Canadian mortgage debt is swelling, despite the freeze on home sales. Bank of Canada (BoC) data shows mortgage credit made the biggest jump in a decade for April. The rise is somewhat unusual, since dollar volumes for home sales haven’t increased much. Even though resale and new home markets have slowed due to the pandemic, mortgage debt is showing huge growth.
Canadian Mortgage Credit Rises To Multi-Year High
Residential mortgage credit outstanding is pushing higher, and at a very rapid pace. There was $1.65 trillion in mortgage credit outstanding in April, up 0.60% from the previous month. This represents a 5.8% increase when compared to the same month last year. That’s very high growth for the past few years, and even more so during a pandemic.
Canadian Outstanding Mortgage Credit
Source: Bank of Canada, Better Dwelling.
In fact, the rate of growth for both the monthly and year-over-year numbers are the highest in a long time. The monthly increase of 0.60% is the biggest for April since 2009. The 5.8% is the highest year-over-year growth since August 2017. Part of this is due to mortgage deferrals – over one in ten mortgages are no longer making payments. If there’s no payments to reduce the balance, the total swells more easily. The year-over-year comparison is also to a period of unusually low growth.
Mortgage Credit Growth Expected To Continue Rapid Expansion
Even with the fast rate of growth, there’s indication credit growth will continue to speed up. The 3-month annualized rate of growth spiked to 7.4% in April, making a sharp increase from last month’s 6.5%. This is the highest 3-month annualized rate of growth since October 2011. Since the 3-month annualized rate leads the year-over-year, this means expect more growth. Although it doesn’t necessarily mean a rapid economic expansion, like it typically would.
Canadian Outstanding Mortgage Credit Change
Source: Bank of Canada, Better Dwelling.
Mortgage credit growth accelerating while home sales are on hold is an odd dynamic. Credit growth acceleration is usually considered a positive. A nod to both the amount banks are lending, and consumers confident enough to borrow. However, the data and narrative are contrary this time, creating a bit of an issue.
Mortgage deferrals are behind a significant portion of the balance increase. Payment deferrals on insured mortgages are at 12% of mortgages, and expected to rise to 20% by September. The total market is currently seeing about 15% of mortgages on payment deferral. This means many mortgages are seeing balances rise due to a lack of payment, instead of new borrowing. Exiting debt rising in part to much more interest accumulation, is a little different from new debt creation.