Residential Mortgage Review

Looking back on 2021 Canada’s realtors saw a very unsettled year. Looking ahead to 2022 they see some calm returning. And Canada’s housing agency draws attention to growing mortgage debt and increasing debt loads.

Market Volatility

The Canadian Real Estate Association’s sales figures experienced some wild swings through the year hitting a seasonally-adjusted, annualized high of 807,250 in March and plunging to a low of 585,250 in August. The year ended with a total of 666,995 residential properties trading hands, just slightly below CREA’s forecast of 668,000. 

The national average price for a home closed out 2021 at $713,500 which is well above the association’s forecast of $687,500. Canada Mortgage and Housing Corporation reports that total mortgage debt ballooned to $1.77 trillion in the 3rd quarter. 

More Debt, Heavier Debt Load

There have been concerns expressed that the level of price growth in Canadian real estate is not supported by economic fundaments, is not sustainable and, therefore, the market is at risk of a collapse. However, CMHC’s research indicates that risk is not serious, yet.

The federal housing agency reports that mortgage arrears (those with payments that are more than 90 days overdue) have actually declined. But CMHC also says that Total Debt Service levels are rising, particularly in uninsured mortgages. Among these mortgages, more than a quarter had a TDS ratio of more than 40%.

On the flip side of that, the share of uninsured new mortgages with a TDS ratio of 40% or less has been on a downward trend for the past year-and-a-half, resulting in more leveraged borrowers. CMHC says that trend could become troubling if it continues.

Tight Supply. High Demand

The real estate association points to tight supply as the main reason for the volatility and price increases. Sales growth has consistently outpaced new listings and inventories have been persistently low.

CREA points out that the number of months of inventory has dropped below 2 months just 5 times in its history and all of them were in 2021. December registered the all-time low of 1.6 months. The long term average for inventories is 5 months. CREA expects that the low supply of homes for sale will continue through 2022.

The Realtors also expect demand will remain strong this year. It is a trend that started before the pandemic and there are no signs it has changed. As pandemic restrictions are relaxed and immigration levels return to normal, demand and price pressures will increase.

Moderation May Be Coming

The association does not expect to see prices continuing to rise at their current rate though. Prices jumped by more than 20% in 2021. CREA is forecasting a more modest increase of 7.6% for this year.

Rising interest rates would be a key reason for price moderation. The Bank of Canada has made it clear rates will be going up sooner rather than later. That will have a direct effect on variable rate mortgages. Fixed rate mortgages have already been experiencing increases due to the behavior of the bond market in a “rising rate” environment. 

Another factor that could help hold prices in check is the mortgage stress test. It is due for a re-evaluation this year. If it remains at its current rate of 5.25% it will continue to limit the borrowing power of young and first-time buyers.



Low inventories, higher prices and higher interest rates have CREA forecasting a 6.8% decline in sales for 2022 and a long-term trend back toward more normal market activity.