CMHC Data Reveals Falling Vancouver and Toronto Mortgage Debt Ratios

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While mortgage debt indicators in Canada are looking good right now, the Canada Mortgage and Housing Corporation is advising people to interpret the latest figures with context. While Q2 2020 saw a sharp fall in mortgage debt-to-income ratios, it’s not as if households across the country had some giant windfall that they used to pay off their debts. The government transfer programs, which were launched recently, are thought to have a hand in this fall.

Mortgage Debt To Income Ratio

Mortgage DTI stands for the percentage of current mortgage debt to disposable income. In case the mortgage debt increases faster than your income, this ratio increases accordingly. On the other hand, if your income increases faster than your debt, this ratio decreases accordingly. Sharp and sudden rises in this indicator generally mean that Canadians are spending way beyond their means.

Falling DTI ratios usually mean that people are becoming more responsible with their mortgages. However, the accuracy of this indicator during the COVID-19 pandemic has come under question. Even though primary income levels have fallen in several cities, this ratio continues to fall as well. Despite mortgage debt increasing significantly and primary income falling 7.4% during Q2 2020, government transfers changed everything dramatically.

While the current situation would have normally resulted in an increasing ratio, the CMHC stated that CERB had boosted disposable incomes by around $50B during this quarter, increasing income by nearly 13%. The government handed out more money than the income lost by Canadians due to the crisis. Since the mortgage debt to income ratios also take government assistance into consideration, it does not reflect the situation accurately.

Canadian Mortgage DTI Ratio Exceeds 105%

The mortgage DTI ratio has been declining sharply throughout the country. The national DTI ratio fell to around 105.35% during Q1 2020, which was a fall of 9.01% points compared to 115.08% seen during the last quarter. It’s also the lowest it has been since 2013.

The Mortgage DTI in Toronto Dropped 8 Points

Households in Greater Toronto experienced a smaller drop than the others but it still had a major impact. The mortgage DTI fell from 148.24% in Q2 2019 to 141.05% in Q2 2020. The highest ever recorded figure was in 2018, back when this ratio hit 149.06 points. While the mortgage DTI ratio in Greater Toronto is dropping, the drop is less than average compared to other cities.

The Mortgage DTI in Vancouver Dropped 21 Points

Households in Greater Vancouver experienced one of the most phenomenal drops in their mortgage DTI ratios. This ratio fell from 168.17% in Q2 2019 to 152.84% in Q2 2020. Q2 Mortgage DTI ratios hit their peak in 2018 but have fallen 21.88 points since them. This area is experiencing a higher drop than the average national level.

It should be noted that the mortgage DTI ratio drops across Canada are illusory and not rooted in reality. Apart from supporting income, CERB transfers also boosted them significantly. Once the programs are terminated, the ratios will reflect reality better. Given how mortgage debt remains on the rise, the ratios may even head north after the pandemic.