Canada

Canadian Mortgage Growth Keeps Dropping, Prints New 17 Year Low

Slow Canadian real estate sales are still dragging mortgage credit growth lower. Bank of Canada (BoC) numbers show outstanding mortgage credit reached a new record high in November. The high was accompanied by slowing growth, which is showing signs that it could slow further.

Canadians Have Over $1.539 Trillion In Mortgage Debt

The balance of Canadian mortgage debt continued to print new record highs. The balance reached $1.539 trillion in November, up 0.39% from the month before. This represents a 3.2% increase, when compared to the same month one year before. The dollar amount is an all-time high, but the growth rate is abysmal. The 12 month pace of growth is now the slowest pace of growth since May 2001, over 17 years ago.

Canadian Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

Canadian Mortgage Credit Growth On Target To Head Lower

One of the most common ways of figuring out where this number is heading is annualizing the growth. We do this by taking a short-term period, and projecting it as though it were the whole year. The long-term trend can only grow if the short-term annualized trend is larger. It also needs to stay larger for a substantial period, before the 12 month trend resumes growth. Today we’ll be looking at the 3 month compared to the 12 month.

Short-term growth is pointing to even lower annual growth. The 3 month annualized pace reached 2.6% in November, significantly under the 12 month pace of 3.2%. It did improve from the month before, which was only 2.3%. We still need short-term growth to make a huge jump and stay there before the trend reverses. This indicator still implies a further slow down in mortgage credit growth.

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.

Mortgage credit growth is slowing down, and potentially heading lower. There is some signs that we’re close to the bottom, with the shorter term annualized rate rising. However, a slowdown in credit usually comes with a significant price correction. We haven’t seen a significant price correction yet, even after an epic spike in price growth. This means there is the potential to see this number head much lower.

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14 Comments

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  • Ian 5 months ago

    If this is before the price correction, can you imagine how low the post-correction growth is going to be?

    • Trader Jim 5 months ago

      First comes a decline in volume. That’s followed by a reduction in price growth. Then we have the “new normal.” Smarter dumb money is deterred from participating in this round. Volume drops even further. Then prices correct.

      Once a correction is completed, we can finally see volume return to growth. However, few people are interested in buying during this time. Also buying post correction means holding on to it for a long time before seeing growth. Still better than losing cash, but not much, since you incur an opportunity cost.

  • Micah 5 months ago

    Growth is just a point above inflation, but immigration has never been higher. Where are all of the immigrants going? Oh yeah, in all of the extra homes people bought. Toronto and Vancouver are not the attractive immigrant hubs they used to be.

  • David Wang 5 months ago

    Vancouver’s declines are just getting started. 🔥

  • Mtl_Matt 5 months ago

    Any reduction in the workforce involved in loan origination?

    • Im Therious 5 months ago

      Perhaps someone who works for one of the Big Six banks can comment on the last low growth period (c. 1995 – 2001) and where the banks went to look for other industries to provide loans..?

      • Alistair McLaughlin 5 months ago

        Between 1991 and 2000, banks were also hell-bent on shuttering underperforming branches. And that was before online banking became popular. Starting in the early 2000s, led by TD, they started building new branches, extending their branch hours and expanding their branch count again. A new round of branch closings is coming within the next 5 years, probably sooner, and it will likely last 10 years just like the last one did. You can imagine how many branches they’ll suddenly “discover” are redundant now that the majority of the population banks online. I suspect this round of branch closings will be more severe than the last.

  • Diddy 5 months ago

    Would it make sense for this chart to be adjusted per capita /GDP? As i understand it, the graph is the total mortgage debt, which as a population grows will naturally go up, what would make more sense is how much this goes up per our GDP and/or household.

    • Jason Chau 5 months ago

      No, because the year over year growth is relative to the cycle. You can’t tell if GDP is because to an increase in velocity (good) or an increase in immigration (bad). GDP is the most overused, and useless indicator.

      Credit growth is growth. If the lenders aren’t seeing the same y/y growth, it impacts profit growth. That impacts liquidity and lending rates.

      • John 5 months ago

        Thanks for the explanation Jason. I was curious of this too!

  • SUMSKILLZ 5 months ago

    I’m still hearing about condo bidding wars in the breakroom at work. Seems to be at the bottom of the ladder though. Folks are loosing their apples over the random life-disrupting nonsense that comes with living in rented condos and basement apartments. The stories I hear would make Charles Dickens pause with concern. They want out of rental living right now.

    • John 5 months ago

      I haven’t heard anything of bidding wars in the last 6 months and the sales numbers don’t support the claim.

      But if it’s happening at the bottom only then I would interpret that to mean we are nearing the last people still willing to buy at these inflated prices.

      Look at Durham Region homes… houses in Whitby listed at 500k vs. 600k. The homes at 600k are worth a much greater spread than just 100k… but the 500k to 600k inventory has been slowly building since September and small detached bungalows are starting to list below 500k and sell while the 500k+ remain.

      Looking forward to what spring has in store!

  • CanadaSucks 5 months ago

    The Canadian outstanding mortgage credit graph is a typical exponential curve. The curve is starting to point vertically and this is where is not sustainable. You cannot create wealth using inflation.

    https://en.wikipedia.org/wiki/Exponential_equation.

    Let’s say 2% inflation (target of Bank of Canada and US federal bank) per year over a period
    of 17 years (2000 to 2017).

    1.02exp17=1.40
    over a period of 17 years you can a price increase of 40%

    Same calculation with 3.0%
    1.03exp17=1.65
    over a period of 17 years you get increase of 65%

    We are seeing the end of the financial system. The inflation target (growth target\ immigration number to achieve growth target are too high) dictated by central bank are too high and there is too much money printing.

    Financial system is self destroying with this silly theory of yearly inflation. You cannot fight a exponential curve.

    Canada will have to raise rate eventual to stop money from leaving Canada. As Canadian economy is crashing. money is gong to leave because of the lost of confidence forcing bank of Canada to raise rate to get money inside Canada. Canada and Australia are the next Venezuela, no manufacturing, fake economy base on heavy immigration and housing inflation.

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