Mortgage Debt is Rising at Fastest Pace in Canada Since 2007

Canadians are piling into mortgages at more than double the historical pace as the housing market appears to moderate after a pandemic boom.

The total value of residential mortgages rose by 1.2 percent to $1.73 trillion (US$1.4 trillion) in June, according to data released Thursday by Statistics Canada. That’s the fastest monthly increase in loans borrowed for real-estate purchases since 2007.

The spike in mortgages is evidence of Canadians’ demand for more living space during the COVID-19 pandemic, which sent sales and prices to record highs. Driven by lower interest rates, the total amount of real estate-related debt outstanding in the country has risen 9.2 percent in the past year, the largest increase since 2008.

Still, the heightened level of borrowing activity is likely to slow alongside Canada’s cooling housing market, where sales volumes have fallen for the past four months. “There is normally a time lag between the sale of a home and the actual receipt of mortgage funds,” the statistics agency said in the release.

Housing market tightens in Canada after 4th monthly sales drop

Canada’s housing market posted its fourth month of sales declines as the number of people looking to sell their homes saw a precipitous decline despite prices near record levels.

Transactions fell 3.5 percent in July, with new listings dropping 8.8 percent, according to data released Monday from the Canadian Real Estate Association. That caused the national average home price to rise 0.3 percent to around $669,200 (US$532,600), while the ratio of sales to new listings, a measure of market tightness, rose to 74 percent from 70 percent the previous month.

Since the pandemic caused a buying frenzy in Canada that sent sales and prices to record heights in March, the market has been steadily cooling off as prospective buyers contend with a dearth of new houses for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon.

“We are not returning to normal, we are only returning to where we were before COVID, which was a far cry from normal,” Shaun Cathcart, the national real estate board’s senior economist, said in a press release accompanying the data. “The problem of high housing demand amid low supply has not gone anywhere — it’s arguably worse.”

The decline in listings was seen across Canada’s major cities, including Toronto, Montreal and Vancouver, with new supply down in about three-quarters of the country’s markets, the data show. But despite this tightening and the resulting drop in activity from the previous month, July home sales were still well above the average from the last 10 years.

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