Canadian borrowing is losing steam just as interest rate hikes come back into focus. Bank of Canada (BoC) data shows mortgage credit posted its smallest August increase since 2013, pushing annual growth to a pace rarely seen outside housing corrections. With nearly a third of new mortgages carrying variable rates, renewed tightening could further throttle slow activity.
Canadian Mortgage Debt Growth Slows To Weakest August Since 2013
Canadian household debt: Residential mortgage credit, annual growth rate.
Source: Bank of Canada; Better Dwelling.
Residential mortgage debt advanced 0.3% (+$7.1 billion) to $2.45 trillion in August. That was unusually slow, marking the smallest August increase since 2013. Annual growth decelerated for a tenth straight month, leaving the balance only 3.8% (+$89.1 billion) higher than last year. It’s a slump that’s catching the attention of at least one Big Six economist.
“In August, household mortgage debt grew just 3.8% y/y, the slowest pace since the worst of the housing correction in 2023-24 (and before that, since the early 2000s),” explained Shelly Kaushik, senior economist at BMO Capital Markets.
Ontario & BC Slump, Weak New Condo Demand Slows Growth
The weak credit growth serves as a reminder that market stabilization isn’t the same as normalization. While the national market is stabilizing, it’s masking the prolonged slump in BC and Ontario. Weak demand in these regions, along with weak new condo demand in general, “has kept a lid on the recent recovery in borrowing,” according to Kaushik.
The data highlights another area the Bank of Canada (BoC) may be watching, explains Kaushik. “Canadian monthly credit aggregates, which typically fly under the radar, highlighted an ongoing slowdown in the economy’s most interest-rate-sensitive sector just as the Bank of Canada may be looking more closely at raising rates.”
Rate Hikes May Add To Mortgage Payment Stress
Bond yields are surging higher, but housing demand remains relatively weak. “Suffice it to say the housing market isn’t exactly in need of extinguishing,” says Kaushik. Variable-rate loans accounted for roughly 30% of new mortgages in Q2, according to BoC data cited by BMO, leaving those borrowers exposed to renewed rate hikes.
“Indeed, a new tightening cycle could add payment stress to variable rate mortgage holders,” she warns. Mortgage borrowing is already struggling to regain momentum. Renewed tightening could add further pressure to both the recovery and the households carrying that debt.
This hits close to home for anyone trying to buy in Toronto or Vancouver right now. It feels good that borrowing is slowing down since prices have been crazy, but I just hope people with variable rates don’t get crushed before they can even start.
If people are still getting on variable rates, especially after the mess of 2022-23 when rates increased, then that is entirely on them.
Counterpoint: they didn’t raise rates when they were supposed to and since they include mortgage interest in CPI it’s a circle jerk that makes zero sense on what to do. They found a way to measure the cost of borrowing and call it inflation.
That’s a good point. I was in Detroit recently for a major auto manufacturers meeting. They said cars a payment are roughly double what they were in 2021, and tariffs haven’t even been priced in yet?
Worse yet, in Australia and Mexico where Chinese EVs wiped out 35% of the legacy car market in 24 mos.
So the woes for central Canada are just beginning …
I’d the cost of a home, car, insurance and food all doubled in 4ys, how is inflation only 13-15% since 2021? So CPI is not an accurate measure of inflation, so if that’s how boc makes decisions???
2013? You don’t say… that’s when the Vancouver slump happened right before the foreign buyer ban. Funny that your piece yesterday was basically on Rennie saying he’s working with Carney on foreign-owned rentals.
Jesus, someone just tell me if I should buy now or I’m going to lose my shirt?
Look it’s very simple. The average house in Canada is 600k+. The average salary for the average family is 70000. That means a pre tax income of 5900 per month.
Forget about 1/3 of that going to housing, the cost of insurance, taxes, electricity, heat, food transport keeps climbing as wages stagnate. Ben worse with the tax burden on 70k is 25% so of the house costs 33%, utilities, insurance, taxes, repairs another 10-15%, you are already at 70% of your income without food, transport clothes?
600k times 4% is 25k per year just in interest? So it’s unsustainable. On and BC are just a joke…