Mortgage originations suffer sharp decline in September, says NBC

The drop was the worst for the month of September in roughly a decade

Mortgage originations suffer sharp decline in September, says NBC

Mortgage originations in the country’s chartered banks saw a significant drop of nearly 25% from August to September, according to the National Bank of Canada.

“Not surprisingly given the rate surge in early autumn, mortgage activity was way down in September,” NBC said. “Even though September is traditionally a down month, that’s the sharpest deceleration in at least 10 years.”

Originations totalled $32 billion during that month. However, NBC said while the level might not appear low given that it’s well within the September average seen from 2015 to 2019, home prices are now 40% to 80% more expensive.

“After adjusting for the size of mortgage needed to buy a representative home, today’s activity is much worse,” NBC said. “Only September 2022 is a reasonable comp and of course the backdrop for that month was the BoC tightening 300 basis points over just six months (with more coming).”

Contrary to expectations, a commensurate increase in non-bank lending activity has not been observed.

“[It’s] not the case that Canadians are shunning banks for alternative lenders,” NBC said. “There’s been a sharp slowdown in mortgage credit growth at chartered banks and non-bank lenders alike. Together, the 3.4% year-over-year growth in outstanding residential mortgage liabilities of Canadian households is the slowest in over 20 years.”

What products accounted for most originations in September?

NBC noted that due to the product type’s relative affordability, five-year mortgages appear to be driving more home buyers to “lock in for long, despite historically (and presumably temporarily) elevated rates.”

“The share of fixed rate origination in the 5-year bucket rose again in September,” NBC said. “It’s still historically low, but if this discount persists/grows, this share should rise further.”

NBC said that for many buyers in the current environment, the cheapest rate is the only affordable rate.

“Acceptance of ‘higher-for-longer’ might lead some to lock in and avoid as much uncertainty as possible,” NBC said. “BoC officials are helping to ingrain this, telling Canadians to brace for an era of higher borrowing costs.”