Canadians’ debt payments continue to rise

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The burden of Canadians’ debt looked a little lighter when data came out last week, but economists remain cautious.

The amount Canadians owe relative to their income slipped lower for the fourth quarter in a row as income grew faster than debt.

That put the household debt to disposable income ratio at 176.4 per cent, down from 178 per cent in the last quarter of 2023. In other words, Canadians owe $1.76 for every dollar of income.

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Still economists warn there are reasons for caution.

The Bank of Canada cut its interest rate from 5 to 4.75 per cent this month, but household debt payments continue to climb.

Total payments rose by 7.8 per cent year over year, led by mortgage payments which shot up 8.4 per cent as more homeowners renewed at higher rates. Growth in non-mortgage debt payments also jumped by 7 per cent.

“Household debt payments will continue to rise even with the pivot from the BoC to cut interest rates … as the impact of previous rate hikes feed into [these] payments with a lag, said Abbey Xu, an economist for Royal Bank of Canada.

This along with a softer labour market, which will limit income growth in future, is expected to push the household debt service ratio higher in the second half of the year, even though interest rates have started to come down.

Stephen Brown of Capital economics also points out that the debt ratio is only falling because of strong aggregate income growth, which is driven in part by population growth.

“Even without a downturn in employment, more households are facing financial difficulties,” he said.

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A report by Equifax Canada shows borrowers who missed a mortgage payment in the first quarter were up by 23 per cent year over year and missed payments on other credit have returned to pre-pandemic levels.

In Ontario, the total mortgage balance reaching “severe delinquency” — 90 days or more without payment — exceeded $1 billion for the first time, double the level seen before the pandemic.

“Many households are still in a precarious situation, particularly those that must renew mortgages in the next couple of years,” said Brown.

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Contrary to what you might have heard, Canadians’ uptake of alternatives to conventional gas-powered cars is growing. According to Erik Johnson, a senior economist at Bank of Montreal, registrations of fully electric vehicles, plug-in hybrid and hybrid vehicles hit a record high of nearly 20 per cent in the first quarter of 2024. Plug-in autos made up 11 per cent of sales while hybrid made up 8 per cent.

“BEV [battery electric] sales were up 43 per cent compared to a year ago, which suggest that it’s still far too soon to write-off the segment despite registrations stalling out versus last quarter,” said Johnson.

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Quebec, where 22 per cent of vehicles are electric, leads the country. When hybrid vehicles are included in the tally, British Columbia is in the lead at 30 per cent.

• Canada’s housing market will be in the spotlight as the Canadian Real Estate Association releases its data on home sales for May.
• The annual Collision tech conference gets underway in Toronto. Speakers include artificial intelligence pioneer Geoffrey Hinton, tennis star Maria Sharapova and Indigenous rights activist Autumn Peltier. Toronto will also play host to the Canadian Telecom Summit
• Today’s Data: Canada housing starts for May, Canada existing home sales, MLS Home Price Index for May
• Earnings: Lennar Corp

A reader’s great-aunt left a loonie and a nasty comment to almost every person in her will, including her daughter and grandchildren. Lawyer Ed Olkovich says common misunderstandings about wills usually involve items of personal property, which can be emotionally priceless, but costly to resolve if the courts get involved. Here is a look at some odd clauses that people put in their wills and whether they are enforceable.

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Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line with your contact info and the gist of your problem and we’ll try to find some experts to help you out, while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers, led by Julie Cazzin, can give it a shot.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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