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Economy Rising mortgages: The phantom menace of Canadian consumer debt

Consumers have racked up record levels of mortgage debt during the past decade. They held $873.6-billion worth of it with the chartered banks in May, up from about $863.8-billion in January, according to the latest data from the Bank of Canada.

GLORIA NIETO/THE GLOBE AND MAIL

Consumer debt numbers released this week tell an important story, but they do not include mortgages, the biggest component of household debt in Canada.

Consumers have racked up record levels of mortgage debt during the past decade. They held $873.6-billion worth of it with the chartered banks in May, up from about $863.8-billion in January, according to the latest data from the Bank of Canada.

The pace of growth has been spectacular: Canadians had $815-billion of mortgage debt with the chartered banks in January of 2012, $518.5-billion in January of 2011, and just $459-billion in January, 2010.

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Take into account mortgages from lenders other than the chartered banks, and the figure now easily tops $1.1-trillion. The total amount of mortgage debt outstanding roughly doubled between 2002 and 2010.

Ballooning mortgage debt has been a major headache for policy makers in Ottawa. Finance Minister Jim Flaherty has taken multiple steps to cool the housing market, because of his concerns about both debt levels and house prices. He has urged consumers to scale back.

They are doing so, to a degree. The pace of mortgage debt accumulation has begun to slow. Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals (CAAMP), estimates that it is now rising by only about 5 per cent per year, and he forecasts a pace of 2.5 to 3 per cent by the end of 2014, at which point he expects that the total amount of residential mortgage credit outstanding will be $1.24-trillion to $1.25-trillion.

"When it comes to their mortgage debt, not only have Canadians slowed their pace of accumulation, they are taking a more active stance towards paying existing debt back," TD Economics said in a recent report.

There are about 9.65 million homeowners in Canada, and about 5.95 million of them have mortgages, according to CAAMP, which represents mortgage brokers. About 85 per cent of the new mortgages that are being taken out have a fixed interest rate, rather than variable, CAAMP said in a May report.

Mortgage rates hit rock-bottom levels in the last two years, tempting consumers to continue piling on, but posted rates have increased by more than 60 basis points in the last few months. As of May, the average mortgage rate that homeowners were paying was 3.52 per cent, down from 3.64 per cent one year prior to that.

The association estimated that 8 per cent of homeowners took equity out of their homes in the year up to May, with the average amount estimated to be $48,000, for a total of $39-billion.

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