Canadians are more excited at the thought of cheap credit than actually getting it. Statistics Canada (Stat Can) data shows household credit grew in August—though at a slower rate than the month before. The mild acceleration in borrowing ahead of rate cuts reversed once the actual cuts were made. It potentially serves as a red flag that households are facing much harsher conditions than just the cost of borrowing.
Canadian Households Owe Nearly $3 Trillion In Debt
Canadian households still racked up more debt, but they’re starting to look a little tired of borrowing. Household debt climbed 0.3% (+$7.7 billion) to $2.98 trillion in August, leaving the balance 3.5% (+$102.0 billion) higher than last year. Despite the fairly lofty-sounding growth, it’s unusually slow in the context of Canada—it advanced at a rate only slightly larger than the population. The annual rate also fell, reversing the minor advance seen in the prior two months.
Household debt is composed of two segments—mortgage and consumer debt. Mortgage debt rose 0.4% (+$9.3 billion) to $2.22 trillion in August. Annual growth came in at 3.4% (+$73.1 billion) for the month, reversing the slight acceleration observed in the prior two months. It’s not the slowest, but it’s pretty close to the low—and likely unexpected with falling rates.
Canadian Household Debt Is Slowing Despite Falling Rates
Source: Statistics Canada.
Consumer debt is growing at a faster rate, but represents a much smaller share of total debt. The segment climbed 0.3% (+2.5 billion) to $771.82 billion in August. It’s 3.9% (+$29 billion) higher than last year, but also saw a slight deceleration and rolled back the minor jump it had in July.
Canadian Credit Consumption Is Slowing Despite Falling Rates
Cheaper rates are supposed to stimulate more borrowing, but there’s some indication the opposite is happening. The 3-month annualized rate of growth, used by the BoC, fell to 3.2% in August. That’s the worst reported in August for quite some time, and more importantly a sharp drop off. Back in June, the 3-month annualized growth was larger for 2024 than the same period in 2023, indicating borrowing may have picked up. The euphoria of anticipating rate cuts was apparently more of a motivator to borrow than the actual decline in borrowing costs.
What the slow growth means is a bit of a mixed bag. Higher interest costs tend to slow credit growth by design and ideally stimulate more productive investment. After all, if non-productive asset price growth due to credit expansion isn’t present, investors will scale output to hit their targets.
At the same time, this is unusually slow growth that isn’t responding to rate cuts thus far. It’s barely faster than the population is advancing, indicating the problems may be more widespread than just access to more credit. Especially when one considers rising unemployment and mortgage delinquencies.
Been thinking about Canada including interest costs in its CPI calculations, and starting to think the underreporting of debt is part of the reason everything skews towards non-productive investment.
We all know they’re underreporting debt but we’re going to get rate cuts to “fix” this low growth, which will send inflation even lower as borrowing increases.
Double cut this month is going to deliver cheap credit to investors while unemployment rises. Perfect recipe for discomfort.
Leave rates at these historical levels. We’re in the mess because of near zero rates. And decades of unproductive government
debt and deficit spending. Won’t make difference if central bank lower their number, the bond market is not participating, and wages and COL and good jobs are more of a factor. Rather the real estate industry and construction industry needs to do the hard work they should have started 10 to 20 years ago: reduce cost, make productivity improvements, lobby government for rational policies on immigration, education, permitting, balanced spending, etc. Do the industry work. Leave central banks out of it; they have other priorities.
There is more to this than mortgages and discretionary consumer spending when one considers the costs of maintaining a property such as a condo or strata where the real costs of structural maintenance have been downplayed for decades
And keeps in mind that in condoland all condo owner billing’s for maintenance fees special assessments and charge backs are underlined with an automatic liens process
Further while maintenance fees cover a range of costs and a variety of inflationary pressures how many even diligent condo
Boards have been advised to use the stats Canada residential construction I ex for the portion going to the reserve fund and for projections for special assessments to better anchor the true costs of property ownership
Why did both federal and provincial government step
Back from adequate funding for maintenance of social housing structures. Was it due to the cost issues that households especially condo owners must face for structural repair. And probably also one of the costs fueling rental costs in purpose built rental apts that if not kept up are prime targets for developers?
Comdoland owners have a huge amount of equity in similar building edifices that if not maintained will crumble
The lower interest pressure will help offset lines of credit being used to pay special assessments since reserve funds continue still to
Be cash starved. This is a separate item from the mortgage which yes can blend in a line of credit if there is enough credit room to handle the mamoth special assessments and special assessments are not discretionary unlike a single dwelling home where repairs can be deferred until maybe the wallet is more flush. Noting the automatic liens removes anything discretionary about such maintenance
There are No free lunches in condoland
As long as Justin Trudeau is in Ottawa there is hope for Canada.
He is extremely intelligent and his economic plans and insight will make Canada strong.