MNI INTERVIEW: Canada Mortgage Growth Slowest in Decades

By Greg Quinn

     OTTAWA (MNI) - Growth in Canadian mortgage lending has slowed to the lowest

level in decades as stricter regulations and an unsettled market deter buyers, a

government economist told MNI.

     The dollar value of mortgages expanded by 3.4% in 2018, the slowest

year-end pace since 1982 according to Canada Mortgage and Housing Corp. figures.

The 12-month rate nudged down again to 3.3% in February, the slowest in any

month since 1983.

     Recent government "stress tests" on borrowers and signs of modest economic

growth particularly hit lending for new home purchases, said CMHC economist

Tania Bourassa-Ochoa.

     "It's all of these factors together that have contributed to the slower

growth," she said in a phone interview from Montreal. Consumers are also

shifting to variable-rate loans as banks and brokers offer bigger discounts,

while some new borrowing migrates to smaller and less regulated institutions,

she said.

     The figures signal Canada is managing a soft landing in a housing market

that drew years of warnings about a collapse as prices and sales in Vancouver

and Toronto surged. Bank of Canada policymakers took imbalances such as record

consumer debt loads off a top watchlist last week while holding their key

interest rate at 1.75% and shifting focus to external risks like trade wars.

     Variable-rate mortgages are becoming more popular, comprising 29% of new

loans in the first quarter of 2019, up from 17% two years ago. Lenders "offered

larger discount rates on variable rates and this was an effort to attract new

borrowers as the housing market began to slow down," Bourassa-Ochoa said.

     Sales in Vancouver and Toronto ebbed last year following a stress test and

other measures aimed at speculators, while falling prices for crude oil exports

hurt demand in Alberta. Another factor was the five rate increases by the Bank

of Canada through late last year, a force that has faded with policy makers

moving to the sidelines.

     Borrowers have faced other pressures in recent years, including 30% price

gains in Toronto and Vancouver. That sparked concern from investors and

policymakers that consumers carrying record debt loads would flee major banks

for less stable lenders.

     There is little evidence smaller providers are running away with the

market. Federally regulated lenders such as traditional banks still held 78% of

Canadian mortgage credit last year. While the value of mortgage debt held by

unregulated lenders rose to C$14 billion last year from C$10 billion in 2016,

that's still just 1% of the market.

     Tracking data on lesser-regulated mortgage companies will become more

valuable over time as the rate of growth becomes clearer and more data may

emerge on local markets, Bourassa-Ochoa said. "We have an idea of some market

shares in the non-bank space, and we are really going to want to monitor how

these numbers are changing over time," she said by phone from Montreal.

     "It's like adding missing pieces to the big puzzle," she said.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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