🏠💵 Slow Mortgage Growth Continued as Homebuyers Remained on Sidelines

Tuesday, 05 November 2024 10:21.AM

Canadian residential mortgage debt increased 3.5% year over year in July 2024, reaching 2.2 trillion. This historically slow mortgage debt growth was the result of many potential homebuyers remaining on the sidelines for much of the year, driven by high borrowing costs and elevated home prices. This is according to the Canada Mortgage and Housing Corporation's (CMHC) latest Residential Mortgage Industry Report (RMIR), which analyses the most recent trends in the residential mortgage industry.

The expectation of lower mortgage rates in the short-term, as the Bank of Canada (BoC) moves forward with policy rate cuts, was another factor that had prospective homebuyers waiting to purchase mortgages in the first half of 2024. Although currently below recent and historical averages, mortgage debt growth was higher than inflation and could increase further in an environment with more affordable financing, as recent outlooks from the Canadian Real Estate Association (CREA) have shown an uptick in home sales after each policy rate cut by the BoC.

1.2 million fixed-rate mortgages up for renewal in 2025

Of the approximately 1.2 million fixed-rate mortgages up for renewal in 2025, representing over $300 billion, over 85% were originally contracted when the Bank of Canada policy interest rate was at or below 1%. These renewals at higher interest rates and already high household debt levels are being closely monitored by the financial industry and policymakers, including through the announcement of the new Canadian Mortgage Charter in the 2023 Fall Economic Statement.

Although the mortgage delinquency rate rose from 0.17% in Q4 2023, to 0.19% in Q2 2024 it still has not reached pre-pandemic levels and remains well below the historic average since 1990. The uptick in mortgage delinquencies aligns with increased delinquencies among other leading indicators such as car loans and other credit products. However, mortgage holders have seen a significantly smaller rise in delinquency rates in these loan products than non-mortgage holders.

More mortgages going towards investment properties

Based on the regulatory filings of chartered banks, the most common reason for a mortgage loan is to obtain an owner-occupied property. However, this share has been decreasing since 2019. In Q3 2019, 75% of newly extended mortgages were for owner-occupied properties. In Q3 2023, that share had fallen to 70%.

Canadian real estate is widely viewed as a strong investment, backed by strong market fundamentals and housing demand. The strong demand for rental housing is supporting heightened investment in rental units. The decrease in mortgages for owner-occupied properties has been replaced by increased mortgages for investment and rental properties, which rose to 17% of total mortgages in Q3 2023, compared to 13% in Q3 2019.

"Mortgage debt growth remained below average and shorter mortgage terms stayed popular through the first half of the year as homebuyers and those renewing mortgages anticipated lower interest rates. The Bank of Canada's consecutive rate cuts since June, including a 50-basis point cut in October, may spark an uptick in mortgage activity through the rest of 2024 and into 2025."
-Tania Bourassa-Ochoa, CMHC Deputy Chief Economist

SOURCE: Canada Mortgage and Housing Corporation (CMHC)