Canadian mortgage credit must be seen as too cheap to pass on, since everyone is borrowing. Bank of Canada (BoC) data shows the outstanding mortgage credit for May grew at the fastest rate in over a decade. The balance is also likely to climb at an even faster rate as well, despite the backdrop of falling home sales. At least in the near term.
Canadian Mortgage Debt Hits $1.7 Trillion
Canadian mortgage credit growth has been ripping higher, even with slowing sales. The outstanding balance reached $1.7 trillion in May, up 1.0% ($16.3 billion) from a month before. Compared to a year ago, the outstanding balance is 8.3% ($131.7 billion) higher. You can probably already guess this was another record-setting month for mortgage credit.
Canadian Residential Mortgage Debt
The outstanding dollar amount of residential mortgage credit held by Canada’s institutional lenders.
Source: BoC; Better Dwelling.
Canadian Mortgage Debt Grew At The Fastest Rate Since 2010
In addition to the balance hitting a record high, it was also the fastest annual growth in years. The 8.3% annual growth is the largest since 2010. Annual growth was subject to a small base effect, but don’t let that downplay this growth. Mortgage credit has been fast-growing even just over the past few months.
Canadian Residential Mortgage Debt Change
The percent change in the outstanding dollar amount of residential mortgage credit held by Canada’s institutional lenders.
Source: BoC; Better Dwelling.
Canadian Mortgage Debt Will Likely See Growth Accelerate
The 3-month annualized rate of growth came in at 11.3% for May, significantly higher than the annual rate. Short-term performance is nearly 50% higher than annual growth, implying acceleration will continue. It should accelerate until the 3-month rate of growth falls below the 12-month. Though we’ve seen other indicators flip very quickly more recently. It happens fast, so keep an eye out just in case it does.
Mortgage credit is rising while home sales are falling. The initial impression is home prices are rising fast enough to make up for the decline in sales volume. Though price growth and sales have been falling, while credit booms. That curious situation may mean people are drawing on the recent equity boom. At least a portion of it.
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I don’t understand why some people think growing debt would lead to lower prices. Thats an indication of people buying homes at higher price. This infact should be a sign that the market is recovering.
With all the money printed all over the world real estate prices will go up. Toronto and Vancouver might have reached its peak but other cities with higher median income will surge a head. If you missed Toronto and Vancouver dont miss the second tier cities this time or you will be sorry.
No one thinks printing money will lead to lower home prices. Everything thinks, as you do, that printing more money will lead to higher prices.
The people that think home prices will fall are the ones that understand how QE works. The money is temporary, and the BOC said they would let the assets roll off the balance sheet at maturity.
I didn’t know until recently that Canadian mortgages are only 5 year terms, while they’re locked at the same rate for 30 years in the US. Considering this is going to be the first credit driven housing crisis in Canada, the government just set people up in the most risky way possible.
I don’t think my Canuck friends will lose their home, because as a society we wouldn’t let that happen at scale anymore. You may be a lot further behind from generations that bought before you though, since all of your capital will go to servicing your existing home.
i..e. Rates can rise a lot faster than their incomes can. And that’s a guarantee since this downturn forced people to look at other assets at scale. Imagine what happens during the next crisis, when increasing the money supply by 30% isn’t enough.