CMHC warns that slow growth in mortgage debt may not last

The Canadian housing market experienced a significant slowdown in mortgage debt growth in February, with the rate reaching its lowest point in 23 years, according to a report from the Canadian Mortgage and Housing Corporation (CMHC). The total mortgage debt in Canada stood at $2.16 trillion, showing a modest 3.4% increase from the previous year.

The sluggish growth in mortgage debt can be attributed to high borrowing costs and uncertainty surrounding the Bank of Canada’s key interest rate. Many prospective homebuyers are holding off on making purchases as they wait to see if the central bank will lower interest rates. Tu Nguyen, an economist with RSM Canada, noted that households are feeling the squeeze from high inflation and interest rates, leading to a slowdown in housing market activity.

Despite the current slowdown, experts believe that the trend is temporary. Nguyen and the CMHC anticipate that once the Bank of Canada starts cutting rates, mortgage growth will pick up again. The next interest rate announcement from the central bank is scheduled for June 5.

The CMHC report also highlighted other factors that could contribute to a rebound in mortgage growth, such as population growth and increases in disposable income. However, the report also raised concerns about the high levels of household debt and the potential financial struggles that some homeowners may face.

Interestingly, the report noted that borrowers are increasingly opting for shorter-term, fixed-rate mortgages over traditional five-year fixed terms. This trend is despite lenders offering significant discounts on five-year fixed-rate mortgages in the early months of the year.

Additionally, the report revealed that the national mortgage delinquency rate increased slightly in the fourth quarter of last year, signaling a potential shift in the financial stability of households. Nguyen explained that low delinquency rates do not necessarily indicate strong financial health, as many households prioritize mortgage payments over other expenses.

Overall, the housing market in Canada is facing a period of uncertainty, with the potential for both challenges and opportunities on the horizon. As policymakers and financial institutions monitor the situation closely, homeowners and prospective buyers will need to stay informed and prepared for any changes that may impact their financial well-being.