Mortgage Lending In Canada Falls To 17-Year Low As New Government Rules Take Hold

Mortgage growth in Canada has fallen to a 17-year low in Canada, according to new data from the Bank of Canada.

Residential mortgage growth rose 3.1% to $1.55 trillion in December 2018 from a year earlier, the slowest pace of growth since May 2001, and half the growth rate from two years ago, said Canada’s central bank.

The steep drop in mortgage lending is being blamed on government efforts to rein in household debt, including tougher mortgage-qualifying standards. The new government rules have dramatically cooled the housing market in the past year. Toronto and Vancouver posted their worst year for sales in at least a decade in 2018. Vancouver’s market declined further in January as average prices tumbled 9.1% over the past 12 months.

An over-inflated housing market and high debt levels are among the reasons cited by some U.S. hedge funds and short-sellers over the years who have bet against the Canadian banks. On average, about 2.4% of shares of the six biggest Canadian banks are held in short-interest positions as of the end of January, according to data from financial analytics firm S3 Partners.

And Canadian bank executives have already been telegraphing that they expect slower mortgage growth this year. Toronto-Dominion Bank’s Teri Currie, who oversees the domestic banking division at Canada’s largest bank by assets, expects "mid-single digit" growth this year in residential mortgage lending, which includes amortizing home-equity credit lines and mortgages.

Executives at rival banks are expecting domestic mortgage growth to be in the low to mid-single digits in 2019, when the country’s economic expansion is expected to slow to 1.9%.