Despite hot housing activity in some of Canada’s biggest markets, mortgage credit is growing at its slowest pace since 2001. That’s according to a recent TD Economics report.
The good news is that Canadian mortgagors are paying about $4 billion less in interest (on an annual basis) compared to before the recession hit. In turn, they are now “paying that much more in principal,” says TD.
Having 5-year mortgage rates under 3% — versus the average consumer credit rate of 10% — has allowed households to pay back debt more quickly. That’s a key reason why credit card balances have been declining since 2012.
In part, quicker principal repayment also explains why mortgage credit is slowing faster than home sales. But that’s not the only reason. TD notes that there’s more at work here, including:
Bigger down payments: “Higher down payments might partly explain why housing activity is still rising faster than households are accumulating new mortgages,” TD says.
Mortgage rule changes: Government mortgage tightening curtailed the number of mortgages being insured and increased the cost of, and/or restrictions on, certain uninsured financing.
Gifted Down Payments: TD says there’s anecdotal evidence to suggest first-time homebuyers are increasingly relying on gifts from family members for their down payments.
Foreign investors: Foreigner homebuyers tend to be wealthier and require less mortgage financing. According to Sotheby’s Real Estate, foreign buyers account for 30% of high-end home sales in certain markets like Vancouver and Montreal.
Fewer first-timers: Repeat homebuyers have been driving a larger share of sales. “Whether they are downsizing or moving up, these homebuyers will typically have greater down payments and take on a mortgage with a lower loan-to-value ratio,” notes the report.
But any moderation in mortgage activity should be put in context. Mortgage credit is still growing faster than household income.
Moreover, as TD observes, falling mortgage rates have “pretty much offset the impact mortgage insurance rules have had on housing affordability.” That would be banner news if it weren’t for one mortgage rate truism: what comes down may eventually go up.
Rob McLister & Steve Huebl, CMT