Higher interest rates are slowing mortgage borrowing but debt is still growing fast. Bank of Canada (BoC) data shows outstanding mortgage credit climbed in May 2022. Falling home sales are beginning to erode the pace of borrowing. Even with the minor slowdown, mortgage debt is likely to surpass the size of GDP soon.
Canadian Mortgage Debt Is The Equivalent of 98% of GDP
Canadian outstanding mortgage debt is reaching astronomical levels. Households owed $2.01 trillion of residential mortgage debt in May. It was 0.9% (+$17.4 billion) higher for the month, and 10.1% (+$185.0 billion) above the balance last year. It sounds like a lot of debt, but just how big is it? Mortgage debt is now 98% the size of GDP at basic prices.
Canadian Residential Mortgage Debt
The outstanding balance of Canadian residential mortgage debt held by institutions.
Source: Bank of Canada; Better Dwelling.
Annual Growth Is Slowing But Still Remains Unusually High
Mortgage growth is slowing but remains very high. Annual growth for May is 0.8 points lower than the peak reached in February 2022. Prior to 2021, annual growth hadn’t been this high since 2008, so this isn’t exactly slow per se. It’s just slower than it was over the past couple of years. Being nearly the size of GDP and growing at multiples of the rate, mortgage debt should eclipse GDP soon.
Canadian Residential Mortgage Credit Growth
The 3-month (annualized) and 12-month rate of growth for Canadian residential mortgage credit.
Source: Bank of Canada; Better Dwelling.
More Recent Growth Shows Home Price Growth Is Slowing
The 3-month (annualized) trend confirms recent growth is largely decelerating. Typically this growth cycle bottoms in February and peaks from June to August. Since the 3-month annualized growth rate was only at 9.0% in May, it’s unlikely to see it surge past the 14.1% seen in June 2021. Lower highs and lower lows are a textbook indicator of a slowdown already here. Indicators are just lagging.
Research shows mortgage debt rising above 70% of GDP leads to reduced output. This is problematic for Canada, considering it’s about to overtake GDP at a much faster rate. The brief boost the economy received from the boom is likely to turn into a long-term drag.
