credit and debt
03. credit & debt Canadian household borrowing has been on the rise of late— though the increase actually pre-dates the Bank of Canada’s first interest rate cut.
SPRINGTIME (BORROWING AND) SPENDING SPREE
It shouldn’t come as much of a surprise that household borrowing went through a period of relative stagnation, beginning in the second half of 2022, as the Bank of Canada was aggressively tightening monetary policy in response to high inflation. Total credit extended in 2023 was just $95.7 billion, the lowest annual total since 2019. Of that, $71.6 billion came in the form of mortgage credit, its lowest yearly sum since 2018. So far in 2024, however, household debts have been on the rise. Borrowing in Canada is quite seasonal, so in Q1 when only $7.4 billion in credit was extended, that actually represented an almost fourfold increase over the same quarter in the prior year, when $1.5 billion in credit was extended. This trend carried into Q2 of this year—where the second quarter typically sees the highest levels of new debt—with $45.6 billion in credit extended. While this is substantially lower than the heady days of 2021 and 2022, it’s 13% higher than Q2 2023.
Through the first six months of 2024, borrowing is up 26%, to $53 billion. Total mortgage credit year-to-date has been $35.7 billion, which was 8% higher than the same period last year. The mortgage share of overall household credit this year, however, declined to 67% (from 79%). The rest of the growth came in the form of non-mortgage credit, which includes home equity lines of credit (up to $5.5 billion this year), and consumer credit (up to $11.8 billion). The trend in rising consumer credit is something to keep an eye on. Consumers sometimes turn to this form of debt out of necessity in tough economic times, and many of these debts come with higher interest rates (think credit cards and even personal lines of credit). If this trend continues, it could spell trouble for some Canadian borrowers.
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