Canada’s economic recovery has hinged on real estate, and mortgage debt highlights it. Data from the Bank of Canada (BoC) shows mortgage debt slowing in growth in December 2021. However, slowing at the current annual growth rate might not look like much, growing at double the rate of GDP. Mortgage debt has grown so fast, it’s nearly reached the size of the country’s economic output.
Canadian Mortgage Debt Reaches $1.94 Trillion
Canadian mortgage debt hit a new record, and growth remains very high. The outstanding balance of mortgage credit reached $1.94 trillion in December. This is 0.5% ($10.4 billion) higher than a month before and 10.4% ($182.2 billion) higher than the same month a year ago. For context, the annual growth in mortgage debt is the equivalent of double the GDP of Luxembourg. It’s a lot of debt.
Canadian Residential Mortgage Debt
The outstanding balance of Canadian residential mortgage debt held by institutions.
Source: Bank of Canada; Statistics Canada; Better Dwelling.
Mortgage Debt Growth Might Have Reached Peak
Annual growth is still in the double digits, which is very high for a country with single-digit GDP growth. The rate was just under the previous month’s growth, but 20 basis points below the peak of this cycle in August 2021. Stat Can attributes the “relatively slower” growth to slowing home price growth. They use their own proprietary index though, which conflicts with board data.
Canadian Residential Mortgage Credit Growth
The 3-month (annualized) and 12-month rate of growth for Canadian residential mortgage credit.
Source: Bank of Canada; Statistics Canada; Better Dwelling.
Mortgage debt is slowing according to short-term measures. In December, the 3-month (annualized) growth rate fell to 8.1%, falling from 14.0% in June 2021. If the 3-month falls below the 12-month trend, it means growth is slowing. Without a sudden boost to reverse the trend, this can mean a more modest pace of mortgage growth is in the cards.
Canadian Mortgage Debt As A Share of GDP Has Reached 96%
Canada’s economy has been largely dependent on housing for its economic recovery. It’s become painfully obvious, with the pace of mortgage to GDP growth. December GDP isn’t final, but Stat Can estimates it will show virtually no change. Using the estimate, mortgage debt as a share of GDP was 96.3% in December. The growth advanced 14 points faster than January 2020. Just five years ago, the share of mortgages was only 76.2%. Ten years prior, it was only 62.8%. It’s remarkable to think mortgage debt has persistently grown faster than GDP for so long, yet not raised any flags.
Canadian Residential Mortgage Credit As A % of GDP
The size of Canada’s outstanding mortgage credit expressed as a percent of gross domestic product (GDP).
Source: Bank of Canada; Statistics Canada; Better Dwelling.
Most people are focused on the ability to repay this debt, but they’re missing the point. Borrowers are tested for the ability to repay a mortgage at a higher rate, so defaults are unlikely. There are also many resources to pay back mortgages, mitigating the odds of default. The odds of catastrophic failure for homeowners is very slim, so that’s not the issue.
The issue is the long-term impact of households being so highly indebted relative to the scale of the economy. US Federal Reserve research shows for every point of debt to GDP gained, 0.3 points of long-term GDP growth are lost. As households load up on debt, they’ll be able to repay debts but won’t have as much cash to spend. The higher these debt levels, the more capital is diverted from productive to non-productive spending.
How much interest is that? Rates are low but banks are clearly making it up on volume and then some .
This is why they’re trying to load up on more people. They don’t have growth without finding new debtors. You can’t taper a ponzi scheme.
Speaking theoretically, imagine what happens if it goes all 1991 and immigrants decide they’re going to dip?
Canada’s relentless focus on immigration does seem like Ponzi demography. Canada makes money to pay for gov’t benefits by adding on more and more (preferably young) immigrants who can work and fund expensive social programs via tax dollars. There are benefits to immigration, of course, but the costs are real too.
Don’t worry. Immigrants will come and keep pushing prices up. It doesn’t make sense that immigrants who make less than locals will be the people who drive home price growth, but that’s what my Realtor said.
This has always been one of the funniest points people make. Like immigrants are endless pools of money that just keep coming regardless of how bad affordability becomes. What happens when those other countries become more developed?
“Borrowers are tested for the ability to repay a mortgage at a higher rate, so defaults are unlikely”
Yeah right I know people who couldn’t get a mortgage through the front door of the bank based on thier salary. They found the back door of the same bank through a broker and getting million plus mortgages. I’m sure they had them pass any stress test thrown at them.