(Bloomberg) – Rising mortgages are driving consumer debt in Canada despite declining credit card use as households invest more money in their homes while spending less on everything else.
New mortgages rose 41% in the first quarter compared to the same period in 2020 when the pandemic began, according to a report on Tuesday from consumer lending reporting firm Equifax Inc. Approved – jumped more than 20% to C $ 326,930 ($ 270,490).
According to Equifax, an increase in the number and size of mortgages that Canadians take out has pushed the country’s outstanding consumer debt to nearly C $ 2.1 trillion ($ 1.7 trillion), despite a drop in credit card balances to their lowest. level in six years.
“Lower interest rates, multiple locks and higher unemployment have led to changes in consumer behavior,” Rebecca Oaks, assistant vice president of advanced analytics for Equifax Canada, said in a press release accompanying the report. “Competition among home buyers is very high in many markets across the country.”
The pandemic helped spark a record boom in the Canadian housing market as low interest rates and renewed demand for large living spaces sparked wars to buy ground floor homes. With a number of provinces in and out of bans over the past 15 months, Canadians have also been less able to spend on everything from restaurants to clothing and entertainment.
Higher savings, coupled with emergency income support from the government, played a role in the housing boom and also helped consumers pay off credit card debt.
Excluding mortgages, Canada’s average consumer debt fell 4.2% in the first quarter to C $ 20,430, while non-mortgage delinquencies fell 22% over the same period, Equifax said.
Mortgage delinquencies themselves are at an all-time low, although one notable exception is Canada’s most expensive housing market, Vancouver, where arrears increased 14.6% in the first quarter in 90 days or longer.
Signs are starting to emerge that the housing market is slowing after a peak in March, although activity remains well above historical norms. The tightening of the government stress test for mortgages, which took effect this month, will reduce the amount of loans that borrowers can get. Meanwhile, rising vaccinations and easing restrictions on Covid-19 could also change how consumers spend their money.
“The successful introduction of the vaccine will be critical to opening up the economy, which will have a big impact on consumer spending and debt management,” Oakes said in a statement. “Canadians need to prepare for a point in time that is likely to come this calendar year when governments begin to rein in support mechanisms.”
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