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.
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The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
