Consumer debt hits $2.5tn in Q2 2024, with young Canadians facing increasing financial strain
Equifax Canada's latest Market Pulse Consumer Credit Trends and Insights report revealed consumer debt in Canada reached $2.5tn in the second quarter of 2024, a 4.2 percent increase from the same period in 2023.
The surge in credit card debt was a significant contributor, with outstanding balances climbing to $122bn, up 13.7 percent year-over-year. The average credit card holder now carries a balance of over $4,300, the highest level since 2007.
This increase occurred despite a slowdown in consumer spending, driven largely by a decrease in card payment rates. Consumers under 35 experienced the steepest decline in payment levels.
Notably, mortgage holders saw an 11.9 percent increase in their average credit card balances compared to a 7.7 percent rise among non-mortgage consumers.
Rising living costs and a 6.4 percent unemployment rate have led to higher levels of missed payments, with one in 23 consumers missing a payment on at least one credit product in Q2 2024, compared to one in 25 the previous year.
The overall non-mortgage balance delinquency rate rose to 1.4 percent, exceeding peak 2020 levels and marking the highest rate since 2011. This represents a 23.4 percent increase from Q2 2023.
Younger consumers, aged 26-35, experienced the highest delinquency rates at 1.99 percent, reflecting a 21.6 percent rise from the previous year. This age group particularly struggled with auto loans, where the delinquency rate hit 1.45 percent, and lines of credit, which saw a 2.19 percent delinquency rate.
While mortgage delinquency rates remained below pre-pandemic levels overall, Ontario experienced its highest mortgage delinquency rate since 2014, with over 3,000 mortgages in severe delinquency by the end of Q2, representing $1.3bn in balance and a 66.8 percent increase compared to Q2 2023.
“Inflation is stabilizing, and interest rates are starting to reduce, which is good news for many consumers. Unfortunately, rising unemployment has offset some of the positives and is driving increased financial stress,” stated Rebecca Oakes, vice president of Advanced Analytics at Equifax Canada.
Concerns about the credit performance of auto loans grew during Q2 2024. Non-bank auto loan delinquency rates reached a historic high, while bank loan delinquencies hit their highest levels since 2019.
The 90+ day delinquency rate for non-bank auto loans increased by 26.8 percent over the past year to one percent, while bank loan delinquencies rose by 54.1 percent to 1.16 percent.
Oakes observed, “We are seeing many missed payments emerging from consumers who opened new auto loans during 2022, when car prices were particularly high. As car prices decline, these consumers may find themselves with high loan amounts and less equity in their vehicles, which could lead to an increased risk of loan defaults.”
The report highlighted a shift towards multigenerational living in Canadian households, driven by economic challenges and evolving immigration patterns. A growing number of young Canadians are choosing to live with their parents and grandparents, reshaping traditional family structures.
This trend is particularly evident among young adults, who are increasingly staying at home due to financial strain. Nearly one in three Canadian households (29.2 percent) now includes adult children living with their parents, up from 26.7 percent a decade ago.
In Ontario, the proportion is even higher, with 32.8 percent of households being multigenerational.
“The economic conditions we’re seeing today may be leading many young people to stay at home longer,” said Oakes. “With fewer job opportunities, rising rent and housing prices, and the overall high cost of living, young Canadians are relying more on the support of their parents and grandparents.”
The mortgage market remained under pressure due to high interest rates in Q2 2024. Although new mortgage originations improved by 21.3 percent from the lows of 2023, they remained below typical second-quarter levels.
Alberta, boosted by strong interprovincial migration, saw a surge in new originations, even surpassing pre-pandemic figures. Despite a decrease in home sales during Q2, average mortgage loan amounts rose by 6.1 percent year-over-year and 5.5 percent from the previous quarter.
High home prices and rising interest rates have created significant barriers for first-time homebuyers. The proportion of first-time buyers continued to decline from pre-pandemic levels, with the average first-time homebuyer loan now exceeding $410,000.
The discontinuation of the first-time homebuyer incentive plan at the end of March 2024 could further complicate the purchase plans of many prospective buyers.
Renewing homeowners also faced challenges due to high interest rates. In 2024, 15 percent of mortgage renewals resulted in monthly payments increasing by over $300, up from eight percent in 2019.
In Ontario and British Columbia, around 20 percent of renewals saw such increases, prompting many homeowners to extend their amortization terms to manage higher costs.
“Homebuyers who purchased homes in 2020 and 2021 with low interest rates and high loan amounts may face significant challenges,” Oakes commented.
“Even with recent rate cuts, these homeowners may need to prepare for substantial increases in monthly payments and extended amortization terms. Those with low renewal affordability and negative equity may find it particularly difficult to navigate these changes.”
