Canada’s household debt has always been a concern, and now that it had reached a record high... the credit situation is, surprisingly, still pretty stable.
According to Canada Mortgage and Housing Corporation’s (CMHC) recent report, at the end of last year (2016), the debt ratio was at 167.2%, which is a considerable spike compared to the year before. This rise in household debt hasn’t impacted the credit situation, however. In fact, according to CMHC, it seems to have improved in the last quarter of 2016, the strongest credit performance showing in the sector of mortgage holders.
Equifax, a credit reporting agency, had recently published a report that provides additional information with regards to the financial situation of Canadian consumers. According to this report, at an average of almost $1,200 a month, mortgages remain the most significant financial obligation of Canadian households. This average monthly payment signifies a 2% increase from the previous year, a considerable rise.
At the same time, more Canadian households manage to keep this obligation and pay the installments on time every month. The drop in delinquency rates in different categories of loans was most considerable in the last quarter of 2016, with the best numbers related to loans below $200,000.
With the Bank of Canada ramping up its overnight rate to 0.75%, a hike of 25 basis points (something the central bank hasn’t done in over 7 years), this is indeed great news.
A balancing factor that likely helped Canadians pay on time and maintain their credit score, was likely the new set of financing rules that were introduced recently in the last quarter of 2016, tightening the access to insured mortgage credit. This set of rules, according to the CMHC, will help Canadian households adjust to interest hikes, should more be introduced in the future. Those measures, according to the organization, aimed as they are at high and low ratio insured mortgages, will provide a sort of financial insulation, protecting mortgage holders from rising mortgage service costs.
Moving on from mortgages to other loans, the most rapidly growing loan segment is automobile loans. In the last quarter of 2016 they represented 4% of the total debt owed by Canadians. Automobile and other loan delinquency rates have risen only slightly during this period, mostly among consumers that don’t have additional mortgage debt.
This data indicates, overall, that Canadian consumers take their mortgages very seriously, which is why CMHC maintains the opinion that Canada’s mortgage market is not experiencing additional stress or as some have warned, an actual crisis resulting in the rate hike. Mortgages and other loans are largely paid on time, a tendency that seems to be continuing well into 2017.
This is good news for everyone, with or without a mortgage, because it means that Canadian families will continue to buy homes and the real estate market is not in risk of hitting a period of stagnation.
Stay with us for more news and updates with regards to real estate, mortgages, and other interesting information on related topics.
