Current and future delinquencies? Mortgages, too, really?
Things are starting to slip.
Current and Future Delinquencies? Mortgages, too, really?
From observations in my daily work, I think we are approaching the part of the consumer debt cycle where people are choosing what not to pay because of monthly household cashflow restraints. There are simply too many expenses, too many things that have increased substantially in the last couple of years, while incomes have failed to keep up, for people to be able to juggle it all.
Combine that with many sources of borrowing starting to be curtailed and you have the recipe for delinquencies. It’s already happening.
We’re talking to people who are falling behind on credit card payments, all while their balances are building. They’re using credit cards to make ends meet, not on trips or highly discretionary spending. Credit card balances topped $1 billion in Canada for the first time last fall.
Banks are cutting off some sources of borrowing, as well. I’ve spoken to many people who reported their lines of credit being cut down (limits) and the same for some credit cards, even. Banks are in retrenching mode. Loan-loss provisions for the big five are up as banks anticipate a tough period for lending and general exposure.
Even mortgages, typically the very last thing to not get paid, are starting to crack a bit.
Equifax delinquency data (reported March 2024)
(from the above):
“Delinquency rates for non-mortgage balances that are 90+ days overdue went up from one per cent in Q4 2022 to 1.3 per cent in Q4 2023, representing a 28.9 per cent increase. Mortgage delinquency rates over the last 12 months saw a 52.3 per cent increase, from 0.09 per cent to 0.14 per cent.”
From these data, the only province that did NOT see an increase in mortgage delinquencies in that period was Saskatchewan.
Further:
“Ontario and BC have been particularly affected, with mortgage delinquency rates soaring by 135.2 per cent and 62.2 per cent respectively compared to Q4 2022, surpassing pre-pandemic levels. Financially stressed mortgage holders in these provinces are also increasingly missing payments on their credit cards. Missed payment levels in Ontario and BC are primarily being driven by younger homeowners (defined as 36 years of age and under) where both balance and account delinquency rates are now higher than in 2019.”
Equifax also found that fewer consumers are paying off their credit card balances in full through 2024. AND this number was much greater among those with variable rate HELOCs (given that their HELOC payments went up substantially. People will always make their mortgage and HELOC payments before they worry about their credit card payments.)
I also found this interesting (courtesy Francois Trahan of The Macro Institute):
So, removing the abnormality of COVID, this is the highest this measure has been since 2019. In 2019, nobody was facing generational inflation plus the lagging effects of 10 interest rate hikes.