Canadian Mortgage Credit Remains Flat Despite Rising Home Prices

Canadian households are split between those deleveraging and those continuing the borrowing spree. Bank of Canada (BoC) data shows outstanding mortgage credit was virtually flat in February. Not as bad as contracting, which is a rare event in Canada. However, prior to the past two months, mortgage credit hasn’t moved this slow in well-over a decade.

Canadians Owe Nearly $2.1 Trillion In Mortgage Debt

Canadian mortgage debt has been moving at an unusually slow pace. The outstanding balance hit $2.09 trillion in February, virtually flat from a month before. It was the second consecutive month with nearly non-existent growth. Prior to the past two months, one has to go all the way back to 2011 in order to find such low growth. 

Canadian Mortgage Debt Hits A New Record High

The outstanding balance of Canadian residential mortgage credit owed to institutions.

Source: Bank of Canada; Better Dwelling.

Canadian Mortgage Debt Returns To More Stable Annual Growth

Annual growth has returned to more stable levels, though still elevated. The 12-month change in outstanding mortgage credit is 5.9% ($116.3 billion) higher than last year. Certainly higher than inflation, but the lowest rate reported since March 2020. It’s worth emphasizing that growth was accelerating back in March 2020, but it’s now in a phase of deceleration. 

Canadian Mortgage Debt Growth

The annual growth rate of Canadian residential mortgage credit.

Source: Statistics Canada; Better Dwelling.

It Was The Slowest 3 Months Since The 2001 Recession

Isolating the past few months shows just how much borrowing has slowed in recent months. The 3-month annualized rate of growth was just 0.3% in February, meaning if this continued at the same level of growth for a whole year, it would hit just over flat. Canada hasn’t seen mortgage credit fall to this level since the 2001 recession. Expect annual growth data to keep grinding lower in the near-term, despite rising home prices. 

The picture might be somewhat confusing in contrast to what you would expect from recent news. As home prices rise, credit growth typically accelerates—which hasn’t been the case. Purchasing volume is so low that it’s barely keeping up with the number of borrowers paying off their debt. A handful of exuberant buyers are enough to push prices higher in a low volume environment. It won’t be clear that’s the case if inventory starts to loosen, since higher interest rates have throttled the easy money. 

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