Real estate market remains hot, Canadians keep piling on their mortgage debts

Even in spite of the COVID-19 pandemic, Canadians have been piling on their mortgage debts, as they try to cope with the changes of the housing market, which started slowing in the second half of the previous year.

According to Statistics Canada, household mortgage debt was up by 7.4% in November from a year ago and almost reached a total of $1.66 trillion.

The annual pace of mortgage growth for November exceeded the results of October (6.9%), September (6.5%) and August (6.1%). In addition to it, the numbers were higher than in case of any other month in 2020, and higher than 4.3% reported in November 2019.

The Canadian Real Estate Association (CREA) says that despite the pandemic, national home sales reached a record number of 551,392. The national average home price rose by 17.1% annually last month and reached a record $607,280.

There are several factors supporting the growth in housing prices and mortgage debt. Extremely low interest rates, lack of supply and a COVID-19-driven desire for more space are only a few of them.

“The increases were focused on single-detached and more expensive properties,” – Deloitte Canada chief economist Craig Alexander says.

According to Cory Renner, economist at the Conference Board of Canada, there is also a relatively high level of disposable income, as people are not always able to spend money the same way they used to before the pandemic.

“So you can also see a stronger ability to make down payments,” which may lead to higher prices and debt levels, Renner noted.

Borrowers try to benefit from cheaper borrowing costs. Statistics Canada says the demand for mortgage loans in the Q3 was up to a new record level of $28.7 billion.

MNP Ltd.’s recent consumer-debt poll shows that 61% of respondents believe now is good time for purchasing things they otherwise couldn’t afford.

The debt from such housing purchases is one of the reasons why policymakers are worried. However, historically low interest rates caused by COVID-19 have been keeping borrowing costs low. The household debt-service ratio reached 13.22% in the third quarter, which is lower than before the pandemic started.

Nevertheless, in case the borrowing costs start going up, household budgets may suffer. According to MNP, 47% of respondents worry that they could face financial problems if interest rates grow.

But Renner says no one expects it to happen until 2023, and the national real estate market should remain strong even amid the second wave of COVID-19, which could keep pushing prices and debts higher.

“There are not so many factors which could potentially stop activity or prices from reaching new record this year,” – RBC economist Robert Hogue says. “Extremely low interest rates, new housing needs, high household savings and stronger consumer confidence will keep demand high. And a lack of supply will push the prices higher”.