Canada

Canadian Mortgage Growth Grinds To A Halt, Slowest Growth Since 2001

A few weeks ago we used the 3-month annualized trend to show where mortgage growth is heading. Bank of Canada (BoC) numbers show the annual trend followed as expected in April. The annual pace of mortgage growth followed the short-term trend, and plunged lower. The pace of growth, both short-term and annual, is now the lowest it’s been since 2001.

Outstanding Mortgages Rises To $1.5 Trillion In April

Mortgage debt reached a new record, which is hardly a surprise – but growth is tapering. The total outstanding balance reached $1.528 trillion, up $2 billion from the month before. The outstanding balance is 4.9% higher than the same month last year. Despite the climb and huge sounding numbers, mortgage growth is slowing dramatically. This is the first-time we’ve seen the annual pace of growth fall to 2001-levels, and it may be heading lower according to the annualized trend.

Canadian Outstanding Balance of Residential Mortgage Credit

The outstanding credit of mortgages expressed in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Annualizing Trends

A few weeks ago we explained annualized trends, so feel free to skip this section if you already read that. Annualizing a trend is when you take a short period, and project what the whole year would look like. Annualizing a few months of data gives us a good idea where the longer trends are heading. It’s a popular method analysts use to estimate performance and growth. If it’s good enough for the BoC, it’s good enough for us.

Who cares? You’re not a mortgage analyst, we know. Well, maybe you are from the number of emails we get from mortgage analysts. Either way, you want to know mortgage volumes since they are a precursor to dollar volume. Slowing mortgage growth is a sign of exhaustion, often preceding slowing price growth. After all, people that buy homes, usually need mortgages. Less mortgages mean less buyers, dropping dollar volume. This is another indicator you should be using to get a feeling for where the market is heading.

3-Month Annualized Trend Falls To 17 Year Low

The 3-month annualized trend is now at the slowest pace of growth since 2001. The 3-month dropped to 2.2% in April when annualized, a 53% decline compared to the same period last year. The dramatic decline is occurring in the crucial Spring season, the busiest time of year. Typically the 12-month trend follows, so you’re going to have to act surprised if the annual growth drops further.

Canadian Outstanding Balance of Residential Mortgage Credit Change

The 3-month annualized and 12-month percent change of outstanding mortgage credit in Canada.

Source: Bank of Canada, Better Dwelling.

Declining real estate sales, higher interest rates, and B-20 Guidelines all contributed to the slowdown. Each one of those factors would directly impact the dollar volume of mortgages. All three factors hitting at the same time is a sure thing. Although real estate is cyclical, and even a gentle breeze would be blamed for setting off the natural down cycle.

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24 Comments

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  • Ian 1 year ago

    Realtors that are still saying the market is not going to slow down are starting to look really pathetic. I’ve made a list of people I will never use going forward.

    • Dana 1 year ago

      One of them kept me on the phone last week for over half an hour saying “you can double your deposit of $120K in the next four years when the project gets finished… today, you only pay $1,200 per square feet that will rise to $1,500 four years from now. LOL

  • OT 1 year ago

    At a 50% reduction, it has to be more than B-20 Guidelines. Combine B-20 guidelines with higher rates, and you’re still only at 30% lower dollar restriction. This IS the cycle in action, not government intervention. Surprise, not everyone wants to take out the maximum they can spend on a house.

  • -80% YVR Bear 1 year ago

    The new argument I’m hearing is that the market won’t fall because most buyers are deep pocketed boomers and foreigners. Therefore, mortgage stats and rates have no correlation with prices. Is this true? Any bulls want to explain?

    • Ahmed 1 year ago

      Boomers and “foreigners” still take out mortgages. It’s a common misconception that foreign buyers come here with bags of money to buy homes. They are required to leave higher down payments, that’s why they’re seen as “wealthier” buyers.

      Boomers have been using HELOCs and withdrawing debt to leave down payments on new “yield” properties. That trend was stronger in BC than Canada, but withdrawing equity in large blocks has slowed down dramatically from the 2015 peak.

      Every time I hear the new narrative on the news, I’m surprised no one ever uses data. Almost every time I hear it, I think that’s contrary to the stats I’ve read EVEN ON THIS SITE. There’s no shortage of data, journalists are just lazy and give a platform to sales people.

      Having a Realtor on BNN is the equivalent of getting a car salesperson to tell you how the auto market is doing. It’s pathetic.

  • Trader Jim 1 year ago

    Lower peaks are something to take note of. They reduced interest rates, so they should be a little bit lower, the market is showing stress at smaller levels of growth. This might finally be an extended cycle correction to balance.

  • ed 1 year ago

    The huge drop in the mortgage business for 1st quarter of 2018 is a big indicator of a drop in sales and then followed by home prices. Historically home prices drop lag volume sales. So it is just a matter of time to see further correction in prices. My estimate is Fall 2018 to 2020.

  • Serg 1 year ago

    Hmm…. maybe I don’t understand something but if you look at outstanding mortgage balance percent change graph, I would expect much higher growth because prices went up much faster than “mortgage balance”. Does it mean that a lot of housing growth was feeded by CASH and not mortgages? Either local or foreign?

    • Louie 1 year ago

      No, because inventory is rising as well. What you’re you’re seeing is late-stage buyers, also known as dumb money, tacking onto a trend.

      Foreign buyers normally put 35% down, and even then it’s often borrowed through a private lender due to restrictions in China. Some banks have cash back mortgage programs that will give them most back, and tag a few extra points to the mortgage.

      The narrative is funny that locals think foreign buyers will just buy property to no end, but they’re looking to make a profit. They’re making that profit by selling to dumb locals, not by hoarding. This is the difference between an investor and a regular buyer. If you have no idea when you’re going to exit, you’re just hoping to make money. You’re not an investor without an exit, because you make no money unless you sell. Most “investors” will have to hang onto the property through the down cycle as well.

      Investments 101: Sell your best performing assets. Buy underperforming assets with good upside potential. Don’t buy other people’s best performing assets.

      • Serg 1 year ago

        Not sure if you understood my comment/question . I’m saying that in last 8 years prices grew significantly faster that outstanding mortgage balance. If all these houses were mortgaged there would be much faster growth in outstanding mortgage. So there must be lots of CASH involved.

        • John 1 year ago

          So your question already had a preconceived answer…

          I’m not sure why you are pushing the issue if you already knew the answer… unless your trying to peddle something.

        • Louie 1 year ago

          No, I understood your question. Youre just using bad mag to come to your conclusion. You’re comparing the movement of a $500k condo to the movement of a $1.5 trillion dollar debt pile. The debt will move at a slower pace, because it’s a larger number than the home prices.

          If $500k average sale rises 10%, you have $50k in increased prices. Let’s say that’s the average for all 100k sales in Canada. $5b increased value equals 0.3% of the $1.5 trillion balance of mortgages. That’s a 10% increase for the whole country.

          In order for it to rise as quickly as it did, people needed to withdraw their equity, to send the balances that much higher. Which they did, there was an article on this site about hundreds of thousands of households borrowing downpayments from their existing home to buy a second.

    • @xelan_gta 1 year ago

      Serg, not sure which numbers you are comparing.
      Mortgage balances grew from 910B in May 2009 to 1.5T which is 64% growth
      Canadian Average RE price grew from 300k to 500k during the same period which is 66% growth.

      If you calculate it more precisely maybe you can get a little bigger difference but the fact is actual growth match pretty closely.

      Here is the official CREA web site for you so you can verify ave. price numbers:
      http://creastats.crea.ca/natl/index.html

  • Tommy 1 year ago

    Prices will continue to increase slightly until months of inventory slide into buyer territory (which means 7 – 8 months of inventory). As it stands we are far off that mark since there is only slightly over 2 months of inventory. Therefore prices should hold and increase even if we continue to see sales volumes decline over the remainder of the year. But the camel’s back has been broken and now we must just wait for the correction to slowly unwind over the next two years.

    Had prices been allowed to escalate without any government intervention in 2017, the cycle would simply have played out faster than it is now. Government intervention actually delayed the inevitable, which is unfortunate. The regulations abruptly broke the usual bubble cycle, meaning that the correction in the summer of 2017 was artificial and not a natural part of the upcoming correction. The government should have let the market run amok and allow average detached prices to soar to $2 million, and then watch it collapse in on itself quicker. Now we have to wait in a period of stagnation for the next while as a smaller volume of buyers continue to push prices up by vying for the best houses in an environment where inventory is growing but still sits neatly in Seller’s market territory.

    • Bluetheimpala 1 year ago

      Look at BD a few days back; the Sales to Listings has flipped in many markets outside of toronto proper so I’m not sure what stats you’re looking at. Now toronto is seeing cracks with places only selling 5-10% over list, sitting longer and some new listing setting new bottoms (massive semi in parkdale listed at $1M…last year it would’ve been a few hundred grand more and easily sold in the high millions…that is not the case anymore. Oh and the Condo market is getting fucking weird; banks aren’t closing and sales prices are again only a little over list; I’ve seen some go for slightly below. Each month I’m seeing more evidence that housing is correcting much faster than I anticipated approx 6-9 months ago, which means we either have a) less travel to trough or b) the trough is lower. I’m not sure at this point and as it plays out each market will be different. BD4L.

      • Tommy 1 year ago

        The stats I’m seeing are from TREB. Every month since January 2018, average home prices have increased. The reason for this is low months of inventory.

        Where do I get MOI stats? From Zolo which is showing just over 2 months worth.

        Prices don’t go up in a Buyer’s market. We will reach that threshold but right now we’re in limbo in a theoretical Seller’s market due to government regulation cooling of the market last summer.

        It wouldn’t surprise me if MOI hits 3 months by the end of summer and 4+ months by the end of the year. Even then, it’s still a Seller’s market and stupid money will be chasing it and overpaying. We need to see 6+ months of inventory in the city to see prices come down.

        There is a chance that things could escalate and the correction could come swiftly. A lot of weighing down the market from the stress test, to speculators losing money, to sales volumes declining, to lending volume declining, to negative press. But there is still excess stupid money itching to be spent. Time will tell.

        • Tim2 1 year ago

          Is your last name Chong? cause I want what your having……..

          Your delusional. You chose the only posted “positive spin” chart from TREB, every other chart indicated a weak or weakening market…..

          You bulls are grasping at straws…..it was inevitable. AND whats started to happen in the land market is further sign…….talking GTA.

        • @xelan_gta 1 year ago

          Tommy, not all bears here are ready to accept info if it’s not extremely bearish. You sound reasonable and I will support you.
          I did some research on MOI recently and your numbers are not too far from historical thresholds.
          https://mobile.twitter.com/xelan_gta/status/1000791122518650880
          There are more details there.

  • NJ 1 year ago

    Reg what’s upcoming, I think banks don’t care a lot, as their asses are already covered by insurance and all the shit loads of mortgages are upon the people’s head due to their sheer ignorance. BRING IT ON

  • Bluetheimpala 1 year ago

    Ya boy blue here, I’m in transition (M-to-F natch, lol) and living in the sticks….soo Grand Valley. Google that shit peeps. Realtor.ca. Done? Good…so my wife has a friend who lives in the Valley (no, no one actually calls it that…). She wants to buy a $1M house around Orangeville, or ‘the city’ as some yokels call it, and get the ‘dream home on a half acre and a pool’ . She found her dream house and then reality hit. RE agent told her that her house isn’t worth close to what it was last year so don’t count on $XXX to buy the new house. This potential buyer, and she does exaggerate a bit, claims there are ‘like 17 houses for sale on my block’. While I haven’t checked I tend to believe this to be true. Check out greaterfool and the Rockwood post from Garth, same shit different pile. While I find the insight from Garth to be the equivalent of a drunken uncle, he stays relevant and is being fed some good stuff which he posts daily. Good for a chuckle and he gets a lot of comments which are good for analysis. BD4L.

    • Louie 1 year ago

      Out in the boonies, across the greenbelt, a million should get you a dream home. That’s how you know things went sideways across the whole country.

      • Tim2 1 year ago

        Keep your eyes on the east coast……retirement will be grand =)

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