Canadians are scrambling to get mortgages, and pensions are scrambling to get the credit on those mortgages. Numbers from the Bank of Canada (BoC) show pensions are turning to residential mortgage credit for growth. Much like Canadian real estate prices, this trend accelerated last year.

Pensions Have Been Moving Into Mortgage Credit

Since the world adopted ultra-low interest rates, global pensions have been chasing yield. In plain English, they want better returns from interest or dividend paying instruments. These yield chasers have been increasingly turning to “illiquid credit,” like mortgage credit. Dutch pensions led the way, and UK pensions have been following since 2015. Canadian pensions have also been doing this at a rapid pace as well, it turns out people just aren’t aware.

Pensions Own Over $27.7 Billion of Mortgage Credit

Canadian pensions have been rapidly acquiring residential mortgage credit from lenders. The current balance of residential mortgage credit held by pensions is now $27.7 billion as of December. This is a 4.92% increase from the month before, and a massive 37.49% increase compared to the year before. It’s hard to get a sense of scale when dealing with such large numbers, so let’s break this trend down.

Source: Bank of Canada. Better Dwelling.

Residential Mortgage Credit Held By Pensions Doubled In 3 Years

If those growth numbers sound huge, that’s because they are. In 2017 alone, pensions acquired more that $7.55 billion of residential mortgage credit. That brought the balance up to double what it was, just over 3 years ago. Before that, it took 27 years for the balance of their mortgage debt books to rise. The purchasing of this form of illiquid credit does appear to be a little more hurried than normal.

Source: Bank of Canada. Better Dwelling.

Pensions are just as hungry for real estate exposure, as most Canadians have been. This trend isn’t a bad thing by itself, however, it does underline how Canada is becoming increasingly dependent on the real estate market. Pensions are looking at massive shortfalls in just a few years, and they think the solution is more exposure to real estate. Now more Canadians than ever are becoming reliant on real estate for their retirement. Even if they don’t own real estate themselves.

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