Canadian households are on an epic mortgage borrowing spree. Data from TransUnion shows explosive growth for new mortgage originations in Q2 2021. Sparked by low rates, the surge reveals that excess demand has played a significant role in exhausting supply.
Canadian New Mortgages Jumped 49%
Canadian mortgage originations made a sharp increase from historical levels. New mortgage originations reached 392,225 in Q2 2021, up 48.6% from last year. Last year was a little odd, so it may spark skepticism. However, comparing it to the second quarter of 2019, new mortgages are still 45.4% higher. It’s an unusually strong level of demand for borrowing new debt, but not unexpected with rates held this low.
New Mortgages Are A Much Bigger Share Than Normal
The number of new originations isn’t just growing with the size of the market — it’s a bigger share. New mortgage originations were 5.57% of outstanding mortgage debt in Q2 2021. It increased from the 3.61% reported the same quarter last year, which is pretty standard for market share.
Canadian Mortgages Are Getting Bigger. Much Bigger
More households aren’t just getting new mortgages; the mortgages are also bigger. A LOT bigger. About $145 billion of new mortgage debt was issued in Q2 2021, up 82% compared to last year. The average balance of those mortgages is now $379,567, up 22% over the same period. Average balances have increased at an even faster rate than home price growth.
More mortgages, larger in size, predictably represented a larger market share. In Q2 2021, new mortgage originations were 8.25% of total outstanding mortgage debt. It is significantly higher than the same quarter in 2020 (4.83%) or 2019 (4.52%). It’s hard to appreciate that number, but roughly 1 in 12 dollars of mortgage debt was issued in just the quarter. It’s almost double the rate typically seen.
The jump in new mortgages is another data point to add to the pile showing excess demand. BMO’s recent analysis shows billions in “excess” home sales from easy credit. Then there is the BoC study revealing low rates caused higher home prices.
It’s unclear why interest rates are so generously low. It’s not because of unemployment, which has recovered. Not due to inflation, which is well above their target. It’s also definitely not because they’re trying to increase housing affordability.