Over just a few months, Canada went from fears of overleveraged borrowers to trying to stimulate borrowing. That was the take from BMO Capital Markets, who took a look at the slower-than-normal growth for mortgage debt. In a report sent to investors, the bank’s chief economist explains they expect healthier levels of borrowing by next year. The bank doesn’t see a booming market though, as the economic picture becomes a little more cloudy.
Canadian Mortgage Debt Is Growing At An Unusually Slow Pace
Following an unprecedented borrowing spree, Canadian credit growth has been slow. Annual growth of household credit came in at 3.6% in July, with mortgages reporting 3.5% over the same period. From a historical perspective, this is an unusually slow rate of growth—even the Great Recession managed to hold above the 4 point mark. It’s odd, even before we consider this slowdown is occurring with the population continuing to grow at a breakneck speed (in theory).
“Rare has been the day that growth has been both this calm—it has been locked in a range just below 4% for two years now—and this mild—it hasn’t been this slow in more than two decades,” explains Douglas Porter, chief economist at BMO.
Source: BMO Capital Markets.
Adding, “And, after running far above inflation for twenty years, it’s basically been in line with price gains recently.”
Canadian Mortgage Debt To Grow In 2025, But Don’t Expect A Boom
The slow growth for Canadian mortgage debt isn’t expected to persist for long. Cheaper credit is almost a certainty at this point, and policymakers are hell bent on stimulating more borrowing. In addition to increasing credit capacity with extending amortizations, the country has also made mortgage credit growth a part of its fiscal policy.
“…this becalmed situation may change in 2025. The combination of falling interest rates and the new mortgage rules could firm the housing market, in turn juicing mortgage growth,” warns Porter.
However, the bank isn’t entirely convinced a market boom is around the corner. “At this point, we’re not expecting a big run-up in mortgage balances in 2025, but they do seem poised to turn higher. That’s a very different picture than the so-called mortgage cliff many were previously fretting over,” he says.
The bank didn’t elaborate on why they’re not expecting a run up. They previously expressed concern regarding the economic headwinds forming, such as a massive surge in youth unemployment. It doesn’t matter how cheap credit is if buyers have no income. There are also fewer effective paths to stimulus, as the labor market is already dependent on government stimulus. In addition, policymakers have already begun using hundreds of billions in stimulus to prop up home prices, including subsidized loans, multi-generational repayment terms, and larger state-backed insurance caps to mitigate delinquencies.
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