Canadians put the brakes on borrowing
by investor on 10/03/09 at 12:38 pm
Canadians have become more cautious about their personal finances as economic conditions deteriorate and consumer bankruptcies rise, with the pace of household credit growth almost halving in the past six months, a CIBC World Markets report showed Wednesday.
“There are clear signs that the household credit market is slowing at an accelerated pace,” said Benjamin Tal, the senior economist at CIBC who prepared the report.
On the surface, consumer credit has risen by about 10% from a year ago. However, Mr. Tal said results in recent months reveal a clear slowing trend. This is most obvious in the mortgage market where softening house prices have caused the average mortgage size to decline by 5% to 10% as well as a slowdown in new home loan growth to 0.5% from 0.9% mid last year.
He said mortgage arrears had risen from the record low of 0.24% in 2007 to 0.33% — the highest rate since 2003. “The likelihood is that this rate will continue to climb over the next 6-12 months,” he said.
One positive is that Canadians have begun to take advantage of the drop in 5-year mortgage rates, which are approaching a record low.
“This, in fact, has generated a wave of refinancing which is likely to last for at least six more months,” Mr. Tal said.
The report found non-mortgage consumer credit was increasing by 9% on a year-over-year basis. This rate was down from the near 11% pace seen earlier in the year, but still impressive given the overall health of the economy, Mr. Tal said.
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