The great Canadian borrowing binge continues, but it’s not for mortgages. At least, not entirely. Statistics Canada (StatCan) data shows household debt grew in June, but not as fast as usual. Mortgage credit is weighing down growth as it decelerates post-low rate boom. It’s consumer credit that’s booming, a trend the industry attributes to a rise in “distress borrowing.”
Canadian Household Debt Is Slowing, But Not Slow
Canadian household debt: Annual growth rate.
Source: StatCan; Better Dwelling.
Household debt grew 0.6% (+$21.0 billion) to $3.29 trillion in June, up 4.3% (+$136.4 billion) from last year. The annual growth rate is the detail worth paying attention to here, as it’s starting to stall and grind lower. That’s not deleveraging, but the pace of borrowing is definitely slowing down.
Canadians Add $100 Billion In Mortgage Debt Despite Slowdown
Canadian household debt: Annual growth rate of mortgage credit.
Source: StatCan; Better Dwelling.
Mortgage debt is the lion’s share of household debt. The segment grew 0.6% (+$13.8 billion) to $2.45 trillion in June, 4.2% (+$98.2 billion) higher than last year. Even as housing markets struggle to gain momentum, households added almost $100 billion.
Households Flock To Consumer Credit As Distress Borrowing Booms
Canadian household debt: Annual growth rate of consumer credit.
Source: StatCan; Better Dwelling.
Consumer credit is another story, as its growth now outpaces mortgage debt. The segment added 0.87% (+$7.23 billion) to hit $835.0 billion in June, up 4.8% (+$38.3 billion) from last year. Annual growth is at a pace only seen in 4 months in the past 16 years, even outpacing general household debt growth. This is a much more troubling trend than it sounds.
The acceleration in consumer credit post-mortgage boom often presents liquidity concerns. It’s well documented that after buying a home, borrowers tap credit to supplement depleted finances. The trend is amplified by consumption smoothing or distress borrowing, according to TransUnion. Households are increasingly tapping higher interest revolving credit to absorb rising costs. The recent insolvency boom suggests this plan isn’t working out as well as many had hoped.
