Mortgage debt grows slowly, with borrowers opting for shorter terms amid economic uncertainty
Canada Mortgage and Housing Corp. (CMHC) reports the country’s total residential mortgage debt reached $2.16tn in February, increasing 3.4 percent year-over-year.
This marks the slowest growth in 23 years, according to BNN Bloomberg.
The federal housing agency attributes the slower growth to higher mortgage costs and uncertainty about the Bank of Canada’s interest rate decisions, which led to softer home sales and prices in the latter half of 2023.
However, CMHC believes this slowdown in mortgage growth might be temporary. They expect mortgage debt growth to rise amid forecasts of higher home sales and prices in the coming years.
Anticipated declines in mortgage rates, along with population growth and higher disposable incomes, are likely to drive this turnaround.
“Debt levels have never been so elevated, and households are showing increasing signs of financial struggle. Household debt vulnerability is becoming a primary concern,” said CMHC deputy chief economist Tania Bourassa-Ochoa.
“As homeowners find it more difficult to manage their monthly budgets, policymakers and the financial sector are on high alert regarding risks to the financial industry and the economy.”
The report indicates that borrowers prefer shorter-term, fixed-rate mortgages over traditional five-year terms due to uncertainty about the mortgage rate outlook.
Despite significant discounts offered by lenders on five-year, fixed-rate mortgages in early 2024, terms ranging from three to less than five years were the most popular, representing nearly 40 percent of all new mortgages in February. Variable-rate mortgages accounted for 15 percent of new lending.
The national mortgage delinquency rate was 0.17 percent in the fourth quarter of 2023, near historic lows but trending upward for the first time since the pandemic began.
The Big Six banks are gaining a larger share of the market for extended mortgages, increasing their share by 11.8 percentage points in the fourth quarter of 2023 due to more refinances and renewals. Other chartered banks and credit unions saw decreases of 6.9 and 3.1 percentage points, respectively.
“Lenders anticipate potential rate cuts by the Bank of Canada occurring sooner than expected last year and are seeking to lock in mortgages at relatively high rates,” the report stated.
The CMHC report highlights ongoing adjustments in the mortgage market and the challenges homeowners face in managing their finances amidst changing economic conditions.
