Canadian Mortgage Debt Slowing, but Growth Still High in Historical Context

Published September 26, 2022 by Real Estate Leads

Before anyone is quick to jump on the word debt and chastise anyone for their lack of financial smarts, there are very few if any of us who pay the entire price for a home all at once and immediately after purchasing it. Those folks are out there, but the vast majority of us will take on a mortgage to pay for our homes. Is that a much riskier move than ever before though? You could certainly make the case for that with ongoing rises to the BoC’s interest rate and then how median home prices have been falling recently. But people need places to live, and that’s a permanent reality.

So when we look at Canadian mortgage debt as its own entity, any staggering number figures need to be understood in the context of the many hundreds of thousands who own a home but don’t own it in its entirety yet. We’ve talked about how fewer homes are going onto the market all across Canada these days because lowered values mean owners who can wait for the pendulum to swing the other way are doing just that. That is paired with more demand than ever though, and so it’s not an ideal situation.

The Bank of Canada has recently announced that outstanding mortgage credit reached a new high earlier this summer, and one thing that is also true about interest rate hike is that they shrink borrowing capacity at the same time. Though it’s not a major one, this factor is among many that may be making it difficult for people working in real estate as compared to years previous. If that’s true of you and working as a realtor then our online real estate lead generation system here at Real Estate Leads is certainly something you should consider.

Let’s look at this high consumer mortgage debt in more detail, because it does factor into whether or not people are willing to move forward with buying a home.

Trillion Mark X 2

What we’re looking at here is how higher interest rates are throttling industry growth, and watching as borrowing credit capacity shrinks alongside it. In addition, annual growth is still at a positive level despite the increase in personal mortgage debt we’re evaluating here. The balance of outstanding residential mortgage credit hit $2.04 trillion in July of this year, an increase of 0.6% working out to a valuation of $12.1 billion for the month.

This mortgage debt is $174.7 billion (9.3% yearly increase) larger than it was for summer 2021. As mentioned it’s a record and it is huge growth indeed, but things are slowing down. Gradually, but mortgage debt is not growing as quickly as it was. The consensus is that it is an unusually slow rate.

We see as well that the 0.6% growth in July was the smallest since February, and it is a part of the year where we rarely ever see high sales volumes. In fact, it was unusually slow for any July. Going back to 2022 there have only been 2 years where there’s been less than 0.6% growth.

Growth is still brisk overall though, even as borrowing costs rise. July had the slowest annual growth since May 2021, and that when the mid-pandemic sales boom really picked up steam. It’s down from the February 2022 peak of 10.8%, but it’s still noticeably high.

Canadian Mortgage Rate Credit Going Up

2009 was the last time annual growth was up to this extent, and even then the duration of it was only a little more than a month. Mortgage credit growing at this rate has only occurred prior to recessions in any other instance than that one, and yet here we are the possibility of a recession in the not-too-distant future.

It’s clear that rising rates are putting something of a brake on Canadian mortgage credit, and the workings of that are fairly obvious. It’s fair to say the impact of the full slowdown won’t be seen until later this year, and the fact that many homebuyers aren’t borrowing at the latest rates and instead secured ones any number of months earlier in the year. Once interest rates and inflation stabilize, we should have a clearer idea of how much of an impact these rising rates will have.


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