Record Canadian real estate sales and cheap money has led to a boom in mortgage debt. Bank of Canada (BoC) data shows residential mortgage credit hit an all-time high in March. That isn’t surprising, since it hasn’t fallen in Canada for a very long time. The rate at which it’s increasing is simply mind-blowing though. In just 12 months, homeowners added mortgage debt that was over the equivalent size of 5% of GDP.
Canadians Owe Over $1.67 Trillion In Residential Mortgage Debt
Residential mortgage debt hit a record high and is expected to continue doing so. The balance of mortgage credit hit $1.67 trillion in March, up 0.77% from a month before. Compared to the same month a year before, the increase works out to 7.39% higher. It’s really hard to appreciate how large this growth is without taking a dive into the numbers. Let’s start with the rate of growth.
Canadian Residential Mortgage Debt
The outstanding dollar amount of residential mortgage credit held by Canada’s instituional lenders. Source: BoC; Better Dwelling.Canadian Mortgage Credit Is Growing At The Fastest Rate Since 2011
The annual rate of mortgage growth is the highest amount in nearly a decade. March’s annual rate of 7.39% was last this high in October 2011. Back then, the mountain of mortgage debt was only two-thirds this size, and it was right after a recession. Now it’s just moving forward by accelerated momentum and cheap credit.
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.Canadian Mortgage Credit Grew Over 5% The Size of GDP
To appreciate how big this number is, you need to look at it in dollar amounts. The 12-month dollar increase of mortgage debt works out to $115.39 billion as of March. It’s the largest 12-month increase ever. To give context to how big that number is, it’s over 5% the size of GDP. That’s just the mortgage debt added to the pile over the past 12 months. It is an astronomical amount of future income and economic activity pulled forward.
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.Back in 2019, Canada was almost off the mortgage credit bandwagon. The dollar value increase had reached the lowest level since 2011. People had been starting to allocate money into more productive economic segments. Then the pandemic happened, and the Bank of Canada leaned on mortgage credit growth. They even went so far as to endorse the mortgage credit growth as needed for the economy.
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We are adding more debt than we can erase through negative real interest rate.
I wonder when/how the next crises will come…
Like everything I read on this blog, this seems bad, but no one is worried about it for some reason?
On the contrary there are a lot of people worried about it but the majority of us are too young to remember the last time a correction was ever this bad. Those people are collecting pensions so they feel a little more secure. We haven’t had a hard time with employment since the early 90’s so imagining employment drying up overnight is like a giant stuffed shark embalmed in a giant aquarium.
Most of the people who play lottery belong to the lower income strata who spend money out of sheer hope that this time they will have that life changing win . In fact every time they play they may be getting themselves deeper in debts. There would always be doubt about its transparency people still will buy lottery tickets making lottery company rich which in return put money only in a very few hands. Since people like free money and lotteries would always remain popular no matter what, there could be a simple solution that can put money in more hands raise purchasing parity, and stimulate economy in addition to reducing national debt. American and Canadians, need a new Loto system with multiple jackpots not exceeding million dollars each i.e instead of one 50 million jackpot (a typical loto max jackpot over 4-5 weeks) that currently benefits only one or two individuals, this will benefit 50 people on weekly/biweekly basis (expecting more people will buy it) alleviating lives of 50 people weekly. The government can levy some kind of tax so as to take care of its own deficit.
I’m afraid that 1 million these days only pays the bills, not a lot of people will buy into a lotto that ‘just pays the bills’.