mortgage credit increased in June. While the balance is at a new high, the rate of growth has stalled. The most recent data shows a slower annual rate of growth, expected to cool further as mortgage deferrals expire.

Canadians Owe Over $1.68 Trillion In Mortgage Debt

Canadian mortgage credit may have seen annual growth peak for the year. The balance of credit reached $1.68 trillion in June, up 0.55% from a month before. This represents an increase of 5.59%, when compared to the same month last year. This is very substantial growth, but there’s a few non-obvious takeaways.

Canadian Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

The monthly increase is getting smaller, and the annual rate of growth edged lower. The monthly increase works out to $9.27 billion for June, the smallest dollar increase since March 2020 – the onset of the pandemic. The annual rate of growth fell to 5.59% in June, which is only slightly smaller than the 5.60% increase for May. Not much of a decline, but the revisions soften the slowdown and payment deferrals boost growth.

Canadian Outstanding Mortgage Credit Change

The 12 month percent change of outstanding Canadian mortgage credit at large institutional lenders.

Source: Bank of Canada, Better Dwelling.

May was originally reported as huge growth for mortgage markets, then revised lower. Originally May was reported as a 6.0% year-over-year increase last month. It appears the BoC revised these numbers about $6 billion lower, which makes annual growth just 5.6%. Revisions are relatively normal, but when they’re this big they can have a subjective impact. That is, high growth can make it seem like the market is growing quickly, psychologically stimulating a boom. When in reality the following boom was founded on little reasoning.

Over 16% of Mortgages Aren’t Being Paid

One other factor contributing to the high growth seen these days is deferrals. There’s over 760,000 mortgages on payment deferral at the large banks, about 16% of their mortgages. Since these accounts are not making payments, there’s less downward pressure on balances. In fact, since mortgage interest is accumulating, there’s significant upward pressure. It’s easier to grow when over one in ten people aren’t making payments, compared to a period where everyone is wearing down their balances.

Canadian mortgage growth is high, but there’s a few details that signify it may not mean what it usually does. Following one of the slowest years in history, there’s widespread payment deferrals helping to push balances higher. Whether this translates into real economic stimulus or just higher home sales remains to be seen.

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16 Comments

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  • Mortgage Guy 2 months ago

    There was such little demand for mortgages, rates are now down to 1.65%. If you’re not in a market where you think prices will drop significantly, anywhere outside of Ontario or maybe even the 905, it’s a really good time to buy.

    • Pete 2 months ago

      Why do people call variables risky if the economy is never going to be strong enough to push the numbers higher? lol

      No rate hike until 2023. I think next spring is going to be an ideal time. If you can hold onto your investment condo until then, you’ll rip the face off buyers.

      • alvi 2 months ago

        Yeah I am not so bullish on codos but with interest rates so low for so long anything is possible, just an opinion from a pedestrian though not a seer

      • Mark 2 months ago

        Just curious as to why you think next spring?

      • zalzon 2 months ago

        Interest rates may be forced up when creditors (e.g bond holders) refuse to buy bonds that in real terms yield negative interest rates.

        That plus a lot of mortgages are practically junk if prices decline with bonds following suite – which means even fewer buyers of that (bad) debt.

        The only thing the govt can do to prevent that is transfer the loss to taxpayers by buying these junk bonds or by money printing. Essentially Crony Capitalism.

        • alvi 2 months ago

          Goverments have been “stimulating” their economies since 2008, other than US financial institutions,the biggest benficiaries has been the public service;t hat’s why left wing economists say deficits dont matter because they want to maximize employment in the public secotr and you call that crony capitalism? More like socialism for bureaucracy to me.

          • MH 2 months ago

            If you are a Canadian taxpayer you are currently subsidizing RBC, Rogers and the like despite them making nice profits and paying handsome dividends. You may call it what you want.

            http://www.theglobeandmail.com/amp/business/commentary/article-the-wage-subsidy-a-windfall-for-canadian-corporations

          • zalzon 2 months ago

            Its interesting to see how the failures of Capitalism are quickly relabelled as “Socialism, Communism”.. etc.

            Banker bailouts, bail-ins, inflating, “stimulus”, money printing, market rigging, fake CPI statistics,

            Though I don’t doubt the public sector benefits from politicians spending away, it comes nowhere close to the 16.5 trillion in so called credit creation in the US which was largely a handover to banks which were gambling with leverage and found themselves on the wrong end of the bet.

            Who is in control of the monetary system? Central banking these days is just a fancy name for private bank country club where gains are privatized and profits socialized – by the trillions.

            By contrast, how much of the nation’s wealth does the public sector consume?

            I guess one needs to put this ratio in perspective before figuring out if its Socialism or Crony Capitalism that rules the roost.

  • Karen Wilson 2 months ago

    Schools are rushing to get in class done so they can collect higher tuitions. Not sure how much this can impact the market, but if they get it done last minute, there’s a big surge last minute.

  • OM 2 months ago

    Isn’t high credit growth with low mortgage rates an oxy moron?

  • straw walker 2 months ago

    Yes 16% nation wide but those numbers a a lot higher in regional areas..
    Especially small regional banks are seeing a lot higher percentage in deferral.
    Western CDN bank reported 20%

    • YOLO 2 months ago

      Right, but Toronto has the mortgage portfolio the size of all of Western Canada less Vancouver. So there’s a distribution skew.

  • alvi 2 months ago

    No we have had high credit growth with low mortgage rates since 2008,just look at personal and goverment balance sheets. Interest rates were lowered to encourage people to borrow more. Now are you asking whether it is sustainable?

    • RainCityRyan 2 months ago

      Is the idea that we might be seeing credit exhaustion?

      So banks are lowering rates to try and entice more new mortgage business but everyone who wants a 20x leveraged position in a single market has one?

      • alvi 2 months ago

        I think we should start calling personal and governement “balance ” sheets “liability” sheets going forward instead

  • cdr 2 months ago

    If over 16% of mortgages aren’t being paid, isn’t that between 1 in 6 to 7 aren’t making payments, which is worst than the 1 in 10 quoted?

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