Mortgage debt in Canada, highlighted in 5 charts


With consecutive increases in interest rates in G7 countries, borrowing is becoming more and more expensive for those looking to take out a mortgage.

But Canada could face more challenges than its G7 peers.

CTVNews.ca examines recent data from the Intergovernmental Organization for Economic Co-operation and Development (OECD) to analyze where Canada stands against other G7 countries on housing affordability, housing prices and indebtedness.

The central banks of the G7 countries have been aggressive in dealing with the rising cost of living with consecutive increases in interest rates.

High interest rates usually mean high debt service charges, which ultimately drive up the cost of everything from mortgages to credit cards and loans. The idea behind the hike is to discourage consumers from spending. To deal with the cost of living crisis, the Bank of Canada has been steadily raising interest rates, hitting 3.75% last month from just 0.25% in January this year.


CANADA HAS A HIGH PRICE-INCOME RATIO

Compared to other G7 countries, Canada has the most expensive housing market.

OECD data shows that the price-to-income ratio, also known as the measure of affordability, remained highest in Canada, followed by Germany.

According to quarterly data released by the OECD, Canada’s ratio index reached 148.16 in the second quarter of 2022, the highest among G7 countries, meaning house prices rose at a rate 48% faster than income since 2015. In the United States, prices have increased about 40% faster than income since 2015.

During a virtual conference in March this year, Sharon Kozicki, the deputy governor of the Bank of Canada, said that Canadian households who took out mortgages with high loan-to-income ratios are probably not the ones who lots of money in their bank accounts.

She said rising mortgage lending may trigger a slowdown in household spending and that if enough households reduce spending, it could impact the wider economy, leading to slow growth and an increase. unemployment.

“A decline in house prices could compound these effects,” she said.

NOMINAL PRICE OF THE HIGHEST HOUSING IN THE G7 NATIONS

At the start of the pandemic, higher savings and historically low interest rates encouraged some Canadians to buy homes. The buying pattern also changed with people working remotely during the pandemic, which encouraged many Canadians to look for homes in the suburbs, where homes were bigger and more affordable. High disposable income has further led to a sharp increase in demand for home loans.

In the current high interest rate environment, rising mortgage rates have contributed to a sharp decline in real estate activity, leading to lower house prices. According to Wowa’s latest housing market report, average home prices in Canada have fallen 22% in the space of 7 months.

But Canada’s cooling housing market shouldn’t be confused with rising affordability, Rebecca Oakes, vice president of advanced analytics at Equifax Canada, warned in a recent press release.

She said affordability doesn’t just depend on house prices, but also monthly payment obligations for a mortgage. “Higher interest rates coupled with high inflation can really increase a consumer’s monthly outgoings, when many might struggle to qualify for a mortgage,” she said. said.

But despite the slowdown in markets, recent data released by the OECD shows that Canada has the highest nominal house price. According to annual data released by the OECD, the ratio index for Canada has increased by 59% since 2015, the highest jump recorded by any G7 country, followed closely by Germany, which posted an annual jump of 58% since 2015.

In the second quarter of 2022, the nominal house price index in Canada was 183.9, followed by the United States with a price index of 182

HIGHEST HOUSEHOLD DEBT IN G7 NATIONS

Due to soaring house prices during the pandemic, Canadians have taken on more mortgage debt to pay for a home.

OECD data shows that Canadians remain the most indebted of the G7 countries and tend to carry more debt than their G7 peers.

In 2021, the most recent year for which data is available for all countries, household debt in Canada was 185% of disposable income.

In 2020, household debt in Canada was equivalent to 177.3% of disposable income. By comparison, the UK has the second highest household debt at 148%. Compared to the OECD countries, which have 38 countries, Canada ranks ninth after countries like Denmark and Norway which lead with 255% and 241% of disposable income with household debt, respectively.

Kozicki said Canadians’ high indebtedness could amplify the impact of interest rates. Another concern is that a growing share of new mortgages also have variable rates, which tend to fluctuate with the bank’s key interest rates.


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