Residential Mortgage Credit Growth Remains Sluggish in March

Amidst a continued slowdown across the national housing market, which includes national home sales dropping to a decade low in March, Bank of Canada Governor Poloz suggested, “We’ve gone from boom to bust, of course, with lots of new policies put in place.” Ironically the Bank has recently engaged in the purchasing of Canada Mortgage Bonds, a policy which arguably ensures adequate liquidity in the mortgage market. Again, while the Bank maintains this is simply a diversification to offset currency liabilities and nothing to do with concerns in the mortgage market, recent growth in the residential mortgage sector should be keeping Poloz and his crew up at night. Per recent data from the Bank of Canada, residential mortgage credit growth was just 3.22% year-over-year in March, levels not seen since 2001.

On a more optimistic note, there has been a recent uptick in the three month annualized growth rate which suggests we may have bottomed. Particularly given mortgage costs have been declining in recent months. This also does not include the alternative lending space which is booming.

However, given the indebtedness of Canadian households and the stretched valuations in housing, there continues to be a diminishing return on new credit. Further, the Bank of Canada already has interest rates hovering near the zero bound, in fact the real interest rate (interest rate adjusted for inflation) is still negative, and yet credit growth remains benign. In other words, don’t expect a Bank of Canada rate cut to provide much stimulus, if any, to the household sector.