CONSUMER RELIANCE ON CREDIT CARDS IS INCREASING in Canada, according to Equifax Canada’s most recent Market Pulse consumer credit trends and insights report. As Canadian businesses navigate changing economic environments, the latest quarterly report provides the insights they need to better understand the market and help enable more confident business decisions amid uncertainty.
Consumer credit card spending rises while prices and inflation soar
In Canada, as inflation increases – and food and gas prices increase at an even higher rate – proprietary Equifax data shows that consumer credit card spending is on the rise, with the average monthly spend per credit card consumer climbing by 17.5 percent in Q1 2022 compared to the lows of Q1 2021. The latest report shows the biggest year-over-year increase in credit card balances since the beginning of the pandemic, up by 9.5 percent this quarter when compared to Q1 2021 and by 2.4 percent when compared to the last quarter.
“Pent-up demand and increased travel with the easing of COVID restrictions, combined with soaring inflation have led to some of the highest increases in credit card spending we’ve ever seen,” said Rebecca Oakes, Vice President of Advanced Analytics at Equifax Canada.
Ontario saw the biggest increase in credit card spending, followed by Quebec, up by 20.4 percent and 18.4 percent, respectively, when compared to the same time period last year. And across all age groups, Gen Z and Millennials are driving up higher consumer spending the most.
As consumer reliance on credit cards increases, data shows Canadian lenders are also providing higher credit limits to consumers on new credit cards, with the average credit limit on new cards this quarter reaching an all-time-high of the past seven years at more than $5,500. And while missed payments by consumers are still below pre-pandemic levels, increased credit card spending and potential reliance on credit for everyday essentials may lead to increased stress in the coming months.
“With gas prices and food prices increasing at a higher rate than overall inflation, it’s very important for consumers to revisit their budget allocations,” said Oakes.
At the same time, total consumer debt increased by 8.6 percent in Q1 2022, climbing to $2.3 trillion over the last 12 months. On an individual basis, the average consumer debt (excluding mortgages) saw an increase of 1.5 percent compared to Q1 2021 – the first year-over-year increase since 2019.
Housing market declines as interest rates rise
“Unfortunately for consumers, this is also at a time when the Bank of Canada is raising interest rates,” continued Oakes.
While new mortgage volume levels in Canada are still higher than pre-pandemic numbers, multiple interest rate hikes – paired with seasonality – have brought down new mortgage volume by 13.2 percent this quarter when compared to the peaks of Q1 2021. Some of the hottest housing markets saw the biggest drops, with 15.7 percent and 17.6 percent declines in year-over-year new mortgage volume in Ontario and British Columbia, respectively.
First-time home buyers are feeling the most impact from the Bank of Canada’s interest rate hikes, which are reducing consumer affordability despite house prices slightly stabilizing. Compared to 2021, when first time home buyers benefited from lower rates and lower payments, they’re now taking on higher loan amounts and higher rates – meaning they’re paying more in monthly payments.
Overall, early signs of stress are more visible with younger consumers, and although overall delinquency rates are still far below pre-pandemic levels, a steady rise in delinquency is anticipated until the end of the year.
To learn more on that latest from Equifax Canada’s Market Pulse Reports, visit the link here.