Canadian Mortgage Debt Is Slowing, But Growth Is Still Historically High

Canada’s mortgage debt boom is slowing but still remains historically elevated. Bank of Canada (BoC) data shows outstanding mortgage credit hit a new record in July. Higher interest rates are throttling growth, as they shrink borrowing credit capacity. Even so, annual growth is still at a level rarely seen outside of Canada’s frothiest market cycles. 

Canadian Mortgage Debt Hits $2.04 Trillion

Canadian mortgage debt launched to a new record in the latest data. The balance of outstanding residential mortgage credit hit $2.04 trillion in July, up 0.6% ($12.1 billion) for the month. The debt is 9.3% ($174.7 billion) larger than it was a year ago. It’s a record and huge growth, but things are slowing down — just not quickly. 

Canadian Residential Mortgage Debt

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

Source: Bank of Canada; Better Dwelling.

Mortgage Debt Grew At An Unusually Slow Monthly Rate 

Monthly growth is a large dollar amount, but as a rate it was much smaller than normal. The 0.6% growth in July was the smallest since February, a month not known for high sales volumes. Zooming out further, we can see it was unusually slow for any July. Only two in the previous 20 years have seen smaller rates for the month.

Canadian Mortgage Credit’s Annual Growth Is Historically Elevated

Growth continues to slow as borrowing costs rise, but it’s still fairly brisk. July reported the slowest annual growth since May 2021, when the sales boom began. It’s down from the February 2022 peak of 10.8%, but it’s still at an elevated level.

Canadian Residential Mortgage Credit Growth

The 3-month (annualized) and 12-month rate of growth for Canadian residential mortgage credit.

Source: Bank of Canada; Better Dwelling.

Prior to 2020, one has to go all the way back to 2009 to find annual growth this high. Even then, it only lasted one month. The 2008 borrowing boom is where we really see it firmly established above this level. Mortgage credit growing at this rate has only previously occurred prior to recessions.

Canadian mortgage credit is climbing, but rising rates are pumping the breaks. Even with the surge in rates, things had yet to slow down in July, as growth remained historically high. As BMO warned, we won’t see the impact of the full slowdown until later this year. Many households aren’t borrowing at the rate reported that month, but at one secured 3-4 months before. Until interest rates and inflation stabilize, it won’t be clear how much of an impact rising rates will have.