Canadian home buyers appear to have taken the summer off, ignoring the first round of central bank easing. Bank of Canada (BoC) data shows household mortgage credit advanced in June. Annual growth took a step back however, as rate cuts failed to stimulate new credit demand as much as anticipating those cuts previously had.
Canadian Households Have Over $2.19 Trillion In Mortgage Debt
The outstanding balance of residential mortgage credit owed by Canadian households.
Source: Bank of Canada; Better Dwelling.
Canadian mortgage credit remains astronomical in contrast to the size of its economy. Outstanding mortgage credit climbed 0.50% (+$10.98 billion) to $2.19 trillion in June. The balance has climbed 3.45% (+$73.18 billion) since last year, a huge number in dollar terms, but a sharp pullback from the month prior.
Canadian Mortgage Credit Is Growing At An Unusually Slow Rate
The annual change in the balance of residential mortgage credit owed by Canadian households.
Source: Bank of Canada; Better Dwelling.
Annual growth remains unusually low for Canada, and may be heading lower. The 3.45% rate reported in June was slightly smaller than the month prior, and sits just 0.05 points above January’s multi-decade low. Just five months ago, annual growth advanced at the slowest rate since 2001—and it may head even lower.
The BoC’s first cut in this easing cycle occurred at the start of June, but didn’t provide much in terms of credit. In fact, some may recall that annual growth advanced in May ahead of the cut, only to pull back in the following month. The increase may have been noise, as FOMO buyers rushed to get ahead of any anticipated boom from cheaper credit, however, that boom didn’t materialize in June.
Experts are divided on whether the recent rate cuts are enough to stimulate borrowing. When delivering the cut in July, the BoC explained they anticipate an increase in residential investment (a.k.a. real estate investment). They didn’t quite clarify why though, and it might be worth remembering a part of the BoC’s job is to manage expectations—stimulating borrowing when it’s weak.
At the same time, other experts don’t see a near-term borrowing boom after recent cuts. Affordability is so stretched that Big Six Bank economists don’t see cuts this year doing enough to pick up the market. Either prices need to come down, incomes soar, or rates need to be slashed a lot more before it stimulates new buyers. As a result, no significant boost to demand is expected until next year.
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