Household Borrowing: Elevated, But Slowing

Canadian Imperial Bank of CommerceReport by CIBC Economist Benjamin Tal

CIBC expects household credit outstanding to slow moderately in the coming years as growth in almost every credit vehicle is projected to soften relative to the performance seen over the past two years or so. Household Credit Growth in household credit in 2016 was very stable with outstanding rising by just over 5% on a year-over-year basis. On an inflation-adjusted basis, household credit is still rising by a full percentage point below its long-term average. That is, despite the drama in the housing market, the recent pace of credit growth in Canada is not rapid by any stretch of the imagination. And we expect that pace to slow in the coming years. Mortgage Debt Mortgage credit is currently rising at a year-over-year pace of close to 6%. We estimate that for 2016 the mortgage market accounted for just over 80% of growth in household credit. As for the stock of debt, mortgages now account for just under 72% of total household credit – the highest share in almost two decades. We estimate that new mortgage originations in Canada amounted to just over $405 billion in 2016, rising by 5.5% from 2015. As for 2017, we expect the pace of growth in mortgage originations to cool, reflecting factors such as reduced affordability due to tougher qualification criteria, increased share of less expensive (condo) units in total housing sales, marginally higher mortgage rates and slowing activity in centers such as Vancouver. Overall we expect mortgage debt outstanding to rise by an annual rate of around 5% in the coming two years. The rate of mortgage arrears has stabilized at around 0.30% – very close to the rate seen before the recession. The arrears rate in Atlantic Canada at close to 0.65% is the highest in the nation, followed by the Prairies and Alberta. The arrears rate in Ontario at 0.14% is by far the lowest in the nation.

Consumer Credit
The pace of growth in consumer credit has been relatively stable with outstanding rising by 3.2% on a year-over-year basis. Credit card debt is now advancing at a 3.5% annual pace, roughly the same pace seen in the lines of credit portfolio. Delinquencies continue to behave well, stabilizing at around 1% for credit cards and, in fact, declining for lines of credit. The auto loan market has seen robust growth in recent years. Currently auto loans outstanding are rising at a year-over-year rate of 6.7%. Close to 70% of the estimated $155 billion market is controlled by banks. The average loan size in that space is around $19,000, up by 22% (inflation-adjusted) since 2009.

Banks have been gaining market share because of stronger organic growth and the acquisition of firms in the space. The banks’ portfolios are currently rising by more than 7% on a year-over-year basis while non-banks have seen their growth stagnate. The auto delinquency rate among banks is close to 1.2%, roughly in line with the rate seen among non-banks. We expect growth in auto loans to moderate in the coming years reflecting some softness in auto sales following a record breaking 2016. As well, after a dramatic decline during the recession, leasing activity has been on the rebound and currently accounts for close to 9% of transactions. We expect auto loans to advance by 4% in 2017.

Source CIBC – See the full report here: