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Mortgage originations driving credit market: TransUnion

A businessman holding up a sign that says mortgage approved.

Credit demand in Canada is inching back to pre-pandemic levels, with mortgage originations leading the way, says a report from TransUnion.

Canadians piled on the most credit through mortgage originations, which grew by 37.5% year-over-year in the first quarter of 2021, comprising $96 billion of new mortgage debt, which increased by 59.5% from the first quarter of last year.

According to Matt Fabian, TransUnion Canada’s director of research and consulting, Canadians began reengaging with the credit market last quarter by inquiring more often for credit enrollment, and they have kept discretionary spending under control in a bid to insulate themselves. However, Canadians with high credit scores are benefiting from the current low interest environment and Fabian says that’s driving the country’s housing market.

“Even though home prices are up, the cost of mortgages is cheap right now,” Fabian told CREW. “Mortgage originations are not growing at the same pace as they were previously; demand is somewhat exhausted but there’s still growth.”

An interesting development in the second quarter, which could either be an aberration or a nascent trend, is Generation Z’s participation in the homeownership market surged by 94%, although Fabian says the overall number is still quite low, hovering somewhere around 20,000. Nevertheless, he wonders if demand from the cohort will soften or remain consistent over the next few quarters.

“It seems like a combination of low interest rates and record savings people have been able to accumulate, because they couldn’t spend on anything else, has fuelled entry into the market. How long it lasts, who knows? It might taper off for the Gen Z folks,” he said. “It could be pent up demand for them or they’re getting to that life stage where there will now be a shift towards younger homeowners.”

Lenders will want to keep a close eye on this development, because if the shift towards younger homebuyers has indeed arrived, financial institutions will roll out broader services since millennials and Generation Z are wont to do everything on their phones, expeditiously and at one-stop shops, says Fabian.

The Bank of Canada could raise its benchmark interest rate and that would likely be the coolant needed to slow down national housing market activity, which, despite sliding on a monthly basis from a March peak, remains above the 10-year average. If that occurs, stringent lending practices will keep the mortgage delinquency rate low, says Fabian.

“The key issue right now in the mortgage space with lenders is interest rate risk,” he said. “Historically low rates have been powerful for markets but that could switch if inflation fears cause interest rates to rise. So far, the Bank of Canada has been standoffish in terms of interest rate increases and treating inflation spikes as a transitionary thing with the economy, but if they keep feeling pressure they will increase interest rates, which will drive up mortgage rates. With the new rules around mortgage qualifying, it won’t raise delinquency rates but it could cool off the demand.”

About the Author

Neil Sharma is the Editor-In-Chief of Canadian Real Estate Wealth and Real Estate Professional. As a journalist, he has covered Canada’s housing market for the Toronto Star, Toronto Sun, National Post, and other publications, specializing in everything from market trends to mortgage and investment advice. He can be reached at neil@crewmedia.ca.

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