Canadians are beginning to show minor signs of financial stress, but it’s worth noting. Transunion data shows credit delinquencies for nearly all segments rose in Q4 2022. A big exception was mortgage loans, which remain near the all-time low. However, it’s worth noting that traditionally, mortgage delinquencies lag other credit segments. Consumers experiencing financial stress often triage their liabilities, prioritizing shelter payments.
Canadian Mortgage Delinquencies Are Near Record Lows
Canadian mortgage costs might be on the rise, but payments are showing no signs of stress. In fact, annual growth for the share of delinquencies showed a significant decline (-10.0%). Just 0.18% of outstanding mortgages were 60 days past due (DPD), the lowest this decade, and likely a record.
Canadians Are Falling Behind On Other Segments of Debt
Inflation and rising interest rates might be pushing borrowers to their limits. Delinquency rates showed huge annual growth for installment loans (+49.0%), auto loans (+23.8%), lines of credit (+21.9%), and credit cards (+17.1%). Such a fast rise in rates doesn’t exactly scream, “everything is fine.”
Despite the surge, the actual delinquency rates remain a small share of loans. Installment loans led for its delinquency rate (2.02% of all accounts), followed by auto loans (0.77%). Credit cards (0.5%), and lines of credit (0.24%) were even lower. A low delinquency rate that’s rising aggressively isn’t something to quickly dismiss.
Source: Transunion.
Is This A Problem or Normalization of Credit Problems?
Consumers facing financial difficulty triage their loans, paying the most important first. It’s easier to lose your hot tub than home, so installment loans fall behind before mortgages. Auto loans, credit cards, and lines of credit also tend to be less important than mortgages, and rise first. That’s exactly what we’re seeing with this data.
There are also more mitigation strategies available when it comes to mortgage loans. A homeowner can sell their home before defaulting, or refinance for a lower payment. It’s not until liquidity disappears and buyers won’t absorb a home at the price asked that mortgages fall behind.
Liquidity is more difficult for items purchased with other types of loans. No one wants your used hot tub, especially for anywhere near the amount that you paid.
Don’t read too much into rising delinquencies at these levels. It resembles normalization to pre-2020 levels. We’ve only just begun to see hardship programs that prevent defaults disappear. Over the past few years, it was difficult to find a lender that wasn’t willing to overlook missed payments. Going back to 2019 levels is far from the end of the world.
However, rising delinquencies don’t usually stop without a mitigating event. If rates rise past 2019 levels, and housing inventory begins to uptick, it’s time to worry. Especially if accompanied by rising unemployment.
That’s because people need a place to live and don’t give a crap about their credit cards or car payments. They’re afraid of being thrown out on the streets.
Also because a substantial amount of them have income from rent from such as basement apartments, or 2 families live in the house hold.
I love reading your posts, and have been following them for a few years now. Thank you!
I do notice that your articles would be more polished and appear more credible if you had a good editor scan them before publication.
In this article for example, British Columbia is miss-spelled (“Colombia”). There is also a spacing gap (“…the amount that you paid”). Tiny mistakes but they are noticed.
Best regards,
Mushmo
Had to check twice and then do a search, because I didn’t see any content about BC. I just realized you’re referencing the chart from Transunion. Technically the world’s largest consumer credit agency needs a proof reading. haha.
typos happen.
Some references and links to supporting information would be good to…
The only thing I get out of this article is that Canada is in good shape
We do not have a financial problem
People are only defaulting on everything else and not their mortgages
So we are doing just fine
I am just wondering what made the mortgage holding banks change the way they calculate risk …..
They seem to be very happy keeping mortgage holders that default on everything else, but not on their mortgages
Yes, it must be true
We are a very fiscally responsible people and our banks are the most fiscally responsible in the world
Yeah, I mean if you don’t understanding what you’re looking at I can see that being the takeaway.
Right?!? Hahahah.. so the first thing people will not pay will be bills and credit cards… Later if/when things get worse is with the housing and mortgage default happens….
People are defaulting on payments= we are in good shape financially…. Just what?!?
Is this sarcastic?
Mortgage Delinquencies and Defaults are lagging indicators. Look at the US Fed Data from the 2007/8 financial crisis. When you overlay house prices and defaults, you will see house prices started dropping in 2007, and delinquencies begin to rise until 2008. Even then, delinquencies didn’t peak until 2010.
We must work hard to pay all our bills on time or we will not have any credit available. This does require income. We have high inflation and stagnant wages. Hoping for the best!
It’s good to know that only the back half of the cruise ship is sinking, my cabin is up front and we are fine.
Just a guess but we are at the tip of the iceberg, people will cover all these extra costs any way they can, use any credit they have to stem the tide, until it’s all too much. Interest rate hikes have turned this into a tidal wave, come mortgage renewal time imagine 20 to 40% won’t be able to afford the house they have been living in for the last 3 to 10 years. And of course it’s the under 80k a year families that will pay in the end. As they always have, back to the trailer court you go. Interest should be given based on income, less you earn lower your rate, more you earn higher the rate, just like taxes. It’s a no brainer, evens the playing field and gets lower income people into homes that they will probably stay in for the rest of their lives so why not a 35 year mortgage locked in at 1%. Our country is set up backwards and favours and rewards only the wealthy, shame on us, shame on greed, shame on all forms of government with their heads in the sand.we can’t afford more carbon taxes, property taxes, utilities, insurance,, electric cars on a grid that can’t power them, food prices, tax on top of tax on top of tax, what’s that guy on the corner holding, a sign saying the end is near. Appears it has arrived.