Canadian mortgage debt has grown too heavy and will likely result in a financial crisis, charges a Vancouver-based housing market analyst.

“It gets harder to service the debt, and history is very clear: when you have a massive amount of household debt, debt servicing becomes difficult, even at negative interest rates,” said Steve Saretsky. “It can lead to a financial crisis—that’s proven itself throughout history. In Canada, it’s a systemic problem. I think housing now is too important to the Canadian economy, which is why the government doesn’t want to interfere with it.”

According to a report from Statistics Canada, household mortgage debt grew by $12.9 billion in March, followed by a larger increase of $17.7 billion in April. Compared to April 2020, Canadian mortgage debt has increased by 7.8%.

“Overall, the total credit liabilities of households reached $2,482.3 billion by the end of April. Real estate secured debt, composed of both mortgage debt and home equity lines of credit, stood at $1,961.9 billion,” said StatCan.

Canadian households carry $782.7 billion of non-mortgage debt, adding to the heavy collective debt load. Saretsky noted that household wealth, the GDP and consumer spending are largely built on debt, and that appears to be the only way to support housing prices. However, it’s only a matter of time before it collapses on itself.

“Everyone has been talking about debt for 15 years now, but the problem isn’t going away, it’s just getting bigger,” he said. “Eventually, we will have a credit crunch and it’s only a matter of when it happens—it could be a year from now or 15 years from now—but it’s inevitable with private debt.”

As a result of the looming crisis, it is probable that policymakers intervene in some way, but it will only delay the unavoidable, says Saretsky.

“In the next crisis, what will policymakers do? Some form of mortgage deferrals is coming back. It had proven to be a fairly successful program during the pandemic. Extending amortizations is another one, but eventually household debt will drag everything down.”