Canadian mortgage debt growth has slowed down as prospective homebuyers remain fickle about interest rates and property prices, according to a new Canada Mortgage and Housing report.

Canada’s residential mortgage debt grew by just 3.5% year-over-year in July 2024, reaching $2.2 trillion, marking one of the slowest growth rates in recent history, says the report.

CMHC attributed the sluggish pace to prospective homebuyers delaying purchases due to high borrowing costs and elevated home prices.

“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 Tania Bourassa-Ochoa, a CMHC deputy chief economist.

The Bank of Canada’s (BoC) policy rate cuts, including a 50-basis point reduction in October, have fuelled expectations of lower mortgage rates. This anticipation kept many buyers on the sidelines during the first half of 2024. However, recent data from the Canadian Real Estate Association (CREA) suggests that each BoC rate cut has been followed by an increase in home sales, said CMHC.

Although the current growth rate in mortgage debt is below historical averages, it still outpaces inflation. CMHC anticipates further growth as financing becomes more affordable and borrowing conditions improve.

A significant number of fixed-rate mortgages are set to renew in 2025, raising concerns about the impact of higher interest rates. Of the approximately 1.2 million fixed-rate mortgages up for renewal—valued at over $300 billion—more than 85% were initially contracted when the BoC policy rate was at or below 1%.

The renewals, coupled with already high household debt levels, are being closely monitored by financial institutions and policymakers. The federal government’s 2023 fall economic statement introduced the new Canadian Mortgage Charter aimed at addressing these challenges.

Mortgage delinquency rates have inched higher, rising to 0.19% in the second quarter of 2024 from 0.17% in the fourth quarter of 2023, CMHC reported. However, delinquencies remain below pre-pandemic levels and far below the historical average since 1990.

The modest increase aligns with rising delinquencies in other credit products, including car loans, according to CMHC. However, mortgage holders have experienced a smaller rise in delinquencies compared to non-mortgage holders, reflecting the relative stability of the mortgage market.

The proportion of mortgages used for owner-occupied properties has been declining, falling to 70% in the third quarter of 2023 from 75% in the same period in 2019, CMHC noted while citing regulatory filings by chartered banks. Meanwhile, mortgages for investment and rental properties have risen, accounting for 17% of all new mortgages in the third quarter of 2023, up from 13% in 2019.

“Canadian real estate is widely viewed as a strong investment, backed by strong market fundamentals and housing demand,” notes the CMHC report.

The growing demand for rental housing has driven increased investment in rental units, further shifting the focus away from owner-occupied homes.

With the BoC’s recent rate cuts, CMHC expects renewed activity in the mortgage market.

“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,” said Bourassa-Ochoa.

As Canada’s housing market adjusts to changing economic conditions, all eyes are on the evolving mortgage, investment, and homeownership landscape.

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