Canadian mortgage debt is getting so large that it now rivals the economy’s output. Bank of Canada (BoC) data shows mortgage credit reached a new record high in October. Households have a strong appetite for housing debt, still printing high growth. That might change soon, though. The latest data indicates much less mortgage debt has been accumulating in recent months, falling below last year’s volumes.
Canadian Mortgage Debt Reached $1.92 Trillion
Canadian outstanding mortgage debt surged to new highs. The balance reached $1.92 trillion in October, up 0.6% ($11.5 billion) from the month before. It’s now 10.2% ($178.0 billion) higher than last year. A lot to unpack, but this is a record high, having reached 96.5% of GDP in September. GDP trails credit data by a month, so October isn’t out yet — but the point is this is an unbelievably large number for an economy the size of Canada.
Canadian Residential Mortgage Debt
The outstanding balance of Canadian residential mortgage debt held by institutions.
Source: Bank of Canada; Statistics Canada; Better Dwelling.
Canadian Mortgage Debt Is Seeing Annual Growth Slow
Canadians are borrowing at one of the fastest rates in decades, but growth is slowing. October is the second consecutive month to see the annual growth rate taper. Two months might not seem like much, but it’s the longest streak since February 2019. It’s been a long time since credit markets have seen anything like this.
Canadian Residential Mortgage Credit Growth
The 12-month rate of growth for Canadian mortgage credit.
Source: Bank of Canada; Statistics Canada; Better Dwelling.
October’s Net Mortgage Growth Was Much Smaller Than Last Year
The monthly net increase in mortgage debt has been much bigger than last year, up to August. In August, the net gain of mortgage debt was $17.8 billion, a whopping $5.6 billion more than the same month a year before. This was massive growth that had become expected in the months prior. By the next month (September), the trend flipped as quickly as it had rolled in.
Canadian Residential Mortgage Credit Monthly Growth
The monthly net change in outstanding mortgage debt in billions of dollars.
Source: Bank of Canada; Statistics Canada; Better Dwelling.
In September 2021, the monthly net increase in mortgage debt fell to $13.8 billion. This was about $100 million less than a year before and set the stage for slower growth. As of October, the net increase in mortgage debt fell to $11.5 billion, down $2.5 billion compared to a year before. Price growth is higher, and inventory is stable, but credit is slowing down.
Canadian mortgage credit shows strong growth in October, but it is cooling. The monthly net increase in 2021 is still 49% higher than in 2019. However, it’s still a fifth smaller than last year, when cheap debt first hit the market.
Back in 2019, the Bank of Canada (BoC) wasn’t flooding the mortgage market with cheap debt though. As stimulus tapers and the central bank is forced to normalize rates, borrowing incentives will fade. Although few Canadians think that’s possible.
and each point of mortgage debt to GDP is a loss of 0.5 points of long-term GDP, and Canada just advanced 10 points from the beginning of the pandemic. The next recession is going to see Canadian money turn into monopoly money.
This is good debt that will crush the economy
Something to keep in mind: Mortgage debt doesn’t accumulate for pre-sales until delivery and Canada is getting a boatload of deliveries right now.
With mortgage debt falling while all of these deliveries are occurring means the bank of mom and dad (or investors) are using a lot of unofficial mortgage debt to execute the purchases. It’s unfortunate the BoC won’t track equity withdrawals separately or loans secured by housing.
Jesus that’s actually terrifying.
I can see a point in the near to mid future wherein there is a significant out flow of capital from Canada to less ugly options .Creating of course another layer of economic
morass.
I’ve been trying to find something online that breaks down the big 5 Canadian banks debt/asset ratio? how overleveraged they are? How the CMHC and private insurance corporations are shielding the banks from risk they might otherwise not take on? (or like Lehman Bros, take it on anyway…..)
Just how much big bank exposure is there, and how much a threat of a correction is there? There is startlingly little 3rd party assessment online to give transparency to the big banks and their exposure to potential downturn.
Can anyone direct me to some good, reliable reading on this subject?
This is a very useful presentation by Hilliard Macbeth who is predicting the Canadian housing bubble will burst…
Can anyone direct me to some good reading on just how over-leveraged the BIg 5 Canadian banks are? How much does CMHC and private insurance shield the Big Banks from risk and how much more are they taking on because of them? (which would be egregious btw)
There doesn’t seem to be much in the way of available information from objective 3rd party sources assessing our Banks online.
Google search the following article:
“Sabrina Maddeaux: The CMHC must be abolished before it craters Canada’s economy”
Canada will be the first nation among G7 to fall, lol
Canada is doomed. We will go into a depression that will last a long time and all the tin foil hat wearers will be saying, “I told you so”.
Smokem crackey at BOC…maybe shove banna in pants too
Is the entire role of CMHC to offload sub-prime mortgage junk that banks profited from creating onto the backs of taxpayers (through bailouts) or savers, wage earners, pensioners (through money printing).
Looks like a scam.
They make taxpayer guarantee sub-prime mortgage junk banks profit from creating without any real work (private insurance) pricing of that risk. The premiums they charge banks to insure that junk is therefore mispriced (i.e. too low) and does not reflect the real risk of mortgage default.
If that sub-prime junk was worth anything, private insurers would be more than happy to insure it against mortgage default – i.e. real price discovery (more like risk discovery) would take place. But banks have got govt (CMHC) to be 100% of the market. Even Canada Guarantee and Genworth (Sagen) is 90% taxpayer backed.
Sweet deal for banks, while taxpayers get screwed over.