Canadians are falling behind on bills, and it gets worse as they assume more debt. Statistics Canada (Stat Can) released new data from their Survey of Financial Security this week. The data shows a significant number of households fell behind on their debt payments. The most interesting trend revealed is more debt relative to assets, means more bills missed.
Debt-To-Asset Ratio
The debt-to-asset (DTA) ratio is the amount of debt owed, expressed as a percent of the assets held by the borrower. For example, a debt-to-asset ratio of 50% means the household owes 50 cents for every dollar in assets they have. Generally speaking, those with a lower ratio tend to miss fewer payments. Those with higher ratios, tend to miss more payments. An increased number of missed or late payments are often a sign of struggling finances. Credit agency Equifax has stated this generally precedes a rise in defaults.
One important thing to note is the data was released this week, but the survey is from Q4 2016. The debt-to-asset ratio for a typical home as increased 4.41% since then. The typical interest rate has also increased around 26%, over the same period as well. This means households have more debt and higher financing costs these days. The insights are still very helpful, but finances have become worse since then.
Over 1 In 10 Canadians Made Late Payments
Overall, Canadians are skipping bill payments at a much higher rate than Big Six data reveals. Of households with debt, 11% skipped or were late on their non-mortgage payment. Counting just those with mortgages, 4% skipped or delayed a mortgage payment in the year of the survey. The obvious takeaway is that homeowners are better off, but that isn’t always the case.
The Financial Consumer Agency of Canada (FCAC) expressed some interesting insights last year. They’re the government agency with ads across Toronto and Vancouver reminding people their homes aren’t ATMs. The agency has a growing concern that homeowners are using home equity lines of credit (HELOC) debt to conceal financial distress. That is, people are shifting their debts around, but not actually making much progress. Since the survey was taken, Canadians have drawn $42 billion in HELOC debt. Not enough data to link the two yet, but something to keep in mind.
Over 7% of Canadians Missed or Were Late On Debt Payments
A signifiant number of households are missing non-mortgage debt payments. The smallest segment was households with a DTA ratio less than 25%, of which 7% missed or were late on at least one payment in the past year. Next up were those with a DTA between 25% and 50%, of which 11.5% were late or missed payment(s). The highest predictably were those with a DTA ratio higher than 50%, of which 16.1% missed or were late on a payment. The trend is clearly the higher the debt relative to assets, the more likely people are to fall behind. This is repeated throughout other segments revealed in the survey.
Canadians Falling Behind On Non-Mortgage Payments
The percent of Canadian households that missed at least one non-mortgage debt payment in the year prior to being surveyed, by debt-to-asset (DTA) ratio.
Source: Statistics Canada, Better Dwelling.
Over 1% of Canadians Missed or Were Late On Paying Mortgages
The number of Canadians that missed their mortgage payments was much lower. The smallest segment was again, households with a DTA ratio of less than 25% – with 1.7% of those missing or late on their mortgage. Following that are those with a DTA of 25% to 50%, with 4.2% of those households falling behind payments. The highest was those with a household a DTA ratio of higher than 50%, with 7.1% of households late or missing a payment. The numbers are smaller than non-mortgage payments. However, they are higher than the banking industry’s mortgage payment in arrears numbers. A few days late can turn into a lot of days late quickly.
Canadians Falling Behind On Mortgage Payments
The percent of Canadian households that missed at least one mortgage debt payment in the year prior to being surveyed, by debt-to-asset (DTA) ratio.
Source: Statistics Canada, Better Dwelling.
Over 2% of Canadian Households Used A Payday Loan
Over the 3 years prior, a lot Canadians have been turning to payday loans. The smallest segment was once again those with a DTA ratio lower than 25%, with 2.4% of those households using at least one payday loan. Following that is those with a DTA ratio of 25% to 50%, with 2.5% of these households using a payday loan. The highest ratio is once again those with a DTA ratio higher than 50%, with 7.7% of these households turning to payday loans. Payday loans are often seen as a last resort, due to high costs associated with using them. But there are some centers which offer loans with no credit check and people can make use of such payday loans.
Canadian Households Using Payday Loans
The percent of Canadians that turned to payday loans in the past 3 years prior to being surveyed, by debt-to-asset (DTA) ratio.
Source: Statistics Canada, Better Dwelling.
Even though the study was released this week, the survey data used is years old. Nonetheless, the trend revealed is important. The higher debt is relative to asset, the more likely people are to miss payments. This could surface into a bigger issue, as debt growth is outpacing asset growth these days.
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One of the many reasons why the government shouldn’t be trying to get people into house houses with lower and lower down payments. New buyers with 5% down on a $500,000 house have an asset to debt ratio on the high extreme.
It doesn’t matter if you can make the payments today, hiccups happen and sometimes you need to withdraw equity to keep things going. A lot of the time households would be much better off waiting for a more significant downpayment.
No one ever went broke living within their means. A lot of people have trying to stretch themselves thin.
Instilling the idea that only payments matter was the most successful heist in history. It enabled an endless monthly robbery of the masses while telling them that they are “wealthy”. Seeing governments being complicit in it is appalling.
Ding ding ding…one of the best comments I’ve seen in awhile. One always has to look at % and $ deltas for everything. Oh don’t worry, you’ve only added 10%….10% of $100 is not the same as 10% of $1,000,000. People, don’t just pick and choose…that’s what the 88s do to con you into overextending yourself…always look at both. Offering ‘only’ 5% to beat out the other buyer can cost you tens of thousands of dollars in debt!
BD has a great post that basically called out we’re no better off than when rates were 13%…the % changes but the dollars do not! Dollars are hard, % are soft.
Happy Canada Day!
Tock.BD4L.
Canadian business insolvencies also jumping. This is not a drill.
Although it’ll take a few months for the government to realize that all of those “self employed” jobs created aren’t actually generating any revenue.
Are those “self-employed” gullible MLM bottom line “employees” who become “their own boss” working under a RVP or VP for free?
1 in 10 my ass. Exclude the boomers and its more likely to be 1 in 6 that are behind. People borrowing money to buy stupid shit they don’t need. Only to be a slave to their job and the bank. Because you are not cool unless you have that latest $2000 Iphone…
There’s a very interesting trend here regarding why Canadians are so into real estate speculation. The property market has been making more than they can at their jobs. Rather than being left behind, everyone sees it as a pipe dream to wealth, and escaping the less than perfect job market.
Buying in 2013 as an investment, when weak sales but long-term prices were stagnant, was a prudent investment move.
Buying in 2019 as an investment after a parabolic increase in prices, and you might as well have bought a lottery ticket.
There have been several years recently where the 1-year rise in residential real estate values in British Columbia where higher than the provincial GDP for the year.
For older homeowners in Vancouver, their real estate gains dwarf their lifetime earnings.
I don’t know if buying RE in 2013 was a prudent investment decision – at least not in Toronto. It was a prudent investment decision in 2005-2006 when the inflated adjusted priced started their recovery after the last bubble burst.
And maybe it was still a prudent decision in 2010-2011 when the quick recovery from the Great Recession dip became apparent. By 2013 one would have been rather late to the party and by 2015 buying a house in T.O. was more like playing Roulette than making an investment decision.
Had the price of oil and as a result the Canadian dollar not collapsed after and the BoC had not opened the taps, things would have turned out very differently. Buying any time after mid 2016 when bank executives started dumping their RE holdings, you were playing 10-1 odds, much lower than you get with playing Red or Black on a Roulette table (roughly 2 to 1 odds).
Nice job with the connection to the new data. I read the study from Statistics Canada, and all I could think is this data is so old. Makes a lot more sense now. Appreciate the context.
The environment can change very quickly. The billions of dollars people made are going to provide a lot of “cushion” for these kinds of events. Non-problem from the bank’s perspective.
The missing metric is, requested credit, was turned down.
I see lots of frowns, on the sales floor, at the dealer that services my car.
Unfortunately, the data used for this study is 2016. My guess is that things are worse today than 3 years ago but just masked by the continuation of ultra-low interest rates.
Legit shocked it’s only 1 in 10. Would like to see it broken down by city and region.
A whole generation of Canadians have lived a luxurious life just by tapping into their heloc and flipping gains. This non-productive generation have now become a burden to the society as they have lost the ability to do anything else productive . The govt and central bank are responsible for this mess.
I think it was on here that someone mentioned debt forgiveness for the people. I didn’t quite know what to think. Kazakhstan announced bail out for the people after mass protest. Lately seems like govt is crossing t’s and dotting the I’s just in time for re-election. Trans mountain, trade, carbon tax $, if we are offered bail outs re-election is certain especially with trade tensions with China hurting Farmers.
If we were collecting taxes on RE to fund a bailout sure. It would be stupid (unless we’re a banana republic) but the government would be paying for it with their coffers. Unfortunately, all that tax $ is in the ether. Think about how poor Toronto is despite the RE boom. No bueno. Tock. BD4L.
There is no such thing as debt forgiveness. What it really means is that someone else has to assume the burden of paying off this debt one way or another. Calling this transfer of debt “forgiveness” is a bit misleading.
https://www.zerohedge.com/news/2019-06-23/broke-and-beautiful-life-millennials-now-use-high-interest-loans-pay-weddings
Homes, cars, weddings…
https://www.cbc.ca/news/politics/cbc-election-poll-1.5188097
This beauty W4501619 is 1.3 mil by the train tracks and has unfinished basement. What fundamentals are supporting the craziness. It’s it demanding homeowners, realtor con, or people moving to the area not knowing much?
I’m hoping that people who invest in real estate, and those who manage it for them, will make it affordable to rent. When you are living off $2100 even, it can be difficult to manage rental, utilities, car payments, insurance, gas and food. This is especially true when the price of everything goes up at once.