Canadian mortgage load growth slowing down to record low

Fortunately, other important factors are staving off the risk of a housing crash

By Ephraim Vecina

05 Dec. 2018

October data from the Bank of Canada showed that the national mortgage market experienced one of the slowest months of growth on record, clocking in at just a 3.4% year-over-year increase.

This is already inching dangerously close to the historically lowest levels of below 3.2%, last seen on April and May 2001, according to a Better Dwelling analysis of the figures.

Moreover, the BoC data indicated a trend that this pace is expected to further grind towards a relative crawl. As of October, the 3-month annualized pace of growth (at just 1.9%) was more than 40% lower than the annual growth.

Fortunately, other fundamentals are mitigating the risk of a subprime housing meltdown, if a new study by Chartered Professional Accountants of Canada (CPA Canada) is to be believed.

The CPA report noted that one of the leading causes of the U.S. crash was the prevalence of subprime mortgages issued to borrowers who are unable to prove that they can repay debts – a substantially different case compared to the Canadian context, where the number of high-credit-quality borrowers has grown from 66% in 2002 to 88% in 2017.

According to the CMHC, the proportion of low-credit-quality consumers also fell from 17% to just 3% during the same period.

“Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure: credit quality,” CPA Canada chief economist Francis Fong said.

“The situation in Canada is likely not a bubble in imminent danger of deflation; in fact, housing prices may reflect the true value of living space in Canada and in some markets increased household debt may be the new price for real estate.”