Mortgage Update: Mortgage growth ticks up

by Joanna Gerber

In March, residential mortgage debt in Canada increased by 0.3% compared to the previous month (when adjusted for seasonal variations). On a year-over-year basis, mortgage debt rose by 3.4%. This annual growth rate is the slowest Canada has seen since the year 2000.

Mortgage Dynamics Update: Bar chart illustrating residential mortgage growth from 2018 to 2024, featuring seasonally adjusted month-over-month percentages. Growth peaked in 2021 and declined significantly in 2022 and 2023. Line graph showing residential mortgage growth from 2010 to 2024. The growth rate peaks around 2021-2022, then declines sharply towards 2024. Data source: Statistics Canada. This Mortgage Dynamics Update provides a detailed overview of these trends.

For non-mortgage consumer lending, there was a 0.4% rise in March. This increase was primarily driven by a significant 1.1% growth in credit card balances at chartered banks. Over the past year, credit card debt at these banks has surged by 13%.

Line graph depicting seasonally adjusted chartered bank credit card loans (in billions of dollars) from 2015 to 2024, showing a sharp decline in 2020 and a consistent rise afterward. This Mortgage Dynamics Update provides insights into the shifting trends in consumer credit behavior. Bar chart titled "Chartered bank credit card loans y/y" showing fluctuations from 2015 to 2024. The graph, featured in the Mortgage Dynamics Update, depicts a decline around 2020 followed by a sharp increase and stabilization in recent years.

In March, domestic business lending by chartered banks in Canada declined for the third consecutive month. This marks a notable trend as the last similar three-month decline occurred during mid-2020. On a year-over-year basis, the growth rate of business loans has slowed to its lowest level outside of recessionary periods since the early 2000s.

Two line graphs showing chartered bank domestic business loans. Left: month-over-month percentage from 2004 to 2024. Right: year-over-year percentage from 2000 to 2024. Both show fluctuations, providing a comprehensive Mortgage Dynamics Update.

Bank Updates

The Bank of Nova Scotia (BNS) has reported positive growth in its mortgage portfolio for the second month in a row as of March, following a year of consecutive declines. This uptick marks a significant turnaround for BNS, as its mortgage balances had been falling for the previous 12 months.

Bar chart titled "BNS domestic mortgages m/m" showing monthly percentage changes from January 2019 to January 2024, with notable spikes and declines. This Mortgage Dynamics Update highlights key trends in the housing market over the specified period.

Despite this recent growth, BNS’s annual mortgage growth rate remains negative and is significantly lower than that of its competitor, Toronto-Dominion Bank (TD), which continues to enjoy a robust 9% annual growth rate.

Mortgage Dynamics Update: Side-by-side bar charts show year-over-year percentage changes in BNS residential mortgages (left) with a steep decline, and TD residential mortgages (right) with a more stable but fluctuating pattern from Jan-16 to Jan-24.

CIBC has been experiencing an ongoing shift. A year ago, CIBC was ordered by the banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), to address significant lapses in its mortgage underwriting practices. This regulatory intervention came after a period of turbulence in CIBC’s mortgage business. From 2017 to 2019, CIBC transitioned from being a leading bank in adding new mortgages to falling behind its competitors. This decline coincided with heightened regulatory scrutiny from OSFI, particularly because mortgages comprised more than half of CIBC’s total loan portfolio, and because of its substantial involvement in high-value housing markets like Toronto and Vancouver.

In 2019, CIBC’s CEO, Victor Dodig, acknowledged that the bank had overreacted to the regulatory pressure by severely curtailing its mortgage growth. This overcorrection stifled its competitiveness in the mortgage market. The influence of OSFI’s scrutiny during 2018 and 2019 is now evident as it appears to have significantly constrained CIBC’s loan growth. Currently, CIBC is again experiencing a decline in mortgage balances, raising questions about whether this is a strategic reduction in response to current market conditions or if CIBC is once more under regulatory watch.

A bar graph titled "CM residential mortgages 3-month change" shows fluctuations from January 2015 to January 2024, with peaks around early 2018 and 2021, and low points around early 2019 and 2020. This Mortgage Dynamics Update highlights notable trends over the years.

Non-Prime Lending Slowdown

In March, Equitable Bank (EQB) experienced a second consecutive monthly decline in its total residential mortgage loans. This trend is notable as it reflects a shift in their uninsured balances, which are considered their core non-prime product. For the first time since Q4 2020, these uninsured balances have been declining over a three-month period.

Similarly, Canadian Western Bank (CWB), which offers Optimum mortgages as part of its active non-prime strategy, is observing comparable trends. Residential loans at CWB are declining year-over-year for the first time on record. Additionally, there is now an annual decrease in CWB’s total deposits, marking a significant change in its financial dynamics.

Side-by-side bar charts in the Mortgage Dynamics Update display CWB residential mortgages year-over-year percentage from Jan-16 to Jan-24 (left) and CWB annual change in total deposits (right) for the same period.

Mortgage Arrears and Small Lenders

Mortgage arrears are experiencing a notable increase at small lenders, particularly those focused on non-prime lending in Canada. This trend is highlighted in recent data from the Bank of Canada’s Financial System Review, indicating a sharper rise in mortgage arrears in these lenders compared to larger financial institutions.

Line graph from the Mortgage Dynamics Update shows that mortgages in arrears have risen more for small and medium-sized banks than large banks from 2000 to 2024 Q1. Data sourced from Canadian banks and the Bank of Canada.

In Canada, almost all non-prime mortgages have short-term durations of 1 or 2 years. Equitable Bank exemplifies this with a weighted average loan term of 1.5 years for uninsured mortgages. Borrowers with 2-year non-prime terms facing renewal today are encountering an average increase of approximately 250 basis points (bps) in interest rates. Although this rate hike has eased from its peak, its cumulative impact on borrowers takes time to manifest.

Over the past year, there has been a significant increase in net impaired loans already, rising from 20 basis points (bps) to 90 bps. This is a notable trend, and there is a concern that this upward trend may extend to prime lenders in the future.

Two line graphs highlight mortgage dynamics: the left shows estimated changes in lending rates at renewal for 1-year and 2-year terms from 2000-2024, while the right details EQB net impaired personal and mortgage loans percentage from Q1 2000 to Q1 2014.

Falling Mortgage Rates

Recent data shows a decrease in mortgage rates last week, particularly notable in deep discounted 5-year fixed rates, which dropped by 5 basis points (bps). As a result, using these updated rates and assuming stable housing prices in May, the monthly mortgage payment required to purchase a typical home has declined to $3,225. This figure represents a $330 decrease from the peak observed in September 2023, but remains double the amount compared to 2021.

A Mortgage Dynamics Update graph shows fixed and variable 5-year deep discount mortgage rates from 2012 to 2024. Rates rose sharply from 2021, with the variable rate peaking higher than the fixed rate at 6% in 2023. Graph showing the monthly mortgage payment required to purchase a typical home from 2016 to 2024. The Mortgage Dynamics Update indicates payments increase steadily until 2023, when they begin to decrease.