Ottawa's stricter housing rules slowed mortgage borrowing late last year, but the new policies did little to cool the country's hottest real estate markets and Canadians found other ways to binge on debt.
Mortgage borrowing increased $1.2-billion to $18.9-billion in the fourth quarter of last year, according to Statistics Canada's national balance-sheet report released on Wednesday, marking the slowest pace of borrowing in more than a year.
But rock-bottom interest rates have made it easier for Canadians to increase their lines of credit and other forms of consumer debt, driving up total household borrowing to $28.4-billion in the fourth quarter, from the $18.7-billion borrowed in the third quarter.
"The slowdown in mortgage growth may be a welcome reprieve for policy makers, but belies the fact that borrowing rates continued to fuel households' appetite for other forms of debt," Laura Cooper, economist with Royal Bank of Canada, said in a note.
The new federal mortgage rules, which were designed to ensure Canadians could handle their debt loads, made it harder for prospective buyers to qualify for an insured mortgage. Those requirements went into effect in October, just before the start of the fourth quarter. And although it slowed mortgage-debt accumulation, households are still drowning in debt.
The ratio of debt to disposable income rose to 167.3 per cent in the fourth quarter from 166.8 per cent in the third quarter, according to Statistics Canada. The government agency said this amounted to households owing $1.67 in debt for every dollar of disposable income at the end of last year.
And with the Bank of Canada saying another interest-rate cut is an option, the era of cheap money will not end any time soon. The country's key interest rate has been sitting at 0.5 per cent since mid-2015 when the Bank of Canada slashed rates to deal with the collapse in oil prices.
Although oil prices have rebounded slightly, central bank Governor Stephen Poloz has kept interest-rate cuts on the table amid uncertainties associated with policies from the new U.S. administration.
The low interest rates along with a shortage of houses for sale in Toronto and Vancouver have contributed to a multiyear bull market in real estate. Many buyers have been forced to look outside of the two major cities, driving up housing prices in the surrounding areas.
"There is no denying that markets in Ontario are heating up to a pace that is too hot and certainly unsustainable," Diana Petramala, an economist with Toronto-Dominion Bank, said in a note. "In light of mortgage rates remaining low and mortgage regulation changes having negligible impact on home demand, there appears to be no visible brake that would stop this train in this year," she said.
In Hamilton and Burlington, the average price of housing, including condos and row houses, reached $556,630 in February. That was a 28-per-cent increase over 12 months, according to the Canadian Real Estate Association's latest results released on Wednesday.
The Greater Toronto Area also saw the average home price increase by a third to $875,983 over the year. Meanwhile, the frenetic activity in the Toronto area pushed national home sales up 5.2 per cent from January to February, according to the real estate association.
"It's obvious that Ottawa's measures to clamp down on mortgage insurance eligibility has not done the trick in Toronto," said Douglas Porter, chief economist with Bank of Montreal.
One factor that may have a dampening effect on the Canadian housing market is the U.S. Federal Reserve's moves to raise interest rates this year. If the Fed becomes more aggressive with its rate hikes, this could cause Canadian bond yields to rise along with longer term fixed-rate mortgages.