credit and debt
03. credit & debt New credit has been on the decline of late as high interest rates are having their intended effect: keeping borrowers on the sidelines.
NOT GIVING CREDIT WHERE IT'S DUE
As we previously discussed, one of the Bank of Canada’s goals of raising interest rates is to disincentivize borrowing as a way of reducing spending, in turn slowing economic activity and ultimately bringing inflation back to its 2% target. And when it comes to the first part of that equation, they have successfully disincentivized borrowing of late. In the second quarter total credit extended was $37 billion, which was 49% less than in the same period last year. This is up from Q1, however, borrowing, like real estate, is quite seasonal, so the second quarter typically sees the most credit extended in a year. In fact, the first quarter had the lowest total credit extended since Q1 1993 and the lowest new mortgage total since Q1 2013. Overall, the first six months of 2023 saw $39 billion in new credit, a 64% decline from the same period last year.
Mortgages, which typically make up the largest share of borrowing, have seen the largest decline. To-date in 2023 there has been $29 billion in new mortgages extended, a 69% decrease compared with the first six months in 2022. As a result, mortgages were only 74% of new credit so far in 2023 as opposed to 87% in the first half of 2022. Consumer credit, on the other hand, increased notably in Q2 with almost $12 billion being extended in the second quarter. That comes after a more than $1 billion reduction in the first quarter as Canadians on the whole were paying down their consumer credit. Given this reversal, it will be something worth keeping an eye on going forward. We’ll discuss later on why Canadians are having a hard enough time managing their existing debt loads, so it goes without saying that it’s a positive development that borrowers have been taking on less new debt this year.
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