Over just a few months, Canada went from fears of overleveraged borrowers to trying to stimulate borrowing. That was the take from BMO Capital Markets, who took a look at the slower-than-normal growth for mortgage debt. In a report sent to investors, the bank’s chief economist explains they expect healthier levels of borrowing by next year. The bank doesn’t see a booming market though, as the economic picture becomes a little more cloudy.
Canadian Mortgage Debt Is Growing At An Unusually Slow Pace
Following an unprecedented borrowing spree, Canadian credit growth has been slow. Annual growth of household credit came in at 3.6% in July, with mortgages reporting 3.5% over the same period. From a historical perspective, this is an unusually slow rate of growth—even the Great Recession managed to hold above the 4 point mark. It’s odd, even before we consider this slowdown is occurring with the population continuing to grow at a breakneck speed (in theory).
“Rare has been the day that growth has been both this calm—it has been locked in a range just below 4% for two years now—and this mild—it hasn’t been this slow in more than two decades,” explains Douglas Porter, chief economist at BMO.
Source: BMO Capital Markets.
Adding, “And, after running far above inflation for twenty years, it’s basically been in line with price gains recently.”
Canadian Mortgage Debt To Grow In 2025, But Don’t Expect A Boom
The slow growth for Canadian mortgage debt isn’t expected to persist for long. Cheaper credit is almost a certainty at this point, and policymakers are hell bent on stimulating more borrowing. In addition to increasing credit capacity with extending amortizations, the country has also made mortgage credit growth a part of its fiscal policy.
“…this becalmed situation may change in 2025. The combination of falling interest rates and the new mortgage rules could firm the housing market, in turn juicing mortgage growth,” warns Porter.
However, the bank isn’t entirely convinced a market boom is around the corner. “At this point, we’re not expecting a big run-up in mortgage balances in 2025, but they do seem poised to turn higher. That’s a very different picture than the so-called mortgage cliff many were previously fretting over,” he says.
The bank didn’t elaborate on why they’re not expecting a run up. They previously expressed concern regarding the economic headwinds forming, such as a massive surge in youth unemployment. It doesn’t matter how cheap credit is if buyers have no income. There are also fewer effective paths to stimulus, as the labor market is already dependent on government stimulus. In addition, policymakers have already begun using hundreds of billions in stimulus to prop up home prices, including subsidized loans, multi-generational repayment terms, and larger state-backed insurance caps to mitigate delinquencies.
I can’t tell if them throwing this much at the market and it’s still not responding is evidence they’ll go to any extreme, or they’ve reached the point where even free money isn’t enough to take on the risk.
My favorite bailout attempt is 30 year mortgages for investors. Complete clown show. Obliterating every other industry just to justify giving cash to their friends.
Canada can’t learn lessons about leverage because it may appear to be a real country, but it’s just a million corporate subsidies in a raincoat.
Good piece, as always. Any chance we can get some more coverage of the HSBC loans, Daniel? It seems to have just slipped away from everyone’s mind suddenly.
Is still possible to get more info on the HSBC mortgages? I assumed they would be repackaged and mixed in with RBC’s underwriting (which is normally very high quality).
So to make this simple. The BoC had a very stimulative program from 2009 – 2015. From 2015-2023 the m3 grew by 150%. The gdp per capita didn’t change at all. S o all that stimulus of zero rates, housing price inflation was completely unbalanced since 2015. Simply, there was 2.50 in 2023 for every 2015 dollar. If we didn’t see that impacting gdp per capita,it means that the BoC, big6 banks, the federal govt were actively DILUTING the money supply to maintain ultra high housing prices, car prices, stock price to create the illusion of growth.
So when Freeland blames inflation on Russia, the USA, Disney or loblaws, the reality it was the liberal party, Canada’s banking cartel, our ‘news media’ and the bank of Canada that did all of this. As Friedman said in 1963, ‘inflation is always and everywhere a monetary phenomenon’
Now some have questioned the validity of this statement, since inflation is almost always caused by a price shock in one area – energy, food, that starts a period of inflation.
Th problem is if the economy is not using the money supply growth to sell debt, the price shock would be temporary, while inflation results in widespread price and wage increases. So we have a monetary create inflation bubble in housing, car sales, stocks, etc. There are two ways to fix that. Prices of collateral go back to fair value (remove the printing driven by credit vs value) which would mean the gta and gvr need a 40-50% drop. The second is prices stay high, but wages go way way up.
In Toronto, a nd Vancouver the income gap for buyers is 100k per year today? Now even if the BoC drops rates from 4.25-3.25 by the end of the year, and allows 30 yr amatorizations, that will only bring the income gap 15-25% closer. So housing will still be massively overpriced, we will have left 28M Canadians at the mercy of a few banks and the govt.
The reason BMO isn’t seeing growth in 2025 is that all the big banks have moved away from single line customers, and are using this pause to get rid of garbage mortgages and improve credit quality. Why? Well sooner or later those prices will collapse, and any bank caught with too much bad debt will be cannibalized.
The housing market in Canada A con game perpetuated by banks and real estate agents.