’s chief economist, Will Dunning, postulates the mortgage credit growth rate in Canada will slow down in the near future, citing a number of contributing factors.
“Growth of mortgage credit in Canada is driven by several factors. The most important is the volume of new housing that is completed and requires mortgage financing,” Dunning wrote in CAAMP’s latest report, Annual State of the Residential Mortgage Market
in Canada. “Housing completions are expected to slow but only slightly and this will contribute to a very gradual slowing in the rate of mortgage credit growth.”
Persistent record-low interest rates – though positive for Canadians homebuyers – have also contributed to sluggish credit growth.
“Another significant factor is that low interest rates mean that consumers pay less for interest and therefore are able to pay off principal more rapidly,” Dunning wrote. “Current low interest rates have therefore tended to reduce the rate of growth of mortgage debt.”
Dunning also cites the negative impact mortgage insurance criteria changes have had on resales and this, coupled with the record-low rates, have contributed to lower-than expected activity, despite favourable market conditions. Still, he believes the negative impacts have diminished slightly.
“Mortgage credit growth in Canada has averaged 8.1 per cent per year during the past decade. The growth rate has slowed, and is currently 5.2 per cent year-over-year (as of August). The growth rate is likely to slow gradually during 2015 (to about 4.5 per cent by year end),” Dunning wrote. “By the end of 2015, total outstanding residential mortgage credit is forecast at $1.34 trillion, up from the most recent figure of $1.26 trillion (as of August 2014). By the end of 2016 the figure may be close to $1.4 trillion.”