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Mortgage Lending Slowing, Household Debt Continues to Rise

18 January 2013

Experts have weighed in from all across the country, and we can now say it’s officially true. Canada’s housing market is now in the midst of the soft landing we all saw coming. But instead of panicking that we’re headed for a period of doom and gloom, several bank chief executives met in Toronto this week to discuss the current market conditions. And from what they’re seeing, it spells good news.

In November 2012 the banks saw a 0.4 per cent decline in mortgage lending growth when compared with October 2012. However, compared with November 2011, the height of the boom in Canada, the downturn is much sharper – falling 9 per cent year over year. It was these stats that John Aiken, Barclays Capital analyst, pointed to when he spoke about the slowdown in Canada’s market.

“The slowdown in Canadian housing market finally appears to be hitting residential mortgages,” said Mr. Aiken. “With recent real estate data indicating that sales activity in Canada’s real estate market continues to cool, we anticipate loan volumes should continue to ease.”

Mr. Aiken’s not alone in thinking that the mortgage slowdown will continue on for the next several months. Andre Hardy, Royal Bank of Canada analyst, wrote a report earlier this month that also predicted that consumer-lending was to experience a slowdown in 2013. He sees that growth dropping by 2 to 3 per cent by the end of this year.

The slowdown is being attributed to the mortgage tightening rules put into effect by Finance Minister Jim Flaherty this past summer. He’s recently said that he’s “very happy” to see that those rules have taken the steam out of the market, and that he’s just waiting to start seeing prices drop, too.

Mr. Flaherty has also joined Bank of Canada governor Mark Carney in stating his concern about the amount of debt Canadians have taken on. Unfortunately, this drop in mortgage lending doesn’t seem to be equating lower overall debt for Canadians. According to a recent report, the average debt to income ratio in Canada has risen to 164.4 per cent; up from 164.2 per cent the previous quarter.

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