Total Canadian consumer debt reached $2.32 trillion in the second quarter, up 8.2% from the same quarter last year, Equifax Canada said Tuesday.
According to the credit rating agency’s report, higher new loans and higher inflation-related spending helped push consumer non-mortgage debt to $591.4 billion, up 5. 2% compared to a year ago. Average non-mortgage debt per consumer was $21,128 in the second quarter, up 2.4% from a year earlier. This amount was $18,429 in Quebec, which thus ranks second to last among Canadian provinces.
Vice President of Advanced Analytics at Equifax Canada, Rebecca Oakes, points out that financial stress is becoming a reality for many more Canadians. The impact on consumer credit is not only visible in daily credit card spending, but also in other non-mortgage debt like lines of credit, where balances are on the rise, Ms.me Oakes.
Credit card balances hit their highest level since the fourth quarter of 2019, Equifax said. “Credit card spending is at historic highs,” said Ms.me Oakes. Strong consumer demand for credit cards translates into a competitive market for lenders. Consequently, the credit limits offered for the new cards are much higher than those of previous periods. Equifax says the average credit limit on new cards is over $5,800, the highest in seven years.
Still unaffordable
The report also indicates that the volume of new mortgages fell 16.4% in the second quarter, compared to the same period last year, in a slightly less active housing market in recent months. Despite the slowdown in the housing market, the average loan size for first-time home buyers fell only 0.5% in the second quarter compared to the first quarter, with average monthly payments increasing by 10%.
“A slowdown in the real estate market in Canada is far from synonymous with an increase in affordability,” argued Ms.me Oakes. “Affordability depends not only on house prices, but also on the monthly repayment obligations associated with mortgages. Higher interest rates, combined with high inflation, really help to increase monthly consumer spending; many may have difficulty qualifying for a mortgage. »
The report said the average loan amount for new mortgages in Canada was over $367,000, with average loans for first-time home buyers at over $430,000.
Canada’s slowing real estate market is far from synonymous with increased affordability
Equifax also noted that consumer insolvency has reached the highest levels since the start of the pandemic, mainly due to an increase in consumer proposals.
Further rate hike
The report comes as economists anticipate a sharp hike in interest rates from the Bank of Canada on Wednesday as the central bank scrambles to tackle inflation. In July, the Bank of Canada raised its key rate by one percentage point to 2.5%, its largest single increase since August 1998. Several financial analysts predict that it will raise its rate again on Wednesday, possibly by 0.75. Others say 1 percentage point.
Karyne Charbonneau, managing director of economics at CIBC, believes the rate hike could be the last for a while. In his opinion, by next month, Canada’s economic situation could be comfortable enough for the bank to take a break.
Economist David Macdonald of the Canadian Center for Policy Alternatives warns that the rapid pace of interest rate hikes could have serious repercussions due to high levels of corporate and household debt. He points out that private sector debt stands at 225% of GDP. By comparison, the last time the bank raised interest rates this quickly, private sector debt stood at 142%.