Canadians Borrowed Another $14 Billion In Mortgage Debt & That’s A Slow Down

Canadian real estate faces several hurdles and those hurdles are about to rise. Bank of Canada (BoC) data shows outstanding mortgage credit climbed substantially in March. It was only the first month of rate hikes, but we’re already beginning to see activity relax. Growth is now off multi-year highs with rising rates and falling sales expected to slow it even more.

Canadians Owe $1.99 Trillion In Mortgage Debt

Canadians have racked up a monumental amount of mortgage debt. The outstanding balance reached a seasonally adjusted $1.99 trillion in March. It’s up 0.7% ($14.3 billion) from a month before and 10.6% ($190.7 billion) from last year. This is an astronomical amount of debt for an economy the size of Canada.

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt held by institutions.

Source: Bank of Canada; Statistics Canada; Better Dwelling.

The number is so large it tends to lose all meaning, but it’s about the size of 97.5% of Canada’s GDP. When the size of mortgage debt is this high, it slows the general economy. Now there’s the potential for expensive housing to cause a recession. 

Annual Growth Remains Elevated But Fell From A Multi-Year High

Annual growth showed a small sign of deceleration but remains high. The 10.6% increase over the past year is 0.2 points lower than in February. February was the strongest annual growth since 2009 — nothing like it for over a decade. That was back when the mortgage debt pile was about half the size.

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.

Recent Growth Indicates A Slowdown Is Already In Progress

Annual growth only slowed a little, but the 3-month annualized trend shows it’ll slow further. Analysts use annualized data to benchmark recent growth against longer-term trends. It involves taking a small period and projecting it as though it were the whole year. If the 3-month trend is higher or lower, annual growth may change as older months move out of the 12-month window. Without it, we don’t know if annual growth is largely at the beginning of the 12-month period or more recently.

The annualized trend indicates mortgage growth is likely to taper further. It came in at 9.1% in March, over 1 point lower than the 12-month growth. It’s also consistently been below the 12-month growth for a few months and pointing lower. This doesn’t change what’s happening, except for a psychological effect. It does show more recent activity is slower than perceived. 

By itself, mortgage data indicates a slowdown might be on the way, but there’s a chance it can be a blip. However, considering other economic factors, it becomes clear a slowdown is likely. Rates are rising further, home sales fell, and inflation is crushing consumers.