Canadian households, the most indebted in the G7, are finally showing borrower fatigue. Statistics Canada (Stat Can) data reveals household debt reached a new record in May 2023. Now larger than the country’s output, the mountain of debt is changing its growth pattern. Households borrowed mortgage debt at the slowest rate since the Great Recession, while personal loans began picking up steam.
Canadian Households Owe $2.9 Trillion In Debt
Canadian households now owe a debt pile bigger than the country’s gross domestic product (GDP). Household debt showed seasonally adjusted debt grew 0.2% to $2.9 trillion in May, a new all-time record. It doesn’t just sound huge—households owe debt equivalent to 101% of Canada’s GDP. It’s a lot of bills.
Canadian Household Credit Growth
The annual growth rate for outstanding mortgage and non-mortgage credit.
Souce: Stat Can.
Canadians are borrowing at a much slower pace these days. Annual growth fell to just 4.0% in May, the lowest rate since January 2021. Prior to 2021, the only other time the rate was this low was in 2019. Slowing credit tends to indicate the end of the business cycle, so Canada is picking up where it left off before 2020-disrupted the global economy.
Canadians Are Passing On Mortgages, Picking Up Personal Loans
Mortgage credit represented the majority of the outstanding balance. Households accumulated 0.2% more in May, with the segment now representing $2.1 trillion of the balance. Annual growth only came in at 2.0% in May, the lowest rate since December 2011. Higher rates are definitely putting a dent in household debt.
Consumer credit, the non-mortgage debt representing the remainder, went the other way. Annual growth hit 4.6% in May, the second consecutive acceleration. Stat Can specified this was not due to credit card debt, as one would assume. It was personal loans, which grew at nearly double the average monthly rate.
Home equity lines of credit (HELOC) debt pulled back, as lenders tighten under regulatory pressures. This may indicate consumers are rotating debt, a work around, but similar concern observed by the bank regulator.
Canada has been dependent on debt-driven growth, and a slowdown means a slowing economy. However, slowing credit also means households are taking the opportunity to deleverage. The most highly indebted households in the G7 may need to deleverage to reduce some of the risk they face.