EQUIFAX: Consumer Debt is Up with Renewed Mortgage Activity
Total Outstanding Debt Climbs to $1.991 Trillion
Despite the economic impact of COVID-19, a strong recovery in the Canadian housing market and a slower paydown of existing mortgages helped push total consumer debt to 1.991 trillion dollars in the second quarter, according to Equifax Canada’s most recent report on consumer credit conditions. Consumer debt is up 2.8 per cent compared to the same quarter in 2019.
Rising mortgage balances helped push the average debt per person to $73,532, up 2.2 per cent compared to the second quarter of 2019. Mortgages were supported by a bounceback in home sales from the pandemic lows in March and April alongside increased refinancing activity and higher average home prices. Non-mortgage debt was down relative to 2019, as credit cards, auto loans and lines of credit felt the weight of the economic shut down in most regions.
“Mortgage activity has withstood the headwinds from COVID and showed the earliest signs of recovery,” said Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada. “Other credit products began to show greenshoots of a bounceback with credit card spending starting to rise in June. Card spending for those not using a payment deferral on their credit card were effectively back to pre-COVID levels by the end of the quarter.”
The use of support mechanisms during the COVID-19 pandemic has been widespread with more than three million consumers utilizing a COVID-related payment accommodation at some point since February. The 35 – 44 year-old age group have been the heaviest users where 15.1 per cent have utilized some form of payment deferral compared to only 5.7 per cent for seniors. Deferrals have been dropping in recent weeks.
“Everyone’s situation is different. Some consumers who were feeling financial stress prior to the pandemic are showing improved credit behaviour since March and may be leveraging deferrals to assist in paying down outstanding debts,” added Oakes. “There remains a group that is feeling the financial stress of the pandemic and is reporting more missed payments.”
Pandemic impact on delinquencies and bankruptcies
The 90+ day delinquency rate (the percentage of balances where credit users have missed 3+ payments) for non-mortgage debt rate was 1.24 per cent (10.6% up compared to Q2 2019). This continues a trend from 2019 and does not measure the full weight of COVID. Younger borrowers saw a drop in overall delinquency rate compared to Q1, but this may be reflective of the increased usage of payment deferrals and government-support benefits.
“Delinquency rates held up relatively well and do not reflect the sharp rise in job losses thanks to the various support mechanisms,” concluded Oakes. “One in five people utilizing deferred payments were already financially stressed prior to the start of the pandemic. Some of these consumers may find it harder to recover as support mechanisms start to reduce.”
