High interest rates have applied the brakes to Canada’s housing market, while non-mortgage debt and delinquencies are on the rise.
Mortgage activity as of the fourth quarter was down 38.5% year-over-year, according to data from Equifax. The slowdown was even more pronounced in the country’s priciest real estate markets of Toronto and Vancouver, where originations are down 44.3% and 52.3%, respectively.
It’s important to note that this data is from the fourth quarter of 2022, ahead of the Bank of Canada’s January rate hike.
Ever since the Bank of Canada began hiking interest rates in March 2022, home prices have been on a downward trend, falling roughly 19% from their February 2022 peak, according to data from the Canadian Real Estate Association.
That has led to a decline in average mortgage sizes. In Toronto and Vancouver, for example, the average new mortgage amount is down by $51,000 and $36,000, respectively.
“As more mortgages come up for renewal, future payment shocks for homeowners are a real concern,” Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada, said in a statement.
“There are thousands of fixed-rate mortgages expected to be renewed in the next 12 months and this will likely lead to either an increase in the monthly mortgage payments for these consumers or a need to extend mortgage terms to maintain existing payment levels,” she added.
In a recent survey from RATESDOTCA, 47% of respondents who plan to purchase a home or renew their mortgage in the next 12 months are concerned about qualifying for the amount they need, with 16% saying they are “very concerned.”
Non-mortgage debt and delinquencies are rising
Total consumer debt continued to rise in the quarter, reaching $2.37 trillion, a 6.2% increase from a year prior. That works out to an average of a little over $21,000 per person, up 2.1% year-over-year. Mortgages make up about 75% of total consumer debt, Equifax notes.
The credit agency reported a 5.4% year-over-year rise in non-mortgage debt. But the pace was even faster among younger cohorts, with an 8.4% rise in debt levels for those between the ages of 27 and 42.
Non-mortgage debt delinquencies are also on the rise, with the percentage of those who missed a non-mortgage payment rising by 11% in the quarter. Among mortgage holders, the rise in non-mortgage delinquencies was up by 6% year-over-year.
“We are starting to see increases in missed payments on credit cards and auto loans, particularly for lower-income consumers,” said Oakes. “The ability to manage finances through a sustained period of high inflation with rising living costs is unfortunately proving too much for some individuals. We are also seeing additional early warning signs that this may be the start of things to come. ”
In the past 12 months, 90+ day delinquencies in credit cards and auto loans were up by 23% and 11%, respectively, Equifax reported. Overall, the delinquency rate for non-mortgage debt rose to 1.01%. Delinquency rates were highest in Alberta (1.37%), Saskatchewan (1.34%) and Manitoba (1.33%), and lowest in Quebec (0.69%), PEI (0.91%) and British Columbia (0.91%).
Among mortgages, delinquency rates remain just off all-time lows at 0.15% as of December, according to the Canadian Bankers Association. Mortgage delinquencies are highest in Saskatchewan (0.63%) and lowest in Quebec and B.C. at 0.11%.
