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Alongside the Vancouver edition of the rennie landscape, our intelligence group also produces editions for the Victoria and Kelowna markets. Read them at the links below.
Victoria editionKelowna edition03. credit & debt
checking on the conditions of debt additions
After a year and a half of relatively subdued borrowing in Canada, beginning in the second half of 2022, household credit is once again on the rise. With the Bank of Canada beginning to unwind its restrictive monetary policy in 2024, as bond yields and fixed rates also fell, borrowing costs have been on the decline. That said, rates still remain higher than they were heading into the pandemic, and the increase in credit extended last year was relatively modest.
Canadians added $127 billion to their total debt last year, which was 32% more than the $96 billion borrowed in 2023. This still pales in comparison to 2021, when home sales reached their record high, at 28% less than the $188 billion of additional borrowing that year. It’s also 11% less than the past-decade average as borrowers were still relatively cautious last year.
Mortgage debt once again accounted for the lion’s share of the borrowing, but at 70% of the total, represented the lowest annual share since 2009. The reasons for the shift were increases in both non-mortgage debt and consumer credit. Borrowers added $9.7 billion of non-mortgage debt, a 238% increase over 2023 and the highest annual total since 2018. On the consumer credit front, Canadians borrowed an additional $28.3 billion, which was a 37% increase from last year, and the second highest annual total (after 2022’s $28.6 billion) going all the way back to 2009. Consumer credit often carries higher interest rates, which means this increase could be placing additional strain on household budgets. Overall, the recent level of borrowing activity is not cause for concern, provided Canadian households are able to service their overall debt levels, as we will explore next.
Seattle editionWith interest rates on a path to normalization, borrowing is on the upswing once more in Canada. And it’s not just mortgage debt, but consumer credit, too.
BORROWING MORE, BUT NOT AS MUCH AS BEFORE
DATA: NET CHANGE IN CREDIT ISSUED BY TYPE, ANNUAL, 2015-2024, CANADA
SOURCE: STATISTICS CANADA, TABLE 36-10-0579-01
keeping up with the debtload
Households in Canada have been in an increasingly better position to service their debt obligations thanks to a combination of falling interest rates and rising wages.
Debt-service ratios and mortgage arrears rates are two useful indicators on the health of Canadian households’ debt obligations. It’s not just what you owe, but your ability to pay it back that ultimately matters. Debt-service ratios (DSR) give us an aggregate view of how much of our incomes we allocate to servicing debts, while arrears rates tell us what share of borrowers are 90 days or more behind on their mortgage payments.
These two metrics, while moving in opposite directions, show a relatively positive state of affairs for Canadian borrowers. The total DSR has declined in each of the past four quarters, to 14.4% in Q4 2024, after reaching an all-time high of 15.1% at the end of 2023. The mortgage DSR, while still historically elevated, has dropped from its record-high to the current reading of 7.8% and the non-mortgage DSR, at 6.5%, is at its lowest level since Q2 2020. Beyond falling interest rates, rising wages were likely a contributing factor, as average weekly earnings grew by 5.7% in Canada last year.
The mortgage arrears rate, on the other hand, has been rising of late, reaching 0.22% nationally by the end of last year. This is up from its record low of 0.14% last seen in September 2022. This level of arrears is still quite minuscule though, with just 22 out of every 10,000 borrowers three months behind on their mortgages—a lesser delinquency rate than in any month in history (going back to 1995) prior to 2021.
That arrears rates are still historically low, while DSRs are declining, shows us that Canadian household credit is on solid footing overall. This hypothesis will be tested, however, as two-thirds of all mortgages are set to renew in 2025 and 2026, which we discuss next.
ENOUGH EARNINGS FOR PUNCTUAL PAYMENTS
DATA: PROPORTION OF DISPOSABLE INCOME GOING TO DEBT SERVICE, MORTGAGE ARREARS RATE, QUARTERLY, 2020-2024, CANADA
SOURCE: STATISTICS CANADA. TABLE 11-10-0065-01, CANADIAN BANKERS ASSOCIATION
high fives all around
A wave of mortgage renewals is going to crest over the next two years. The vast majority of renewers are facing much higher interest rates this time around.
When the Bank of Canada lowered its policy rate to near-zero in response to the pandemic in 2020, and bond yields and fixed mortgage rates dropped accordingly, a wave of home sales and refinancing followed as borrowers across Canada took advantage. The most popular mortgages at that time were of the 5-year and longer fixed-rate variety (45% of borrowers in 2020 and 2021). Fast-forward five years and there’s an expectation of increased risk as a wave of renewals is set to hit in 2025 and 2026, when rates are much higher.
Indeed, the Bank of Canada’s new data on real estate secured loans confirms this. One-third of residential mortgages will renew in 2025 (more than 1.7 million), along with another one-third in 2026. Of those, half are renewing from 5-year or longer fixed-rate contracts, when discounted rates five years ago averaged between 1.39% and 2.24%— a far cry from today’s average of 3.89% High. One in five renewers are coming from 1- and 2-year fixed mortgages and are likely to renew at lower rates. We’ve explored in past editions of the rennie landscape how the combination of the stress-test and rising incomes means that renewers will likely be able to afford their new payments, however, this will mean that more than one million households this year will be spending more of their incomes servicing debt and less on everything else.
RAISING OUR INTEREST IN MORTGAGE RENEWALS
DATA: NUMBER OF MORTGAGE RENEWALS ANNUALLY & SHARE OF MORTGAGE RENEWALS BY TYPE AND TERM, 2025, CHARTERED BANKS, CANADA
SOURCE: BANK OF CANADA
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Disclaimer: This representation is based in whole or in part on data generated by the Chilliwack & District Real Estate Board, Fraser Valley Real Estate Board or Real Estate Board of Greater Vancouver which assumes no responsibility for its accuracy.
Disclaimer: This representation is based in whole or in part on data generated by the Chilliwack & District Real Estate Board, Fraser Valley Real Estate Board or Real Estate Board of Greater Vancouver which assumes no responsibility for its accuracy.
Disclaimer: This is not an offering for sale. Any such offering can only be made by way of disclosure statement. E&OE. The developer reserves the right to make changes and modifications to the information herein without prior notice. Photos and renderings are representational only and may not be accurate.
Disclaimer: This is not an offering for sale. Any such offering can only be made by way of disclosure statement. E&OE. The developer reserves the right to make changes and modifications to the information herein without prior notice. Photos and renderings are representational only and may not be accurate.
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