Canada’s central bank has been slashing rates to get households to borrow, and mission accomplished. Statistics Canada (Stat Can) data shows household debt climbed aggressively in February. Growth may seem slow relative to the recent low rate frenzy, but debt is being racked up at twice the rate seen in 2019. Despite weak home sales, growth is driven by mortgages—implying the boost is coming from new home completions and cashing in equity via refinancing.
Canadian Households Owe More Than $3 Trillion
Canadian household debt: In trillions of Canadian dollars.
Source: Statistics Canada; Better Dwelling.
Canadian household credit continues its climb into the stratosphere, despite rising trade tensions. Household debt climbed 0.2% (+$6.2 billion) to $3.04 trillion in February. Despite higher interest rates and trade tensions, the monthly growth rate doubled 2019’s rate, when neither problem applied. There were signs of growth, but it was relatively slow compared to what we’ve become accustomed to.
Canadian Mortgage Debt Grew 2x Faster Than Pre-Pandemic
Canadian consumer and mortgage credit growth rate for February. In percentage points.
Source: Statistics Canada; Better Dwelling.
Household debt is comprised of mortgage and consumer credit, so let’s break this down. Mortgage debt advanced 0.2% (+$5.2 billion) to $2.27 trillion in February, marking the biggest move in 3 years for the month. It was also nearly 2x the move seen in 2019, so it was only a slow month compared to 2020’s low rate frenzy. Mortgage debt is about 106% of GDP, which starkly contrasts with global peers like the US (~67% of GDP).
Consumer borrowing isn’t nearly as healthy. The segment grew 0.1% (+$0.9 billion) to $776.9 billion in February, the month’s weakest advance since 2013. Since consumer borrowing is a sign of consumer confidence, this is a worrying sign. The sharp deceleration can be attributed to the tariffs for now, but this segment has been generally weakening over the past few years.
Household debt shows healthy growth and it’s almost entirely due to mortgage borrowing. Mortgage credit was overrepresented as a share of the month’s total, representing 84% of the debt added vs the 75% it normally represents. Despite weak existing home sales, mortgage debt is showing brisk growth. It’s fair to assume a lot of this is coming from the flood of recent completions of pre-construction units across the country.
Canadian Household Debt Reliant On Mortgages, Risk Amplified
Canadian household debt: Annual growth in percentage points for February.
Source: Statistics Canada; Better Dwelling.
Household debt has been relatively slow over the past year, but year over year (YOY) growth is firming. February’s 4.2% (+$121.6 billion) YOY advance will seem slow against the 7.2% YOY average from 2021 to 2024. However, don’t let that distract from the fact it was the fastest annual growth rate in over two years. It was on par with growth observed in 2019, even though the debt pile has grown 40% since then. Bigger numbers are harder to grow in theory, but Canada clearly has the top people around the world trying to figure out how to defy the physics of a credit bubble.
Canadian Household Debt Annual Growth Higher Than 2019
Canadian household credit: Annual growth rate.
Source: Statistics Canada; Better Dwelling.
Breaking that number down, we once again see robust mortgage growth driving the balance. Mortgages saw annual growth of 4.5% (+$96.6B) in February, the highest rate in nearly two years. Once again, this is relatively small in contrast to the zero-rate binge from 2020 to 2023. However, it’s bigger than this timeframe in 2019—even with a much bigger balance of debt.
On the other side of the balance, consumer credit continues to grind lower. Annual growth came in at +3.3% (+$25.1B) in February, marking the slowest advance for the month since 2021. This data further reinforces the belief that consumer confidence remains weak, and rising unemployment is taking its toll.
Canadian household borrowing remains robust, just not in contrast to the zero rate boom. Mortgage growth continues to dominate as the primary driver, despite weak existing home sales. Rates were only elevated long enough to cause a pause, but did not do much for resolving leverage. As a result, the systemic risk presented by mortgages, which represent 75% of total debt, persists and continues to amplify as a larger risk. Other housing debt-heavy advanced economies aren’t even in the same league (US:65%; Germany: 55%).
