Debt levels are rising and Canadians are increasingly struggling to pay off their balances, but TransUnion is forecasting a “healthy” consumer credit market for the next year anyway.
This forecast comes courtesy of the credit bureau’s latest quarterly Canada Industry Report. The report shows that non-mortgage consumer debt — which covers any debt that isn’t secured by real estate, like credit card, auto or student loans — averaged $29,967 per Canadian in the third quarter of 2018, a 3.85% increase from the same time last year. Lines of credit had the highest balances, which averaged $35,819 per person, while installment loans trailed closely behind at an average of $32,954.
Stats that show consumers relying more heavily on credit only look good when they’re held up against stats which show that consumers are also reliably paying down their debts. Delinquency rates, which measure how many people are making their debt payments late, fell in the last quarter by 4.71% compared to third quarter of 2017. This applies to outstanding balances that haven’t been paid in 90 days or more.
These numbers don’t offer a complete picture, though. Delinquency rates are different from insolvency rates, which measure how many people can’t pay their debts off at all. According to a report released earlier this week by the Office of the Superintendent of Bankruptcy Canada, the number of insolvencies filed by Canadian consumers increased by 9% in October compared to the same month last year, and went up by 16% compared to September — or just one month prior.
These stats cast some doubt over the optimistic tone of the TransUnion report. If more people are filing for insolvency, how does news that people are relying more heavily on credit suggest that consumers are heading in a more “healthy” direction?
There are other factors noted by the credit bureau that seem to paint a more cautious outlook. Mortgage balances have increased year-over-year, by 4.23%, as have balances for installment loans (10.05%), auto loans (2.16%) and credit cards (3.43%). TransUnion also predicts that mortgage balances will increase by another 3.4%, up from its forecast for mortgage balances at the end of 2018.
If there is a complete collapse in Canadian debt payments, TransUnion says it expects that credit cards will be the first domino to fall.
“Consumers’ ability to manage their debt is directly impacted by their disposable income,” said Matt Fabian, director of financial services research and consulting, TransUnion Canada. “If we were to see an economic downturn and pressures on consumer income, we would anticipate credit cards to be the product that would be impacted first in terms of higher delinquencies.
“At the same time,” he added, “we would expect balances to rise as consumers look to cards to help make ends meet. While current expectations are for continued positive economic growth in 2019, lenders are likely to monitor their portfolios closely in the event of any negative news.”