Canadian Household Debt Growth Has Never Fallen This Low Outside of Recession

Canadian real estate buyers aren’t the only ones being tight with the loans. Bank of Canada (BoC) numbers show household debt growth has fallen to the lowest level in more than 30 years. The decline in growth is so low, it’s something Canada hasn’t seen outside of a recession.

Canadians Owe Over $2.15 Trillion In Household Debt

The balance of outstanding household credit reached a new record high. The balance hit $2.158 trillion in October, up 0.25% from the month before. The balance is now 3.5% higher than the same month last year, which sounds decent. However it’s unusually low for Canada’s debt driven economy.

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.

Most of our readers were barely out of diapers, if they were even alive, the last time the numbers were this low. Household credit growth last fell to this number in 1982, and remained at this point for less than two years. While the two periods look the same, they don’t resemble each other… yet at least.

Interest rates and unemployment were very different 36 years ago. First, growth fell to this level six months after interest rates increased to an eye watering 21.03% in July 1981. Second, unemployment in Canada reached over 12%, the highest levels since 1934. Obviously, that’s not what we’re seeing in Canada right now. However, credit is now a leading indicator since our economy is so leverage dependent these days. So this could be a sign of things to come.

Canadians Owe Over $1.53 Trillion In Mortgage Debt

The balance of mortgage debt owed by Canadians reached a new all-time high. The balance reached $1.533 trillion in October, up 0.22% from the month before. The annual pace of growth is now 3.17%, the lowest we’ve seen since 2001. If you’re looking for more information on this number, check out yesterday’s piece.

Canadian Household Debt Outstanding In Dollars

Total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Canadian Consumer Debt Rises To Over $624 Billion

The total amount of consumer credit reached a new high. The outstanding balance reached $624.4 billion in October, up 0.33% from the month before. The annual pace of growth reached 4.31%, the third month we’ve seen this number rise. The increase in the number is relatively small however, and is still in a downtrend. The down trend began right around the time same time as mortgage growth.

Canadian Household Debt Change

Annual percent change in debt held by Canadian households.

Source: Bank of Canada, Better Dwelling.

Mortgage stress tests are being blamed for the decline in growth, but that doesn’t make sense. Consumer credit also slowed around the same time, both about 6 months before stress tests. More likely we are seeing households loaded with debt, not able to push growth much higher. In fact, they’ve loaded up on so much debt, they’re now acting like we’re in a recession.

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  • JJ 6 years ago

    The disparity between stagnant income growth and exorbitant debt growth is finally rearing its ugly head. Ain’t no money left up in hurr.

    • Charles A 6 years ago

      If things are so bad, why aren’t we experiencing any of the effects? I don’t know one person that’s not doing better than they’ve ever done.

      • Andrew Jerabek 6 years ago

        That is why you do not base your model of the economy on anecdotes.

        • SUMSKILLZ 6 years ago

          Anecdotes: tradespeople are now available for appointments the next day, homes in my hood are still for sale after more than six weeks, my autofix place has started aggressive maintenance upselling, Kijiji has nothing good on offer since the end of summer.

      • John 6 years ago

        Probably because your best friend bought his fancy car on an 8 year loan.

        Probably because your other best friend bought his boat on a 12 year loan.

        Probably because everyone who says ‘they are doing just fine’ are also saying ‘house prices always go up’ and have taken out large HELOCs for lifes’ luxuries.

        Probably because people lie. #RealLife

      • JJ 6 years ago

        Because everyone is doing great until they aren’t. By definition times are good until the recession starts.

        I guess to answer the question, people who are “doing well” may think they “own” things that they do not own (such as a heavily mortgaged property). If these assets are further used as collateral to fuel spending, the balloon continues to inflate. Everything looks fine and dandy on the outside as long as the market continues upwards, but eventually spending (the economy) will slow as stagnant incomes can no longer keep up with rising debt service payments (fueled by rising interest rates).

      • @xelan_gta 6 years ago

        Charles, because major changes like this usually take a couple of years before they have full impact. People and even business think it’s a temporary thing so they try to wait it out until either they become insolvent or loose hope.
        That’s the main reason why we don’t see a massive number of listings in GTA. People still hope market will rebound shortly so they can sell at least at Apr 2017 prices.

  • Mtl_Matt 6 years ago

    Alright, music stopped. Who’s sitting in a chair that they can’t afford?

    • Gen Xer 6 years ago

      I can totally afford the payments on my IKEA chair, they only charge 22% interest. 😂

    • John 6 years ago

      I didn’t buy a chair… I counted myself out when the rules were explained.

  • Eugene SH 6 years ago

    Can anyone further elaborate on why credit wasn’t a leading indicator then, but it is now?

    • Mtl_matt 6 years ago

      Because they will revise and say the recession started at a prior date to today.

    • JJ 6 years ago

      I am no guru but I see it this way: if credit growth is slowing, there will be less money in the economy. If there is less money available, how can asset prices continue to rise if tomorrow’s buyer cannot raise as much money as yesterday’s buyer?

      Regardless, on the second chart in the article there appears to be sharp decreases in debt growth before 1982, 1991, and 2008, but I have no technical answer.

  • ID 6 years ago

    What about downshifting?
    Friends sold house for 1 mil in December 2016 and bought 2 condos for 350 grands each.
    Now they just enjoy life.
    Same story could be here with investors who sold house => invest in condos (bought or >20% downpayment).

    • RainCityRyan 6 years ago

      that works for whomever is selling the detached and downsizing … but for every sale there must be a buyer. so what happens to the buyer of the single family detached? it’s not possible for the whole country to do this (unless we have a LARGE uptick in foreign ownership)

      this is a story of decreasing credit in the economy. less credit equals less spending which means less income for someone … it’s called deleveraging.

    • JJ 6 years ago

      Someone had to buy the $1M home and I’m betting it wasn’t paid for in cash.

      • ID 6 years ago

        Agree, but could be time-lag if sold 1-2 years ago and bought something cheaper now – ie no mortgage at all.

  • JNT 6 years ago

    Recession is coming sooner than we thought. U.S. Treasury yield curve inverted for the first time in more than a decade. Dow down 550 points right now, led by banks. You bag holders have a few months before this blows north and turns nasty. Anecdote: I know you love those here- During the GFC my landlord reduced my rent by $250 a month in the hottest neighborhood in NYC.

    If you condo investors think you’re rental income is going to increase or stay the same during a recession you have no idea what a recession does.

  • DB 6 years ago

    Your all spot on…the cash crunch started happening a year or more ago for most families. Those that did not read the warning signs and acted buried their heads in the sand and kept dipping into their HELOC until one day they walked into their bank and were told no…no more additions to your HELOC because the numbers don’t add up. Thats happening now and why you see these numbers the way they are..its not for a lack of trying I’m sure of that. It’s the banks saying no not today. This is a time where business (cool heads) will prevail and the average Joe will not. The banks will be around tomorrow but you may not. To many average Joe’s are dealing with external forces such as family, a nagging spouse, too much pride, and so called family commitments to pull their heads out of the @s$ and act.
    I’m the one not sitting in a chair right now…I gave mine up several months ago…hope it works out for me. I still have a while to linger and lick my wound’s from a brutal divorce before jump back in and it looks like the timing could not have been better.

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