Spurred by improved economic conditions and the continued recovery in oil prices, TransUnion’s latest Canada Industry Insights Report found that oil producing regions such as Alberta and Saskatchewan are beginning to experience improvement in their respective consumer credit markets.
Improving credit performance in these provinces comes nearly four years after the start of rapid oil price declines at the end of 2014. Lower oil prices negatively impacted the local economies heavily tied to the energy industry. In the summer of 2015, TransUnion published a report that projected credit product delinquencies in these regions to deteriorate at a faster rate than the rest of the country as a result.
Delinquencies did, in fact, rise in both Alberta and Saskatchewan. However, Q1 2018 may be a turning point. The first significant annual decline was observed during the first quarter of the year since 2015. TransUnion found that serious consumer delinquency rates (90 or more days past due) dropped by 15 basis points in Alberta and 39 basis points in Saskatchewan.
Signs of Recovery: Delinquency Rates Declining in Oil Provinces
|Consumer 90+ Day
“We may be seeing the beginning of the consumer rebound in the oil producing regions out west. Economic conditions have been improving for a few quarters, as employment improves across the country,” said Matt Fabian, director of research and analysis for TransUnion Canada. “This is particularly good news for consumers in Alberta and Saskatchewan, as they were most negatively impacted by the oil crash from a few years ago.”
Oil prices reached $100 in Q1 2014 (WTI Crude price in U.S. dollars, according to the U.S. Energy Information Administration) before declining to $48 in Q1 2015 and even further to $35 in Q1 2016. However, oil prices are back on an upswing and reached $63 as of Q1 2018. At the same time, unemployment levels in both Alberta and Saskatchewan have improved over the last few years. Alberta’s unemployment rate continued a strong downward trend to 6.3% in Q1 2018 from 7.9% in Q1 2017, while Saskatchewan dipped slightly during that same timeframe – from 6.0% to 5.8% (Statistics Canada, CANSIM, tables 282-0002 and 282-0022).
TransUnion also found that consumers in these regions also are limiting their debt exposure. Average non-mortgage debt balance per consumer in Alberta and Saskatchewan grew below the national average in Q1 2018 from the previous year, at 1.9% and 2.5% respectively. The national average rose 4.5% in that same timeframe to $29,181. “In times of crisis, we often see debt balances on products such as credit cards rise at greater rates, as consumers use credit increasingly to make ends meet. It is therefore a positive sign to see to see the use of credit in the oil provinces actually grow more slowly than the country overall rate,” said Fabian.
Debt Levels Rising, But Slowing in the Oil Patch
Debt Balances Per
Mortgage Market Resetting
Despite new mortgage qualifying rules that came into effect in January 2018, TransUnion observed a slowing in origination volumes in Q4 2017. Originations are viewed one quarter in arrears to account for reporting lag. Between Q4 2017 and Q4 2018, mortgage origination volumes were down by 8.8%.
“We observed a slowdown in originations everywhere except in British Columbia, while balances continued to grow nationwide,” said Fabian. “This dynamic begs a few questions. Are consumers taking a wait and see approach to the new qualifying rules that came into effect? Are they pausing to measure the effect on home prices? One might have thought that consumers would rush to purchase homes before the new rules come into force to ensure they qualified for the highest loan amounts, but they don’t appear to have done that. TransUnion will be monitoring the mortgage market closely in the coming quarters to assess the impact of the new rules.”
The average new mortgage originated in Canada in Q4 2017 was $284K, up 3.5% from the previous year.
TransUnion’s most recent report also found some interesting mortgage origination trends from a life stage perspective. Specifically, mortgage balances for the Pre-war/Silent generation grew at 7.8%, while balances for mortgages issued to Millennials fell 19.5%. “This dichotomy might suggest two very different phenomena—the older generation may be leveraging the equity in their homes for miscellaneous financing purposes, while Millennials may find themselves unable to afford more expensive housing, and hence are opting for lower-value homes,” added Fabian.
Serious mortgage delinquencies (60+ DPD) continue to remain low and stable, with minimal volatility over the past two years. Unit-level serious delinquency was 0.5%, a decrease of seven basis points between Q1 2018 and Q1 2017. Balance-level mortgage delinquency concluded Q1 2018 at 0.2%, which is five basis points lower than the previous year. “With the recent increase in interest rates, we will continue to observe these trends, but generally do not expect a material impact on mortgages,” said Fabian.
Steady Open to 2018
The first quarter of 2018 was highlighted by continued solid performance by Canadians in most parts of the country. The number of consumers with access to credit increased by 1.2% on an annual basis to close Q1 2018 at 28.6 million. The 90+ DPD average consumer delinquency rate also dropped on an annual basis by 28 basis points to 5.4% in the same timeframe. Accounts entering collections status also declined by 21% to 0.7 million between Q1 2018 and Q1 2017.
The overall risk tier mix of Canadian consumers in TransUnion’s national consumer credit database improved in Q1 2018, with 68% of consumers considered Prime or better—a 2.2% increase over last year. The Super Prime (i.e., lowest risk) segment grew the most with a 76-basis point increase, while the proportion of subprime (highest risk) consumers in Canada declined by 36 basis points from last year.
“We continue to see strong consumer credit performance over the past year, with apparently limited impact due to the rising interest rate environment. This dynamic is something we will continue to monitor,” concluded Fabian.
Q1 2018 Canadian Consumer Credit Debt/Delinquency Picture
|Lines of Credit||$35,764||+1.3%||1.1%||-11|
*Serious delinquency rates are 60 days or more past due for all credit products except for credit cards (90+ DPD)