Houses are seen in an aerial view in Langley, B.C., on May 16, 2018. The total value of residential mortgage credit climbed to $1.6-trillion in September, up 4.2 per cent from a year ago, according to new figures from the Bank of Canada.DARRYL DYCK/The Canadian Press
Canadians increased their mortgage borrowing last month at the strongest pace in more than a year, the latest sign that real estate activity is rebounding from a prolonged lull.
The total value of residential mortgage credit climbed to $1.6-trillion in September, up 4.2 per cent from a year ago, according to new figures from the Bank of Canada. The pace of credit growth has increased for seven consecutive months. Prior to that, it had been in decline as various housing regulations went into effect, including a stress test on uninsured mortgages that was designed to cool off higher-priced urban markets.
The uptick in mortgage credit growth is an indicator that lower mortgage rates are starting to motivate home buyers. This year, some mortgage rates plunged as much as a full percentage point from recent highs, influenced by government bond yields that are substantially lower than at the outset of the year.
That, in turn, is providing a spark to prices. In the Greater Toronto Area, including both the city and its outskirts, the benchmark home price rose 5 per cent in September to a record high of $806,700, according to the latest figures from the Canadian Real Estate Association.
After a tough 2018, which had the lowest number of national sales since 2012, home sales increased by 16 per cent in September from a year ago, according to CREA, which noted that sales climbed in all of the largest urban markets.
Canada Mortgage and Housing Corp. expects sales to increase in 2020 and 2021, supported by favourable economic and demographic conditions.
The source of mortgage lending is also shifting. Residential mortgage credit at chartered banks increased 4.5 per cent in September from a year ago, the strongest pace in 16 months. Growth had dipped below 3 per cent after the introduction of B-20 regulations in 2018 that imposed tougher qualifying rules on uninsured mortgages.
After those rules went into effect, non-bank lending abruptly increased and growth outpaced that of chartered banks, leading to concerns that riskier borrowers were migrating to less regulated lenders. (Non-banks include trusts, credit unions and other institutions, many of which aren’t held to the same rules as chartered banks.)
However, non-bank lending growth is slowing as financial conditions ease, and chartered banks continue to account for the lion’s share of residential mortgage credit.
“With the Bank of Canada under pressure to continue to provide a stimulative environment following sustained levels of uncertainty, residential mortgage credit growth is expected to remain supported in the foreseeable future,” said Bank of Nova Scotia economists in a research note.
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Matt Lundy