Hot Housing Market Drives Overall Consumer Debt Higher Ahead of New Mortgage Stress Test

TORONTO, June 08, 2021 (GLOBE NEWSWIRE) -- While most consumers are ratcheting back on their credit card debt, homebuyers have pushed new mortgage volumes to unprecedented levels according to Equifax Canada’s most recent report on consumer credit conditions. New mortgages are up 41.2 per cent in Q1 compared to Q1 2020 and the average limit on new mortgages grew by 20.5 per cent to $326,930. 

Overall consumer debt now stands at $2.08 trillion, up 0.62 per cent from last quarter and up 4.78 per cent from Q1 2020. Much of the new mortgage growth adding to the overall debt was driven by B.C. and Ontario, which saw jumps of 59.2 per cent and 44.3 per cent in volume respectively compared to Q1 2020.

“Low interest rates and speculation around U.S. inflation impacting our interest rates has fueled mortgage volumes as consumers fear future interest rate hikes,” said Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada. “Competition among homebuyers is fierce in many markets across the country. We’ll monitor whether the new mortgage stress test helps to cool off the hot housing market.”

The Office of the Superintendent of Financial Institutions (OSFI) introduced new mortgage stress test criteria in June to set the qualifying rate on uninsured mortgages at a contracted rate plus two percentage points or 5.25 per cent, whichever is higher, which will limit the purchasing capacity of a lot of buyers and might help slow down the overheated mortgage market.

Credit card debt plummets to a new low, reaching 2015 levels

Despite the increased activity in the housing market, most Canadians are living more frugally as credit card debt has continuously declined since the pandemic began. Credit card debt is now at its lowest level in six years as consumers are paying off debts more than they are spending. On average, credit card balances dropped by 9.9 per cent in Q1 of this year compared to last year and by 4.2 per cent compared to the last quarter of 2020.

“Lower interest rates, multiple lockdowns and higher unemployment rates have led to changes in consumer behaviour, which has slowed overall credit card growth during the pandemic,” said Oakes. “While deferral programs have come to an end for most consumers, government incentives are still in place, which has helped consumers in paying down their credit card debt.”

The number of cards per consumer has been on a downward trajectory since 2016. Consumers are moving away from multiple cards and being more careful with their credit. Younger consumers who are more likely to miss payments on credit cards have also seen a drop in their spend-to-payment ratio. Likewise, Gen Z has managed to reverse this ratio and are also paying off their credit card debt.

The average consumer debt (excluding mortgages) dropped again this quarter to $20,430, which is a year-over-year decrease of 4.2 per cent from Q1 2020.

Delinquencies continue to decline

Non-mortgage delinquencies saw a year-over-year decline of 21.8 per cent and a quarter-over-quarter decline of 4.0 per cent with credit cards and non-bank auto loans showing the biggest drop.

The 90+ day mortgage delinquency rate dropped by 19.0 per cent compared to Q1 2020 and by 7.4 per cent versus Q4 2020. Mortgage delinquency rates are at an all-time low, but there are some variations across cities and provinces. Most provinces and cities have shown a decline in mortgage delinquencies except for Vancouver and Fort McMurray. Vancouver showed a 14.6 per cent increase in the 90+ day mortgage delinquency rate compared to Q1 2020, while Fort McMurray showed the biggest spike with a 38.0 per cent increase compared to the previous year.

“The road to recovery continues to be uneven with non-mortgage delinquency rates among younger consumers (under 35) on the rise since last quarter, but older consumers have managed to keep their non-mortgage delinquencies at lower levels,” added Oakes. “Successful vaccine rollouts will be the critical factor in opening up the economy, which will have a big impact on consumer spending and debt management. Canadians should be preparing themselves for a point in time, which will likely come in this calendar year, when governments begin to rein in support mechanisms.”

Debt (excluding mortgages) & Delinquency Rates

Major City Analysis – Debt (excluding mortgages) & Delinquency Rates

Province Analysis - Debt (excluding mortgages) & Delinquency Rates

* Based on Equifax data for Q1 2021

About Equifax
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