Residential Mortgage Credit is Growing Faster than Before the Mortgage Stress Test

There’s been lots of talk about a bounce in Canadian housing and certainly recent data suggests that is the case. That doesn’t mean risks have disappeared, merely it seems a recent easing in global monetary policy has provided a lift to many asset classes, including housing. The plunge in bond yields has spurred an increase in household borrowing. Canada’s Residential mortgage credit growth on a 3 month annualized pace has accelerated to 5.74% in October. It is now growing faster than it did prior to the introduction of the B-20 mortgage stress test.

That will certainly damper further suggestions to tweak or abolish the mortgage stress test. Mortgage credit is accelerating and that should provide momentum for house price growth. Per Capital Economics, local Real Estate board data for Toronto & Vancouver show big gains in the sales-to-new listing ratios in November. This suggests the national ratio reached 65.0, almost surpassing 2017 levels and pointing to very strong house price inflation nationwide. Perhaps this is just a false positive, it’s certainly hard to fathom what would propel house price inflation into double digit territory, baring another inflow of foreign capital. One things for sure, this will keep policy makers up at night. No doubt adding to the reason the Bank of Canada has refused to cut rates so far. The prolonged pause has left Canada with the highest policy rate among advanced economies.