Canada’s economy has hit a striking new milestone. Real estate secured debt is virtually equal to the country’s GDP.
Statistics Canada says that, as of the end of April, the combination of mortgage debt and home equity lines of credit totaled $1.96 trillion. March GDP clocked-in at $1.98 trillion.
Credit monitoring company Equifax reports that total consumer debt stood at $2.08 trillion at the end of the first quarter of this year. The company says most of that is mortgage debt. It reports that the number of new mortgages in Canada jumped 41% in Q1, compared to the same period a year ago.
The Bank of Canada as warned that high household indebtedness and imbalances in the housing market are key vulnerabilities in the Canadian economy.
Well known economist Benjamin Tal recently pointed out that the Canadian economy – and in particular the housing market – is now very sensitive to interest rate increases. Tal says that even a small increase, of as little as 1.5 percentage points, would be enough to moderate home price growth, which he called “a very good thing.”
Tal also cautions that, if the Bank of Canada falls behind the curve on interest rate hikes to battle inflation it could be forced to speed up the increases, which would have a negative impact on housing.
There is also the on going concern that higher rates will see households devote more of their income to mortgage payments and cut back on other purchases which could slow the post-pandemic recovery we are hoping for.