Canadian Residential Mortgages

Canadian Residential Mortgages - Charts and Tables

It is very difficult for researchers to gather accurate information about the housing market in Canada. Google and Bing isn't as contextual as I'd like, and searching through Statistics Canada CANSIM or St. Louis Fed in the US is tedious.

Nevertheless, that's what I have done below. Please feel free to use these graphs on your own site. Just ensure that you give the appropriate site credit (as shown in the picture file). If you have any worthwhile graphs or pictures, please send them to This e-mail address is being protected from spambots. You need JavaScript enabled to view it . I will add them to this post.

CANADA - TOTAL OUTSTANDING MORTGAGE CREDIT (1980-2009)

Information collected from CANSIM by Jonathan Tonge, http://www.americacanada.blogspot.com

MORTGAGE CREDIT ISSUED ANNUALLY (1998-2008)

Information collected from CANSIM by Jonathan Tonge, www.americacanada.blogspot.com

New mortgage credit issues by year. Not total outstanding. Not net.

CANADA - OUTSTANDING RESIDENTIAL MORTGAGE DEBT VS. SALARIES & WAGES

Information collected from CANSIM by Jonathan Tonge, www.americacanada.blogspot.com

Total Salaries and Wage Income. Not total income which would also include income from other sources such as dividends, capital gains, etc. Not disposable income. Not after tax income.

Note that salaries and wages grew at a very fast pace during the last fifteen years. This in large part was due to economic bubbles. One was the largest stock market bubble in the history of the North American stock market. The second was the largest real estate bubble ever.

It is very unlikely that we will see salary and wage growth like that in the next five years. In fact with a rising dollar, record low productivity, rising taxes (they will) and collapsing exports, it is likely that wages and salaries will start to shrink. This is especially true if the current housing market takes a downturn.

CANADA - OUTSTANDING RESIDENTIAL MORTGAGE DEBT AS PERCENT OF SALARIES & WAGES (1980-2009)

Information collected from CANSIM by Jonathan Tonge, www.americacanada.blogspot.com

Total Salaries and Wage Income. Not total income which would also include income from other sources such as dividends, capital gains, etc. Not disposable income. Not after tax income.

Calculated by dividing Total Outstanding Residential Mortgage Debt by Total Salaries and Wages for each year.

Click for sharper image, right click and save as to download

This chart plots the relationship between income and credit up until April 2009. It does not take into account the record home sales and prices occurring in the summer of 2009.

CANADA - OUTSTANDING RESIDENTIAL MORTGAGE DEBT AS PERCENT OF SALARIES & WAGES (1980-2016) (Constant Growth Model)

Calculated by dividing Total Outstanding Residential Mortgage Debt by Total Salaries and Wages for each year.

2009-2016 Assumption: 10.4% average growth in mortgage credit between 2005-2009 is maintained between 2010-2016. Income growth slows to 2.4% per year which is the average post recession growth rate from 1991-1996.

Note that while 185% seems like an astronomical number, that it would be much higher if measured in terms of after-tax disposable income.

Furthermore, looking historically at home prices, growing credit at a constant 10.4% per year is only likely to produce modest home price increases (0-4%). Satisfying current sales volume and average prices sucks up most if not all of this constant credit expansion.

Increasing average home prices even further would require the growth of credit to accelerate. The next chart attempts to demonstrate this relationship.

CANADA - OUTSTANDING RESIDENTIAL MORTGAGE DEBT AS PERCENT OF SALARIES & WAGES (1980-2016) (Accelerated Growth Model)

Calculated by dividing Total Outstanding Residential Mortgage Debt by Total Salaries and Wages for each year.

2009-2016 Assumption: Growth rate accelerates at same pace as 2001-2008 which is 0.8% per year. Income growth slows to 2.4% per year which is the average post recession growth rate from 1991-1996.

This chart looks forward to the next 6 years using the same principles as the past 6 years.

Wage growth does slow, but I think 2.4% annual compounded growth is more than reasonable given the competitive post recessionary pressures that we will be facing. Given our exceptionally high salaries and low productivity, this may be overly optimistic. But rather than being bearish or bullish, I simply took the average salary and wage growth as it existed between 1991-1996.

It is nearly impossible that the credit/income ratio will surpass 125%, let alone reach 285%. But that is the point of this chart. What I would ask the real estate bulls is how are we actually going to pay higher prices? It turns into a mathematical impossibility. The only solution that I see is a deep downturn in prices as credit hits a ceiling. As prices fall, buyers leave the market, further hammering the drop.

However that in of itself will not stop credit from rising. Note that in 1991 real estate fell 25%, but credit didn't peak until 1997. Therefore it may take a correction of 30+ percent and a sales drop of 50% plus to actually stop credit from rising. This is a very real threat.

2008 NEW MORTGAGE CREDIT ISSUED - BY PROVINCE

Information collected from CANSIM by Jonathan Tonge, www.americacanada.blogspot.com

New issues only. Not total outstanding. Not net.

2008 NEW MORTGAGE CREDIT ISSUES AS A PERCENT OF SALARIES & WAGES - BY PROVINCE

Calculated by dividing New Mortgage Credit Issued by Total Salaries and Wages for each province.

I think most of you knew that BC would be at the top of the list. But did you think Nova Scotia and Newfoundland would be second? It is true that their real estate moved into high gear in 2008 despite the global recession. However this move was supported by debt and not incomes.

Note that in 2000, Canada's average issues of new mortgage debt as measured as a percent of incomes was much lower than any province in 2008. It is clear that this housing bubble is nationwide, albeit more pronounced in certain markets.

Jonathan Tonge

Above is searched cache, click here to read full article.

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