Canada

Canadian Mortgage Growth Slows To Levels Not Seen Since The 1983 Recession

Canadian real estate sales are still falling, and dragging mortgage credit with it. Bank of Canada (BoC) numbers show mortgage debt reached a new high in February. Despite hitting a new high, the annual pace of growth hit the lowest level in almost 36 years.

Canadians Owe Over $1.55 Trillion In Mortgage Debt

Canadian mortgage debt printed a new record high, but it’s losing steam. Institutional lenders held $1.55 trillion of mortgage debt in February, up 0.19% from the month before. The increase represents a 3.2% increase when compared to the same month last year. A record is set for the dollar amount, but the growth rate is slowing dramatically.

Canadian Outstanding Mortgage Credit

The outstanding balance of Canadian mortgage credit.

Source: Bank of Canada, Better Dwelling.

The annual pace of growth has fallen to the lowest level in over three decades. February’s 3.2% growth is 37.25% lower than the same month last year. A routine revision from the BoC this month, makes it the lowest level of growth since June 1983. As for the month of February, it’s only been lower twice – 1982 and 1983, two rough years for Canadian real estate.

Recovery or Dead Cat Bounce?

One common way of seeing where this trend is heading is by looking at the annualized pace of growth. It’s an elaborate way of saying we’re going to take a short-term measurement, and project it like the whole year. The 12 month growth trend can’t reverse without larger short-term trends first. The BoC is partial to using 3 month annualized trends, so we’re going to use that today as well.

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.

The 3 month annualized trend is now larger than the 12 month trend, although it has stalled. The 3 month annualized pace of growth hit 3.7 in February, down 15.9% from last year. The number is down, but it’s also the second month it’s been higher than the 12 month pace of growth. The 3 month annualized trend has been at this level for two consecutive months now. Considering the 3 month is stalling at this number, it’s way too early to call a trend reversal. Although this is one of the first signs you would look for, before a trend would reverse.

Short-term growth shows there’s potential for reversal, but it’s not a bullish expansion story. The pace of growth has fallen so much, it would be hard not to show growth from here. If it does manage to fail here, it shows consumers aren’t buying the “recovered” narrative. This can get messy for cities like Toronto and Vancouver, where only 1 in 10 new homes are being absorbed.

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33 Comments

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  • KT 3 months ago

    People think Canada is synced to the States, and we experienced the Great Recession. It wasn’t our recession, it was Alberta’s. We’re synched to a different schedule, and our last real recession was the early 1980s.

    The early 1990s was just a real estate collapse, but the recession was softened by the mass of immigrants we managed to trick into the country. Note the abrupt decline of immigrants after the 1990, when they probably wrote back home to tell everyone how terrible things were.

    • Stop Treating My House Like A Penny Stock 3 months ago

      When you look at the chart, the past two recessions the US took hard hits on (2001, 2008) show the debt curve getting more steep. This is how you know we’re using short-term stimulus to print numbers that feel like a recovery. We’re borrowing future growth, but will have to purge enough for two recessions to get back on track.

    • Smaug 3 months ago

      1990s was a very real recession. Unemployment peaked at 12.1% in November 1992. That’s just 1.1% below the 1982 peak.

      Early 80s was a more severe recession, but the early 90s recession was a much longer, more grinding affair. The jobs market never really recovered until the very late 1990s.

      • RE EXPERT EXTRAORDINAIRE 3 months ago

        Smaug- my parents got divorced in 1990 and my mom left my dad for my stepdad who just got divorced and was living in his car. I cant even make this stuff up. I was young but would have to agree with you that it was real.

        • Smaug 3 months ago

          Yep. Those of us who lived it remember well the misery of the first half of the 1990s. The economy fell into the shitter in 1990, and didn’t really recover until 1997. We had one strong growth year – 1994 – but that single year of strong growth was not nearly enough to reverse the joblessness and incomes stagnation that was well-entrenched by then. The economy then stagnated again through 1995 and 1996, and real growth never returned until 1997.

  • Ian Mullins 3 months ago

    Those about to say private lenders pick up the slack, should realize you only use a private lender for short-term liquidity. You’re trying to sell the unit to someone that’s using (or not using right now) a regular lender. Holding onto a unit with an 8% mortgage for longer than a few months is a good way to make sure your lender stays rich, and you wash on the property at best.

  • Mortgage Guy 3 months ago

    8% in Toronto, so less than one in ten new homes in Toronto. Marry Debtmas!

  • Joe 3 months ago

    In general, the real estate market has slowed down a lot and will probably remain slow for a while with the luxury market and suburbs (905 region) continue to suffer though price drops does seem to have slowed as well. In Toronto proper, there are some local pockets that are doing pretty well like Leslieville, Bloor Street West Village, East York and Riverdale (and possibly even Leaside) to name a few whereas areas like Willowdale, Banbury, Don Mills, etc are taking quite a beating.

    In the short run, I do expect to see prices of SFH rise (where prices are closest to condo prices) in areas where there are good amenities and transit. Condo price growth will slow as inventory hits the market and if I were to guess, prices may even decline slightly.

    There are still opportunities to do well in real estate if you were to study the market carefully and find under appreciated areas…it’s not like the years before 2016/2017 where any house you buy makes you money!

    *Not a real estate agent yet, just a homeowner with interest in real estate*

    • John 3 months ago

      I’m curious, why do you think condo prices will drop ‘slightly’ instead of plummet, stay the same, moderate gain or gain bigly?

      • DWAYNE NEWMAN 3 months ago

        condos are very similar to stocks in my view when the market is up they can be worth many times their utilitarian value, but when the market is down, and even looks like it is going to be down for a while, investors will slowly divest themselves of the condos (stock like an investment) and the prices may very well crash depending on the new housing stock coming onto the market and the health of the resale market. A couple of facts: most investors are losing $1000 plus a month on the difference between what they can rent it for and their financing payment. It should also be noted that if you buy a new condo from a developer and try and flip it right away you discover that it’s worth 10% or less because you paid extra for the lifestyle they marketed to you. Advice: buy a re-sale condo.

      • Joe 3 months ago

        John – Real Estate prices are sticky and there is sufficient demand currently to keep condo prices at where they are now at least in Toronto (not GTA). Many of my friends who entered the workforce after graduating from university (approximately 5 years ago) are contemplating/looking to buy a condo. Coupled that with immigration and the strong job market, it should keep prices steady. There is quite a lot of condo inventory flooding the market though and this will put downward pressure on prices. Therefore, I do expect resale condos to fall but by not more than 10%…but this is just my guess.

        RE EXPERT EXTRAORDINAIRE – Those measure will increase demand slightly only and in Toronto, only 1/1+1 bedroom condos are at that price point. In addition, not sure how the final wording on that will be but if the rules are such that as long as the mortgage is 480k and below, i.e. I can buy a million dollar house and put down 520k of downpayment and still qualify for that, then yes, there will be a increase in demand, otherwise, I doubt it will even increase demand by much. In addition, the equity stake that the government will take in your house is quite a turnoff as well. If it was an interest free loan, then I would see more people taking that up.

        Btw, if you make 50k on a 275k investment, after deducting land transfer tax, real estate commissions, lawyer fees, mortgage discharge cost, capital gains, you aren’t left with too much. It is still profit but it seems risky to me.

        • RE EXPERT EXTRAORDINAIRE 3 months ago

          It’s my primary residence so no tax. I wont sell right away I will refi. It’s also getting a full reno. Since I am retired i will probably live here until mortgage renewal before selling but either way the penalty is about 3k if I want to change it up and move elsewhere for something to do.

    • RE EXPERT EXTRAORDINAIRE 3 months ago

      Joe- there will be a price gain in houses from the 300k to 400k range if the gov puts in their new wave of regs.
      My suggestion is to buy a home as close to the city as possible and preferably in a town in that price range and you should make 50 to 100k in a year or 2 regardless of what the rest of the market is doing.
      Make a couple hundred K and then buy back in the city if you like a few years later if the prices drop like everyone here is saying.

      • Mossy 3 months ago

        Yeah, just like that bro, a cool 50-100K.

        • Ethan Wu 3 months ago

          Yup, it’s instant. First time homebuyers with 5% down, limited to a mortgage of of $450k, will shoot prices up higher than they are now… even though the mortgage they qualify for isn’t large enough for a typical unit.

          Sorry, is it gross to watch my eyes roll so far back into my head I can check my own ass out?

        • RE EXPERT EXTRAORDINAIRE 3 months ago

          Ya pretty much just like that. I did it last year while everyone was talking about how much money everyone was losing in real estate. Bought one for 275 and it went up to 325k in 6 months as it caught the tail end of the increase of the spring 2017 gta market. Just like that 50k it’s a nice feeling. I feel like I’m some sort of real estate expert extraordinaire.

  • Rick Abrams 3 months ago

    It does not seem to be too complicated to look at the growth of the age segment of the population who purchase homes to figure out whether there is demand for housing. Newborns do not buy homes nor do they rent apartments. To the extent new borns account for any population increase, they add zero to the market demand.

    At the other end of the age spectrum are the elderly. If they are dying slower than anticipated, that reduces supply, but soon they will die and dump more properties on to the market. When the population size is partially due to a lower death rate among young Baby Boomers, one should realize that the supply of homes for sale is likely to rise once they start dying.

    To the extent that Canadians are similar to middle class Americans, they still prefer R-1 homes. Their preference holds a significant risk for the institutions who have invested heavily in TODs on the myth that Family Millennials will want to live in high rise hovels.

    • David Stephen 3 months ago

      As a certified “baby boomer” and an “elderly” homeowner, I can’t resist commenting on this analysis.
      The baby boom ran from 1946 to 1964. If we all retire at age 65, then we will be retiring from 2011 until 2029. If we all live to be 85, then we will start dying in droves in 2031 and the last of us will leave the rest of you alone in 2049, which is quite along time from now.
      As we get older we will get dumber, but it is highly unlikely that we will all wait until we are breathing our last to put our home on the market. We will do that when we damn well feel like it.
      Given the time frames involved and the assumptions implicit in you r analysis, I suggest that you not give up your day job just yet.

      • vnm 3 months ago

        “We will do that when we damn well feel like it.”

        Spoken like a true boomer.

      • Bluetheimpala 3 months ago

        Interesting comment David. Very huffy but the elder tend to target the young or immigrants or ‘that darn cat pissin’ in my yard!’.

        Are you really correct that boomers will all sell ‘when we damn well feel like it?’. I question this narrative because of a few factors …cost of living, retirement income and debt levels (AND you are omitting the potential for some sort of Borg and/or Skynet takeover where the old and infirm are viewed as ‘leaders’ to our race and are subsequently made demigods by our new overloads but I digress…).
        Without going too ‘meta’ on you (what IS living? Is a cat just piss with fur and legs? Where did I leave my water, aren’t we all just water?) here’s where we stand: cost of living = up, retirement savings/income = down and debt = out the wazooo across all demographics. The fact that reverse mortgages are increasing in popularity, debt increasing for older consumers and more 65+ having to work I will posit that most boomers are not living like an OG unlike you David, such a scamp. Sure some of you will dig in your heels but those who are not smoking the ‘la’ and don’t want to work with one foot in the grave will be distressed as they watch their nest egg begin to crumble, which we haven’t seen yet but will be accelerating. It’s all fine when well off 30 or 40 somethings, who did nothing but sign a piece of paper, lose $150K on a condo they bought on spec in 2013 but is still up $100K but a 63 year old who probably wants or needs the extra $150K so they don’t have to add ‘cat food’ to their basket of goods may, shocker, sell and just move an hour or so away or just rent and put the rest in retirement as they can’t make up that much cash in the limited time they have to work..oh but wait, you want to hand this gold mine to your seed? Good call, they will definitely sell and with no skin in the game it will be a race to the bottom (reminder: we have liquidity problems and this is still the good times!).

        Don’t get it twisted, Blue likes what you’re spewing; nice and feisty but something I’ve learnt about feisty old people is that they are usually full of shit and living in the ‘golden era’ of the late 70s when they were young, dumb and full of…life…RIP Nipsy Hustle, Prince of Compton, King of LA. Tock. BD4L.

        • David Stephen 3 months ago

          Before I comment on your ignorant vitriol, let me clearly state the point that I was trying to make, because you seem to be too immersed in your own little world to bother paying attention.
          To the point. I was simply trying to point out that, given the time frames involved and all of the things that may well happen or not happen, it is impossible, indeed foolish, to predict with any accuracy how a large percentage of the population is going to behave, whether the issue is their home or anything else.
          That’s it, and I stand by my comments.
          As far as your comments about me and others like me are concerned, I take great offense at your ignorant nonsense. I am neither feisty nor full of shit. Yes, I have children and grandchildren, but I also have clients who still pay me rather well to advise them. You don’t know anything about me and yet you feel that you have the right to hurl abusive insults. Do you think that it is OK to beat up on old people? At the very least, you should try to stick to the facts when you attack somebody.
          I don’t really care what you say about me, but you have no credibility.

          • Diego Odorizzi 3 months ago

            Don’t blame them David. Everything wrong with the world is the fault of baby boomers. Including (and most of all) the existence of millennials

  • SUMSKILLZ 3 months ago

    But it does not “feel” like 1983 BD. The unemployment rate is not at 12%…mortgages are not at 18%..the taper is very strange from that perspective.

    • Renter 3 months ago

      But would the recent unemployment rate numbers get skewed because of the part-time no benefit factor? Ten years ago the majority of jobs were full time permanent, stable with guaranteed benefits.

      • Smaug 3 months ago

        Ten years ago the majority of jobs were full time permanent, stable with guaranteed benefits.

        That bears no resemblance to any economy I have known in my 50 years on this planet. I don’t know where people get this idea from that just a few years or decades ago, everyone worked permanent jobs with good benefits and a good pension. Such a world never existed.

        Yes, there were more defined benefit pension plans back then. That’s one thing. But to say most people had steady work with benefits in some mythical past is simply not true. Take it from those of us who were there.

    • MH 3 months ago

      Also the household debt to income ratio was around 66% vs. 177% today. Probably nothing…

      • vnm 3 months ago

        In terms of employment, economy, debt, interest rates, income disparity, inflated assets, attitudes … the conditions now are just like 1929.

        “Both the Great Depression and our recent Great Recession were preceded by large increases in household debt driven by new lending technologies. The 1920s had the installment loan; the mid-2000s had the subprime mortgage loan. Is it a coincidence that the two most severe recessions in the last 150 years were preceded by a dramatic expansion in household debt driven by new lending technologies? “

      • Im Therious 3 months ago

        So:
        1983:
        – no jobs to pay off affordable debt

        2019
        – lots of jobs to pay off huge debt

        Is it different this time?

        Or is 2019 just like the couple of years before 1983?

      • Rana 3 months ago

        U nailed it

    • Ethan Wu 3 months ago

      It doesn’t feel like 1983, because that was the end of the recession. Does it feel like 1979, right before markets deteriorated? Remember, now with modern monetary policy, time frames are tighter. It took 4 years for the deterioration of the market to turn into a GDP print.

      This next recession will look different, but have the same impact. We know how to avoid the same issues, we just don’t know how to avoid the same impact. It may not be unemployment, but it may be mass devaluation of currency.

      • SUMSKILLZ 3 months ago

        My point exactly Ethan, the domino we expected to fall a bit later, fell early.

  • DB 3 months ago

    YEP…with capital O…..

  • Cat 3 months ago

    Just remember, hours worked continues to go down even with job numbers going up.so are people losing one job and taking on two part time jobs or maybe it’s all the real estate agents having to get part time gigs at timmies.

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