Canadian real estate sales are rising from last year’s anemic levels, and so is mortgage debt. Bank of Canada (BoC) numbers show outstanding mortgage credit reached a new high in August. More surprising is mortgage credit growth is actually accelerating into the fall. For the first-time in years, annual growth is now bigger than the year before.
Canadians Owe Over $1.59 Trillion In Mortgage Debt
Canadians have never owed more in mortgage debt, and it’s growing at a fairly rapid rate once again. The outstanding balance reached $1.59 trillion in August, up 0.6% from the month before. This represents an increase of 4.0%, when compared to last year. Yes, growth is getting larger going into the winter months – an untraditional movement.
Canadian Outstanding Mortgage Credit
The outstanding balance of Canadian mortgage credit.
Source: Bank of Canada, Better Dwelling.
The 12-month rate of growth is a lot larger than it was last year, and did something it hasn’t done in years. The 4.0% 12-month rate of growth in August is 8.1% higher than the same month last year. This is the fifth consecutive month we’ve seen the rate increase. More interesting, this is the first time in years, the 12-month growth is higher than a year before. It last happened in April 2017 for one month, and the last consistent growth ended in November 2016. It doesn’t exactly mean a full trend reversal is here, but it lends credibility to the possibility.
More Mortgage Credit Growth Is On The Way
If you’re familiar with annualizing trends, feel free to skip this part and head right to the next paragraph. For those that aren’t, annualizing a trend is when a short-period is measured, and project for a whole year. Basically, it tells us what 12-month growth would look like, if every month was the short-period. Today we’re going to use the number the BoC most often uses, 3-months. You then compare it to the actual 12-month growth, and get a little perspective. If it’s higher, it means near-term growth is coming. If it’s lower, it means it’s starting to slow down. A 12-month trend can’t change direction, without the 3-month trend crossing over first.
The short-term trend is pointing to substantial growth compared to last year. The 3-month annualized trend reached 4.8% in August, up 84.6% over the same period last year. The number is also 19.7% higher than the current 12-month rate of growth. In all likeliness, next month should also see higher 12-month growth. There’s a lot of room for near-term growth to fall, before dragging growth lower.
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.
Canadians are back to borrowing, mostly driven by rising sales in Ontario and Eastern Canada. The growth is still low compared to historic levels, but better than last year. One note to keep in mind is the recent data point regarding refinancing. Increasingly, the BoC revealed a rise in equity withdrawals via refinancing. This may be a significant contribution to these numbers rising.
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The BOC is engaging in rate suppression and liquidity injection for the mortgage market, so of course money is getting easier to borrow.
Canadians think there’s no risk to housing any more, since all politicians are promising to make them rich. Of course, if real estate always worked like that, wealthy developers would own the houses and collect rent, not sell them to people.
It’s a general trend in Canada, that goes way beyond housing. Here’s an article about the concerning lack of revisions to Canadian earnings this fall, despite the fact that the trade war should be concerning equity buyers.
https://www.bloomberg.com/news/articles/2019-10-04/trouble-bubbles-beneath-the-surface-of-canada-s-stock-market
Probably a result of the expected impacts of post-election policy measures that have already been announced. It looks like the retail equivalent of trying to front-run the Fed (but this time it’s the govt).
Not surprising, my York region neighbourhood is in full party mode again. Line ups to get into resale detached open houses, street parking mayhem. Realtors knocking at my door trying to convince me to sell….all day long Saturday and Sunday. Can’t even take a nap with all the dog-reacting-to-doorbell barking. Not amused whatsoever.
Mortgage debt is one thing. The credit worthiness of borrowers is at least controlled through stress testing. But how many of those taking out the mortgage are also being marketed for a HELOC which they take and borrow heavily on? The HELOC rather than the mortgage may be the downfall.
HELOCs are being used to help fund down payments for children as well as investment condos for themselves.
I don’t see a problem for us until we hit a big recession. Debt doesn’t matter until it does. We haven’t faced the music. Let’s see how long the merry-go-round can continue.
Forgot one thing. Canada population is also growing.
Canada’s population hit 37,589,262 on July 1, StatsCan says, up 531,497. That roughly translates to 1 person every minute. Annual growth rate was 1.4%, highest among G7 countries. Increase driven mainly by immigration (82.2%). Baby boomers are now the majority of seniors.
https://twitter.com/CBCAlerts/status/1178650861049958401
Canada economical strategy, population growth, debt growth, housing inflation and money laundering.
Bank spreads are very tight so they have to lend more to make the same amount of profits.
Quick Question to the author. Does the overall mortgage debt number account for simply more mortgages? What I am trying to decipher is this number growing because our population has grown by over 531,000 people this year or has that been accounted for?