Jun 13, 2018
Pattie Lovett-Reid: Canadian consumer debt mounts again, but here’s the good news
For indebted Canadians, the day of reckoning may come to bite – but it sure isn’t here yet.
While non-mortgage consumer debt grew by 4.6 per cent in the fourth quarter to $29,312, compared with the same period last year, the average consumer delinquency rate for loans that were at least 90 days past due dropped 23 basis points to 5.3 per cent, according to a new TransUnion report. Meanwhile, the volume of accounts entering collection status in the quarter fell 26 per cent to 725,000, TransUnion said Wednesday.
In other words, while Canadians are borrowing more, they are increasingly making payments on time.
This is good news considering the odds that the Bank of Canada will raise interest rates in July are now at more than 70 per cent. In fact, in a recent Financial System Review, Canada’s central bank highlighted how the economy’s key vulnerabilities lie in its housing markets and Canadians’ indebtedness.
Of course, we’ve heard this before. Yet the good news from TransUnion’s latest report is that it appears the imbalances are showing early signs of easing due to Canada’s new mortgage rules.
The consumer credit agency found that mortgage origination volumes declined 8.8 per cent overall, while Toronto – the country’s largest housing market – saw the largest drop of 21 per cent in the fourth quarter.
And here is where Canadians are driving up debt: The average amount on the revolving line of credit was $18,806, an increase of 1.1 per cent year-over-year. This is primarily due to an increase in total credit card balances. Consumers also continue to love buying cars with auto loans growth rising 7.1 per cent to $29,071 in the quarter.
However, the focal point of the report for me is that serious delinquency rates remained relatively stable. Credit card consumers delinquency rates on loans at least 90 days past due were stable at 3.1 per cent, while 60-day delinquencies on auto loans ticked higher by 8 basis points but remained relatively low at 1.89 per cent, TransUnion said.
In Canada’s oilpatch, where many workers have been hit in recent years by depressed oil prices, TransUnion found that serious consumer delinquency rates have rebounded, falling 15 basis points in Alberta and 39 basis points Saskatchewan in the fourth quarter.
Canadians for the most part are meeting their debt obligations for now.
While it takes a while for interest rate increases from 2017 to kick in, it appears Canadians continue to manage their financial situation quite well. However, you can be sure the Bank of Canada, financial institutions and consumers will all be paying close attention to further rate increases given that 28.5 million consumers have access to credit in Canada.
