Rising borrowing rates are putting a drag on the growth of Canadian household debt. Bank of Canada (BoC) numbers show household debt fell from an all-time high in January. The drop stalled the annual pace of growth at the same level one month before – at the lowest levels since 1983.
Canadian Households Owe Over $2.16 Trillion In Debt
The outstanding balance of credit at institutional lenders fell from the all-time high. The balance of outstanding debt stood at $2.16 trillion in January, down 0.15% from the year before. This represents an increase of 3.12% when compared to the same month last year. The annual growth rate is the same as the month before, once again the slowest pace since 1983. That puts us just off all-time highs, tied for a multi-decade low for growth.
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.
Canadian Households Owe Over $1.54 Trillion In Household Debt
Not surprisingly, Most of the household debt is outstanding mortgage credit. Mortgages represented $1.54 trillion of debt in January, up an almost flat 0.07% from a month before. The annual pace of growth hit 3.18%, a few bps higher than a month before. If you’re looking for more on the mortgage numbers, we drilled through them earlier this week.
Canadian Household Debt Outstanding In Dollars
Total debt held by Canadian households, in Canadian dollars.
Source: Bank of Canada, Better Dwelling.
Canadian Households Owe Over $615 Billion In Consumer Debt
Consumer credit also made a monthly decline. Consumer debt reached $615 billion in January, down 0.69% from the month before. The annual pace of growth has now fallen to 2.96%, the lowest it has been since January 2015. That month may not seem notable, but it was just a few months later interest rates were cut.
Canadian Household Debt Change
Annual percent change in debt held by Canadian households.
Source: Bank of Canada, Better Dwelling.
Household debt didn’t have the worst month, but it is still tied for the slowest annual pace of growth since 1983. There’s a few mixed feelings being expressed on where these numbers sit. On one hand, periodic deleveraging is important – especially with debt numbers this high. On the other hand, future growth that was borrowed to stimulate today’s economy is disappearing.
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This time is different alright. Deleveraging from here is going to be a hell of a hangover.
How so? Lower debt levels and a drop to the cost of financing is going to make it better and cheaper for Canadians to maintain their existing debt.
Hi can someone help me with following question… I’m looking at the first chart in this article that shows historical debt change. If we look at 2017 when both sales volume and prices reached historical highs, how come the debt growth did not reach historical highs? I just don’t get it. The only answer I can think of is that a lot of cash was involved but I also don’t believe that all these 1.8M avg Richmond Hill detaches were bought for cash. Something is not right in this chart.
That’s one of the reasons you actually know it’s a bubble. When people say “inventory was low” in 2017, that’s because there was about 1/3 of the inventory that’s normal. Sure you can pay more for the inventory today, but that premium isn’t reflective of an actual market price. It’s a reflection of the premium you’re willing to pay to get into a home at the time.
Supply and demand is what caused rapid price escalation. However, because it was on low volume (2017 saw a 20% reduction in sales volume) , the prices are based in exuberance. We didn’t see a huge buying spree or inflation of debt, because there were fewer people bidding up. This is when a trade is exhausted, exuberant, divergent, whatever you want to call it. Basically, low debt growth relative to price increase means very few people were participating in the market, which makes prices less sticky in the event of a recession.
Hey Jim, it still does not answer the question. Let me correct period of time in question from 2017 to “March 2016 to March 2017”. The market was nuts during that period. Crazy amount of sales and crazy prices. But debt did not grow much compared to historical data. That’s the part I don’t get. I would expect debt growth to be through the roof in historical context
foreign buyers. They dont go through banks and they buy multiple properties in cash . Also private lending probably played a role
It’s a matter of arithmetic. The growth rate of household debt is expressed as a percentage of the total household debt burden. By 2017, Canadians were carrying massive debt burdens, much higher than a decade before. Therefore, even if the growth rate of debt was much lower in 2017 than a decade prior, the growth in the total household debt in absolute terms was almost as high, if not higher. If you look at the third chart that shows total debt level, you don’t see the line getting any less steep in 2017, even though the growth rate has slowed considerably.
Let’s use some round numbers. Suppose Canadians owed a total of $1 trillion a decade ago. If debt grew by 10% that year, then that’s a $100 billion increase in total debt for the year. Fast forward ten years, and assume Canadians now owe $2 trillion. If the rate of growth is only 5%, that’s still another $100 billion in debt – exactly the amount it grew by a decade ago . The growth rate is half what it was a decade prior, but the increase in total debt is the same.
So the massive increase in debt levels in 2017 is hiding in plain sight. The growth rate only looks unimpressive because it’s being calculated against a much bigger pile of existing debt than it was 10 years ago.
That partially explains it, but in this case this chart (by itself without other variables in play) is arithmetically useless and no conclusions can’t be made just by looking at this chart alone and not looking at other factors. The whole article builds up on this chart and compares to 1983 but this comparisson means nothing. In other words with this logic, this chart will always trend down long term no matter what happens, so comparisons to 1983 when population was smaller and debt was lower don’t bring any value
I think you’re misusing the chart.
If we’re talking about chart 1, it’s meant to show a trend as opposed to absolute values. So when you read it, you’re looking for consistent upward or downward movement, or maybe volatility, or no change.
After all, you can’t have negative growth if you don’t first trend downward.
The population in 1983 was 25M while now it’s 35M
If you consider debt per 100K people you get:
381M in Mar 1983 and
4398M in Dec 2018
So 10x more money owed per capita over 35 years.
I don’t know if the Debt in chart is inflation adjusted or not.
(all the data extracted from this very chart on the page)
If you consider YoY Debt growth it was
0.93% in Mar 1983 over Mar 1982 and
3.06% in Dec 2018 over Dev 2017
The rate of growth doesn’t change if it is calculated over whole Debt or Debt per 100K people. (Because linear normalization should not change it. You can prove it for yourself)
As for your statement that the chart will always trend higher – you can see it trended lower in 1982-1983. Much easier see on the Debt Change chart.
Probably it’s the nature of Canadian economy with Debt always trending higher.
Mortgage Debt did trend lower in US after housing collapse there
https://fred.stlouisfed.org/series/MDOAH
US Mortgage Debt held by individuals show ever sharper drop
https://fred.stlouisfed.org/series/MDOTHIOH?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=categories
Shop ’til you drop, people.
Yeah, if only salaries and grew at the same rate :).
I wish I began charting my debt/income/assets in my twenties…would love similar charts to BD for my lifetime. I can get some data points but not enough to chart. They did not teach financial literacy and data tracking when I was in high school. Damn shame.
My question is: gosh, what happened in 2001 to cause the slope of the debt to change so pointedly?
What’s happening is people who took on unaffordable mortgages at the peak cannot cover their expenses. so now they are using other credits to cover their mortgages. Let the housing market correct we didn’t Deleversge in 2008 that’s why we have these insane prices. We need housing to decrease at least 30 – 50%. The banks can take 30 price decreade. squeeze out the speculators and give our children a fair future.