In its forecast of Canadian consumer debt, TransUnion predicts “the average Canadian consumer’s total debt is expected to rise by four percent in 2014, which would be more than $4,500 higher than what we observed five years earlier in 2009,” said Thomas Higgins, TransUnion’s Vice President of analytics and decision services.
The two largest contributors to the increase of consumer debt is the rise in captive auto loans, propelled by increasing car sales in Canada, and consumer installment loans. Captive auto loan outsandings have grown by 9%, a result of improving car affordability and heavy manufacturer incentives, while those of installment loans have grown by 10%. Interestingly, lines of credit, which according to Higgins, are “by far the most used credit product by Canadians”, have not grown in 2013, are expected to continue to remain flat in 2014.
TransUnion’s data seems to foot well with Equifax’s 2013 Q3 Canadian Consumer Credit Trends report that came out in November, which also showed growth in auto loans, with flat line growth elsewhere.
While rising consumer debt levels are certainly cause for concern, they are being tempered by a forecasted drop in delinquencies from 1.76% in 2013 to 1.66% in 2014, which is still 25% higher than pre-recession levels.
With Canadian consumer debt rising to record levels, and short-term delinquency in check, the white elephant in the room remains. What happens if / when rates rise. Will Canadians have the corresponding rise in disposable income to pay for rising rates, and what will be the impact on delinquencies and losses. Canadian’s now have over $1.3 trillion of debt, of which a little over $500 billion is non-mortgage.