Canada

Canadian Mortgage Debt Grew By Over 5% of GDP In Just One Year

Canadian households are taking advantage of the cheap debt flooding the mortgage market. Bank of Canada (BoC) data shows outstanding mortgage credit reached a new high in January. The total size of the debt pile isn’t just a shocker at this point. Over the past year, accumulated mortgage debt was more than 5% the size of the country’s GDP. One. Year.

Canadian Mortgage Debt Now Over 85% of GDP

Canadian mortgage debt started the year with a record total, which doesn’t surprise. Outstanding mortgage credit reached $1.66 trillion in January, up 0.41% ($6.82 billion) from the month before. This represents a 7.19% ($111.12 billion) increase compared to the same month last year. These are very large numbers, so the growth might be lost on some people. The balance of residential mortgage credit is just over 85% of GDP. Mortgage credit is huge for the size of the country’s economy.

Canadian Residential Mortgage Debt

The outstanding dollar amount of residential mortgage credit held by Canada’s instituional lenders.
Source: BOC, Better Dwelling.

Canadian Mortgage Debt Is Growing At The Fastest Rate In A Decade

The monthly and annual growth are the fastest seen in years. It was the biggest monthly increase for a January since 2017. It was also about half of the growth seen in October’s recent peak, but it’s also a winter month. Still, worth keeping an eye on this number to see if it can ramp up to that level again by Spring.

Canadian Residential Mortgage Debt Change

The 12-month percent change in the outstanding dollar amount of residential mortgage credit held by Canada’s instituional lenders.
Source: BOC, Better Dwelling.

The annual rate of growth is at a multi-year high. January’s 7.19% growth marks the 8th consecutive month of acceleration. There’s been 22 months of acceleration, if you exclude a single blip in May 2020, at the onset of the pandemic. This rate hasn’t been this high since October 2011, when it fell from the Great Recession’s bump.

Mortgage Debt Increased By The Equivalent of 5% of GDP

The increase in dollars is unprecedented, and not just because of the total size of the debt pile. At the end of January, outstanding mortgage credit had increased by $111.12 billion. In terms of relative scale, it’s the equivalent of more than 5% of GDP at the annual rate. It almost creates an unnatural looking vertical line when charted. 

Canadian Residential Mortgage Debt Change

The 12-month dollar change in the outstanding amount of residential mortgage credit held by Canada’s instituional lenders.
Source: BOC, Better Dwelling.

Canada’s easy mortgage credit policies have led the debt to grow at the fastest pace in almost a decade. Whether that’s a good or bad thing is the subject of much debate. On one side, the BoC is thrilled because it’ll lead to inflation. On the other, economists say inflation can’t accurately capture the home price growth. The situation is also starting to be viewed as a debt trap, with few ways to navigate without causing pain.

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9 Comments

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  • Paul 6 months ago

    “It almost creates an unnatural looking vertical line when charted”

    This sentence is cute.

    Nothing to see here. Move along.

    • jason 6 months ago

      GDP to debt is the strongest factor that determines a crash and credit crisis. Are you over leveraged in real estate by any chance?

    • Eva 6 months ago

      Housing is way up to basic fundamentals. 9.4 % gdp, when gdp is 5.3% ( the worst in G7) Income is stagnant, prices keep going up.
      Housing is good for individual needs, but doesn’t produce productivity.
      Rosenberg says, the bubble will eventualy burst. Prices will go even lower then in housing crisiss in USA 13 years ago. Very interesting interview on Bloomberg.

  • jason 6 months ago

    Get ready we are headed toward a credit crisis. People will have less and less to spend on goods and services and that’s why real estate inflation is so much higher than CPI inflation and has people scratching their heads. Banks will incorporate a credit crunch. People will start to get fearful and there will be an abundance of supply. This will come to pass it is built into the system.

  • V 6 months ago

    They need to raise interest rates to stop people from bidding up prices. That’s what’s causing more debt. It’s that simple but the BOC and their diplomas/degrees they recieved from the Fruit Loops boxes haven’t taught them to learn simple mathematics. When will people with some brains start running the BOC.

    • David Chan 6 months ago

      The mistake most people make is thinking the BOC’s role is in protecting households. Its primary goal is stabilizing stakeholders that actually print money (aka the banks).

  • Marek Gronowski 6 months ago

    Actually wrong mortgages real value going down simple math if volume going 5 %up with 30 %inflation up realisticly we own to banks less and less haha !!

    • David Chan 6 months ago

      yes, inflation is up 30%. *EYE ROLL*

      I love it when random people on the internet try to explain inflation.

  • Holton 6 months ago

    The question is did we increase the money supply by 5%? The flood of printed usd will also reach our shores.

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