Mortgage debt accounts for two-thirds of total household borrowing and continues to accelerate

TORONTO, Sept. 16, 2015 /CNW/ - While Canadian household debt is rising at an accelerated pace the trend is largely driven by mortgage borrowing, which over the past year accounted for 80 per cent of Canadian household credit accumulation, finds a new report from CIBC World Markets.

‎The increase in mortgage debt is mainly due to a rise in the average mortgage size as opposed to amplified home buying activity. This rise is most pronounced in Toronto and Vancouver where the appreciating cost of housing is quickly outpacing the rest of the country, which is already in the midst of a soft landing.

"The greatest challenge facing the hot Toronto and Vancouver housing markets, is the continued asymmetrical price appreciation where for the past decade, the prices of more expensive properties are rising faster than less expensive properties," says Benjamin Tal, Deputy Chief Economist at CIBC, who authored the report.

This asymmetrical price appreciation has been most prominent in Vancouver over the last decade where the price of homes in the highest price range have climbed nearly four times the rate of those in the lowest range.

"Our research suggests this may have major implications for home owners looking to move up who now find they are priced out of this segment of the housing market," adds Mr. Tal. "What's more is that the increase in the average house price masks a widening gap between the surging prices of detached properties and relatively muted increases in the price of condo units."

He also points out that the June report from the Bank of Canada that indicated an elevated number of completed and unabsorbed condo units in Toronto was the result of technical factors such as discrepancies in the reporting time frame between the CMHC and private sector providers and does not represent any fundamental market issues. He notes that more recent observations reveal a notable decline in that indicator, a trend that probably will continue in the coming months.

The report also found there was no notable acceleration in the pace of credit growth in recent months which indicates that the Bank of Canada's recent rate cut to record lows did not fuel a spike in personal borrowing. The report found that while overall household debt levels in Canada are trending upwards, delinquency rates continue to decline, reaching their lowest levels since 2009.

"Even as Canadians take on higher debt levels, it's clear the vast majority are paying their bills on time," says Mr. Tal. "Mortgage delinquencies continue to decline, falling below 0.3 per cent with Ontario experiencing the lowest level at 0.15 per cent, even as Toronto remains one of the priciest housing markets in the country. The same is true in Alberta, where the energy sector's volatile labour market has not yet affected households ability to repay debt."

He adds that while consumer debt led by credit card borrowing is slowly rising, delinquency rates on all consumer credit including credit cards, lines of credit and term loans are decelerating.  "The recent acceleration in credit card activity in part reveals that Canadians aren't transferring as much credit card debt to other credit portfolios."

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/hca-150916.pdf

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SOURCE CIBC World Markets