Canada

Canadian Mortgage Debt Hits $1.69 Trillion, Fastest Rate of Growth Since 2010

Canada is experiencing a real estate boom, and it’s fueled by a flood of cheap mortgage debt. Bank of Canada (BoC) data shows mortgage credit reached a record high in April. That’s no longer a surprise since it’s a regular occurrence, but the rate of growth is noteworthy. Canadians added the equivalent of 6% of GDP to mortgage debt over the past year. It’s now growing at the fastest rate in a decade, as people scramble to buy as much house as possible. 

Canadian Mortgage Debt Hits $1.69 Trillion, After Growing 6% of GDP

Canadian mortgage debt reached a record high, adding a massive amount in just a short period. The balance reached $1.69 trillion in April, up 1.06% ($17.74 billion) from the month before. The annual increase works out to 7.80% ($122.25 billion), which is just a mind-blowing number. For context, $122.25 billion is the size of ~6% of the country’s GDP. With this kind of scale, it shouldn’t be a surprise how dependent the economy is on real estate. 

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 Since 2010

The rate of mortgage growth isn’t just high for this period — it’s high by historical standards. The annual rate of growth is the largest seen since 2010. For the month of April, you need to go a little further back — to 2009. Usually, during a recession, it’s difficult to get households to borrow. In Canada, households ramped up the borrowing and purchases of expensive goods.

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.

Mortgage Credit Isn’t Just Skewed By A Base Effect

There is a lot of dismissal of many of these annual growth rates due to a base effect. That’s when the prior period compared was subject to unusually low growth due to a shock. The low growth amplifies the appearance of the current window. Modest growth then appears to be much larger than its actual impact. It’s sort of an optical illusion for statistics. 

Canadian Residential Mortgage Debt Change

The 12-month dollar change in the outstanding amount of residential mortgage credit held by Canada’s institutional lenders.

Source: BoC; Better Dwelling.

That isn’t the case for residential mortgage credit, despite many assuming it is. April 2020 was the first full month of the pandemic’s lockdown. People may assume the lockdown slowed borrowing, but the monthly rate of growth reached 0.59%. It was the largest seen over the previous decade. The annual rate of growth was also the biggest seen since 2017 — a mini-real estate boom.  An annual comparison this year isn’t skewed higher by a base effect. Canada is just seeing an unusually high rate of growth.  

Stimulus from QE appears to be an overwhelming success. They didn’t just stimulate credit borrowing, they sent it to a near-decade high. Not even a booming economy over the past few years could do that. How Canada shifts from depending on real estate to a more diversified economy is a mystery though.

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