Canadian Mortgage Credit Sees Worst August Since 1995

There’s fewer Canadian real estate buyer’s looking to purge their available credit. Bank of Canada (BoC) numbers show the growth of mortgage credit in August grew at the slowest pace in over a decade. The last time growth was this slow, homes were much cheaper and rates were much higher.

Canadians Owe Over $1.5 TRILLION On Their Mortgages

The balance of mortgage credit hit a new all-time high. Canadians owed $1.526 trillion at the end of August, up $4.22 billion from the month before. Compared to the same month last year, this works out to an increase of $53.14 billion. The gains sound like a lot of cash owed, but in terms growth it’s actually starting to look weak.

Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

The Slowest Pace of Mortgage Growth Since 2001

The record high debt levels were not met with record growth. The annual pace of growth is  3.6%, nearly 38% lower than the same month last year. This is the 6th consecutive month of deceleration, and the slowest growth since 2001. For August, it’s exceptionally slow, being the worst August since 1995.

Canadian Outstanding Mortgage Credit Change

The 12 month percent change to outstanding mortgage credit.

Source: Bank of Canada, Better Dwelling.

Meh, What’s The Big Deal?

Households have access to much more leverage this time, and we’re getting minor growth. In 2001, the effective household borrowing rate was nearly 80% higher than today. The result is Canadians could borrow 25% less money back in the day, making it much harder to grow the total. Today we’re seeing slowing growth, with improved access to leverage. That’s a big problem, and leaves a lot of questions about this economy’s ability to handle rate hikes.

The slowing growth isn’t great, but it’s expected. Especially considering the backdrop of rising rates and high home prices. Rates are relatively low, but the minor hike is already putting a drag on home buying. This trend is primed to continue for as long as the economy can grow… traditionally not that long once spending starts to dry up.

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  • Michael Chen 6 years ago

    Wow! The Great Recession didn’t slow you crazy Canucks down at all.

    • Ian 6 years ago

      Nope. Sadly, Canada avoided most of the damage by giving out WAY more mortgages at higher rates. Canadian real estate prices weren’t elevated before the Great Recession though. They hadn’t passed their 1995 peak in Vancouver or their 1990 peak in Toronto until ~2010. The recession was merely stalled buying, which was cured by 40 year mortgage amortizations and slashing interest rates.

      • Alistair McLaughlin 6 years ago

        40 year mortgages were cancelled in December 2008, right at the beginning of the crash. They didn’t not rescue the housing market. They were eliminated before they could do that. The housing market was rescued by massively lower rates, plus the CMHC buying over 100 billion in insured mortgages back from the banks, so the banks could keep lending. And lend they did.

  • Tony 6 years ago

    Slowdown is no surprise. The RBC chart from the other day showed that people would need almost all of their pre-tax income to buy a house in Toronto and Vancouver, which is half of the real estate market. There’s gotta be a cap on the number of people willing to do that.

    Don’t push the BS that it’s cheaper than renting. The vast majority of people in Toronto that have been living in their apartments for longer than 2 years, are paying close to half the market rental rate today. Quit moving around, and you lower the jump of expenses. Landlords are happy too, since they don’t have to pay to find a new tenant.

  • Mackenzie 6 years ago

    Notice that from 2015 to mid-2017 it maintained the same growth. I’m guessing that’s when they were giving mortgages to anyone to meet the goals. Notice that prices grew the most since the 1990s during that period.

  • Just Learning 6 years ago

    How does one profit from this knowledge? It’s not like we can short the real estate market.

    • Maher 6 years ago

      Short the big banks.

      • MM 6 years ago

        Higher interest rates for existing loans. The revenues have built-in growth, so it’s not a great short idea.

        • Alistair McLaughlin 6 years ago

          Bank profits fall when rates are high, despite better spreads. That’s a fact. Loan volumes fall and defaults go up when rates go up. Contrary to popular belief, bank love love love low rates. They make a killing under ZIRP policies.

  • MH 6 years ago

    Here is a good chart to put it in perspective:

    • Koi 6 years ago

      Canada and Australia have huge debt problems. China is still undergoing urbanization, so that debt statistic will come down as more people come “online” from within the country. They already have infrastructure that supports them, unlike the immigration scheme we run in Australia and Canada.

      • MH 6 years ago

        Dunno… isn’t this urbanization fueled by debt to begin with?

    • Bob 6 years ago

      Great quote in the article that linked to:

      “… increasing housing affordability for citizens and encouraging investment from foreigners are likely to be irreconcilable goals.”

      You think?

  • John 6 years ago

    You would think after a billion in debt, they would do something about it.

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