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Canadian mortgage debt is on the rise, according to a recent CIBC Economics report.
Mortgage debt hit approximately $1.2 trillion in the second quarter of 2015, up from about $923 billion during the same period five years ago.
The increase is not the result of more people buying homes, according to the bank. Rather, CIBC attributed it to the average size of a Canadian mortgage, which it says is rising.
Nowhere is this more evident than in Toronto and Vancouver, where home prices continue to rise well above the national average.
“The greatest challenge facing the hot Toronto and Vancouver housing markets, is the continued asymmetrical price appreciation where for the past decade, the prices of more expensive properties are rising faster than less expensive properties,” said Benjamin Tal, CIBC’s deputy chief economist and the report’s author, in a news release.
A recent Sotheby’s report found that sales of million-dollar-plus condos, townhomes and single-family homes rose by 56 per cent in the GTA and 48 per cent in Vancouver year-over-year during the first half of 2015.
As buyers behind purchases like these are shelling out more money on housing, more are paying higher mortgages, thus driving up the overall level of mortgage debt across Canada.
In an interview with BuzzBuzzHome News, Tal said he expected the trend to continue “at least for the next year or two.”
“It’s very difficult to see what will stop it,” he told BuzzBuzzHome News. “You need higher interest rates to stop it.”
The Bank of Canada recently maintained the low overnight interest rate of 0.5 per cent amid global economic turbulence. The next interest-rate announcement is slated for October 21st.
With more debt on their shoulders, Canadians have actually been more prudent with their repayment.
Although Canadian debt levels are climbing and luxury home sales rising, borrowers are paying back their creditors on time more often. Delinquency rates have dipped to their lowest level since 2009.
Mortgage arrears fell just below 0.3 per cent in June, according to the report, with Ontario seeing the lowest delinquency rate at 0.15 per cent, said Tal. The highest rate was in Atlantic Canada at a rate of about 0.60 per cent.
“Even as Canadians take on higher debt levels, it’s clear the vast majority are paying their bills on time,” Tal stated in the release.