Canadian households still pushed the debt levels higher, but are slowing down. Bank of Canada (BoC) numbers show household credit reached a new all-time in September. Despite the high, credit growth is falling to lows not seen in over 35 years.
Canadian Households Hold Over $2.15 Trillion In Debt
Canadian households racked up an all-time high for debt. The balance of credit reached $2.153 trillion in September, adding $7.57 billion from the month before. The monthly change works out to a 0.35% increase, and the balance is 3.61% higher than the same month last year. We’re looking at the slowest pace of growth for household debt since July 1983. That’s right, it’s only been this low before and after a pretty big recession. Let’s break down where we’re seeing the biggest slowdowns.
Canadian Household Debt
The annual percent change of total debt held by Canadian households, in Canadian dollars.
Source: Bank of Canada, Better Dwelling.
Canadians Owe More Than $1.5 Trillion On Their Mortgages
Canadian residential mortgage credit reached a new high, but is slowing in growth. Mortgage debt hit $1.53 trillion in September, adding $3.57 billion from the month before. The monthly increase works out to 0.23%, and the balance is 3.4% higher than the same time last year. Mortgage credit growth has been in a downtrend since it peaked in January 2016.
Canadian Household Debt By Segment
Total debt held by Canadian households, in Canadian dollars.
Source: Bank of Canada, Better Dwelling.
Canadians Have Over $622 Billion In Consumer Debt
Canadians are also racking up a hefty consumer credit tab. The balance of consumer credit hit $622.36 billion in September, up $4 billion from the month before. The monthly increase works out to 0.64% and the balance is 4.2% higher than last year. Consumer credit did see some minor acceleration, but a single month isn’t quite a trend reversal.
Canadian Household Debt By Segment – Percent Change
Annual percent change in debt held by Canadian households.
Source: Bank of Canada, Better Dwelling.
Household debt levels are still rising, but the growth rate is now at lowest level in decades. In an economy driven by credit, the slowdown signals a slowing economy. The real estate industry is blaming B-20 Guidelines, but that doesn’t explain why consumer credit is slowing. More likely, higher interest rates are a little tougher to handle than most people were expecting.
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Any guesses as to how this will affect credit card and HELOC rates in the foreseeable future?
Usually when credit tightens, risk is introduced. That usually sends the rate of borrowing higher for most types of loans. This might be one of the few times where borrowing rates begin rising faster than interest rates.
That said, do yourself a favor and go to a mortgage broker instead of a bank. The person that was going to do my mortgage at the bank flat out said she would never use a bank, because they can’t match their rates.
I would actually advice everyone to stick to a major banks right now if their financial situation is not 100% solid.
If we go through a correction and your mortgage becomes underwater you will NOT be able to switch lender and existing lender will be able to charge absolutely any rate on renewal.
So if you believe the challenging times are ahead it makes sense to stick with the lender who is better prepared for that time and won’t take advantage on you at renewal.
Lenders who are better calculated risks now are less likely to rise rates higher than peers due to unexpected losses.
Another advice is not to go to private lenders because again, if we face a downturn you will regret it because nobody will accept your mortgage later and you will be stuck with 8-12%+ interest only loan in case your private lenders will be generous enough to roll those over. If they won’t be so generous – get ready for a power of sale.
Good advice
Canadians should be happy about B-20. Usually the drop in sales occurs after a recession. Knocking some sense into people before that happens allows buyers a sufficient gap to build up an equity cushion, and enforces that new buyers are prepared.
I agree though. Anything would have stopped the record high sales. How many times does the industry expect people to move?
can you use per household debt instead of total debt.. 2 trillion 5 billion etc are just large numbers that doesn’t really mean anything.
I agree,
There is no real way for me to know the magnitude of these numbers. They sounds high, but I’m fact could be pretty OK.
Though I know there is significant risk out there due to personal debt levels.
Per household doesn’t matter, because of the concentration and distribution. The BOC has said 20% of all debt is held by 8% of households with debt that equals more than 450% of their income. Most of these households are located around Toronto and Vancouver, which means best case they’ll experience a drop in consumer spending, triggering a recession.
If you take the total debt, divided by population of Canada. This is what you get. I know its not really accurate since I do not have household numbers + if its adjusted to inflation.
1980 = 5,200$ per person
1990 = 11,800$
2000 = 20,000$
2010 = 41,300$
2018 = 58,000$
If it’s 58000 per person that’s pretty ok.
BD has turned into sensationist columnist. Throwing around big numbers and yelling catastrophe. It’s usually just same topic over and over again. They really need to find a new writer with different angle. How about assess what immigration policy will do to the demography of big cities. How would trade war affect Canada etc…
Every article is about debt rising and interest hike.. you gotta write something different or soon real readers will lose interest. You’ll end up with bluemath and trader Jim who just echo everything you write
Per person. Think about that for a moment. Not household, person. But I guess that is ok. Phew…Tick tick.BD4L.
You should stop right there and think very hard! 58K per every living soul in Canada is pretty okay? We’re looking at lifelong debt levels, incoming implosion will wipe out wealth of the entire generation or two … I guess that’s just okay?
58000 is nothing… my wife and I carry over 800k debt. it’s not really affecting our lifestyle in anyway…
Is that one one property Zz? Or does that include debt on primary and an investment property?
I would be curious to see what this would jump to is the population under minimum 18 years old was removed from this. Quick google says there are around 7 million under 18. Lets look at this again (rounded some numbers out):
2.15 Trillion / ~30 million gives us a number closer to $71500 per individual.
Found an inflation calculator online from the BOC. Here are the numbers, total debt by Canadian households divided by the population of Canada at the time.
1980 = 15,450$ per person
1990 = 20,000$
2000 = 27,800$
2010 = 47,200$
2018 = 58,000$
Zz, here is the metrics which better suites your needs : Debt-to-income
https://www.ctvnews.ca/business/key-household-debt-ratio-creeps-higher-in-second-quarter-to-169-1-per-cent-1.4094001
It’s called Math.
25% rates in the 1980’s when house prices were 200K is no worse than 4% rates when house prices are 1.5 million.
All that’s happened is rates have plummeted, making it possible for people to get into far more debt, which raises home prices. So now, people are on a knife’s edge where even a .25% rate hike is enough to push some over the edge, and with each successive incremental rate hike, that is exactly what happens. More and more fall off the edge.
you gotta do better than that BD. your business is reporting catastrophe and you gotta dig deeper.
what would be really useful and shocking are information like
“over 10,000 household in Toronto carry over $1mil in debt”
“181 people declared bankruptcy for failing to pay monthly mortgage yesterday”
preferably interview some of the people went into private lending to cover their mortgage.
a lot of these topics have been reported over and over again. you need fresh content
Your just worried Zz, stop reading for awhile, it’s stressing you out.
As you said your lifestyle is pretty good, forget about BD and live life.
However, nows a great time to lock in, you know what I mean?
Good luck
Sounds like that lifestyle you are enjoying is on borrowed money and borrowed time.
Canada vs other G20 countries today
https://tradingeconomics.com/country-list/households-debt-to-gdp?continent=g20
Canada over time
https://tradingeconomics.com/canada/households-debt-to-gdp
On the second graph, use the compare field to add “Canada Chartered Banks Prime Lending Rate”, and the story will be more complete
Zz you can’t really look at debt levels as a single metric and make any meaningful conclusions, they have to be interpreted in context – so I do agree some additional number crunching would make BD articles much more exciting.
IMHO The two important metrics to consider are the ratios of Household Debt to Household Assets AND disposable Household Income to Household Debt – the latter is obviously important for debt servicing considerations and the former is important in analyzing the overall financial health of a household in face of any sudden market changes.
An HD/HA of 10% is obviously extremely healthy (whether you have a debt of $10K or $10M but assets of $100K or $100M respectively) whereas a HD/HA of 90% is extremely susceptible to a sudden loss or reduction of income that would make debt servicing difficult or impossible, particularly if HA lacks liquidity.
Also, it’s important to do these ratios for households rather than individuals because although a 6 month old baby having a a $58K debt sounds very scary, a household with 2.2 people having a debt of $128K doesn’t sound too bad . So what were all these ratios for Canada in 2016 as a reference point:
No. of Canadian Households = 14.07 M
Total assets of Canadians = $12.03T
Total debts of Canadians = $1.76T
Average Household Assets = $855K
Average Household Debt= $125K
HD/HA=0.15
HI/HD=0.58 (inverse of 1.72)
Both of these numbers of course look decent if not good and that’s why on average the Canadian economy and the housing market were doing great in 2016. And problems don’t start with averages or the average guy but with a very small percentage of people who deviate way too far from these numbers – consider that between 2007 and 2010 the start and peak of the problem in the US only 1,000,000 more individuals were filing for bankruptcies per year – not even 1% of the population!
Also, the average Household Debt has climbed approximately 19% since 2016 (based on the total in this article and even adjusted for population growth) but incomes have been flat in inflation adjusted terms and with the TSX and average home prices (i.e. household assets) being roughly where they were in 2016, those ratios have considerably worsened not by the majority of Canadians but by a small percentage of the population in and around GTA and Greater Vancouver which makes the changes even more concerning since a small population would have to experience very serious increases/decreases to offset averages.
For example, anyone who bought a house in the GTA in late 2016 at their maximum affordability with a 10% down-payment and little money left over now has an HD/HA that´s not just about the Canadian average, but above 1! In fact, almost everyone who has bought a house in Toronto since mid 2016 (when the bank executives started dumping their properties) has seen their ratios shoot up significantly, obviously not captured by the 2016 numbers.
This is the major problem with StatsCan… their statistics are released too late and have too many flaws to the point that they´re nearly useless. Frankly it’s a shame for an advanced economy to have such a pathetic statistics agency but hey, Canada´s the best country in the world and the immigrants will keep coming to buy homes! 😉
The Debt to Disposable income ratio for example is not adjusted as the 19% in the above paragraphs clearly shows! So if you maintain the same debt (i.e. don’t pay it down) and your income is going up at the same rate as inflation, the debt to disposable income ratio actually goes down! But in reality you have a harder time servicing your debt because the price of everything else you need to cover with your disposable income has gone up. So the situation has gotten much worse, rather than better especially in lieu of rising interest rates which again the ratio doesn’t capture at all.
Thanks Justin and for sure, I agree with everything you said. I haven’t analyzed historical figures and Trader Jim would be the go to guy on this but IMHO there has definitely been a lot of intertwining between the real estate market and the stock market in Toronto since the beginning of 2014.
I think this is when a lot of people started realizing hey I can borrow against my home equity @ 2.5%, put my money in the stock market and even investing in more stable dividend producing stocks, I could get at least an 8% return on that money while realizing a solid 10% increase in the rest of the money invested in my house. It really was a no-brainer.
For the next year (mid 2014 to mid 2015), people started realizing the opposite was actually even more lucrative. Why have you money in the the stock market earning 8% when you can “invest” it in a housing market that was appreciating at 10-15% by this point and make 50-75% as a leveraged investment (i.e. with a 10 or 20% down-payment) or even 75-200% by leveraging and flipping!
This is exactly when the Toronto RE market went from solid growth due to demand into overdrive mode driven mostly by speculative purchasing and the TSX struggled to maintain its footing with a couple of pretty decent drops and I think in the next 6 months (second half of 2015) to so much money left the stock market and went into real estate that TSX finally experienced a major drop.
This is just my feeling though and I don’t have any real numbers to back it up on the stock market side and any such numbers would be greatly appreciated. On the RE side, this is very easy to calculate using TREB data by multiplying the average price by the total sales and by June 2015 there was an extra $1.9B being “invested” in the GTA RE market per month!
I don’t really have an explanation for the next 6 months other than the majority of investors had a very hands off approach because the increases in investment in the GTA RE market were relativey muted compared to June (which is supposed to be a low month), prices barely went up and TSX was in free fall. Perhaps the fear of a stock market correction and overall Global trade growth knocked some sense into everyone (i.e. domestic investors, mostly “smart money” until this point).
At the same time both the $CDN and Yuan were in free fall against USD and our immigration policy was becoming way too lax so demand went up and domestic speculators were replaced by foreign speculators and we all know what happened in the first half of 2016 in RE. I believe the smart money left the RE market and went back into the stock market at this point as the talks of a RE bubble/crash spread from a few smart economists’ notes to clients into main stream media.
By mid 2016, it was becoming clear that this situation of the Canadian RE market being the Casino of the overseas rich & famous (or more accurately dirty money) was not sustainable. Pretty much all the smart money flew out of the Toronto RE market in 2016 including bank executives who started selling in mid 2016 and by the end of 2016 were insisting that the government MUST take steps or the entire Canadian financial market was at risk.
The rest as they say is history and we’re now in a deleveraging situation in both the RE and stock markets in Canada. Frankly, my smart money is on RE in Spain at the moment (outside Madrid, Barcelona and the Balearics where we’re already into the institutional investor phase)… the med coast is toward the end of its stealth phase and with the situation in Catalonia helping push institutional investors into the Valencian community (the same way Toronto overtook Montreal in the late 90’s), we´re in for an interesting ride similar to Toronto in 2012-2017. 🙂
I’m starting to see more and more Canadians on forums talking about moving here and every single one of our friends who has visited is making plans to move here at some point although most haven’t really figured out the gold mine they’re landing on! 😉