Canadian Consumer Credit Is Contracting For The First Time Since The 1980s

Canadian households cooled on borrowing, but mostly just in one segment. Bank of Canada (BoC) data shows household debt stalled in May, after peaking in March. On the breakdown, mortgage debt is seeing growth boom as hundreds of thousands of Canadians stop making payments. Consumer credit on the other hand, made the first contraction since the 1980s.

Canadian Household Debt Is Flat From A Month Before

Household credit growth has begun to stall, a first in a very long time. The balance hit $2.29 trillion in May, virtually flat from a month before. This represents a 3.6% increase compared to the same month last year. This is the lowest growth since June 2019, which doesn’t sound that bad. Until you realize February to June of last year saw alarmingly low growth, not seen since the 1980s.

Canadian Household Debt Outstanding, Percent Change

The annual percent change of total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Mortgages Debt Is Soaring, As Fewer People Make Payments

Slowing growth isn’t due to mortgage credit, which more than made up for a drop in consumer credit. The balance of mortgage debt reached $1.68 trillion in May, up 0.6% from the month before. This represents an increase of 6.0% compared to the same month last year. An important note here is the dynamics of this increase are a little wonky. Over 740,000 mortgages are on payment deferral, helping to push balances higher. This helps to offset the fact real estate sales are facing reduced volume.

Canadian Household Debt Outstanding In Dollars

Total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Consumer Credit Makes First Annual Decline Since 1983

Consumer credit on the other hand has been crashing to multi-decade lows for growth. The balance fell to $614,980 in May, down 1.59% from a month before. This represents a decline of 2.33% compared to the same month last year. Negative prints for consumer credit are extremely rare. Last month was the first since May 1983.

Canadian Household Debt Change

Annual percent change in debt held by Canadian households.

Source: Bank of Canada, Better Dwelling.

Household credit growth is slowing, despite heavy growth in the mortgage segment. Mortgage credit growing while hundreds of thousands of households are on payment deferrals isn’t an optimistic scenario. Negative growth for consumer credit is likely to reverse as lockdown conditions are lifted. However, the lack of spending is still likely to ripple through the economy.

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  • Mortgage Guy 2 years ago

    If consumer credit down, and mortgage credit up isn’t the sign Canada is just a housing economy, I don’t know what it.

    • Trader Jim 2 years ago

      Which puts a hole in the mindset being pushed that higher debt is renewed confidence.

    • Gabriele Di Bernardo 2 years ago

      Just wait to see what happens when deferrals of mortgages, loans, etc. are done. That along with Government ending of programs like CERB will destroy the economy more so than it’s already been destroyed.

      • Mark 2 years ago

        Don’t be fooled about mortgage defferals and the discontinuation of CERB. Firstly, the Elitists have destroyed the old economy and it is not going to return back to normal. They want to kill all the industries that use fossil fuels. And for the people who have lost their jobs in these industries, they are being given minimal income (CERB) and the people can sit at home and watch TV and the News. This is called guaranteed basic income. And it will be paid forever to everyone!

        As for the mortgage defferals, these will be covered by non other than CMHC who have insured mostly all these less than 20% down mortgages. So the banks will continue getting their interest payments for at least 2 years. So no chances of any foreclosures.

        This is a Win Win for everyone concerned, except those who are savers and financially prudent. Pension funds have been hit due to zero % interest rate policies since 2010.

  • Kathleen Thomson 2 years ago

    CERB is just a transfer of private debt to government debt.

  • James Wilson 2 years ago

    Cannabis bubble be popping too. What an excellent time for all of those new yet to open cannabis shops to flood the market in Toronto.

    • OM 2 years ago

      Queen West is just cannabis shops coming soon and empty store fronts. lol

  • straw walker 2 years ago

    Canadians paying down debt is a sign that consumers have lost faith in the economy.
    US truck tonnage is not a leading indicator of the US economy , but a graph comparing it to the S&P index shows that the stock market must eventually follow the economy..

  • Mark 2 years ago

    The stock markets no longer reflect the strength in the economy. Millions of businesses have gone bust and 100’s of millions of people around the world are unemployed and the stock markets continue to break records.

    Don’t be in any illusion, unless you are a trader do not gamble your savings in the markets because the central banks are printing digital dollars and are buying up stocks and corporate bonds to fool the public that there is a V recovery of the economy.

  • zalzon 2 years ago

    Remind me why CMHC purchased $150 billion of sub prime mortgage garbage from banks hastily at the start of the pandemic and offloaded those huge & impending mortgage defaults onto the backs of taxpayers?

    Who’s interests does CMHC and it’s chairman Evan Siddall represent? Seems like it’s an organization masquerading as a social program when in fact it’s a scam to privatize bank profits and socialize bank losses.

  • neo 2 years ago

    Not exactly, they are killing the old bricks and mortar economy for everything other than the huge multinationals. The goal is to have a digital economy with a digital currency where all interactions are digital and people have limited mobility and reason to physically leave their homes. Basically most social and commercial interactions occurring online. Covid is allowing this to happen on a grand scale under the guise of public health.

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