Canadians aren’t acting like themselves and it may be a sign of a more concerning trend brewing. Bank of Canada (BoC) data shows annual household credit growth decelerated in May. Just off multi-decade lows, despite cheaper credit on the way, households are pulling back on borrowing. The low growth for borrowing is even more concerning when the rapid population growth is also considered.
Canadian Household Borrowing Is Unusually Slow
Canadian households have suddenly stopped borrowing, and to say it’s unusual downplays how concerning it is. Household credit advanced just 3.4% (+$96.2 billion) to $2.95 trillion in May. Annual growth is returning to deceleration, potentially having hit its peak growth for the year. The rate of change is now just 0.2 points above the rate reported in October, which was the lowest rate in well over 30 years.
Canadian Households Are Pulling Back On New Debt
The annual rate of growth for household debt.
Source: Bank of Canada; Better Dwelling.
Canadian household credit’s unusual dependence on mortgage credit is one of the big issues here. Outstanding mortgage credit at institutional lenders climbed 3.5% (+$74.5 billion) to represent $2.18 trillion of the household debt in May. Annual growth is only 0.1 points above the rate reported in January 2024, which was the slowest advance since 2001—over two decades ago.
Canadian Mortgage Credit Not Getting A Boost From Population
Annual rate of growth for outstanding mortgage credit.
Source: Bank of Canada; Better Dwelling.
As mentioned above, the dependence is unusually high. Outstanding mortgage credit represents 73.9% of all household debt, 4.7 points since the 2020s began. Over the past decade, the share has increased 8.2 points as home prices began to escalate, adding on about half following the months of record low rates. Since rates began climbing, the share has slowed—but it’s a long way back to healthier levels.
Low rates used to create inflation by pulling demand forward, meaning a slowdown was expected. However, it shouldn’t be this slow considering the elevated level of inflation and a rapidly expanding population. When viewed in conjunction with the rising unemployment rate, this might be more concerning than an issue that can be dismissed with the excuse that people are simply waiting for lower rates. Ironically, the slowdown of credit is likely to amplify unemployment since much of it was based on the temporary surge of cheap credit.
