Canada

Canadian Mortgage Debt Has Never Seen Such Explosive Growth, Hits $1.7 Trillion

Home sales might be slowing, but Canadians have begun one of the most epic debt binges ever. Bank of Canada (BoC) data shows outstanding residential mortgage credit reached a new record in June. It didn’t just “soar” to that level though. It showed explosive growth, like someone strapped a rocket to it. 

Canadians Now Have Over $1.7 Trillion In Mortgage Debt

Canadian mortgage credit has been soaring the past few months — but nothing like we’ve just seen. The outstanding balance reached $1.7 trillion in June, up 1.37% ($23.6 billion) from a month before. Compared to a year before, this represents an increase of 9.21% ($146.7 billion). Those simple numbers have a whole lot to unpack this month, but we’ll try to stick to the key takeaways.  

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt held by institutions.

Source: BoC; Better Dwelling.

Canadian Mortgage Debt Has Never Made A Monthly Jump Like This

Let’s start with the monthly growth, which you know, is huge — but a percentage rate diminishes how big it is. When we say $23.6 billion, it’s a little different. It was the largest monthly dollar increase ever. There was never a point in Canadian history where this much was borrowed for residential mortgages. Over the past year, over one in seven dollars added to mortgage debt, was added this past June.  

Canadians Add More Than The GDP of Kuwait To Their Mortgage Debt

The debt added over the past year is also a mindblowing amount. The annual rate of 9.21% is the biggest number recorded since 2008. As for the dollar amount, it’s more than half the size of Alberta’s gross domestic product (GDP). Heck, the amount of dollars Canadians added to their mortgage balance is bigger than the GDP of Kuwait or Morocco. Not the amount spent, but just the amount added… just at institutional lenders. To say it’s a mindblowing waste of resources doesn’t quite capture it.

Canadian Residential Mortgage Debt

The 12-month change in the outstanding balance of Canadian residential mortgage debt held by institutions.

Source: BoC; Better Dwelling.

There are some important nuances to this data before coming to a conclusion. Statistics Canada (Stat Can) said, “There is normally a time lag between the sale of a home and the actual receipt of mortgage funds; however, borrowers may also be in the market for a new home, or otherwise be taking additional equity out of their home or consolidating debt when refinancing their existing mortgages.” 

Essentially this means homebuyers report more debt than would actually settle. As they receive mortgage funds for the home they sold, the balance would fall. While this may sound like Stat Can used this to dismiss concerns about the increase, it doesn’t really. This wasn’t the only month where that occurred. Since home sales have been sliding, that trend should have lowered the amount of mortgage debt, not necessarily increased it. 

Mortgage Debt Surged As Borrowers Try To Beat The Stress Test

This more likely has to do with the mortgage stress test, which went into effect on the first of June. Uninsured mortgage borrowers often get pre-approved for their mortgage prior to the change in rules. This allows them to shop for homes after the date, but squeezes more buyers into a small window. 

These typically only last for 90 days, so anyone who wanted a mortgage this year but didn’t want reduced buying, needs to buy in this small period. This also would provide a little context to the abrupt increase of home sales in July, despite flat prices. Buyers in a low inventory environment would normally have pressure to spend more. The market is now flooded with a type of buyer pushing their debt to the maximum. 

One other reason pushing this number higher is refinancing. Equity withdrawals have always been popular, but with mortgages at negative rates in real terms — more people are likely withdrawing equity. This was a concern back in 2018 that regulators had expressed, but it’s 2021 so we’re pretending none of these issues existed prior. It cooled after that, but has been making a roaring comeback over the past few months. We’ll break those numbers down later this week.

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20 Comments

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  • Frank Daugherty 2 months ago

    Remember this happened with no population growth. People are just smoking the debt pipe.

    • Mitch 2 months ago

      Nope. Didn’t need. Just the government setting a rate trap to pump up performance before an election. If they waited until next year, it would have been a disaster.

  • Winnie The Pooh 2 months ago

    Virtually all of Canada’s growth has been borrowed. It’s a house of cards, which is why we magically need to lockdown but also open the border to as many people as possible. They do a good job at pretending these are refugees, but the people they’re really scrambling for are high income sponsorships.

    • Paul 2 months ago

      None of what you said makes sense.

      • Humble opinion 2 months ago

        I think it does. Canada is monopolized elite for everything looking for more new slaves, that can only come from third world countries.
        Monopoly on internet cost( the highest price in G7 ), monopoly on housing ( one of the highest prices in G7), monopoly on education ( limited number of spaces on any education that can guarantee you great income: medical schools and dental schools, veterinary schools, law schools and so on), cost of goods -so inflated, any type of insurances, very high taxes for working class Canadians. The only thing that is free in Canada, fair quality medicine in outpatient clinics, but terrible quality emergency or in hospital care.
        My humble verdict, its not a good country for any thoughtful immigrant looking for prosperity.

  • Christopher Barclay 2 months ago

    Municipal zoning is why mortgage debt keeps expanding to the absolute maximum people can take out, even in places with almost no zoning restrictions.
    — some idiot on Reddit

    • Van YIMBY 2 months ago

      Zoning definitely impacts prices, but people that think zoning restrictions are why cottages all of a sudden jumped 60% have no clue what they’re talking about. Even Quebec, where zoning is most generous, is seeing home prices soar. The home prices are soaring along WITH vacancies.

      • Epic fail 2 months ago

        To all my 90’s babies.. your future was sold off in 2008 unfortunately.. Robbed an entire generation. Congrats BOC

        • D 2 months ago

          I was 13 in 2008, back then I realized the big shtf to come, and since then have always believed the economy is/was near destruction at a moments notice.

  • Ksnn 2 months ago

    That’s exactly why prices will keep going up. Those are newly created money. And money created dont just sit there. That money will flow through the economy as income for many people causing inflation.
    Once inflation is here people fearing devaluation of their money will invest in assets. Don’t bet a penny on them raising interest rates because there are still lots of ppl unemployed. If you didn’t buy yet or cant afford Toronto or Vancouver, buy in other big cities.

    • Sn 2 months ago

      You’re seeing incomes increasing? Where and for whom? Also, who has savings for devaluation? This debt increase is proof there are no savings left.

      • Bkl 2 months ago

        I work in fin tech, recruiters reached out to me last for approximately 120-140k. This year its around 140-180k, many of my team jumped ship this year.

        • avarege Canadian 2 months ago

          Anecdotical cases. Google for an average Canadian household income. Its a bit over 63.000 annual. Main course of potential buyers.

        • alex 2 months ago

          I looked up many fintech job postings with salaries(Bdev, Full stack, product analyst, reporting, etc) in the GTA and I don’t think I came across one in that salary range unless it was a VP/director level position.

    • Paul 2 months ago

      Who is “them”? The BOC sets key rates but the banks decide your interest. If they price fix you are screwed.

    • Axel McLion 2 months ago

      This guy is a broken record, same comment made daily.

    • alex 2 months ago

      Gotta love realtor economics.

      You have been parroting the same rhetoric for quite a few posts now, are things starting to slow down at the firm?

      Maybe it wasn’t the best idea to overpay for that new Mercedes C-class thinking that you were gonna keep getting those fat commissions.

    • Bkl 2 months ago

      You are right, during times of inflation good tend to be priced over the median term by their replacement cost. That is why essentials go up with inflation. That is also why real estate tend to go up with inflation too. However I do believe other big cities will go up very soon if they are not already out of reach for most.

    • Lumber 2 months ago

      lumber goes down down down
      1/3 of May 2021 price, even with all the forests burning down, with “limited supply” and prices are down
      Lumber bubble bursted
      Alibaba is 160 today, almost at lowest point was 150
      Housing prices stagnation, not profitable investment any longer, a lot of people bought houses at its peak

    • Cuban 2 months ago

      its more safe now to buy property in Cuba and wait until regime changes

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