Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s bank regulator admits that longer repayment schedules are propping up prices. The country’s banks have seen an explosion of longer amortizations, with nearly 1 in 4 mortgages now having a repayment term longer than 30 years. OSFI, in a written response to Parliament, admits that removing the ability to extend these amortizations may create downward pressure on prices. It sounds noble, until you realize it’s not to protect first-time buyers, but the overleveraged investors that replaced them.
Canada’s central bank sees larger mortgage payments presenting a risk to the financial system. In its regularly published financial system review, the Bank of Canada estimates existing mortgage borrowers will see their payments rise about 20% by 2026. If they don’t extend their repayment terms, they estimate the payment size will need to rise by 40% by that year. Adopting longer repayment terms has become popular, but it also left borrowers more vulnerable to risk.
Canadian mortgage debt is returning to more typical levels after the Bank of Canada (BoC) rate hikes. The outstanding balance climbed 0.2% (+$3.8 billion) to $2.1 trillion in March. The growth rate was a third of last year’s rate, and a quarter of 2021. It’s a sharp slowdown, but that brings annual growth back to more typical levels seen throughout the 2010s.
Canadian real estate prices are on the rise, and one of the country’s biggest banks thinks it may require higher rates. The cost of a typical home across Canada rose $17k in just April, primarily due to falling mortgage rates and a pullback for inventory. BMO Capital Markets doesn’t see higher rates (yet?), but they ponder if a return to sharply climbing prices is a sign that credit is still too loose.