Residential mortgage debt increased 3.5 per cent year-over-year in July 2024, reaching $2.2 trillion. Many would-be homebuyers opted out of purchasing this year due to high borrowing costs and higher home prices.
According to the Canada Mortgage and Housing Corporation’s (CMHC) latest Residential Mortgage Industry Report, the expectation of lower mortgage rates in the short-term was another factor that had prospective homebuyers waiting to purchase mortgages in the first half of 2024.
The Canadian Real Estate Association (CREA) saw an uptick in home sales after each policy rate cut by the Bank of Canada. Although currently below recent and historical averages, mortgage debt growth was higher than inflation and could increase further in an environment with more affordable financing.
“Mortgage debt growth remained below average and shorter mortgage terms stayed popular through the first half of the year as homebuyers and those renewing mortgages anticipated lower interest rates.” said CMHC Deputy Chief Economist Tania Bourassa-Ochoa. “The Bank of Canada’s consecutive rate cuts since June, including a 50-basis point cut in October, may spark an uptick in mortgage activity through the rest of 2024 and into 2025.
Of the estimated 1.2 million fixed-rate mortgages up for renewal in 2025, more than 85 per cent were originally contracted when the Bank of Canada policy interest rate was at or below 1 per cent. The financial industry and policymakers are monitoring these renewals at higher interest rates and already high household debt levels.
The mortgage delinquency rate rose from 0.17 per cent in Q4 2023, to 0.19 per cent in Q2 2024, but it still has not reached pre-pandemic levels and remains well below the historic average since 1990. As CMHC states, “The uptick in mortgage delinquencies aligns with increased delinquencies among other leading indicators such as car loans and other credit products. However, mortgage holders have seen a significantly smaller rise in delinquency rates in these loan products than non-mortgage holders.
Investment properties and mortgages
Based on the regulatory filings of chartered banks, the most common reason for a mortgage loan is to obtain an owner-occupied property. However, this share has been dropping since 2019. In Q3 2019, 75 per cent of newly extended mortgages were for owner-occupied properties. In Q3 2023, that share had fallen to 70 per cent
Canadian real estate is widely viewed as a strong investment, backed by strong market fundamentals and housing demand. The strong demand for rental housing is supporting heightened investment in rental units. The decrease in mortgages for owner-occupied properties has been replaced by increased mortgages for investment and rental properties, which rose to 17 per cent of total mortgages in Q3 2023, compared to 13 per cent in Q3 2019.
