Canadian subprime credit inquiry volumes are falling, but still lead the market. TransUnion updated some of its credit indicators for Q2 2021 today. Overall improvements are seen in credit health, with high-quality borrowers leading in growth. However, the subprime segment has been contracting at a smaller and smaller rate. Smaller contractions can mean the segment can return to growth soon, after struggling to recover as fast as higher-quality segments.
Canadian Consumer Credit Inquiries Rise Over 5%
Canadian consumer credit inquiries are now higher than last year. Inquiry volumes increased 5% in June 2021, compared to a year ago. A lot of this growth is from higher-quality borrowers as well.
The TransUnion Credit Industry Indicator (CII) reached an index score of 93.5% in Q2 2021. This is up 9 points from the previous quarter, and 29 points from the August 2020 low. The indicator uses demand, supply, behavior, and performance to measure health. So it isn’t just a read on whether people are defaulting, but an overall picture of the market.
Source: TransUnion Canada.
Higher Quality Consumers Are Leading In The Growth of Inquiries
Higher quality borrowers lead the market for growth, and they are recovering fastest. Credit inquiries for Super Prime borrowers (credit score of 800+) showed annual growth of 28.5% in Q2 2021. Prime Plus (760 to 699) increased 7.1%, and Prime (720 to 759) increased 4.8% over the same period. High-quality borrowers have recovered the fastest since the pandemic contraction. Some segments are even above the pre-pandemic volumes.
Lower quality credit segments are falling — though not as much as regulators imply. Near Prime borrowers (credit score of 640 to 719) declined by 0.5% in Q2 2021, compared to a year before. Inquiries from subprime borrowers (with a credit score below 640) dropped by 0.7% over the same period. These two segments over the past couple of years have become the largest by volume.
Lower Quality Borrowers Lead In Credit Inquiry Volumes
TransUnion won’t release the official data for a few more days, but we can get an idea of what these numbers look like. Last quarter’s analyst slides show the lowest quality borrowers represented the largest volumes. With the Q2 decline being so small, this will most likely print a quarterly increase.
Source: TransUnion Canada.
Credit inquiries don’t necessarily translate into borrowing, which muddies the view. They represent the highest volume of inquiries, but owe the least to institutions. Often this is interpreted as the credit system restricts the volume of bad loans. On the other hand, these borrowers tend to be the clientele of unregulated private lending. Private lenders aren’t exactly hurting for business these days.
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Obligatory “but Canada has no subprime credit” quote.
Combine this with high leverage data from OSFI.
what leverage data from OSFI?
The LTV ratio on all of the mortgages are strong in almost all cases except for high ratios, but those are obviously insured so the impact is nil.
Rome needs more debt slaves.
This is telling us most of the real estate investments are by higher income Canadians. Which means even if we have another lockdown most will still be able to withstand it. Those who can’t withstand it are lower income people. So increasing interest in hope of better affordable housing is not going to happen. You need to tax people with multiple residential properties.