A concerning trend regarding mortgage delinquency rates has been highlighted by a recent Equifax® report.
Equifax® Canada’s recent Market Pulse Report and Press Release, issued on March 5th, highlights growing economic strain as consumers face challenges in meeting their monthly credit obligations. Non-mortgage delinquency rates for balances overdue by over 90 days rose from 1% in Q4 2022 to 1.3% in Q4 2023, for a 28.9% increase. Similarly, mortgage delinquency rates increased by 52.3% over the past year, climbing from 0.09% to 0.14%.
Increasing Interest Rates and Other Factors Creating Stress on Mortgage Renewals
In Q4 2023, the impact of elevated interest rates on mortgage renewals intensified and showed their impact. The average monthly mortgage payments paid by Canadians after mortgage renewal were $457 higher. In Ontario and British Columbia, this trend was more severe, with an average increase to average mortgage payments of $680.
As a related sign of financial distress, there were also greater indications of declining credit performance among mortgage holders, particularly among those whose monthly payments rose more than $500.
Mortgage Delinquency Rates Especially High in Ontario and British Columbia
As noted above, Ontario and BC were particularly hit by higher average mortgage payments post-renewal. This is a key factor in their related increase in mortgage delinquency rates.
Ontario’s mortgage delinquency rates soared by 135.2%, while BC’s surged by 62.2% compared to Q4 2022, surpassing pre-pandemic levels.
Credit Card Concerns
As part of a bigger debt picture, credit card debt is also worrying.
In Q4 2023, total consumer debt surged to $2.45 trillion, a 3.2% increase from the previous year. Non-mortgage debt climbed by 4.1%, driven by a $15.9 billion uptick in credit card debt, reaching $116.2 billion. Despite seasonal holiday spikes in credit card spending, when adjusting for inflation, there was a slight decrease compared to the previous year.
The percentage of consumers paying off credit card balances in full each month dropped from 66.1% in Q4 2022 to 65.4% in Q4 2023. This decline was more pronounced amongst those with variable rate HELOC balances exceeding $50,000; these fell from 64.1% to 60.8% year-over-year.
New credit card growth slowed more than seasonally expected in Q4, although in 2023 over 6 million new cards were issued, an increase of 11.2% over 2022.
Non-mortgage delinquency rates are increasing as well, with over 153,000 more consumers missing credit payments compared to 2019.
Insolvencies and Bankruptcies
Although insolvency increases were moderated slightly in the latter part of the year, they remained significantly higher than Q4 2022. Bankruptcy filings rose by 8% year-over-year and 1.4% quarter-over-quarter. While overall insolvency levels are still below pre-pandemic levels, there was a significant surge in mortgage holders filing for bankruptcy, with a 23.2% increase year-over-year. Again, Ontario and British Columbia were impacted more severely, with bankruptcy rates increasing by 76.5% and 46.5%.
It is important for investors and stakeholders to be aware of these economic and real estate trends, and monitor changing situations.
