A new marketplace activity update indicates residential mortgage debt levels in Canada saw their softest year-over-year growth in 23 years.
According to the Canada Mortgage and Housing Corporation (CMHC), such debt levels now hover at $2.16 trillion as of February 2024, representing a year-over-year uptick of 3.4%. But the slowdown in mortgage growth may not last for long.
CMHC anticipates higher home sales and prices over the coming years as a result of forthcoming drops in mortgage rates, continued strong population growth, and increases in real disposable income.
In the first two months of 2024, there were “noteworthy” increases in the discount for fixed-term mortgages, which represents a reversal of the patterns from the second half of 2023. Analysts believe lenders expect potential rate cuts by the Bank of Canada to occur sooner than anticipated and are looking to lock in mortgages at relatively high rates.
Terms between three years to under five years are still the most popular choice, accounting for nearly 40% of all lending by federally regulated financial institutions in February 2024. Variable rate mortgages accounted for 15% of all lending, which represents an increase after the proportion of this type dropped to record low levels in Summer 2023.
All the while, there has been an increase in mortgage delinquency rates, although this trend follows record lows and overall delinquency rates remain low. But CMHC states high household debt remains a vulnerability to Canada’s financial system, with 75% of household debt attributed to mortgages.
“Combined with interest rates remaining unchanged, this has increased debt-servicing costs. The combination of higher cost of living and increasing debt-servicing costs has significantly affected households’ budgets over the past year. In this context, the already elevated high household debt poses considerable risks to financial stability,” reads CMHC’s report.
According to CMHC, a household that has missed its mortgage payment for over three months is likely to have been experiencing periods of financial stress for a longer time, as homeowners often prioritize mortgage payments over other debt payments and non-essential expenses.