Canadian Mortgage Growth Rises From Lows, But Still Not Quite Back To Normal

Canadian mortgage growth is showing some signs of life after bottoming. Bank of Canada (BoC) numbers show outstanding mortgage credit hit a record high in June. The record came with an uptick in the rate of growth, which had bottomed in recent months. Mortgage credit growth is improving, but still growing at one of the lowest rates seen in decades.

Canadians Owe Over $1.57 Trillion In Mortgage Debt

Canadian mortgage debt topped a new record, as growth picked up a little last month. The outstanding balance of mortgage credit reached $1.57 trillion in June, up 0.57% from last year. The balance is now 3.7% higher than the same month last year. The annual rate of growth is an improvement over what we’ve been seeing over the past few years.

Canadian Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

The annual rate of growth is picking up for the year, but was still incredibly slow. The 3.7% increase is the third consecutive month we’ve seen the rate climb. It’s now the highest 12-month increase since August 2018. However, it’s still the smallest June since 2001, and the second lowest rate of growth since 1990. Things picked up over the past few months, but not enough to matter.

Mortgage Growth Expected To Continue Short-Term Acceleration

If you already know what data annualization is, you can skip to the numbers. If you don’t, it’s the process of taking a short measurement and projecting it as a whole year. By doing this, you can see how recent growth compares to the past year. The 12 month trend can’t head higher without recent numbers outpacing the trend. It also can’t fall without a short-term annualized number leading lower. Short-term movements logically always lead long-term movements. They just need to stay above or below long enough to “drag” the trend.

The annualized pace of growth is pointing more potential growth, at least near-term. The 3-month annualized growth reached 4.3% in June, an increase of 38.70% from the same period last year. This represents a 16.21% increase compared to the current 12 month rate of growth. To clarify, this doesn’t mean the growth rate will necessarily reach 4.3% soon. Instead it means there’s more seasonal pressure moving the annual rate higher. Whether this carries into the fall and winter will be a completely different story. The 3-month annualized rate could collapse and bring the trend lower, but it would have to be a steep drop. There’s enough room for it to fall a little, and still drag the 12-month higher.

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 off of multi-year lows, but still not even close to normal. There’s a few signs of improvement, including rising to the highest level in months. The highest level in months doesn’t mean a whole lot though. Even with the small increase, it’s still one of the smallest annual rates of growth in decades.

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  • Yuki 4 years ago

    The bump is most likely completions needing financing as the finish, and move in approaches. There’s going to be a big jump over the next few years. Don’t confuse that with new demand, it was existing demand getting financing.

    Especially true in Vancouver, where new demand is pricing in 40% lower than completions.

    • Joey 4 years ago

      Eastern Canada is also big. Montreal for instance represents a lot of sales this year, and it normally doesn’t.

    • Lori Hume 4 years ago

      Can anyone explain why lower rates are expected to increase sales in Canada, but they aren’t in the US?

      One would imagine with lower prices and debt levels, they would more readily absorb new credit runs.

      • John 4 years ago

        In my opinion, it has to do with the purpose of lowering interest rates. When a central bank lowers interest rates it’s because the economy needs consumers and businesses to spend more money.

        The US population is likely still sensitive to the 2008 housing crisis. However since Canadians decided to double down and go deeper into housing debt, we largely avoided the fiasco and taught 1.5 generations that house prices ONLY go up.

        So when the US gets a wiff of potential house price declines, they are going to quickly back out. When Canadians get a wiff of cheaper mortgages we’ll double down again.

        However, I think that’s an ill-conceived theory… I think Canadians are already maxed out on credit I.e. borrowing the maximum a mortgage amount. So small interest rate decreases will provide minimal extra borrowing space and limited ability to further increase house prices.

        Anyone else have an opinion?

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