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Canadians took out fewer mortgages in the first half of this year, compared to 2018, as tougher home-loan requirements and higher interest rates held back the housing market.

New home loans decreased to $60.3-billion from $65-billion in the first six months of 2018, according to data from Canada Mortgage and Housing Corp. Mortgage renewals fell 9 per cent to $86-billion and refinancings, in which homeowners replace their current mortgages, dropped 15 per cent to $30-billion, according to the national housing regulator.

The drop in mortgage borrowing comes after the federal government’s mortgage stress test was implemented in 2018. Those rules require borrowers to prove they can afford their mortgage payments at a higher interest rate and made it harder for potential home buyers to get a mortgage. That, along with the three interest-rate hikes in 2018, temporarily slowed the housing market.

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But over the past few months, home sales in the country’s most expensive markets of Toronto and Vancouver have been increasing as the Bank of Canada has kept interest rates steady and borrowers adjust to the mortgage stress test. That, in turn, should drive up mortgage originations in the latter part of this year.

“I would be very surprised if we don’t see a moderate rebound in the second half of 2019 and into early next year, given the widespread revival in sales seen across much of the country in recent months,” said Douglas Porter, chief economist with Bank of Montreal.

The regulator’s report also showed mortgage delinquency remained well below 1 per cent for banks, credit unions and mortgage finance companies. The delinquency rate for mortgage investment corporations eased slightly to 1.92 per cent from 1.93 per cent. The low default rates and the slow growth in the mortgage market were likely owing to stricter mortgage rules and have helped improve the country’s financial stability, CMHC said in its report.

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