Here’s why Canada’s appetite for mortgage debt doesn’t signal another housing crash

Dated: 12/27/2018

Views: 28

Photo: James Bombales

Canadians today are having to spend the highest share of their disposable incomes on mortgage payments since the early-’90s, when the market was reeling from a collapse in prices.

That may lead some to speculate history is about to repeat itself, but a Hot Charts report from National Bank notes a key difference this time around.

“Back in the early 1990’s, interest accounted for the bulk of mortgage payments. But as today’s Hot Charts show, capital repayments now account for almost half of mortgage payments,” writes Krishen Rangasamy, a senior economist at National Bank.

Housing Market News Alerts

Sign up now for news alerts on the Canadian housing market

The upshot is borrowers are building equity, and therefore in a better position to shoulder shocks.

“That’s not to say we’re complacent about downside risks to the Canadian economy,” Rangasamy adds, noting higher debt servicing, rising interest rates, and fading real estate wealth are expected to hinder economic growth next year.

The National Bank report came on the heels of the publication of Statistics Canada’s third quarter national balance sheet and financial flow accounts.

According to the national statistical agency, Canadians are directing 14.5 percent of household disposable incomes towards debt servicing, which includes both interest and principal payments.

“Blame higher borrowing costs for this increase because interest payments now account for 7.2% of disposable income, a multi-year high,” says Rangasamy.

Total mortgage loans owed by borrowers in Canada declined by $1.2 billion, representing the third quarterly decline in a row.

More Like This

Blog author image

Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

Latest Blog Posts

No clear end to pandemic-related uncertainty in B.C. housing market

VANCOUVER — A new forecast says the housing market in British Columbia remains uncertain during the COVID-19 pandemic.Central 1 says it expects home sales to recover marginally in 2020 and

Read More

Victoria real estate market impacted by many different factors in June

A total of 808 properties sold in the Victoria Real Estate Board region this June, 9.2 per cent more than the 740 properties sold in June 2019 and 76.8 per cent more than the previous month of May

Read More

Why housing is still the best investment for most Canadians

Owning a home remains the largest single investment for most Canadians. So it’s not surprising that fear over an economy turned upside down literally hits home for so many. The Canada

Read More

Victoria real estate activity picks up as restrictions ease

June 1, 2020 A total of 457 properties sold in the Victoria Real Estate Board region this May, 46.1 per cent fewer than the 848 properties sold in May 2019 but 59.2 per cent more than the

Read More