National lending market to noticeably cool down starting 2017 - CIBC

by Ephraim Vecina17 Feb 2017

The Canadian lending market is expected to slow down slightly in the next few years as stricter mortgage rules (including a federally-mandated stress test) finally begin to make themselves felt, according to a CIBC forecast released earlier this month.

In the report titled “Household Borrowing: Elevated but Slowing”, Benjamin Tal of CIBC wrote that various elements will converge this year to trigger a slowdown in the national mortgage sector.

“As for 2017, we expect the pace of growth in mortgage originations to cool, reflecting factors such as reduced affordability due to tougher qualification criteria, increased share of less expensive (condo) units in total housing sales, marginally higher mortgage rates and slowing activity in centers such as Vancouver,” Tal stated.

The total value of new originations in Canada last year was estimated to be more than $405 billion last year, representing a 5.5% increase from 2015.

Tal also predicted that slower activity in credit vehicles across the board will cause household credit outstanding to soften a bit compared to market performance in around the past 2 years.

“Growth in household credit in 2016 was very stable with outstanding rising by just over 5% on a year-over-year basis. On an inflation-adjusted basis, household credit is still rising by a full percentage point below its long-term average,” the report explained.

“That is, despite the drama in the housing market, the recent pace of credit growth in Canada is not rapid by any stretch of the imagination. And we expect that pace to slow in the coming years.”

CIBC added that mortgage debt outstanding will grow by around 5% year-over-year in the next 2 years. At present, mortgage credit is increasing by nearly 6% annually. Mortgages comprise almost 72% of total household credit nationwide, the highest level in nearly 20 years.

Arrears are hovering near 0.30% nationwide, with the Atlantic Canada region posting the highest arrears rate at 0.65%, and Ontario having the lowest at 0.14%.

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