Canadian Consumer Debt Hits $1.88 Trillion As Home Sales Reach Fever Pitch

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Canada’s hottest housing markets kept up a frenzied pace of activity in October, even as new numbers from RBC showed consumer debt loads reaching yet another record high.

Household debt loads have grown 5 per cent over the past year, to $1.88 trillion, RBC said in its latest credit report. Much of that was driven by mortgage debt, which grew by $74.7 billion, or 5.9 per cent, in the 12 months to October.

It’s no mystery where that additional borrowed money is going: House prices in Canada are up 6.1 per cent on average in the past year, in line with mortgage debt growth.

With already-low mortgage rates pushed to rock bottom after the Bank of Canada’s interest rate cuts earlier this year, home sales are reaching a fever pitch.

Toronto realtors reported their best month for sales ever in October, with 8,804 homes sold. An average detached home in the city now costs $1.071 million, up 12.5 per cent from a year ago. Condo apartments are up 4.2 per cent, to an average of $406,972.

Some of Toronto’s suburban and exurban regions, such as York and Durham, have seen even stronger price growth, of 12 to 15 per cent over the past year.

Prices in Toronto itself are up more than 42 per cent in the past five years, the MLS index shows.

Sales growth has been even stronger in Vancouver recently, up 19.3 per cent in the past year. The price of a detached home in the metro area soared 20.1 per cent, to $1.197 million, the regional real estate board reports. Apartment properties grew 11.4 per cent in price, to an average of $425,800.

With debt levels peaking and most economists doubting the Bank of Canada will lower rates any further, some observers say this hot run-up in sales and prices coming to an end.

“With 70 per cent of Canadian households already owning their own homes and housing affordability declining with the bottoming in mortgage rates and the rise in house prices, lending activity will inevitably slow,” Dominion Lending Centres chief economist Sherry Cooper wrote last month.

Cooper says Canada has reached “peak” housing, but she expects the coming slowdown to be “gradual and measured. … We will not experience a housing crash as some Cassandras have predicted for decades.”

Some observers fear the rapid pace of house-price growth has pushed some number of Canadians to engage in mortgage fraud. The issue came into the limelight again Thursday when Home Capital, Canada’s largest alternative mortgage lender, said as much as 10 per cent of the value of its mortgages originated from brokers who have been accused of fraud. Home Capital severed ties with 45 accused brokers earlier this year.

But some in the industry still see nothing but growth ahead. Jason Mercer, head of market analysis at the Toronto Real Estate Board, says demand for new homes is strong enough to keep the market up.

“Even if we do see a greater supply of low-rise listings in the marketplace over the next year, market conditions will remain tight enough to see continued price growth well-above the rate of inflation,” he said in a statement.

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