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Canadian mortgage credit fell to a level that might make policymakers uncomfortable. Bank of Canada (BoC) data reveals that outstanding mortgage credit climbed in June. However, it wasn’t enough to reverse the trend of decelerating growth. The last time the rate fell this low, mortgage liquidity injections were already in the works to stimulate borrowing.
Canadian Mortgage Credit Reaches A New High
Canadian mortgage credit is still astronomically large and growing by the day. June saw the outstanding balance rise 0.5% (+$10.4 billion) to reach $2.13 trillion. It represents a 3.8% (+$78.4 billion) increase compared to the same month last year. These are all very large numbers, but the growth is relatively small compared to recent years.
Canadian Mortgage Credit Growth
The annual rate of mortgage and non-mortgage credit growth for households in Canada.
Source: Statistics Canada; Better Dwelling.
Canadian Mortgage Credit Growth Continues To Slow
Even as interest rates surged last year, the growth was nearly double in dollar value. A $10.4 billion increase in June was roughly half the size seen in 2022 (+$20.6 billion), and 2021 ($25.6 billion). However, it was much larger than the $8.4 billion observed in 2019, indicating the current environment isn’t all that restrictive compared to pre-2020.
Canadian Mortgage Debt Had A Slow Month
Monthly change of outstanding mortgage credit in Canada, in billions of Canadian dollars.
Source: Statistics Canada; Better Dwelling.
Annual growth continues to decelerate, momentum continues to fade in contrast to last year. The 3.8% growth was the smallest since February 2019, and only persisted for a single month. It’s a rate notably smaller than the average mortgage interest rate, and one has to go really far back to see such microscopic growth.
Mortgage Growth Got Liquidity Injections Last Time It Hit This Rate
High mortgage credit growth is problematic, but so is a low level of growth. On one hand, it’s not great to see households persistently take on huge amounts of debt. On the other, economies built around rapid credit growth require a slowdown and adjustment when credit slows too much.
Back in 2019, when annual growth fell to this level, the central bank began liquidity injections. This helped to bring down financing costs, and reignite a borrowing trend. It also managed to help home price growth return to acceleration once borrowing recovered, right before the 2020-rate cuts.
Of course, things were a little different back then. Inflation wasn’t out of control, and the deceleration of growth wasn’t following one of the biggest booms on record. However, it’s important to note this is likely a level that Canada’s policymakers are uncomfortable with. They also usually don’t consider demand-side stimulus to be a driver of home prices. Instead, the demand stimulus is often sold as an affordability solution.
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