Correction: An earlier version of this story stated that Canada’s average credit card balance is the highest since 2007, following wording in an Equifax Canada release. In fact, raw data shows that Canada’s average credit card balance has not been higher since Equifax Canada began collecting data in 2007. This story has been updated.
The average credit card balance of Canadians has ballooned to its highest level in at least 17 years, with signs of ongoing financial stress most evident among younger people, according to the latest consumer data from Equifax Canada.
Stabilizing inflation and easing interest rates have not translated into improved metrics for credit card, mortgage and auto loans, Equifax’s second-quarter report said. Market Pulse The report said consumer debt rose to $2.5 trillion in the quarter, up 4.2 per cent from a year ago, as Canada’s employment situation worsened.
“Unfortunately, rising unemployment is offsetting some of the positive factors and adding to the financial stress,” said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada. Rising unemployment rates tend to have a more severe impact on credit data, she said.
“When you have high inflation, you tend to have more credit, more money to spend on things like credit cards, which can lead to lower payment rates and a little less delinquency,” Oakes said. “And ultimately, if consumers lose their jobs or are unemployed, they can’t make payments. And that has a more immediate and impactful effect on credit conditions.”
Spending remains stable but payments fall
The average card balance exceeded $4,300 in the second quarter, the highest since Equifax Canada began tracking the data in 2007, and overall outstanding balances rose to $122 billion, up 13.7 percent from a year ago. Oakes said consumer spending is about flat, but balances are still rising as fewer people are paying off their debts in full. Monthly payments fell for all age groups, but the biggest declines were seen among people under 35, Equifax said.
“We’re hopeful that stabilizing inflation will provide some support,” Oakes said, “but for many consumers, particularly younger consumers, there’s no cushion.”
The data is in line with recent figures from Statistics Canada showing younger Canadians are feeling greater financial stress.
Consumers ages 26 to 35 had the highest delinquency rate on non-mortgage credit products, at 1.99 percent. The average for all age groups was 1.4 percent. That overall rate is 23.4 percentage points higher than a year ago and the highest since 2011, Equifax said. Among those ages 26 to 35, delinquency rates on auto loans and lines of credit “were particularly high, reflecting the broader economic pressures facing this age group,” the report said.
Housing problems remain
The report also includes a range of data highlighting the continuing affordability challenges in Canada’s housing market. Mortgage holders saw their credit card balances increase more than others in the second quarter, and the average mortgage loan amount increased 6.1 per cent compared to last year.
According to data from Desjardins Group, homes in many parts of Canada became unaffordable earlier this year (though things improved slightly in July as mortgage rates tracked the recent downward trend in the Bank of Canada’s overnight rate).
The report noted that the proportion of first-time homebuyers remains lower than pre-pandemic levels, with more buyers accepting longer amortization periods.
According to Equifax research, 15% of mortgage renewals in 2024 will see their monthly payments increase by more than $300, nearly double the 8% that saw their monthly payments increase in 2019. In Ontario and British Columbia, the numbers are even higher, at about 20%, according to Equifax.
The report suggests that the Bank of Canada’s temporary interest rate relief “isn’t quite there yet to benefit consumers in particular,” Oakes said. A one percentage point drop in interest rates “would hopefully provide some relief to businesses,” he added. But housing is a different story. People renewing their mortgages now generally did so at unprecedentedly low rates during the pandemic, so next year’s renewals will be a little painful.
“I think it’s going to be a pretty slow process before we really see the benefits of rate cuts,” Oakes said.
John MacFarlane is a senior reporter for Yahoo Finance Canada. Follow him on Twitter. Follow.
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