As Canadian housing prices are forecasted to climb in 2020, it looks like the state of the mortgage market will also see some “renewed strength,” according to a recent report by TransUnion.
The TransUnion 2020 consumer credit forecast found that non-mortgage delinquency rates went up 26% year-over-year to 5.54% in the third quarter of 2019. Non-mortgage debt climbed slightly by 0.24% to just over $30,000. By the end of 2020, TransUnion believes non-mortgage debt will hit $31,531. In Q3, outstanding credit card balances exceeded $100 billion.
“While the Canadian economy has slowed, key measures like inflation and unemployment remain healthy and continue to bolster the market. However, a potential slowdown in the Canadian economy, combined with soft wage growth, heightened global economic uncertainty and potential further interest rate increases, may cause some challenges,” said Matt Fabian, director of financial services research and consulting for TransUnion Canada, in a release.
When it comes to consumers carrying credit card debt, auto loans, and a mortgage, the former is most likely to be neglected when money is tight and they are forced to choose which payments to make. It makes sense that consumers prioritize auto loans and their mortgage because they can’t live without these things, but it is unfortunate that credit cards are neglected because they most likely have the highest interest rates.
This means that while households are paying their mortgages, they are falling further into debt, sometimes by hundreds or thousands of dollars a month depending on the credit card balance. It’s also important to note that other essential shelter costs are sometimes tied to credit cards, like utility bills, insurance, and Internet.
TransUnion reported that the average mortgage balance in Q3-2019 was $273,276, and they predict the average to come in around $275,692 in Q4. Looking a year ahead to Q4-2020, TransUnion forecasts the average mortgage balance to hit $285,738, which is a small increase of 0.51%.
While credit card debt is somewhat out of control and is an economical risk heading into 2020, the mortgage market is actually looking strong. According to TransUnion, stricter rules like the mortgage stress test have had a positive impact on the market. Lenders and borrowers have adjusted to the stress test, and lower longer-term rates and high demand for housing amount to another year of healthy mortgages.
“Consumers’ ability to manage their debt is directly impacted by their disposable income. While Canada is not expected to slip deep into a recession through 2020, any significant economic headwinds or downturn would likely put credit cards at a higher risk for increased delinquency rates relative to other major credit products. At the same time, we would expect balances to rise as consumers look to cards to help make ends meet,” added Fabian. “While current expectations are for low but still positive economic growth through 2020, lenders are likely to monitor their portfolios closely in the event of any negative news, and many have already developed downturn strategies that would be implemented in the event of a prolonged economic adjustment."