The end of mortgage growth? Not yet

Boyd Erman, The Globe and Mail


For all the talk of rule changes slowing the growth of the Canadian mortgage market, some surprising statistics from the Bank of Canada show that has not been happening in any significant way.

Policy makers trying to cool the growth of household debt and home prices may not like it, but bank investors should given what it bodes for profits in the quarter that just ended.

The outlook for mortgage growth has been cloudy amid all the changes that Ottawa has made to try to dampen Canadians' ardour for borrowing, and mortgages are still by far the biggest business for Canadian banks.

After a strong showing for mortgage growth in the fiscal third quarter for banks (which ended July 31), few people would have been surprised by a marked slowdown in the fourth quarter as the changes finally begin to bite significantly into mortgage demand. Add to this signs that the housing market is slowing in key markets, with fewer sales and even soft prices, and the table is set for a significant drop in mortgage growth.

The thing is, it's not happening, at least not yet.

Digging through the Bank of Canada's statistics, total residential mortgages at Canadian chartered banks increased in August and September at a pace that is at or better than the average over the past 10 months.

(That's as far back as the numbers are easily comparable, because of changes resulting from the implementation of new international financial reporting standards, so keep in mind this is a limited data set. The Bank of Canada numbers are also not seasonally adjusted; then again, neither are earnings numbers.)

In August, mortgage balances rose 0.74 per cent from July. In September, the month-over-month gain was 0.54 per cent. That's compared to an average increase of 0.56 per cent in the past 10 months.

To be sure, the fourth quarter (which ends Oct. 31 for Canadian banks) likely will not be quite as strong as the third for mortgage growth, when the month-over-month gains clocked in 0.75 per cent (May), 0.67 per cent (June) and 0.77 per cent (July). Gains in volume may also be offset to some extent by lower margins as banks battle for share in a tougher market.

Still, volume growth in the quarter that just ended should compare favourably with the first and second quarters. Of course, this all hinges on October's numbers not falling completely off the map. That said, the first two months of the quarter were strong enough that even a weak October shouldn't do too much damage.

Will this change the perception that a slowdown in the mortgage business is inevitable? Not likely. Bank executives are clearly also expecting to require other engines of growth, as evidenced by recent purchases of lending businesses by Royal Bank of Canada and Toronto-Dominion Bank.

Meanwhile, the home-finance business keeps on giving for bank shareholders.

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