Canada

Canadian Households Borrowed Mortgage Credit At The Fastest Rate Since 2008

Canadian households were in a mad dash to borrow debt before the recent rate hikes. Bank of Canada (BoC) data shows outstanding mortgage credit hit a new high in February 2022. Over the past year, households grew mortgage debt at the fastest rate since 2008.

Canadian Mortgage Debt Hit A New Record High

The BoC’s latest data shows Canadian households hit a new mortgage debt record. Outstanding residential mortgage credit reached $1.96 trillion in February, up 0.5% ($9.6 billion). Compared to last year, the balance surged 10.7% ($190.6 billion) higher. It’s worth keeping in mind that this had been the last month at ultra-low rates. The BoC began to raise interest rates in March, in an attempt to cool some of this activity. 

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt held by institutions.

Source: Bank of Canada; Statistics Canada; Better Dwelling.

Mortgage Borrowing Is Showing Some Signs of Moderation

Even after the interest rate hike in March, the impact wouldn’t be seen for a few months. However, the psychological impact can show immediately — sometimes just in anticipation. We may have seen that in February, with monthly growth bucking the seasonal trend.

Typically February is a stronger month than January, as we near the Spring market. February was about $600 million smaller than January, which is a big difference. In over a decade of data, February has only been smaller twice, since things typically get busier towards Spring.

Canadian Mortgage Debt Grew At The Fastest Rate Since 2008

The annual growth rate hit a multi-year high, surging at a pace not seen in over a decade. The 10.7% 12-month change in February is the fastest growth since August 2008. Looking at the trend, it goes almost vertical after bottoming in 2019. It’s hard not to see this as borrowed growth and pulled forward demand from low rates.

Canadian Residential Mortgage Credit Growth

The 3-month (annualized) and 12-month rate of growth for Canadian residential mortgage credit.

Source: Bank of Canada; Statistics Canada; Better Dwelling.

Canadian households were on an epic binge of mortgage debt for the past few years, but it might end soon. In March, the BoC hiked the overnight rate for the first time since cutting them in 2020, and hiked again in April. The central bank is trying to aggressively curb soaring inflation and “excess demand.

As a result, experts see a significant slowdown in mortgage credit growth. Interest rates are rising so fast, some banks are even making downward revisions to their recent forecasts, as this level of inflation was not expected. 

4 Comments

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  • Alan 2 months ago

    Will the federal or provincial government bail out the mortgaged Canadian home owner class, while gutting social assistance rates for the working poor renting class?

  • Ron Bruce 2 months ago

    Borrowing on increased values in the home and thus increasing mortgage debt is for one of two reasons, 1) pay down other debts at higher interest rates, 2) leverage the mortgage to purchase more property via direct or through shell companies, trusts and newly minted corporations.

    By not owning my own business, there may be other shell games that I’m not familiar with. However, whatever is being presented to the Bank to allow this debt accumulation to happen, they must feel that something is carrying the debt.

  • Amjad Shaikh 2 months ago

    Wondering why the govt of Canada, OSFI and BoC not targeting the root cause of housing bubble: that is; reign in the investors who have pushed the home prices to the sky.
    The OSFI should investigate why the banks are putting depositors’ money to risky home mortgage market.
    CRA should check the source of income and the properties being bought and maintaned by the new home owners. .

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