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Canadians are taking out fewer mortgages as costs soar

Your mortgage news update for the week of September 15, 2023

Memo 1: Canadians are taking out fewer mortgages as costs soar

A new snapshot on the state of Canadian household debt shows credit use has been on the decline – but that isn’t necessarily an indicator of financial health.

The Q2 national balance sheet report released this week by Statistics Canada reveals the Canadian household debt-to-income ratio dipped to 180.5% in the three months between April and June compared to 184.2% in the first quarter. However, this debt ratio is still historically high, with every dollar households earned offset by $1.81 owed in the credit market debt. Overall, households borrowed $17.1 billion, compared to $20.4 billion in the first quarter, which StatCan says is the lowest level of quarterly borrowing since 2003.

However, it wasn’t reduced credit card use that caused the dip (on the contrary, Equifax says Canadians carried an all-time high balance of $107.4 billion in Q2). Rather, the culprit is a plummeting appetite for mortgages as would-be borrowers are squeezed by a combo of steep housing prices and soaring interest rates.

Also read: Canadians are experiencing mortgage regret

According to the data, the average resale home price jumped 8.1% in Q2 to $720,346, while mortgage interest costs in dollars shot up by 5% to $92 billion. Borrowers are also collectively paying -1.1% less toward their principal mortgage debt, as interest “continued to account for a greater share of households' total mortgage payments, albeit at a much slower pace,” states StatCan.

Overall, mortgage interest costs are up a total of 80% since the Bank of Canada kicked off its hiking cycle in March 2022.

Memo 2: CMHC raises the alarm on housing supply

That the Canadian housing market is suffering from a dire supply-and-demand imbalance isn’t new – but fresh analysis from the national housing body reveals just how deep the chasm lies.

The Canada Mortgage and Housing Corporation (CMHC) has updated its Supply Gaps Estimate report, stating the market requires the creation of 3.45 million homes in order to restore affordability by 2030.

According to the CMHC, the market will turn out 18.2 million units by the end of the decade based on current rates of new construction, a drop from the 18.6 million it estimated in 2022. This is largely due to a decline in new housing construction, as rising interest rates have made it less economically feasible to build. The data reveals that 60% of the 3.5-million housing gap is in Ontario and BC, as supply has failed to keep pace with population booms in those provinces’ biggest cities. Quebec and Alberta are also forecast to need a supply infusion in the coming years due to their respective economic booms and shrinking affordability.

“This latest report reinforces the need for urgent action to increase housing supply to make housing affordable for everyone in Canada and continues our work on improving the understanding of what drives housing demand and supply,” stated Aled ab Iorwerth, Deputy Chief Economist for CMHC.

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Memo 3: Will London, Ontario solve Canada’s housing woes?

Meanwhile, the federal government is test-driving a new approach to creating more supply, announcing a funding initiative in London, Ontario – the first under the $4-billion Housing Accelerator Fund first announced in the 2022 federal budget. The city is to receive $74 million for the creation of new homes, with new policies in place that remove the need for rezoning for high-density housing developments, with up to four units to be allowed on a single-lot in traditionally low-density neighborhoods.

The city will also offer up municipally owned lands for building, as well as create partnerships with non-profit housing providers to build more affordable homes. “Overall, this plan means more homes close to public transit, more rental units for students, and more housing, ranging from duplexes and triplexes to small apartment buildings,” states a release from the prime minister’s office.

The Housing Accelerator Fund’s goal is to “cut red tape” and bring at least 100,000 new homes to market via action plans pitched by local governments. Once a city’s plan is approved, it receives upfront funding for the creation of new homes, and more money once the projects are complete. 

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