Canadian Real Estate Just Saw Mortgage Credit Fall For The First Time Since 2011

Canadian Real Estate Just Saw Mortgage Credit Fall For The First Time Since 2011

Canadian real estate just hit a new record, but not the good kind. Bank of Canada (BoC) numbers show Canadians have slowed down their debt binge. Rising interest rates, and strict lending guidelines contributed to a decline in borrowing. This resulted in the largest drop in the balance of household debt since 2011.

Canadians Owe $2.121 Trillion In Household Credit

Household credit broke it’s 11 month streak of printing new highs. Total outstanding credit reached $2.121 trillion in January, a 0.15% decline compared to the month before. That works out to a 5.5% increase compared to last year. Let’s break this down into the two major components – residential mortgage credit, and consumer debt.

Source: Bank of Canada. Better Dwelling.

Over $1.5 Trillion Is Outstanding Residential Mortgage Credit

Residential mortgage credit, the largest component of household credit, did not hit a new high… which feels weird to write. Total outstanding mortgage credit stood at $1.519 trillion in January, a 0.012% decline from the month before. This brings the 12 month change down slightly, to 5.4% higher than the year before. The decline might seem minor, but it’s kind of a big deal for credit analysts.

Source: Bank of Canada. Better Dwelling.

This is the first decline of residential mortgage credit in over six years. January’s 0.012% decline works out to a reduction of $184 million. The last time we saw any reduction on the mortgage books was November 2011. Still unclear? It means people are paying off mortgage debt, faster than debt is accumulating – for the first time since 2011.

Source: Bank of Canada. Better Dwelling.

The Other $602 Billion Is Consumer Credit

Consumer credit, which makes up the rest of household debt, also saw a decline. Total outstanding consumer credit stood at $602 billion, a 0.52% decline from the month before. That brings the 12 month change down to 5.5% as well. Yeah, yeah… not interesting, until you realize this is another huge milestone for the credit market.

Source: Bank of Canada. Better Dwelling.

The decline is actually a pretty important datapoint. A 0.52% single month decline sounds like a small number to most people. However, this means people paid off $3.151 billion worth of credit more than the balance grew by. This is the largest dollar value reduction in the history of our consumer credit. In terms of a percentage, we haven’t seen a decline this large since 2011.

Source: Bank of Canada. Better Dwelling.

One month doesn’t mean a trend, but it does break the uptrend. Higher interest rates and B-20 Guidelines are expected to further reduce borrowing. The impact of interest rates is likely already being felt, whereas B-20 will show up at the end of March. Many of the pre-approved mortgages done before B-20 Guidelines went into effect, are still being honored. Most of these expire at the end of February. Some experts anticipate the impact, once felt, will send prices significantly lower.

Debt values being reduced is a good thing, but presents a few issues for an economy driven by its growth. Namely, how does an economy driven by debt, switch to a more sustainable growth model without a recession? Short answer, it can’t. Now to play the waiting game. Will policy makers run us through a recession to build a stronger economy over the long run, or flood us with cheap credit to just chug along?

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  • Trader Jim 6 years ago

    Beginning of the end. Once credit starts falling, people start listing at a more rapid rate. Usually leads to price capitulation. Happens in every asset class, and greedy people are about to get slaughtered.

    (greedy = investors, not real demand).

    • Vito 6 years ago

      The 5 stages of investor greed:

      1) DENIAL that prices are falling.
      2) ANGER that other people that sold “below” you, made more money.
      3) BARGAINING, trying to minimize your loss.
      4) DEPRESSION, that you lost so much money when you felt like a genius just a few weeks ago.
      5) ACCEPTANCE, that you lost money. You can tell kids about your loss, just like people that lived through the early 1990s.

      If you’re an investor holding onto investor property, selling at a minor drop from the top is probably going to be your best strategy.

      • kia 6 years ago

        I assume you are looking to buy !! that is why trying to make people panic

        • Mmr 6 years ago

          Of course he is. Let me tell you every one who comment here who want economy to crash and market to crash is because they miss the boat lol…every one has an agenda weather it’s those greddy real estate agents or foreign investors or the people who miss the boat and now winning all the time about high prices….it’s our nature to be self served.

        • Raging Ranter 6 years ago

          Let me guess, you think housing can only go up.

          • Mmr 6 years ago

            No I wish I was wrong…but I bought in 2009 at Toronto two of them and ppl last 10 year told me same thing it will crash and now it’s 200 percent higher…best thing I did was not listen to people 10 years ago….

          • Alistair McLaughlin 6 years ago

            10 years of price increases in the face of warnings of a bubble. That either tells us:

            A) All those price increases were permanent and will never be reversed.
            B) We’ve spent the past ten years inflating an even BIGGER bubble and there will be hell to pay.

            Take your pick. I know which one I’ve bet on (with actual money on it).

  • MG 6 years ago

    Talk about making a mountain out of a molehill. One month of debt reduction doesn’t mean anything. People pause, it happens. They’ll go right back to buying in a few weeks, especially since there’s no other place to move other than Toronto, if you want a job.

    • SS 6 years ago

      Not sure if this is the opinion of youth, the uninformed, or the ignorant. But dollar volumes determine prices, and a decline in dollar volumes means a potential decline in prices. Even further. Anyway, you’re looking for a break in the uptrend, which implies a sudden change in consumer opinion (i.e. a psychological level broke). You see squiggly lines and a one time action, those that deal with money for a living see this.

    • carlton 6 years ago

      Can you explain this further….. (They’ll go right back to buying in a few weeks). Are you saying people will go back to buying homes in a few weeks?

      who would catch a falling knife? who is gonna lend them the money?

      Perhaps your just stirring the pot……..

      • Zheng 6 years ago

        He’s saying that buyers are forgetful. They’ll see a value when it drops by an amount that’s significant for them. For instance, if a median household sees a drop of $80k, they think they just saved a year worth of work. That’s a deal, and would buy.

        I don’t agree, I think the mass moves in herds. When everyone is talking about how much money they made in real estate, those without it will buy so they can go “I have real estate too” and feel validated. When no one’s talking about it, it’s secondary to their careers.

        • Sam 6 years ago


          I can only speak for myself but I think you are leaving out certain percentage of people like myself that would not agree with your statement that says

          “For instance, if a median household sees a drop of $80k,”

          when everything is going up, we all can look back at prices and say “if it were only to fall to $XXX XXX, Id buy 2 or 3 of them” but as the prices are falling, You are going to be afraid to put your money in the falling knife even if it has come down just 80k.
          As it falls people are always going to time the bottom, and the environment will not feel like theres any pressure of missing out when theres rising numbers to choose from.

        • Mmr 6 years ago

          People will buy real estate as they need it. The real demand…people who buy for there own family will get back to market as Sooner or later. The speculators Local and foreign hopefully are out for good.

          • Jon Jay 6 years ago

            The buyers at the edges (speculators) drive market sentiment. As speculators do their thing, prices start to move which then drives people looking for homes to feel pressured to buy (FOMO). This creates more price movements, which emboldens speculators which then strengthens the FOMO for home buyers. So it’s a vicious cycle.

            If speculators leave, the rapid price escalation goes away, which eliminates FOMO which means families won’t be stretching to their debt limits to buy properties.

            People talk about a lack of supply but as this amazing site notes, there is only a shortage of supply to meet speculative demand. There aren’t enough immigrants and population growth in Toronto to justify the supply of new construction. So if speckers leave, I am very curious to see what happens since most of the buyers within the last 2 years are heavily cash flow negative. It made sense when you were making 10-30% YoY but it doesn’t make sense if you return to normal conditions of inflation growth or god forbid price drops.

            I’m holding my bag of popcorn and watching to see what happens come end of April/May. If the house horny season doesn’t get sales moving, watch out!

        • MH 6 years ago

          Not sure what those buyers are supposed to forget but lenders are not forgetful. They expect those payments on time and they don’t care if the price you paid makes less and less sense every month.

    • Functioning Brain 6 years ago

      Good point!

      You should buy as many condos and a few detached ASAP before it rises again, prob be around 5mil for 500sq feet in Ajax by December.

      BUY NOW!

      Never a better time, don’t miss this opportunity. If the banks won’t let you figure it out! But hurry man, you need to buy now before it goes up again. It is going to go up literally forever!

  • Im Therious 6 years ago

    The first couple of charts would have been interesting on a per capita basis, since the population has grown.

    Even better would be by major cities…

    • Igor 6 years ago

      I agree, but the population growing is likely balanced by the number of people paying off their homes. We have more people retiring than we do coming into the system. My guess is the vast majority of them have their home paid off before retiring.

  • Tim 6 years ago

    The sky is not falling!
    BUT the appraised values are =) why don’t some of you make a few calls (takes as much time as reading all the comments) or BLABBING that things will turn around in a few weeks. LOL
    Ask the busy appraisal companies what they are seeing and doing as of the last few weeks……

    THEN come and add your 2 cents, maybe your right everything is just fine…….=)

  • C 6 years ago

    Everything here are established on the assumption that there is a bubble and the price are inflated. Nobody seems to care that the rental vacancy rate are at the record low across major metropolitans, and economy as a whole is swing upwards, and immigration is higher year after year. I think this is advocate, not rational analysis.

    • Jimmy 6 years ago

      Lack of rental vacancy has everything to do with empty homes.
      All problems in real estate can be solved by TOP-DOWN approach. By eliminating speculation in the luxury home market, overall RE market will go back to normalcy with increased supply in the short term as well as increased vacancy rate.

      Remember, in RE, everything works top down. In that regard, developers’ assertion that more condos will solve affordability is pure BS. You have to control detached home market, and everything else will slow down.

    • Sam 6 years ago

      I’m not sure what you are trying to say here? are you trying to say that the stats and numbers above are assumptions?

      and are you also trying to say that the other statements you provided (vacancy, economy, imigration etc) are not assumptions to pump the opposing narrative?

      perhaps there’s stats to support imigration and vacancy rates, but when I tune out the lies and bullshit they tell on the news about this so called economy growth, you realize that is nothing further from the truth . The only growth in this economy is real estate. All other industries are doing worse, and government will have to continue to lower the value of the CAD to revive alot of whats on a decline.

    • Alistair McLaughlin 6 years ago

      Price rent metrics are at insane highs (meaning houses are WAY overpriced when compared to the rents they can command on the market). Much higher than they were at the peak of the US bubble . So there goes the theory that high rents are supporting high prices. Current rents aren’t even close to supporting current prices.

  • Jimmy 6 years ago

    Well, a bit of good news that finally credit binge is slowing down. It has to continue.
    In the mean time, prices are still rising fast in Metro Vancouver, even in detached home segment. The correction has to be painful in order to be able to eliminate toxic addiction to RE speculation as well as to promote healthy economic growth down the road.

  • Jimmy 6 years ago

    Last time credit growth was negative, in late 2011, prices fell by 5~10% in the following year.
    I know this, because I bought in early 2011 and it was not until early 2015 when the value went back up to the original purchase price. Let me tell you, it was darkest time of my life. I had to see my down payment almost disappear.
    I warn folks who are blindly getting into RE market this time. This is no time to buy.

    • SAL 6 years ago

      “I warn folks who are blindly getting into RE market this time. This is no time to buy.”

      Bravo Jimmy, you are a nice person !

    • Mike 6 years ago

      what market was this?

      • Raging Ranter 6 years ago

        Could have been Ottawa. Ottawa is on fire now like I’ve never seen it, but 2011 to 2015 prices were flat and drifted down in several neighbourhoods, mostly in the east. They took off when Trudeau got in and went on a hiring spree. This is a government town after all.

        It’s weird, we actually have bidding wars here now. It’s like Ottawans think our market is suddenly immune to the forces acting on markets in the rest of the country. It’s kind of cute. And short lived.

    • Saab 6 years ago

      The good news is, sometimes it bounces back. So if you’ve already bought, there’s a good chance in 25 years you won’t lose money. Hopefully you made money. If you’re looking to buy right now, it’s worth quadruple understanding that you’re buying because you want it, not because you know it’s a great investment right now.

      People need to be really honest about prices though. Will Vancouver recover after a price decline? Most likely. Will Toronto? Almost definitely. Will Halifax? That’s harder to tell. Will Kitchener? That’s like buying a lottery ticket. Toronto is very good at managing building inventory, the chance of sprawl spreading to Kitchener is very low.

      Even if you use New York as an example, you can drive to Harlem or Queens (the nice parts), and get a detached for less than Kitchener. Those places are still in the city boundary, not two hours away either. Set expectations properly.

      • Mmr 6 years ago

        Bank of Canada keep interest rate remain same and Canadian dollar will go to its lowest level in 15 years in some prediction. I guess shit load of black money form all over the world will buy Canadian real estate in discount now.

        • Grizzly Gus 6 years ago

          Hey I could buy in Canadian for a discount right now too! About a 100-200k “discount” at least based off of last year. Foreign money or “dark” money could buy for a discount due to lower dollar. But that also means that those that got in before them down 100-200k Canadian plus the loss in conversion if they wanted to convert it back. If our currency can fall to its lowest value ever, and our house prices are going down, why catch the falling knife? Toronto and Vancouver are not the only two places in the world to park your money……………… especially if you care at all about protecting its value

          • Mmr 6 years ago

            This ppl don’t care…it’s corrupted money they just want to hide it…you missing the point…as long as it’s allowed ppl will buy it because at the end of the day Canada is way better place to hide money for third world corrupt peoples. And there are shit load of black money.

  • CJ Ray 6 years ago

    Sound Familiar?
    From a Harvard Business School paper referring specifically to Manhattan (acknowledging there were many other factors that led to the GD): During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67% at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved with the stock market between 1929 and 1932.

    • carlton 6 years ago

      Heart felt advice, this is very true.

    • vnm 6 years ago

      Also super scary … leading up to the 1929 crash, there was an even bigger century-christening tech boom than Internet digitization – the electrification and motorization of everything.
      Greed and speculation managed to turn even that revolution in human productivity into a social and business disaster.

    • Joe 6 years ago

      The thing about the lead up to the 1929 crash vs. today, is that there is a considerable about of quantitative easing from post the Great Financial Crash of 2008 until today, vs. a ton margin debt in the 1920’s with no QE involved. After 1929, lots of central banks tried to implement some type of QE, which did help inflate the equities market until a 1937 correction.

      When this current market crashes, there are not too many tools left in the QE bag to apply beyond Negative Interest Rates, and huge amounts of Infrastructure Spending (which will incur lots of debt).

      The current housing housing and asset bubbles are attributed mainly to QE, mainly zero or near zero rates around the world. That was not the case in 1929. When this bubble bursts, there will not be too many options to re-inflate real estate prices in Toronto or Vancouver. That’s why a crash in these markets may be more devastating than 1989, or any other period in history. People are not ready for this.

      • Jon Jay 6 years ago

        I completely agree, which is why I can’t see them raising rates much in Canada. It’s too risky to kill housing. Based on a recent article on this site, RE represented 20% of 2017 GDP.

        I don’t see a massive collapse unless people are forced to sell. That won’t happen unless we have a big recession a la the US, interest rates rise sharply (very unlikely) OR government regulations gone wrong.

        A correction of another 10-20% followed by stable pricing is my bet. However, I’d love a US style crash in RE.

      • Justin Thyme 6 years ago

        The 1929 crash in and of itself was a minor blip on the chart. It should have passed very quickly. However, what made is so sever were the bankruptcies, and the domino effect of bankruptcy. Investors go bankrupt, their bank goes bankrupt, the companies that have their money in the bank go bankrupt, their suppliers go bankrupt, and so on.

        When stocks crash, that is just a loss of artificial money in the system. But when the stocks were used as leverage on money that is then lent and spent, that spent money is real money.

        • Joe 6 years ago


          Exactly. People think when the 1929 crash happened, that people were committing suicide and jumping out of buildings that day. Instead, the crash caused of a slow moving wave of margin calls, bankruptcies, and asset deflations, which occurred over years.

          I feel sorry for the people who bought real estate and factored in many variables like the ability to sublet or rent out property at a high fee, AirBnb’ing it, getting enough promotions at work to cover rising mortgage rates, their current business pulling in the same amount of revenues, etc. A lot of those factors decline rapidly in a recession.

          As Michael Lewis said in the Big Short: a lot people were one broken refrigerator from defaulting on a mortgage.

          • vnm 6 years ago

            Too true! Apparently no one actually jumped out a window in financial despair, that’s a “live by the sword, die by the sword” urban legend.

          • Raging Ranter 6 years ago

            I don’t feel sorry for them. They need to learn to be more cautious. For some, nothing but financial ruin will teach them a lesson. And some won’t learn even then. Sounds vindictive, but it’s just reality.

          • Joe 6 years ago

            I feel sorry for them up until the point they expect others, esp. the government, and by default, other tax payers to bail them out. They made the decision to buy, made a decision to contribute to price increases, and made a decision to take on the risk. Let them own up to it.

        • vnm 6 years ago

          I guess that’s the big unknown here, the potential domino effects. The price of housing, we know it has to come down, whether by market forces or government regulations. Or half of Toronto will be out on the street. Which ain’t gonna happen … guillotines will come back into fashion long before that happens.

          But the over-borrowing against deflating house value, counting on it as an alternative to retirement savings, the decline in RE related businesses, falling tax
          base, etc.

          It could be one heck of a domino run.

  • Justin Thyme 6 years ago

    The drop in consumer credit should not have been a surprise. I predicted it a while back.

    Two years ago, everyone in retail was advertising ‘one year no interest’. Auto loans could be had for zero down, zero interest. Those deals are drying up.

    And the ones that were taken out a year, two years, ago are coming due, being paid off, without new interest-free loans replacing them. So surprise surprise, debt is going down? Only surprising to those who don’t think much.

    But not a word about the down side – consumer SPENDING apparently is down as well. And that does not bode well.

    The good news is, China imported over $2 trillion dollars in goods in 2017, and increasing it by 18% a year. (That’s right, INTO China, not OUT of China). That is perhaps bigger than the American market ($2.4 trillion in 2015). If Canada can get over it’s American-centric Dutch Disease affliction and recognize the American economy is not the biggest fish around, Canadian manufacturing will do just fine.

    • Raging Ranter 6 years ago

      Dumbest thing we could ever do is hitch our star to China. They’ll implode quickly enough. In the meantime, we need to prevent their SOEs from buying up even more of our companies and property. There will be hell to pay if that is allowed to continue.

      In 1989 Japan was ascendant. That worked out really well.

      • Justin Thyme 6 years ago

        So someone is handing out millions of dollars and you want to AVOID them?

  • Joe 6 years ago

    >> Toronto’s real estate market is imploding

    “Bullish real estate investors point out that the market is still up relative to prices two years ago. However, bubble pricing is intrinsically unstable: people who bought property in Toronto on the belief that the market would always go up and there would always be tons of liquidity that would allow them to cash out on a few days’ notice are now motivated to sell (especially if they were highly leveraged). When they list their properties, it drives the market down, panicking more investors, who list their properties — lather, rinse, repeat, implode.”

  • Joe 6 years ago

    >> Canada’s housing bubble is starting to burst

    “The next year will be telling because unlike in the U.S., the interest rates on most mortgages in Canada reset to the current rate every five years, and 47 percent of Canadian mortgages will “reset” within the next year. While the Bank of Canada expects the reset rates to be on par with what they were five years ago, even a slight rise could put Canadians with a high amount of debt at risk of default.

    ‘We’re basically in a correction now, which most people believe will be a soft landing,’ said Hilliard MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash. ‘I’m pretty sure it’s not going to be a soft landing. It’s going to be a crash.'”

  • vnm 6 years ago

    It’s back!
    Amazing how the word “bubble” disappeared from the mainstream media since last summer, after a concerted PR push by banks and industry.
    You can still see the vestiges of this searching for “bubble and Toronto” in Google News for example.
    Virtually no association of the terms all fall and winter, and then this week suddenly a slew of “The Bubble is Bursting” headlines.
    This presumably being the same bubble that was pronounced last August as being kaput: “Bank of Montreal chief economist Doug Porter has given the bubble its death certificate.
    ‘This is a late bubble. Bereft of life, it rests in peace,” he wrote.

    The latest headlines are going to be hard for the industry to weasel around, and will have a major effect on public sentiment and expectations.

  • SG 6 years ago

    Canadians are known to pull equity from their homes which fuels the economy, but this is all fake money, only once you sell your home does that money become real. Since the price of homes are down, people are skeptical of pulling equity from their homes hence the pull back in debt load. Can’t spend equity when your losing it YoY.

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