Canadians took out fewer new mortgages in Q4 while debt continued to increase

Canadians took out fewer new mortgages even before interest rates began to rise last week, but consumer debt continued to increase in the fourth quarter, Equifax said in a report.

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The company said Monday the number of new mortgages fell 8.1% year over year in the last three months of 2021. The biggest drop was in some of the country's hottest housing markets with Toronto and Hamilton falling 16.1% and 18.7%, respectively.

"There’s no question that skyrocketing house prices have decreased housing affordability across all segments," said Rebecca Oakes, assistant vice-president of advanced analytics at Equifax Canada, in a news release.

"In addition to high house prices, lenders have also started to move interest rates up in anticipation of rate rises from the Bank of Canada. This could also be limiting the purchasing capacity of many consumers."

The Bank of Canada hiked its benchmark rate by a quarter of a percentage point to 0.5% last week, with more increases expected later this year.

The average new mortgage loan increased 10.1% from the fourth quarter of 2020 to $355,000, but dropped 1.5% from the third quarter for the first decrease since the pandemic began.

Oakes said this may be a sign of average home prices stabilizing, although continued demand and lack of supply could lead to further rises in property prices. 

Equifax also says total consumer debt rose 7.9% compared with a year earlier, to $2.2 trillion, as credit card spending in the fourth quarter was up 14.4% from a year earlier and up 9.8% from the third quarter.

Consumers spent an average of $2,205 per month on their cards in the fourth quarter, up 15.2% from the year-ago period and 6.8% above the pre-pandemic level in the fourth quarter of 2019.

“The holiday period always leads to an increase in spending, but Q4 2021 saw higher than ever average credit card spending per credit card consumer,” said Oakes. 

A drop in auto loans because of supply chain issues was a positive contributor.

Equifax said overall credit card balances were up 2.4% compared with the fourth quarter of 2020.

Overall delinquencies remained low, with mortgage delinquency at 0.11% and non-mortgage delinquency at 0.86%, for year-over-year drops of 31.8% and 20.7%, respectively.

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