Canada’s Mortgage Boom Is Almost Entirely Uninsured As Investors Take Over

Canadian mortgage debt has been soaring, and it’s entirely due to uninsured borrowing. Bank of Canada (BoC) data shows mortgage debt was still rising in May, despite falling home sales. Drilling down into the numbers reveals it was entirely uninsured mortgage growth. The insured segment, with smaller down payments and often first-time buyers, is falling. Earlier this year, a bank exec warned the rise of investors was at the expense of first-time buyers. This is yet another data point giving weight to that narrative.

Canada’s Uninsured Mortgage Debt Recently Topped $1 Trillion

Canada’s uninsured mortgage market has seen a surge of growth and it’s still climbing. The outstanding balance reached $1.0 trillion in May. It represents a jump of 1.4% (+$13.9 billion) for the month, and it’s a whopping 18.7% (+$160.2 billion) higher than last year. It’s an astronomical amount of debt, and that’s just the uninsured portion of what’s owed.

Canadian Residential Mortgage Debt

The outstanding balance of Canadian residential mortgage debt owed by households.

Source: Bank of Canada; Better Dwelling.

Uninsured mortgage growth is decelerating , but it’s still unusually high. The 18.7% annual growth in May marked the fifth consecutive month of deceleration. Growth for the cycle peaked at 21.7% back in September 2021. It’s tapered, but it’s still an increase of a fifth every year at this rate. At this pace, Canadians could buy a company the size of Wells Fargo every year… and that’s just the uninsured mortgage debt.

Canada’s Insured Mortgage Debt Has Been Declining For At Least 7 Years

Canada’s insured mortgage market is a totally different story, and falling sharply. Outstanding debt in this segment fell to $0.4 trillion in May. That’s down 0.6% (-$2.5 billion) for the month, and the balance is 7.0% (-$30.5 billion) lower than last year. That’s right, it’s lower than last year. As in, the insured mortgage market isn’t growing, it’s actually contracting.

Canadian Residential Mortgage Credit Growth

Annual growth of Canadian residential mortgage credit owed by households.

Source: Bank of Canada; Better Dwelling.

The decline isn’t anything new, it’s been in a long-term decline going back almost a decade. Annual growth first went negative in April 2021, and continued into May 2022. Over the past, the segment had only seen positive growth decade in the months immediately before the recent slide began. From July 2020 to March 2021, insured mortgages showed positive growth. Outside of that period, it declined for at least the 7 years of bank filings.

Falling insured mortgage debt might surprise, but it shouldn’t since there were signs. Insured mortgages are required for those with minimal down payments, typically first-time buyers. As investors play a larger part of Canada’s market, they’ve been displacing first-time buyers. Some people are still skeptical that they could displace them, but even the banks say it.

Earlier this year, RBC explained that they had seen a surge of investor mortgages. They explained to analysts that this share came at the expense of first-time home buyers. At the time, they said it was a “sad commentary” on the state of Canada’s real estate market.

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