Equifax Canada report reveals total consumer debt was up more than 4% in Q2
Canadians continue to load up their credit cards with debt in the second quarter of 2024, reaching a 17-year high for the average outstanding card balance.
The total level of Canadian consumer debt reached in the quarter ($2.5 trillion) was almost reached in the first quarter but the new Market Pulse Consumer Credit Trends and Insights Report from Equifax Canada, released today (August 27), reveals an increase in the annual pace of debt accumulation, 4.2% in Q2 2024 compared to 3.5% year-over-year in Q1 2024.
For credit cards there was $122 billion in outstanding balances in the second quarter, up almost 14% year-over-year. The average outstanding balance was $4,300, the highest level since 2007, and this was despite a slowdown in consumer spending. This increase was primarily attributed to a reduction in card pay rates, with consumers under 35 years of age seeing the fastest decline in card payment levels.
The report found a concerning rise in delinquencies overall with one in 23 consumers missing at least one payment during the second quarter of 2024, up from one in 25 a year earlier.
But while the overall non-mortgage balance delinquency rate of 1.4% was up more than 23% year-over-year to the highest rate since 2011, it was highest among those aged 26-36 at 1.99% (having risen 21% year-over-year) and driven by auto loans (1.45%) and lines of credit (2.19%).
“Inflation is stabilizing and interest rates are starting to reduce, which is good news for many consumers,” said Rebecca Oakes, vice president of Advanced Analytics at Equifax Canada. “Unfortunately, rising unemployment has offset some of the positives and is driving increased financial stress.”
The financial pressure faced by younger adults in particular is likely to delay some life milestones, the research found, such as leaving home. More than 29% of Canadian households include adult children living with their parents, up from just below 27% a decade ago. However, this rises to 33% among households in Ontario.
“The economic conditions we’re seeing today may be leading many young people to stay at home longer,” added Oakes. “With fewer job opportunities, soaring rent prices, high housing prices, and the high cost of living, young Canadians are increasingly relying on the support of their parents and grandparents.”
Homebuyers, homeowners
Young people unable to afford to buy their first home will also be impacting overall mortgage originations.
The Equifax Canada report shows that the proportion of first-time buyers continued to decline compared to pre-pandemic levels in the second quarter of the year.
Average first-time home buyer loans exceeded $410,000 and more buyers are opting for longer amortization terms with some exceeding 25 years. The discontinuation of the first-time home buyer incentive plan at the end of March 2024, could further impact purchase plans for many consumers hoping to enter the housing market.
Meanwhile, homeowners were facing higher interest rates when renewing with 15% of renewals this year seeing monthly payments rising by over $300. In Ontario and British Columbia, this figure was around 20% prompting many to extend their amortization terms to manage the higher costs.
"Homebuyers who secured homes in 2020 and 2021 with low interest rates and high loan amounts, could face challenges,” said Oakes. “Even with recent rate cuts, these individuals may need to prepare for significant increases in monthly payments and extended amortization terms. Those with low renewal affordability and negative equity may find it especially difficult to navigate these changes."
