Canada’s hot housing market was behind a 41.2% annual increase in new mortgages as of the first quarter, Equifax Canada reported.

The average mortgage amount also rose by 20.5% to $326,903.

“Low interest rates and speculation around U.S. inflation impacting our interest rates has fueled mortgage volumes as consumers fear future interest rate hikes,” Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada, said in a release.  “Competition among homebuyers is fierce in many markets across the country. We’ll monitor whether [OSFI’s] new mortgage stress test helps to cool off the hot housing market.”

The increased mortgage demand pushed consumer debt in Canada to $2.08 trillion, up 0.62% from the previous quarter and a 4.78% jump from a year earlier.

Meanwhile, a pandemic-induced drop in spending led to credit card debt plummeting to 2015 levels. Equifax said credit card balances dropped an average of 9.9% compared to 2020. “While deferral programs have come to an end for most consumers, government incentives are still in place, which has helped consumers in paying down their credit card debt,” Oakes added.

The average consumer non-mortgage debt now stands at $20,430, a 4.2% drop from Q1 2020.

CMHC Pulls U-Turn on Mortgage Tightening

The Canada Mortgage and Housing Corporation (CMHC) announced earlier this month that it will be returning to its pre-July 2020 mortgage underwriting practices.

The agency lost about half of its market share among mortgage insurers soon after it  introduced stricter underwriting guidelines last July in response to the pandemic.

Those measures included reducing the maximum total and gross debt service ratios needed for an insured mortgage, increasing the minimum credit score to 680 from 600 and banning non-traditional sources of down payments.

“We are taking this action because our July 2020 underwriting changes were not as effective as we had anticipated and we incurred the cost of a decline in our market share,” CMHC said in a release. “A healthy market share is an important consideration as it helps us fulfill the financial stability aspect of our mandate. We aim to maintain enough presence to be able to: a) step in to support financial stability and b) absorb additional market share as required.”

Private mortgage insurer Sagen reported a rise in market share to about 43%, up from 30-35% a year ago, while Canada Guaranty confirmed its share rose to around 30%, up from mid-20% a year earlier.

This means CMHC will once again consider a Gross Debt Service (GDS) ratio up to 39% (up from 35%) and Total Debt Service (TDS) ratio up to 44% (up from 42%) for borrowers who “have a strong history of managing their payment obligations.” The minimum credit score needed to be approved by CMHC will return to 600 from 680.

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