Canadians continue to feel financial strain
The Bank of Canada's recent interest rate hikes are starting to pinch Canadian households, with a marked slowdown in credit growth and a rise in financial stress.
Credit growth is at its lowest since the 1980s, according to Canadian Imperial Bank of Commerce (CIBC), signalling the tough times brought on by the central bank's efforts to control inflation. This has left both mortgage and consumer credit growth barely above zero, worse than during the 2008 financial crisis and the 1991 recession.
A closer examination of the CIBC data reveals the strain is showing, with consumer insolvencies up by more than 20% from last year. However, it's notable that most of these insolvencies are not bankruptcies but proposals to restructure debt, which usually means less impact on lenders due to lower losses and higher recovery rates.
The tightening credit conditions have also led to a noticeable change in behaviour among Canadian households. For instance, there's been a notable rise in the 30-60 day delinquency rates, suggesting that more households are struggling to keep up with their financial commitments.
Read next: Should the Bank of Canada have cut rates by now?
However, there is a silver lining in CIBC’s report: the progression of these delinquent accounts to the more severe 60-90-day delinquency category is actually on the decline. This trend indicates a proactive approach by lenders and borrowers alike to manage and mitigate financial difficulties before they escalate.
Still, the broader picture remains concerning. About half of all Canadian mortgages have not adjusted to the new, higher interest rates. This means a significant financial shock is on the horizon for many, with average mortgage payments expected to jump by about 15% annually over the next few years.
Renters are in a particularly tough spot. They're more likely to be hit first by economic downturns, and with a third falling into the subprime category, they're showing signs of financial strain. Delinquency rates for lines of credit among renters have risen sharply, surpassing pre-pandemic levels in 2019.
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