Canada

Canadian Household Debt Is Growing, But There’s An Unusual Divergence

Canadian household debt is seeing growth accelerate once again, and it’s entirely due to mortgages. Bank of Canada (BoC) numbers show the balance of household credit at institutional lenders reached a new record high in August. The growth was largely led by mortgage debt, which is beginning to accelerate. On the other hand, consumer credit continued to see growth decelerate. The divergence of growth trends is odd, but usually doesn’t last long. The question is which one is currently heading in the wrong direction.

Canadians Owe Over $2.2 Trillion In Debt

Canadians are pushing an already epic pile of debt to new all-time highs. The balance of credit outstanding reached $2.23 trillion in August, up 0.55% from the month before. This represents an increase of 3.8%, when compared to the same month last year. The total is a new all-time high, and the 12-month growth is rising year-over-year for the first time in months.

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.

The 12-month growth is starting to rise once again. The 3.8% 12-month change in August, is 2.7% higher than the same month last year. This follows the past two months of stalling, and a minor increase from the year before. Growth isn’t huge, and is actually just off of multi-decade lows. However, it is moving up – entirely due to mortgage debt.

Canadians Owe Over $1.59 Trillion On Their Mortgages

The balance of mortgage debt represents the vast majority of household debt. The balance hit $1.59 trillion in August, up 0.6% from the month before. This represents an increase of 4.0%, when compared to the same month last year. This is not only a new all-time high for the balance. It’s also a faster rate of growth than the month before.

Canadian Household Debt Outstanding In Dollars

Total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

As stated in yesterday’s article, this is the first time we’ve seen the 12-month change above a year before. The 4.0% 12-month increase in August is 8.1% higher than it was during the same month last year. April 2017 is the last time that happened, and it was only for a single month. To see more than a single month where the rate of growth beat the previous year, we need to go back to November 2016.

Canadians Owe Over $637 Billion In Consumer Credit

Consumer credit also reached a new all-time high, but growth continues to slow. The balance of outstanding consumer debt reached $637 billion in August, up 0.5% from the month before. This represents a 3.1% increase, when compared to the same month last year. Now, this is the part where it gets a little weird.

Canadian Household Debt Change

Annual percent change in debt held by Canadian households.

Source: Bank of Canada, Better Dwelling.

The 12-month rate of growth continues to decelerate. The 3.1% annual rate of growth in August, is 13.9% lower than the same month last year. It’s also lower than the month before. Usually we see this number rise into the fall, but right now, it’s not. Even more unusual is this number typically moves with mortgage credit growth. There’s only a few times it heads in the opposite direction, but it usually doesn’t last for long. Under normal circumstances, we see consumer credit lead the trend – which could mean the mortgage growth is just a temporary bump. However, nothing about this market has been normal, so don’t go betting the house on it yet.

Outstanding household credit reached a new all-time high, with both major segments showing growth. Most of that growth is coming from mortgage credit, which is currently accelerating. Consumer credit showed growth as well, but the rate continues to decelerate – heading in the opposite direction of mortgages. Both segments usually rise and fall together, in line with broader macroeconomic trends. You know, because if the economy is good – it’s generally good for more than just housing. Currently that’s not the case, with growth rates diverging. The good news is that historically, these growth patterns don’t diverge for very long. The bad news is, we’re not sure if mortgages or consumer credit are leading the trend right now.

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7 Comments

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  • Devil's advocate 2 weeks ago

    OK good observation however if we quickly look at the recession start of April 1982 (95,887 MIL) to the start of the recession in March 1991 (253,303 MIL). Mortgage debt has more than doubled 2.641 times. Even with higher mortgage interest rates.

    However if we compare past to recent recessions with rate of increase from Jan 2009 (886,747 MIL) to August 2019 (1,592647 MIL). During this period the mortgage debt has increased by 1.796 times while interest rates are at historical lows. I hate to say this but if we base ourselves on the affordability index we might see prices for residential real-estate move higher…

    Anyone has any thoughts on this? curious to get your feedback. thanks,
    Devil’s Advocate

    • neo 2 weeks ago

      Well, savings rate was a hell of a lot higher back then. HELOCS were non existent and people actually saved for things. Interest fell dramatically in the mid 90’s to counter the recession and spur growth. There is no interest rate catalyst this time around. Cost of living is much higher now. $1,000 Smartphones and data plans for instance weren’t even around. There were more pagers than cell phones back then. We should have had our 2009 consumer deleveraging moment like the US did. We would be on much better economic footing right now.

  • Carlton 2 weeks ago

    Gee what happened to the housing market after 1991?

    This time it’s different, I’m sure.

    I Think your right, Canadians have an endless supply of cash for mortgages.

    Until they can’t refinance their helocs because home prices are no longer on the rise. Then the party starts!

  • Frost 2 weeks ago

    There are 13.5 million working Canadians (full and part time). With $637 billion consumer credit that equates to $47,000 per working person! That is debt that is not mortgage!

  • LoL 2 weeks ago

    People adding consumer dept to their mortgage dept.

  • 🔺 2 weeks ago

    Mortgage and consumer debt? How about students debt, inflation i.e back then money was worth alot more and can buy alot but now and coming???? Ppl are working , ppl are rich and poor. If they want to replace humans then change the money system along with tax. In the usa, the dollar isn’t backed by noting but Trust/IOUs/rigging data to keep upfloat/ other counties resources yet inside money system and keep printing money yet can’t forget the black market plus data customer breachs are happening more. This effects the jobs, money, living, food and more. Gold and silver are Back and forth up and down make your own or keep buying is it real or who has the most, Bitcoin If more technologies need advancement then how about uhmm humans let’s real switch it up aka reform seriously for humans sake as well animals sakes.

  • jonny Boy 2 weeks ago

    To out things into perspective the US a country ten times the population of Canada, owe 9.3trillion dollars of household debt. Wow just wow…….

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