Canadian households are finally starting to realize why so many agencies warned against borrowing so much debt. A new report from Equifax Canada shows more households are struggling to repay their super-sized debt loads. The agency notes the trend is amplified in more expensive regions, where delinquencies are rising faster than the national average. Even worse, early signs show this trend may be just getting started.
Canadian Households Slow Down On Borrowing, But Growth Still Brisk
Canadians slowed their credit borrowing but still maintained a healthy pace. Outstanding household credit climbed 3.5% to $2.46 trillion at the end of Q1 2024. The vast majority of that debt was mortgage credit, representing 74% of the outstanding balance. If it sounds like a lot, that’s because it is—too much for many consumers to carry, from the sounds of it.
Canadian Credit Delinquencies Rise, Households Flee Expensive Regions
Canadian credit delinquencies are climbing, with the most expensive regions facing the most pressure. The agency did not disclose the national delinquency rate, but specified it is lower than pre-pandemic levels. The firm believes the mortgage stress test introduced in 2016 is helping to mitigate part of the issue, but overall some regions are just too indebted and expensive to avoid setting delinquency milestones.
Equifax specified Ontario’s balance of deliquent mortgages, those more than 90 days past due (DPD), exceeded $`1 billion in Q1 2024, the first time ever. They also shared data points regarding the most expensive real estate markets—Toronto and Vancouver.
“Notably, both Toronto and Vancouver now have higher delinquency rates (90+ day balance) than in Q1 2020,” read the agency’s report.
The mortgage delinquency rate in Toronto climbed 5 basis points (bps) to 0.14% from Q1 2020 to Q1 2024. In Vancouver, the rate climbed 3 bps to 0.14% over the same period.
Both BC and Ontario have now become so expensive, the flight from the regions became noticeable in credit files. “As high home prices and reduced affordability continue in some geographies, more consumers are making the decision to relocate to more financially accessible regions,” said Rebecca Oakes, Vice President of Advanced Analytics at Equifax Canada.
Further noting, “In the last 12 months, the number of individuals who moved from Ontario and British Columbia to other provinces exceeded those who moved to Ontario. Almost 71 per cent of all interprovincial movement to Alberta came from those two provinces alone.”
Not Just Mortgages, 1.26 Million Canadians Missed Credit Payments In The First Quarter
It’s worth remembering when households are low on cash, the mortgage is usually one of the last things they skip paying. Non-mortgage credit often provides earlier insight into household financial health. If that holds true, it isn’t painting a pretty picture.
The number of consumers that missed a payment climbed 12.2% over the past year to 1.26 million people in Q1 2024. It was the highest level since 2020, and while missing a single payment isn’t a problem by itself, the risk of default rises as more payments are missed.
Once again, this trend is amplified in the most expensive regions households have been fleeing. Missed payments for non-mortgage accounts saw higher annual growth in Ontario (+14.6%), BC (+13.4%), and Quebec (+15.2%), notes the agency.
Higher interest rates are a contributor to rising delinquencies, with the record sharp climb recently made. Stress testing reduced the volume of expected delinquencies, but obviously wasn’t enough. The issue isn’t just confined to mortgage borrowers though, with non-mortgage borrowers also seeing a shock. Ultimately the trend boils down to the cost of living and the amount households have to borrow in order to survive.
Never understood why people move to expensive cities if they don’t have to be there.
I don’t mean people who go into finance, tech, or real estate—but some people move to Canada, go to a private college for a crap diploma in something they know they can’t find employment, then wonder why it’s so hard to live there.
Go to Saskatchewan. Get some land and a real job. You’ll be a lot happier than living in place that consumes all your cash so you can watch rich people do fun things.
People move to expensive cities for the lifestyle: Concerts, theater, musical shows, museums, live sports, fine dining, public transportation. I am retiring soon and would love to live in Toronto. Where I live/work right now has none of this. Unfortunately, a detached house in Toronto is out of the question. Condos won’t work for me.
There are innumerable reasons, including family, music, art, media , tech innovation, academia, medical research …
A couple of points I think need to be more prominent, and I’ve only seen mention in passing on this blog—who’s defaulting?
Existing homeowners that owned pre-2020 have tiny mortgages, and could easily double or triple their payment without default. Lenders have basically been ordered by the Finance Dept to proactively identify and extend mortgage amortizations for consumers that may fail.
The only segment that can’t get help due to the way IFRS9 classifies risk is investors. Lenders can help them if they want, but then they have to charge everyone else more to mitigate the income loss from lower leverage. Investors also mostly displaced first-time buyers, buying something like 60% of inventory (20% of existing homes and 70% of new ones).
Not everyone can be a landlord. These clowns that thought they should be able to just swoop in at any price and scalp a third of income need to be taught a lesson or the problem will only get worse.
Correctomeundo. Toronto mortgages average ~$1.4k/month, about 15% of gross income for most borrowers. Sometimes I see renewals that “double” due to refinancing and they come in at a whopping $1200/month.
It’s important for the government to balance the fact new buyers face different issues from older owners. The biggest hit by far is the helicopter cash going from taxpayers to inflate home prices.
Early days. The fun has not yet started. There is a lot of people who cannot afford to renew at 7% or so. They also cannot sell without taking a huge bath, particularly condo owners. Those who have to take a large loss will kill the market accelerating the fall. Interesting to watch. Lowering interest rates will do nothing if prices are falling. Interest rates do not matter if your asset is falling in price.
If you bought in 2022 and listened to Macklem or Trudy on interest rates will be low for an extended time, stress tested at 2.5% then wound up at double the stress test amount, it’s no wonder defaults are rising quickly.
Good luck when Trump comes in and puts a tariff on everything . He might even tell us to defend ourselves. He likes Putin more than Trudeau.
This is indeed a big problem, as he has shown himself erratic and pandering to too many outside advisers, who likewise are in lock step to jump on his train with outrageous attitudes and values.
Eg “Make Canada PAY!”.
Want to do something about it?
Go on pro Trumpy channels and make numerous allusions of not only how wasteful and stupid was and WILL be his leadership.
I regularly also point out, how bizarre and stupid it would be to install a leader who would quickly total the Justice Dept. then “forgive” himself for 34+? Crimes!
One I like to point out- USA squandered over 1/3 if a Billion $$s, just on Trump’s golfing!
Yeah, SURE -he’s going to help the little man. Sure. :-(.
What additional debt beyond the mortgage has been incurred by those who are struggling with higher renewal rates? Did they purchase expensive vehicles with auto loans, make costly home renovations, purchase expensive furniture etc? Did people fail to create a sufficient buffer to cope with unanticipated contingencies such as inflation and higher interest rates? I would like to do a home renovation on my outdated interior but I live with what I have. In the past 30 years I have only ever owned a vehicle that is a base model. The past 20 years of low inflation has lulled people to accept elevated risk taking that is now revealing the consequences. Poor financial literacy is also at least partly to blame for the gullibility of consumers to believe the government when they said interest rates would remain low.
If the information being disseminated is correct about 45% of all mortgages are coming due in the next two years there is much more pressure to come. Unfortunately there is more pain to come as people have way over extended themselves just or get into the market. The current situation has been brought about by the Canadian bank regulators as they have allowed cheap money to enter the market. They never should allowed rates to get below 4-5% and this situation would have never materialized. People thought for some weird reason that cheap money was here to stay. The sad part is that now as soon as rates start to go down real estate prices will rise rapidly to fill in any opportunity for people to be able to afford mortgages or rent. It’s now a vicious cycle with little hope for a way out of unaffordable crisis that we are in
You’re absolutely right – interest rates should never have been lowered below 3-4%, and never negative real rates! If we would just keep them in a realistic range of inflation plus a few percent forever, this problem would slowly fix itself and leave the country much healthier, in spite of a lot of pain for some people over the next decade. But no, our stupid socialist govts (including even Conservatives not wanting house prices to fall, nor immigration levels to drop) will no doubt find a way to get the BoC to drop interest rates back to 0% again in no time, just to bail out the overindebted RE speculators!
Who In their right mind would ever think 2.5% was normal and would last.
Any thinking person would have worked the numbers out at 6-8% to be realistic.
Exactly. Just look at the interest rates from 1960 – 2007. That was normal.
5% interest rates are low. If only asset prices weren’t so overvalued.
For sure – but if we kept interest rates where they are now for the next 5 years, assets would reprice to something sensible. But that’s never gonna happen – speculators will be bailed out again. Moral hazard is Canada’s favourite product!
Parents (or teachers), should teach children from an early age, the value of money saved, ideally in an interest bearing account. Inculcating a desire to have “money in the bank” or in something that grows in real value
should be a cornerstone of everyone’s foundation.
Cultural forces and bombardment with enticing images of an endless supply of notions and trinkets, that “You simply MUST have.” and can be laid on your doorstep at the mere tap of an index finger… has vastly exacerbated the problem. Humans should be taught to start prioritizing Needs…over mere Wants!
“Buy your way to happiness” is killing true value… and thus our future, long term on our vital most valuable, green sphere.
For sure – but if we kept interest rates where they are now for the next 5 years, assets would reprice to something sensible. But that’s never gonna happen – speculators will be bailed out again. Moral hazard is Canada’s favourite product!