Canadian mortgage debt growth hits 3-year high in May

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Rise helped by rising home sales and mortgage deferrals before the pandemic

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TORONTO — Canadian mortgage debt rose in May at the fastest annual rate in three years, spurred by a jump in home sales and record levels of mortgage payment deferrals due to the coronavirus pandemic, according to data from the national housing agency.

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Mortgage debt rose 6% year-over-year in May, the fastest pace since July 2017, the Canada Mortgage and Housing Corporation (CMHC) said in an annual industry report residential real estate loans.

CMHC has warned of excessive household borrowing as it forecast a drop of up to 18% in house prices despite a recent market rally. In July, it tightened underwriting standards for riskier borrowers.

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The record number of homeowners who deferred their mortgage payments also contributed to the rise in origination.

The six major banks reported Canadian mortgage deferrals of 13.5% in the three months to July, down from a peak of 16% at the end of the previous quarter.

Mortgage debt growth also accelerated in April, after climbing 5.1% year-over-year in the first three months of 2020, the report said.

Concerned about the Canadian housing market, the Bank of Canada has since March cut interest rates to near zero and launched a large-scale bond-buying program for the first time.

Additionally, Canada’s financial regulator said in March it would treat deferrals as performing loans, allowing banks to avoid increased credit risk. He said he would reverse this change from October 1.

Housing starts in Canada rose 6.9% in August to a 13-year high, according to CMHC data on Wednesday, while last month’s data from the Canadian Real Estate Association showed that home sales jumped 26% in July, posting a record.

© Thomson Reuters 2020

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