Reports from the Bank of Canada (BoC) have shown the consistent drop in mortgage credit growth continue in October—meaning Canadians are being far more cautious when it comes to the real estate market. Such meager growth has only been matched by two months throughout the past three decades and will sink even lower.

Canadian Mortgage Debt a Startling $1.53 Trillion

Having jumped 0.24% up to $1.53 trillion from September to October, the outstanding mortgage credit balance has reached record heights in Canada. The 3.2% increase from last year equates to $47.4 billion which is deceptively low for Canada.  

Outstanding Mortgage Credit in Canada

There have only been two months – April and May 2001 –  out of the last 30 years when the annualized rate of mortgage credit growth has sunk lower than 3.2%, meaning the snail-like pace is among the slowest in Canada’s history.

In contrast with today’s climate, rates were 80% in 2001—meaning Canadians had access to remarkably less borrowed funds and less ability to increase household debt. Plus, the rate cut in 2001 sent falling growth rates back on the rise. In present day with two looming rate hikes on the horizon, more growth declines have been projected with short-term numbers similarly displaying more declines.

Growth to Continue Shrinking

With a 1.9% 3-month annualized pace of growth, Canadian’s mortgage credit is over 40% less than annual growth and is expected to keep shriveling.

Annualized short-term trends (short-term measurements projected as a year) estimate what path growth is going to travel. As such, the current 3-month period needs to increase and maintain a number above the 12-month for there to be an increase in this number—a highly unlikely scenario heading into the winter.

A Shift in Canadian Outstanding Mortgage Credit

Lenders won’t feel stifled by this drop in growth. Still, it’s crucial to liquidity because less growth generally acts as a catalyst to more rigid lending rules which decreases liquidity. Less liquidity means more defaults and a rise in borrowing rates. Higher rates lessen the capacity of credit which pushes negative price growth.

What will it take to speed up the rate of growth for mortgage credit in Canada?