Canadians are once again proving they have an insatiable appetite for debt.
Despite warnings by the Bank of Canada that the country's economy is in for a bumpy ride this year, household debt grew by 4.6 per cent in January, a new report says. It was among the fastest pace of household credit expansion in the past two years.
Canadians have taken on $80-billion worth of mortgages, personal loans and credit card debt in the past year, Royal Bank of Canada found, with much of that growth coming in the past three months. Household debt totalled $1.82-trillion in January, eclipsing the country's GDP, which stood at an annualized $1.65-trillion in December.
Most of the growth came from new residential mortgages, which rose 5.4 per cent in January compared to a year earlier, to nearly $1.3-trillion. Non-bank lenders, which represent about one-fifth of mortgages, drove the residential housing market over the past year, with outstanding mortgage debt rising 6.3 per cent compared to 4.3 per cent among banks.
Even as Canadians have plunged deeper into debt for their homes, they have been cutting back on other forms of debt. Credit card debt rose by just 2.7 per cent in the past year, while the total number of personal loans fell. Canadians held an average of $20,967 in non-mortgage consumer debt, credit monitoring agency Equifax said this week.
Consumers have been steadily piling into non-mortgage debt in the past two years, so the pullback in new loans and credit card debts in January may turn out to be a short-term reprieve, said RBC economist Laura Cooper, the report's author.
At the same time, low interest rates are helping Canadians take on more mortgage debt. "We saw mortgage rates fall in the month to the lowest they've been in 10 years," Ms. Cooper said. "So that may be encouraging some activity to be brought forward in the market."
The shift from credit cards to mortgages should raise red flags among the country's regulators, who have been tightening mortgage rules in an effort to cool the housing market. The Canadian Mortgage and Housing Corporation warned federal Finance Minister Joe Oliver about the risk of high home prices and rising levels of household debt in a confidential memo last May.
In the memo, which CMHC provided to The Globe and Mail, the housing agency said it was "concerned about reduced household flexibility resulting from elevated debt levels as well as diversion of capital into residential housing investments."
High prices in some urban markets "further compound affordability concerns," CMHC head Evan Siddall wrote in the heavily redacted memo, which also touched on a proposal for greater risk-sharing with mortgage lenders and the agency's popular securitized mortgage program. With detached house prices rising above $1-million in Toronto and Vancouver in February, those fears of deteriorating affordability in the country's largest housing markets seem to be proving true.
Such concerns also come amid mounting evidence that Canadians are struggling under the weight of their debts. The country's household savings rate was headed to a five-year low in the final quarter of last year, Statistics Canada said this week.
Canada's household debt-to-income ratio rose more than any other country outside of Greece between 2007 and mid-2014, according to a recent analysis by McKinsey Global Institute. It hit a record high of 163 per cent in the third quarter of last year. Canada is one of a few countries in the Western world where household debt burdens are higher than they were in the United States at the peak of the global credit bubble, McKinsey said.
Homeowners weren't the only ones taking on new debt. Business credit jumped 8.3 per cent in January, the fastest rate of expansion since 2007 as worries over the oil sector pushed more companies toward short-term loans, RBC said.