Canadian Households Struggle with Debt as Delinquencies Rise
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
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A New Reality for Many Canadian Borrowers
Canadian households are starting to realize why so many agencies warned against borrowing excessive debt. A new report from Equifax Canada shows that more households are struggling to repay their super-sized debt loads. This trend is particularly amplified in more expensive regions, where delinquencies are rising faster than the national average. Early signs indicate this trend may be just getting started.
Canadian Households Slow Down On Borrowing, But Growth Still Brisk
Canadians have slowed their credit borrowing but still maintained a brisk pace. Outstanding household credit climbed 3.5% to $2.46 trillion at the end of Q1 2024. The vast majority of that debt was mortgage credit, representing 74% of the outstanding balance. This high level of debt is becoming too much for many consumers to carry.
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Canadian Credit Delinquencies Rise, Households Flee Expensive Regions
Canadian credit delinquencies are climbing, especially in the most expensive regions. Although the national delinquency rate is lower than pre-pandemic levels, some regions are too indebted and expensive to avoid setting new delinquency milestones. The mortgage stress test introduced in 2016 has helped mitigate part of the issue, but it hasn't been enough.
Equifax reported that Ontario’s balance of delinquent mortgages, those more than 90 days past due (DPD), exceeded $1 billion in Q1 2024 for the first time ever. The most expensive real estate markets—Toronto and Vancouver—are seeing higher delinquency rates.
“Notably, both Toronto and Vancouver now have higher delinquency rates (90+ day balance) than in Q1 2020,” read the agency’s report.
The mortgage delinquency rate in Toronto climbed 5 basis points (bps) to 0.14% from Q1 2020 to Q1 2024. In Vancouver, the rate climbed 3 bps to 0.14% over the same period.
The high cost of living in BC and Ontario has led to a noticeable exodus from these regions. “As high home prices and reduced affordability continue in some geographies, more consumers are making the decision to relocate to more financially accessible regions,” said Rebecca Oakes, Vice President of Advanced Analytics at Equifax Canada.
In the last 12 months, the number of individuals who moved from Ontario and British Columbia to other provinces exceeded those who moved to Ontario. Almost 71 percent of all interprovincial movement to Alberta came from these two provinces alone.
Not Just Mortgages: 1.26 Million Canadians Missed Credit Payments In The First Quarter
When households are low on cash, the mortgage is usually one of the last things they skip paying. Non-mortgage credit often provides earlier insight into household financial health, and if that holds true, the outlook isn't promising.
The number of consumers that missed a payment climbed 12.2% over the past year to 1.26 million people in Q1 2024. This was the highest level since 2020. While missing a single payment isn’t a problem by itself, the risk of default rises as more payments are missed.
This trend is particularly severe in the most expensive regions, where households have been fleeing. Missed payments for non-mortgage accounts saw higher annual growth in Ontario (+14.6 %), BC (+13.4 %), and Quebec (+15.2 %).
Higher interest rates have contributed to rising delinquencies, with a recent record sharp climb. Stress testing reduced the volume of expected delinquencies, but it wasn’t enough. The issue extends beyond mortgage borrowers, affecting non-mortgage borrowers as well. Ultimately, the trend boils down to the cost of living and the amount households have to borrow to survive.
Purpose-Built Rental Apartments Offer Stability Amid Housing Crisis
While homeowners are struggling with rising mortgage delinquencies, purpose-built rental apartments have remained unaffected due to the shortage of rental units driven by massive immigration to Canada in recent years. This trend provides a glimmer of hope for those seeking stable housing options amidst the financial chaos.
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Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
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