Canada

Canadian Mortgage Growth Has Only Been Lower One Month In The Past 30 Years

Falling Canadian real estate sales are still taking a bite out of mortgage growth. Bank of Canada (BoC) numbers show mortgage debt reached a record high in December. Despite the record, the annual pace of growth fell to a multi-year low. In fact, it’s only been lower for one month, over the past 30 years.

Canadians Owe Over $1.546 Trillion In Mortgage Debt

The balance of outstanding mortgage credit at institutional lenders reached a record high. There was over $1.546 trillion in mortgage debt in December 2018, up 0.4% from the month before. This represents a 3.1% increase compared to the same month one year before. Remember, this is only institutional lenders. Mortgage debt owed to private lenders, mom & pop, and the mob would are not included in these numbers.

Canadian Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

The annual pace of growth has been on a steady pace of decline. The 3.1% rate is 40% lower than the same month last year, and the ninth consecutive month of deceleration. There’s only been one other month where it’s been lower in recent time, and that was April 2001. Other than that, we would have to go all the way back to the 1980s to find anything near this level. It’s been really slow.

Canadian Outstanding Mortgage Credit Change

The 12 month percent change, and 3 month annualized change, of outstanding Canadian mortgage credit at large institutional lenders.

Source: Bank of Canada, Better Dwelling.

Canadian Mortgage Growth At The Bottom?

One common way to see where this trend is heading is by annualizing a period. We do this by measuring growth over a shorter period, and projecting it as though it was a whole year’s growth. In order for the 12 month period to reverse, the shorter annualized period must first become larger. Once short-term annualized growth is larger, it’ll have to stay that way long enough to drag the 12 month trend with it. Annual growth can’t reverse without this happening.

The 3 month annualized growth finally is now larger than 12 month growth. The 3 month annualized trend reached 3.3% in December, jumping 26.92% from the month before. This represents a 28.26% decline compared to the same period last year. On one hand it’s larger, but one other – it’s the first month it’s larger and it’s still significantly smaller than last year. Last year at this time was not exactly a booming period for growth.

It’s Different This Time… Not In A Good Way

Keep in mind a reversal doesn’t mean the same thing today, as it would have a few years ago. The effective rate of loans, a.k.a. the “typical” interest rate on loans, is higher than the annual pace of growth. Variable rate mortgages have also increased substantially, leading to less principal paid down. A reversal is expected because borrowing rates are higher than the annual pace of growth. Greater interest accumulation is not as positive as sales volume driven growth.

The sharp decline in real estate sales across the country is dragging growth to a new multi-year low. There are some signs that the numbers are starting to reach a near-term bottom. The rise in short-term growth will be driven by higher debt accumulation though. Not quite as good for prices, as when this number is being driven by increased buying volumes.

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13 Comments

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  • Trevor 2 weeks ago

    Are we at the point where people that signed a 5 yr variable are no longer paying anything to principal? Or is that later this year?

    • Oleg Kousilis 2 weeks ago

      If you signed at the bottom for variables, you’re probably paying 15% less towards principal around now. Not bad, but you’re close to the point where you could have rented.

      The media and real estate bulls portray rent increases as 15% higher, but in reality my landlord would rather someone that rents his house and takes care of it. If you move during a bubble, you lose – renters or buyers. There’s a bad and good time for anything when it comes to money. People that do things at a period “because they should” usually don’t make that much money.

      Before a real estate agent says I’m just jealous because I rent, I have a downpayment saved up and I’m ready to buy. Waiting only 2 years from when I was ready means I’ve saved almost 10%, even when my rent is factored in. A real estate agent’s interests are always aligned against their client’s, regardless of whether they want to admit it or not.

    • Joseph 2 weeks ago

      Just keep in mind the extra principal the variable rate mortgages destroyed had a person gone with a variable rate between 2012 and 2014. Especially on their first term. The first term is almost always the most critical in lowering the principal outstanding and getting on the right track.

  • Ethan Wu 2 weeks ago

    Oooo… that’s a great observation. 3.1% adjusted for inflation and the change in rates, banks are looking at pretty grim growth.

    • Im Therious 2 weeks ago

      And yet, Canadian bank stocks are at near record highs…?

      Anyone expecting a drop in their prices anytime soon?

        • Im Therious 2 weeks ago

          Thanks for the timely article.

          To quote Gene Wilder’s Willy Wonka: “The suspense is terrible! I hope it’ll last.”

        • CanadaSucks 2 weeks ago

          There is a possibility that the Bank of Canada will bail out the 6 big bank and nobody will never heard about as it will be classify as secrete state information. There is a possibility that will see the Bank of Canada printing money until Canada look like Venezuela.

          I think this is why the Canadian gouverment is boosting legal immigration number, Canada need new cash to bail out Canada banks. Legal immigrant I think need to prove that it has 15 000$ in his banki account,

          • Sideliner 2 weeks ago

            If each single individual of the roughly 300,000 annual immigrants bring $15k cash with them, it would represent ~0.3% of outstanding Canadian mortgage credit. Immigrants likely come in little groups (called families) so it should be closer to ~0.1%. I think I will go with your first scenario, printing money will be decidedly more effective. Short the CAD!

  • SUMSKILLZ 2 weeks ago

    Why does this Jesse Pinkman, post party scene, from Breaking Bad always come to mind?
    https://www.youtube.com/watch?v=m7MUv5V5-FE

    Freakout, take a long rest, then clean up the mess.

  • Scott 2 weeks ago

    As pointed out the numbers above don’t include all of the private mortgage sources. Take a look at many of these lenders financials…you will see many have grown by factors of 5 to 10 times in the past decade or less. The asset/lending growth rates of these lenders is in many cases the biggest bubble out there!

    • Popeye 2 weeks ago

      Private lending collapse and regulation will be the last chip to fall when it does, BoC will question why they didn’t move faster to slow it!?

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