Canadians are more sparingly applying for credit… except when it comes to a new mortgage. TransUnion data shows credit originations generally fell in Q4 2020. Every segment saw an annual decline with the exception of mortgages. New mortgage originations jumped over 25%, as more people dive into the housing mania.
Canadian Mortgage Originations Rise Over 25%
Mortgage accounts are the only segment of credit to see growth on an annual basis, and it was huge. TransUnion data shows 327,344 new mortgage accounts in Q4 2020, up 6.88% from the previous quarter. Compared to the same quarter a year before, this represents a 25.80% increase. The combination of low interest rates and high home sales made it an unusually busy quarter.
Canadian Credit Account Originations
The quarterly number of credit account originations for the five largest segments. Source: TransUnion; Better Dwelling.Auto Loans Originations Fell Over 8%
Despite all of the talk about an auto sales boom, auto loans are fading very quickly. There were 435,065 originations in the segment for Q4 2020, down 20.94% from the previous quarter. Compared to the same quarter a year before, this represents an 8.80% drop. Not a lot of extra cash for a car when you just bought a new house.
Line of Credit Originations Fell Over 8%
Origination for lines of credit picked up, but are down significantly from last year. There were 283,062 originations in the segment for Q4 2020, up 14.29% from the previous quarter. Compared to the same quarter a year before, this represents an 18.30% drop. Some near-term recovery, but annual growth is down so much it’s got a long way to go before it makes up lost ground.
Canadian Credit Account Originations Change
The annual percent change of credit account originations for the five largest segments. Source: TransUnion; Better Dwelling.Installment Loan Originations Fell Over 27%
Installment loans experienced the second-largest drop of any credit segment. There were 387,072 originations in the segment for Q4 2020, down 13.12% from the previous quarter. Compared to the same quarter a year before, this represents a 27.10% drop. Since these are mostly for hard goods that are bought in-store, the drop is understandable. Most of the population has been restricted from in-store shopping to some degree.
Bank Card Originations Fell Over 31%
Bank card originations made the biggest drop of any credit segment. There were 1,130,658 originations in the segment for Q4 2020, up 7.50% from the previous quarter. Compared to the same quarter a year before, this represents a 31.40% drop. A million people opening accounts when there’s no population growth seems decent. Still, it’s an unusually slow rate of growth for Canada.
The rise in mortgages shouldn’t be all that surprising with the home sale boom. It is interesting to see other segments of credit struggle to grow. Technically low interest rates should be stimulating credit growth across the economy. Instead, Canadians are going all-in on housing. That simultaneously tells us there are some reservations about borrowing to spend… except when it comes to buying a house.
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This isn’t good. Think of it this way. As people open more mortgage accounts at these prices, they’re spending less at other places. All of that restaurant and food debt is turning into the downpayment.
Which your real estate agent is really happy about, but your neighborhood is collapsing over.
So is this visible in Q1 consumer spending, or when would we expect that to start showing up.
Look at residential spending. GDP up 6% unadjusted, but 3% was a residential investment. Half the recovery is increased investment in building housing.
Has Canada started handing out mortgages with custom declaration cards on the arriving airplane? I feel like that’s a good growth segment that should be pursued.