Canadian mortgage debt is slowing, but it’s way past the point of becoming a problem. Bank of Canada (BoC) data shows outstanding mortgage credit slowed in October 2022. However, slow growth is still growth—households now owe the equivalent of the country’s economic output. At this level, debt will pile up much faster than GDP grows, increasing household vulnerability and the risk of a financial crisis.
Canadian Households Owe Over $2.1 Trillion In Mortgage Debt
Canadian mortgage debt is reaching an epic level, and with substantial growth. Outstanding residential mortgage credit reached $2.073 trillion in October, up 0.2% ($5.0 billion). Compared to last year, the balance is 8.3% ($159.8 billion) higher. Keep in mind this is what’s owed to institutions. Private and mortgages secured overseas, would not be included in this number.
Canadian Mortgage Debt Hits A New Record High
The outstanding balance of Canadian residential mortgage credit owed to institutions.
Source: Bank of Canada; Better Dwelling.
Having monthly debt rise by $5 billion sounds huge, but it’s a distortion from the amount owed. The 0.2% growth rate in October was half the size of the previous month, and a little over a third of last year. Such a small growth rate hasn’t been reported since February 2019. Even when people couldn’t leave the house in the first half of 2020, they still borrowed more.
The annual growth rate is still high, but it’s decelerating fairly fast too. Growth in this cycle peaked in April 2022, and has fallen every month since. Annual growth in October is the lowest since April 2021, which is still very strong. However, the 3-month annualized rate came in at just 4.6%, confirming a monthly slowdown will drag the trend lower.
Canadian Mortgage Debt Growth
The annual growth rate of Canadian residential mortgage credit.
Source: Statistics Canada; Better Dwelling.
Canadian Mortgage Debt Hits 100% of GDP, Economic Risk Surges
The size of Canada’s mortgage problem is hard to appreciate until you factor the size of its economy. This morning’s GDP release came in at $2.073 trillion for October, the same size as the mortgage debt owed. Residential mortgage debt is now 100% of GDP, and we’re not even discussing other debt segments. This is a really bad sign, generally only seen before a crisis.
Canadian Mortgage Credit As A Share of GDP
Canadian residential mortgage debt as a share of gross domestic product (GDP).
Source: Bank of Canada; Better Dwelling.
It gets worse. Mortgage debt is also growing faster than GDP—much faster than it ever could. Despite annual growth decelerating, mortgage credit is still growing more than 2x GDP. Unless mortgage debt gets a major shock, it will easily clear output and put a massive gap between the two. It’s a problem to have mortgage debt reach the size of output, and a much bigger one as it leaves GDP in the dust.
The higher the ratio of household debt to GDP, the larger the risk to the economy. An IMF study revealed this will reduce household consumption even further during shock. High ratios of debt also increase the risk of financial crisis, and crash risk. Since debt surges accompany asset bubbles, the sudden sentiment shift tends to erode value.
To put it bluntly, the mortgage debt boom will make Canada less able to respond to the upcoming recession. It may not be a short-term issue either, according to an OECD forecast. They see Canada’s GDP per capita growing at the slowest rate of any advanced economy for the next 40 years. It’s the place Greece occupied after its financial crisis, but for much longer.
Incoming decades of stagnating real wages and economic opportunity for easy mortgage debt. It’s not a trade off most countries would make intentionally, but here we are.
Let’s try for 200% shall we? Everything is possible in Canada. Hahahahaha
You’re joking, but I’m willing to bet there’s a real estate speculator who can’t close on their pre-sale construction job saying 200% debt isn’t that bad.
No one sees to realize that even mortgage rates at record lows would essentially cancel out GDP growth when the balance is this high. Time for a loooong path to despair.
Let’s copy Japan! That’s a recipe for success! /s.
Trudeau and people in Canada don’t care about debt . At this point you need half the country to go bankrupt before the economy can improve. Banks have already made enough money.
Trudeau is exceptionally bad but let’s not forget that Harper being half as bad is still a crap choice. For a whole decade GDP grew at the same pace as housing debt, then all of a sudden it’s growing at twice the rate of housing.
That’s textbook excessively easy credit that flows into non-productive assets and kills growth. Failing empires have always collapsed this way, as the debt growth outpaces any productive use to allocate. Rome, Hapsburb, the Commonwealth, the US.
This is a very sobering article as I don’t take pleasure in others financial woes but it is indicative of the biggest problem that faces this planet ? Materialism ! Sorry, but I am no longer unsympathic to the idea of a Global maneuver to implement massive interest rate hikes upon Canada! When debt levels are climbing to those levels it is not inflation or a poor economy but a society that knows no better and lives in ignorance of real global concerns while feeding a quite distasteful human trait …Greed!
It is Pathetic if this storey is accurate that debt loads continue to such an extent as I guess humans are a form of parasite that lacks control and delayed gratification
You don’t need a fancy model to prove that GDP at 3% and mortgage debt at 8% means the Matthew Effect will result in exponential consumption of real wage growth.
It’s unfortunate that we don’t have people in office that care about that, they’re just drumming up opportunities for their donors to offshore. That’s every party too, not just the one in power.
Maybe let go of Harper. We are going on 8 years ago. Trudeau is in charge and it’s going very badly. Not sure why really bad is ok because you think it was super bad before. Kind of odd.
@ Edward H C Graydon thank you very much for writing your comment. After reading the article to my mother I explained to her the same exact thing you said before reading your comment! Your comment really struck me! You hit the nail right on the head! What you said is 100 percent accurate truth!
You are welcome as it was done out of recognition and with intentional contemplation, that people like yourself might be in agreement.
All the best and have fantastic day.
Edward HC Graydon
Thank you very much for writing your comment. After reading the article to my mother I explained to her the same exact thing you said before reading your comment! Your comment really struck me! You hit the nail right on the head! What you said is 100 percent accurate truth!
Edward H C Graydon thank you very much for writing your comment. After reading the article to my mother I explained to her the same exact thing you said before reading your comment! Your comment really struck me! You hit the nail right on the head! What you said is 100 percent accurate truth!
It is not greed to take on large debts to buy a 2 bedroom home so you can try to have a family.
Manipulating interest rates is not going to solve problems because manipulating interest rates and generally financial capitalism aka imperialism is the source of this problems. You cannot expect people who caused this mess to solve it. When it comes to housing it is human right considering that we had been taken from rural environment , urbanized and there is no other way but to make dwelling human right and and not investment vehicle. There is excellent examples even in Canada and especially in the former Soviet Union that this problem is actually solvable but not via liberal capitalistic financial way. Housing problem also cannot be solved by building private houses. However what is absolutely clear is that those who caused this must go and they absolutely must pay for that via criminal prosecution and that concerns banks as well. There must be state developed and backed program of construction with defined profit margins and no speculations or use of dwelling as investments or rentals. it must be only for those who live there.
Wow. I wish you touched on the little spike during the pandemic, because that’s an important one. The previous time Canada reached 100% was due to a rapid contraction of GDP due to restricted activity in the first half of 2020.
This time the debt accumulation was so high that it didn’t just catch up, it’s likely to double the rate of growth in November and December. It’s remarkable that no one in office has made this connection publicly yet, even the opposition.
We thought Harper was bad for non-productive credit growth, then came Trudeau. It doesn’t matter who’s next, the credit-growth model is now a systemic issue that can’t be a corrected without a major loss to credit holders.
I doubt anyone is willing to let 30% of credit be wiped out, but that’s essentially what needs to happen. That or credit needs to grow at 70% of GDP, but that would require even higher interest rates — unlikely to happen with people like Tiff at the helm, since constructive deflation is too advanced for these clowns to understand.
Rates will probably still rise 2 or 3 times in 23 since the Fed/Powell will do it. It’ll probably force Tiff to follow suit and raise rates at a close pace. If Tiff chickens out and doesn’t raise rates at the same pace to save housing then we can all enjoy a very very weak loonie around 0.68 or worse by June and probably even lower in 12 months.
A weaker loonie will just cause more inflation next year with imports causing more and higher inflation would probably cause Tiff to play catch-up at a later date. So either way he needs to keep pace with the US. At the end of the day housing will still get hit harder and harder.
The US can handle the higher rates and fight inflation properly. Household debt to income levels and mortgage debt to gdp levels are way more reasonable than Canada’s. Most Americans have 30 year fixed rate mortgages locked in around 3.5% with no need to refinance. Hardly anyone there took out variable rate mortgages after they learned lesson in 08. The US has a strong and broad economy across hundreds of industries while Canada is mainly focused on 15% of GDP related to construction, renovations and the real estate market . It also has the oil and mineral sectors but most oil profit is made with clean oil where Canada lacks since all dirty oil is shipped to US to be refined and sold back higher. Justin doesn’t want to invest in clean oil here so no growth there for years. For mineral resources a lot of the Mineral mines have already been sold to China and other countries to keep government afloat the last 10 years so most from from those minerals aren’t going to canada
inflation is killing our senior citizens
Fruits and vegetables are increasing in price shrinkflation is occurring with toothpaste to potato chips the packaging is getting smaller. imagine what the price for eggs will be in 5 years from now? Our dollar is becoming worthless to the USA dollar 72 cents
80% of seniors are home owners and got $150k in home equity over the past two years. They should use some of that to pay for price inflation we need to bring wages back in line to afford housing.
They are not the one who caused this. It is financial mafia along with liberal capitalistic policies by liberal governments over the past 30 years. When you stop building affordable housing, when you put your faith totally in the markets and turn dwelling into investment vehicle it is going to grow in value, attract speculative capital and generally financial capital which is bound to create bubbles and price inflation and take housing out of majority people reach. Note, both liberal and conservative are liberal in their economic policies. Different names are just to pull the wool in front of naive population eyes. Somehow liberal or conservatives those who pay for the music always win. I mean banks and other financial institutions who are absolutely parasitic.
The conservatives have had a front row seat watching and knowing what the government and BOC have created since 2016.They eat, drink together and there kids go to the same schools.
House of commons is just a theater where they put on there play.
Who needs GDP?
This is Canada – land of the economic miracle of house prices.
Housing MUST go up, the government will do anything and everything to ensure it.
This country will be divided up by the US and China in order to avoid a war…
It’s been at or above 100% GDP since Q3 2015 and not far away from 100% for even longer. Q4 2020 was pegged at 113%. Not saying this isn’t bad, I’m just saying it’s not a new issue by any means and has been worse prior to now.
source: https://fred.stlouisfed.org/series/HDTGPDCAQ163N
That’s household debt, and he’s talking about JUST mortgage debt.
Household debt can sometimes be dismissed as productivity increasers, such as vehicles, etc. Mortgage debt can’t, it’s 100% non-productive since owning a more expensive home doesn’t increase the output you provide.