Canadian households are split between those deleveraging and those continuing the borrowing spree. Bank of Canada (BoC) data shows outstanding mortgage credit was virtually flat in February. Not as bad as contracting, which is a rare event in Canada. However, prior to the past two months, mortgage credit hasn’t moved this slow in well-over a decade.
Canadians Owe Nearly $2.1 Trillion In Mortgage Debt
Canadian mortgage debt has been moving at an unusually slow pace. The outstanding balance hit $2.09 trillion in February, virtually flat from a month before. It was the second consecutive month with nearly non-existent growth. Prior to the past two months, one has to go all the way back to 2011 in order to find such low growth.
Canadian Mortgage Debt Hits A New Record High
The outstanding balance of Canadian residential mortgage credit owed to institutions.
Source: Bank of Canada; Better Dwelling.
Canadian Mortgage Debt Returns To More Stable Annual Growth
Annual growth has returned to more stable levels, though still elevated. The 12-month change in outstanding mortgage credit is 5.9% ($116.3 billion) higher than last year. Certainly higher than inflation, but the lowest rate reported since March 2020. It’s worth emphasizing that growth was accelerating back in March 2020, but it’s now in a phase of deceleration.
Canadian Mortgage Debt Growth
The annual growth rate of Canadian residential mortgage credit.
Source: Statistics Canada; Better Dwelling.
It Was The Slowest 3 Months Since The 2001 Recession
Isolating the past few months shows just how much borrowing has slowed in recent months. The 3-month annualized rate of growth was just 0.3% in February, meaning if this continued at the same level of growth for a whole year, it would hit just over flat. Canada hasn’t seen mortgage credit fall to this level since the 2001 recession. Expect annual growth data to keep grinding lower in the near-term, despite rising home prices.
The picture might be somewhat confusing in contrast to what you would expect from recent news. As home prices rise, credit growth typically accelerates—which hasn’t been the case. Purchasing volume is so low that it’s barely keeping up with the number of borrowers paying off their debt. A handful of exuberant buyers are enough to push prices higher in a low volume environment. It won’t be clear that’s the case if inventory starts to loosen, since higher interest rates have throttled the easy money.
I think everyone is waiting for renewal season, the next four months of higher rate renewals May flip everything on its head ? Going from a locked in low rate to a 6% … ouch ! Then there are those unsecured credit lines with interest rates 11 to 22% for the final blow.
Yes indeed, May,June,July will be very interesting indeed.
So far houses are selling for well over asking in the GTA and outside of the GTA – ever since Easter it is like spring housing fever all over again. It is nauseating. Even HouseSigma estimates have “suddenly” risen, making me question the legitimacy of sites like HouseSigma that give exuberant estimates for listed houses that once sold, drop like a thud in value a few months later when HouseSigma posts a new estimate. Listing agents are pulling all sorts of scams – sigh – will they ever learn to do an honest job? Ontario’s housing market is shady business.
But check out the February, March seasonal increases in home sales every year… this is the strongest time of the year for real estate historically in Canada. The seasonal increase can still happen in a gradual bear market. The fundamentals in Canadian real estate demand do not support ongoing price growth to the end of Spring or into the Summer. Not to mention the Canadian banks supporting investors and end-users of shelter alike with unprecedented amortization extensions and negative amortization. 30 % of Canadian residential mortgages have been underwater for months. Banks decide if they let people default in this case, and they collectively decided not to allow that on their books. I think they hope for a pivot to rates just like investors. They hope something else in the economy breaks first and badly enough to save them before anyone notices the garbage loans they are holding.
My understanding is that the great majority of mortgages aren’t renewing until 2025, so not sure how much of an impact renewal will have this year.
But check out the February, March seasonal increases in home sales every year… this is the strongest time of the year for real estate historically in Canada. The seasonal increase can still happen in a gradual bear market. The fundamentals in Canadian real estate demand do not support ongoing price growth to the end of Spring or into the Summer. Not to mention the Canadian banks supporting investors and end-users of shelter alike with unprecedented amortization extensions and negative amortization. 30 % of Canadian residential mortgages have been underwater for months. Banks decide if they let people default in this case, and they collectively decided not to allow that on their books. I think they hope for a pivot to rates just like investors. They hope something else in the economy breaks first and badly enough to save them before anyone notices the garbage loans they are holding.