Mortgage Credit in Canada Remaining Flat Despite Increases in Home Prices

Published April 24, 2023 by Real Estate Leads

Building on your knowledge base is beneficial for every real estate agent, and there’s now way you’re going to come out of your licensing course knowing absolutely everything. Newer realtors can do well for themselves to expand on their bases with the right mix of speed and thoroughness, but the second part of that is always going to be more important. Mortgage credit is when a new homeowners can use a certificate to receive a tax credit on a percentage of the interest paid on their mortgage for that tax year.

That’s only a brief overview of what mortgage credit involves, but it’s among the many things that realtors can appraise first-time homebuyers of when they’re close to making the purchase of their first home. This sort of information shared can do wonders for presenting you as the insightful realtor these folks will work with both now and in the future if need be, so it makes sense to be as helpful as possible. And if you’re a newish realtor who needs to build up that clientele in the first place then our online real estate lead generation system here at Real Estate Leads may make a big difference.

But back on topic, the fact that mortgage credit in Canada continues to stay relatively flat despite median home prices going up is noteworthy for a number of reasons, and that’s what we will look at with this week’s entry here.

Deleveraging vs Increased Borrowing

Among Canadian households, the majority are split between those deleveraging and others who aren’t dissuaded from continued borrowing to whatever extent needed to buy a home(s). Data from the Bank of Canada indicates that for February of this year outstanding mortgage credit was virtually flat. And what is even more noteworthy is that prior to the past two months mortgage credit hasn’t progressed upwards this slowly in well over 10 years.

Then we add to that the fact that nearly 2.1 Trillion dollars is owed in mortgage debt by Canadians, and having that type of debt total but having it moving at such a slow pace is unusual. The outstanding balance of $2.09 trillion for February was pretty much what we saw from March to April and where we are right now – virtually flat from the month previous and a repeat of the period before it. This was also the 2nd consecutive month with nearly non-existent growth. You’d need to back 12 years to 2011 to find such stunted growth.

At the same time annual growth has returned to more stable levels, but it’s still on the high side. The 12-month change in outstanding mortgage credit is 5.9% ($116.3 billion) higher than it was for 2022. This rate exceeds inflation – and that’s noteworthy for its own set of reasons – but again it is the lowest rate reported since March 2020. Growth was accelerating back in March 2020, but 3 years on its decelerating, albeit slowly and inconsistently.

Slowest 90-Day Period Since 2001 Recession

Industry experts have made vocal notes of just how much borrowing has slowed in recent months. The 3-month annualized rate of growth for February was just 0.3%. If such a rate was to continue at the same level of growth for a whole year, it would end being ever-so-slightly above flat. Since 2001 we haven’t seen mortgage credit fall to this level since the recession of that year and those same experts expect annual growth data to keep grinding lower in the near-term. House prices may be rising, but the decrease continues despite going against the way that should work.

As a summary, what we believe we’re seeing here is a contradiction of the standard workings where as home prices rise, credit growth typically accelerates. That’s not happening now, or perhaps anymore. Purchasing volume is low to the extent that it is struggling to keep up with the number of borrowers paying off their debt. Even if inventory starts to loosen, higher interest rates have taken the strength out of the easy money from years previous will counter a lot of the benefit that might come from that in normal circumstances.


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