Canada's Residential Mortgage Debt Sees Lowest Growth in Decades: CMHC

Canada's Residential Mortgage Debt Sees Lowest Growth in Decades: CMHC
May 30, 2024

The Canada Mortgage and Housing Corporation (CMHC) recently released a report indicating a slowdown in the growth of residential mortgage debt in Canada. According to the report, the total mortgage debt reached $2.16 trillion in February 2024, reflecting a modest 3.4% increase year-over-year. This marks the slowest growth rate in 23 years.

The CMHC attributes this slowdown to two key factors, higher mortgage costs and uncertainty surrounding the Bank of Canada's potential interest rate adjustments. These factors contributed to a softening of the housing market in the latter half of 2023, with both sales and prices dipping across many regions.

Forecast for Increased Growth

The CMHC's prediction of rising mortgage debt in the coming years hinges on several key factors:

  • Decline in Mortgage Rates: The Bank of Canada's interest rate decisions significantly impact mortgage rates in Canada. The CMHC expects the Bank of Canada to lower its key interest rate in the coming years. This would lead to a decrease in fixed mortgage rates offered by lenders, making homeownership more affordable for Canadians.
  • Population Growth: Canada's population is projected to grow steadily over the coming decade, driven by factors such as immigration and birth rates. According to Statistics Canada, Canada's population is expected to reach 41.5 million by 2034, up from 38.5 million in 2023. This growth in population will translate to an increased demand for housing, putting upward pressure on mortgage debt.
  • Rising Disposable Incomes: Disposable income refers to the amount of money that remains available to a household after taxes have been deducted. Rising disposable incomes would allow Canadians to allocate more funds towards mortgage payments, increasing their borrowing capacity. The Canadian Centre for Policy Alternatives (CCPA) predicts that disposable incomes in Canada will grow at an average annual rate of 2.1% over the next five years. This growth, coupled with a decline in interest rates, is expected to improve Canadians' affordability for mortgages.

Borrower Trends and Delinquency Rates

The report also sheds light on borrower preferences. Interestingly, Canadians are opting for shorter-term, fixed-rate mortgages (3 to 5 years) despite lenders offering significant discounts on longer-term fixed-rate options (5 years). This trend suggests that borrowers might be anticipating a decrease in interest rates in the near future.

The report highlights a slight uptick in the national mortgage delinquency rate, reaching 0.17% in Q4 2023. While this remains near historic lows, it signifies the first upward trend since the pandemic began.

Looking to Buy or Sell in Kelowna?

The Kelowna real estate market is ever-changing. Contact Coldwell Banker Horizon Realty today to connect with a local market expert who can guide you through the buying or selling process. We are committed to providing our clients with the most up-to-date information and personalized service to achieve their real estate goals.

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