Real Canadian Mortgage Credit Growth Is Pointing To An Early 80s Style Meltdown

Canadian mortgage credit growth is falling, but how bad is it in real terms? People are comparing today’s low growth numbers to the mid-1990s. While there are some parallels, it more accurately resembles the early 1980s. Mortgage credit growth, when adjusted for inflation, is heading towards negative numbers. We haven’t actually experienced negative real growth in over 30 years.

Why Real Mortgage Credit Is Important

In order to more accurately observe trends, analysts will sometimes inflation adjust dollar amounts. Inflation is the decrease in power of money, caused by rising or falling prices in goods. Inflation tends to obfuscate the true trend over long periods of time. Did the currency go to s**t, or did we see a behavioral change? Was it low growth, or negative growth? To get a better picture, it’s sometimes (almost always) useful to adjust for inflation. When numbers are adjusted for inflation, they’re called real numbers.

Looking at real numbers allows us to observe the trend, without the distortion of currency value at the time. This is particularly important when looking at the early 1980s for Canada. During that period, inflation was totally out of control. Today we often think of that period as low growth, with a brief negative contraction. In actuality, it was a very large contraction in real terms.

Okay, no one thinks about the early 1980s rate of credit growth, but some of you should!

Canadian Mortgage Credit Growth Is Over 3%

Canadian mortgage credit growth is pretty weak when looking at unadjusted numbers. The annual pace of growth fell to 3.38% in September, down 38.76% from last year. This is the lowest pace since June 2001, and on target to head lower according to recent performance. It’s low growth, but at least it’s not negative is what most are thinking.

Canadian Mortgage Credit Growth

The annualized pace of mortgage credit growth at large Canadian lenders, unadjusted for inflation.

Source: Bank of Canada, Better Dwelling.

Real Canadian Mortgage Credit Growth Is Almost 1%

When adjusted for inflation, the picture is getting a little more dreary for lenders. Real mortgage credit is at 1.14% growth in September, 70.76% lower than last year. The rate is falling at nearly twice the pace most people are expecting. Real credit growth hasn’t been this low since 2001, and even then it was only this low for 4 months.

Canadian Mortgage Credit Growth (Real)

The annualized pace of mortgage credit growth at large Canadian lenders, adjusted for inflation.

Source: Bank of Canada, Better Dwelling.

The low growth will most likely to turn negative, considering the current trend. In 2001, the last time real credit was this low, interest rates were slashed to stimulate growth. That helped reverse the downward spiral after 4 months. Today, that’s not on the table.

The Bank of Canada’s most recent hike occurred less than a month ago. Typically, the bank’s own research shows it takes between six and twelve months to adjust to a policy hike. The full impact of the hike won’t be felt for another half a year at least. The bank is also on the path to rate normalization, which means the policy rate needs to rise another 42%. That four month window in 2001 is probably looking pretty good to lenders right now.

We’re currently overestimating growth, and thinking of it as heading towards low growth. In reality, we’re heading towards negative growth, once adjusted for inflation. That includes the record amount of immigration we’re trying to use as credit growth stimulus.

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  • Trader Jim 6 years ago

    It’s actually close to a hybrid. We have low growth, high immigration, and a buttload of speculative capital like in the 1990s. Anyone that says what happens next is predictable, has no idea what kind of beast we’re looking at.

    • Ethan Wu 6 years ago

      We also haven’t experienced a global real estate cycle sync. It’s going to be weird, but I see ZIRP in the not so distant future.

  • Trevor 6 years ago

    Immigrants as stimulus is an interesting perspective. Without formalizing that, people are expecting each immigrant to bring in a ton of money, and prop up the markets. Only time will tell if bringing in rich immigrants can bolster the system.

    • Jay 6 years ago

      We can just watch Sweden… they recently posted the lowest GDP growth in the EU and having massive employment problems… all after their own little immigration ‘boom’.

      REinvestors hoping for immigrants with suitcases full of cash to save them are going to be in for a big surprise.

      • rx81 6 years ago

        But Canada has Trudeau

        • Bluetheimpala 6 years ago

          I love partisan comments but you know what gets me really hard? Stupid shit like this. Not the place. I mean, retarded shit is allowed and encouraged but if you drop anything political Blue gonna come for ya. Tick tock. BD4L.

    • Yun Yang 6 years ago

      Some call it the ‘human stimulus’ program, some call it money laundering as an economic policy. Regardless of the label, what is it really? Over-investment in McMansions that noone needs, because there is no limit to the tax-free capital gains on principal residences unlike in the US.

    • Dar Robbins 6 years ago

      Wow, that somewhat of a taboo topic.
      Why would anyone with money immigrate to Canada?
      If I had money, I would prefer a country that offers low taxes combined with a stable government and a strong legal system. If I have money, I would pay for my own health care and choose the best practitioners. Those that do immigrate to Canada have no money and if they do have money, they don’t bring it in and keep it parked elsewhere.

  • Joseph 6 years ago

    To infinity, and beyond!

    Household debt might be high, but they’ll need to slash rates. In the early 1980s even though rates were high, people had to buy real estate, or watch their money rapidly turn to garbage. Lending rates had to detach from interest rates, and propel much faster.

    • M 6 years ago

      LOL what are you talking about. Nobody had to buy RE to hedge against inflation. Canada savings bonds ranged from 9.25%-19.5% between 1980-85.

  • Winter Is Here 6 years ago

    Don’t forget that 3 month annualized pace of growth is already negative in real terms, by the BOC’s own measures.

  • Curious Millennial 6 years ago

    Honest question. If things are so bad, why aren’t prices falling?

    • Greg Thorn 6 years ago

      That’s a subject of market debate. They’re called “noise trades” by DeLong. If enough people buy assets at a higher price, they can break an efficient market.

      The question has since turned into, if these trivial noise traders make non-trivial amounts of money, they become the market. When they become the market, are they now bound by the efficient market theories promoted by Freidman? We found out in 2008.

    • Aterix1 6 years ago

      Listen to this podcast….

      Ross Kay, November 5, 2018 |
      “Canada’s Housing Correction Continues Since 2016 Warning”

    • Vijay 6 years ago

      It just takes time as the article says. It’s going to be a shit show when it happens.

    • SUMSKILLZ 6 years ago

      They are in York Region. But you have to look at sale prices not listing prices. Listing prices are generally, either stupid or aspirational, depending on your point of view. My modest home’s comparables are already down 15%+ from peak 2017. Only thing not falling is large five bedroom homes. There are not many around and they seem to be coveted still.

    • oakville rob 6 years ago

      They are falling, but its not news that is ‘fit-to-print’.

      I have 2 millennial kids. I hear your concern. It’s almost a universal concern.

      Consider this: when trades have to compete for work it costs about $100 to $150 per foot to build a nice house. A 2000 square foot house is worth about $200K-$300K. Plus the land. Unfortunately people buy the ‘house’ and it happens to come with land. Smart money buys the land.

      But you have to take crazy buyers out of the equation and that is where time comes in.

      If you see a house trying to get $1.95M. I can almost assure you that the vacant land is not worth $1.65M.

      • John 6 years ago

        This is what I’ve been thinking for years. And as a millenial it’s locked me out of the market.

        I’m so frustrated how the BoC sold out my generation and robbed us of home ownership at a younger age in exchange we didn’t join the world in recession but have all the same lingering effects.

        • Oakville Rob 6 years ago

          I think the best time to buy a house is coming in the next couple years (not months). Save your money and get ready to buy from someone who may need you to save them from bankruptcy. Mutual benefit! I hope things go well for you.

        • Dar Robbins 6 years ago

          Hi John,
          I feel your pain. Bankers and politicians have sold out millennial. To a great extent, they’ve sold-out the tail end of the boomer’s as well. They gave people candy (credit) and like children, they just ate it. Now the population is suffering from a debt indigestion. Even if you lend money for free (@ 0%), the majority of households don’t have the disposable income to service the principal repayment in addition to th debt they already have.

          The best you can hope for is a progressive rise in interest rates to slow asset prices from rising too fast and allow you to save as well.

      • neo 6 years ago

        When was the last time you built a house and where? There is zero chance you can build a custom build “nice house” from scratch in the GTA for $100 a square foot. Gutted reno’s can go for that easily.

        A custom build home is in the $200 to $400 sq/ft range. That’s not including land.

        Maybe a cookie cutter builder house can get by at $150 sq/ft but that’s bland and boring not nice.

        • Oakville Rob 6 years ago

          Neo – I built a house in Oakville before prices for everything went insane. In 2010.

          A nice house doesn’t need a $25000 front door or an elevator. A cookie cutter house might do the trick for the person who wants a house for their family. You said they cost $150 per foot. So we agree. Breath. It’s all going to fine.

          • neo 6 years ago

            Well, it isn’t 2010 and you can’t get houses for 2010 prices either so no real point in quoting that price. And no, we don’t agree. Tracked “cookie cutter” builder homes are garbage. The materials, the workmanship, everything. There is nothing nice about them. Any reputable custom home builder isn’t building you a house for $150 a sq/ft in the GTA. If so, tell me who they are.

            It may cost Mattamy that much or less to BUILD it for that but they aren’t CHARGING that to the homeowner, especially when they get into their insane mark ups on things that come standard in a custom home. We won’t be going back to 2010 though, maybe 2015 or 2014 if it gets really bad. So breathe, everything is going to be fine.

          • neo 6 years ago

            By the way a nice solid wood mahogany 8′ front door with a 4 point antitheft lock on a custom home is $4,000 -5,000 dollars. Not sure what this door is made of that costs $25,000.

          • John 6 years ago

            But Neo, you proposed the $150 /sqft figure and Oakville Rob agreed.

            So are you backtracking on that now because you’re now agreeable?

          • neo 6 years ago


            We are talking about two different things. Custom home vs Cookie cutter. Mattamy cost to build a home could be $150 sq/ft but they are charging $300-400 + a sq/ft. Just look at their price list anywhere in the 905 for a townhouse with no land to speak off. Peter bought all that land decades ago and sat on it until he was ready to build. He paid relatively nothing for it and even 50″ lot in the sticks with the postage size lot has a land value of no more than $150,000 and he is charging $1,100,000 + for that home so obviously you are paying more than $150 a sq/ft. Even 2,000 sq/ft towns with no land are $600,000.

            I was talking about what HE pays to built in. Not what the homeowner pays to BUY it.

            He is right about one thing. If you purchase land at a reasonable price. Getting a custom home builder to build it is the better way to go. They are going to charge you $200-$400 sq/ft though not $150 aq/ft. You end up with a much better product though.

        • Bluetheimpala 6 years ago

          Asssseeetttt bubbbbbllleeee! Like one time on blow I paid someone $5 for a cigarette; I guess I need to get into the cocaine and tobacco business? Tick tock. BD4L.

    • carlton 6 years ago

      Simple answer – home equity line of credit, until these are maxed people will just keep using them to finance their expenses.

    • Dave 6 years ago

      You must have your head in the clouds or reading all the fake media. Here in West vancouver, prices are off by as much as 30% from their highs. The real estate industry uses the term bench mark price. It is a lagging indicator. They manipulate their data, to give you the idea that realestate is not in a full blown correction. If you want to do your own research, go on twitter and see or and

    • DB 6 years ago

      They are usually the last to go..Once profesional investors exhaust every means at their now they are turning future builds into rental apartments, or slashing prices for bulk buys which are sold to the professional investor Co. that will never be offered to the little guy who just wants to buy a place for him and his family..not yet anyway. Once the cycle play’s out then the little guy may get a chance to benefit somewhat unless he has lost his job to the recession.

  • oakville rob 6 years ago

    To paraphrase a big bank – No one is as rich as they think.

    Including immigrant investors. I sold my house to a yet-to-immigrate investor who managed to put 50% down ($1.2M sent out via friends and family in $50k units) and got the balance via traditional mortgage. I know the rent on the property is not paying the mortgage or the tax fully. And now the home country is curtailing exporting capital. What looked like a ton of money looks less so.

    It’s a sinking ship. It’s not sustainable. At least house prices will come down.


    • Quan 6 years ago

      Did you sell before 2018? Capital smurfs are supposedly in short supply this year. Some lenders are letting people borrow against yuan denominated assets though, which is just madness.

      • oakville rob 6 years ago

        2016. I have a friend who sold in the same month as I did to someone who is said to have bought 10 houses in Oakville that day. The ones I know of are empty still. I don’t see how any of that helps Canadians on an ongoing basis.

        Unless he wants to liquidate them all 🙂


  • Mrco 6 years ago

    So when is the recession supposed to start here in Canada and how long is it expected to last?

    • Bluetheimpala 6 years ago

      Bahhhhaaaa…you know the hangover where they ask for directions? As if you just ask someone for something, like a child, and you’ll just get what you want. tsk tsk…i can assure you, anyone with this information is sitting in hot tub full of cristal with 10 victoria secret models, a dinosaur and a jesus/david/mohammed frankenstein who just sits there asking ‘can I get a drink? who’s dick do I have to suck to get a drink, I’m the god damn messiahs!’. Seriously, you scream millenial. Hope this helped. Tick tock. BD4L.

  • Dar Robbins 6 years ago

    Major correction:
    While Inflation is the decrease in power of money, it is NOT caused by rising or falling prices in goods.
    Inflation is caused by an increase in credit issuance.
    This increases the money supply, diluting its purchasing power thus making everything more expensive.

    • Yuzheng 6 years ago

      Nope. The increase in money supply or the decrease in purchasing power are causes of inflation. Austrian school economists call deflation negative inflation as well, so technically it’s correct.

      Usually the increase in money supply is the cause, but sometimes the detachment of the money supply happens. Venezuela is an example; The cost of goods is rising much faster than the print of money.

      • Dar Robbins 6 years ago

        You’re missing the root cause of inflation my dear friend.
        It’s the increase in credit issuance that’s inflationary which increases the money supply.

        Conversely, when debt is repaid or defaults, it’s deflationary as the money supply contracts.
        When this latter occurs, each monetary unit buys more thus prices go down.

        • John 6 years ago

          I believe the issuance of credit is an effect, not a cause.

          You’re incorrectly associating credit as being the cause of inflation/deflation, where as the better association is inflation/deflation is the cause for credit issuance.

          Re:2008/09, rapidly decelerating inflation lead to lower interest rates lead to increased credit issuance.

          • Dar Robbins 6 years ago

            Ask yourself: How is money created?
            It’s created each time you borrow. Banks lend money they never had.
            That’s why it’s called: the Fractional Reserve Banking System

            Each time you borrow, the money supply increases.
            NO! you have that backwards.
            In Re:2008/09, the central banks issued massive loans to re-inflate the system.

          • Dar Robbins 6 years ago

            Got a bit ahead of myself. Governments, through massive deficits borrowed by issuing bond which the central banks purchased. They, in turn, issued new currency to pay for them. This is what was called Quantitative easing. This new money created by government debt re-inflated asset prices.

          • Dar Robbins 6 years ago

            Thus, more money in circulation lead to lowers interest rates encouraging people to borrow cheap money and spend. This is inflationary as it increases asset prices.

          • Dar Robbins 6 years ago

            Taking this one step further to today. In an effort to slow inflation, Central banks (FED & BOC) start restricting credit to commercial banks to curtail the money supply available to them by raising the bank rate.

            Also, when commercial banks start tightening credit standards, it reduces the amount of money in supply thus making it more valuable. Consequently, you have to pay more to borrow it. That’s why interest rates are rising.

            Simultaneously, when bond buyers perceive more risk in the system, they bid down bond prices lifting yields. Mortgage interest rates are based on bond yields.

      • Dar Robbins 6 years ago

        Venezuela is going through Hyperinflation which is completely different from Inflation.

        Inflation is the increase of money supply caused by credit issuance.
        Hyperinflation is a total collapse in confidence in the currency. When this occurs, all credit issuance ceases.

    • Bluetheimpala 6 years ago

      loose credit inflates everything. Example. I was speaking to my shwarman guy. I was asking about real estate then I mentioned the bubble, he didn’t know what I meant and then I just straight up said ‘your costs have gone up over the last 2 years considerably correct? from your inputs to any trades correct? Maybe even your rent jumped’ He said yeah, his lettuce has double just in the past 3 months along with most of his produce. He sources meat local so that isn’t an issue. All the work he’s done has come in 2 or 3 times what he paid 3 -5 years prior (8 years ago). just ASK THE QUESTIONS. talk to your neighbours. the guy down the road who does roofs. logistics workers. tick tock. BD4L.

      • SUMSKILLZ 6 years ago

        My neighbour a few doors down had a fully staged RE “open house” yesterday (northern York Region, modest subdivision) and nobody visited. Not one single soul. There were ads in local publications, road signs pointing the way…and Nada. Zero shoppers.

  • Barque Barber 6 years ago

    We should all move to China. I just read that about 22% of all their housing is vacant.

    • IrvingFischer29 6 years ago

      22%… 50 million homes are vacant in China. As that tsunami of defaults continues, it will spread across the Pacific.

    • Dar Robbins 6 years ago

      Barque Barber
      What you wrote in jest is true but that Real Estate may not be accessible even for the Chinese.

      The Chinese government knows that the public view real estate as a wealth effect like westerners view stocks. Consequently, the government through the PBOC consistently reflates its housing bubble through cheap credit. Moreover, they control the empty inventory to keep supply low and prices artificially elevated by keeping as much inventory off the market as possible. The last thing they want is a deflationary collapse through a series of defaults.

  • Tony bolongy 6 years ago

    Someone buying 10 houses is a person purchasing blocks of housing for a REIT fund .I know a person who buys houses all day long for future rentals ,his job is to come in and buy it all up price is no object it’s all muppets money anyways

  • Lana Waller 6 years ago

    The last time the Alberta Real Estate market was this bad for so long was in the 1980’s and funnily enough, there was a Trudeau in power then as well.

    • Partisan Hack 6 years ago

      If you honestly think Trudeau is to blame for the currently state of Real Estate in Alberta, please explain why.

  • Laurinn 6 years ago

    Thanks for sharing the article good stuff. really very useful information..

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