Despite a potential slowdown in the Canadian economy over the next
year, the Canadian consumer credit market is expected to see
continued growth in consumer-level debt and no significant
increases in delinquency rates. The just-released TransUnion (NYSE:
TRU) Canada Industry Insights Report includes the latest data for
the third quarter of 2018 as well as a forecast for 2019.
TransUnion projects that average consumer debt balances will
continue to increase for Canadians across mortgage, credit card and
other non-mortgage related debt through 2019 and that serious
delinquency rates will either decline or remain steady over the
next year.
The continued low delinquency environment portends a healthy
consumer credit market within the current economic climate.
However, a potential slowdown in the Canadian economy in 2019,
combined with soft wage growth, heightened uncertainty beyond
Canadian borders and continued interest rate increases may cause
some challenges. Canada’s GDP growth is widely expected to slow
from an expected 2.2% in 2018 to 1.9% in 2019 (Source: Oxford
Economics). This slowdown in economic activity may impact consumer
spending and employment levels, which could put stress on
consumers’ capacity to service debt. At this time, none of these
factors are significant enough to negatively impact the outlook for
the consumer credit market in 2019.
“The Canadian consumer credit market has performed extremely
well over the past several years, with solid growth supported by
strong economic fundamentals,” said Matt Fabian, Director of
Financial Services Research and Consulting for TransUnion Canada.
“Looking into 2019, we anticipate a continuation of these positive
trends, which is good news for Canadian credit consumers. However,
there are signals of a mild economic slowdown emerging, which
presents an opportunity for Canadian consumers and businesses to
plan and evaluate different potential scenarios that could impact
their ability to continue to responsibly manage their debt.”
The Year Ahead: 2019 Forecast
TransUnion’s forecasting models provide forward-looking insights
for consumer credit balances and delinquency rates, and incorporate
dozens of credit, behavioural and macroeconomic variables. The 2019
forecast indicates that the outlook remains positive for the
Canadian credit market, with continued opportunities for growth and
balanced risk despite some potential economic challenges.
At the conclusion of 2019, TransUnion is forecasting that the
average mortgage balance will increase by 3.4% over the forecasted
year-end 2018 level to $274,533, and average non-mortgage debt
balances will reach $30,687, a 2.8% annual increase. Serious
delinquency rates are forecasted to decline or remain steady for
most credit products.
Product |
Indicator |
Q3 2018(Current) |
Q4
2018(Projected) |
Q4
2019(Projected) |
Mortgage |
Serious delinquency rate* |
0.45% |
0.44% |
0.39% |
Ave balance per consumer |
$263,657 |
$265,471.9 |
$274,533.8 |
Credit Card |
Serious delinquency rate* |
3.00% |
3.04% |
3.06% |
Ave balance per consumer |
$4,179 |
$4,195.3 |
$4,265.5 |
Non-Mortgage |
Serious delinquency rate* |
5.25% |
4.94% |
4.72% |
Ave balance per consumer |
$29,967 |
$29,848 |
$30,687 |
*
Serious delinquency rates are consumer level and are measured as 60
or more days past due for mortgage and 90 or more days past due for
all other products
Trends to Watch in 2019
1) Credit card delinquency rates at higher risk of an
increaseCredit cards are the one major credit product that
is forecast to have a slight increase in delinquency rates in 2019,
with other products expected to have lower delinquency rates.
TransUnion research studies have shown that, when faced with
economic pressure, consumers often have a hierarchy around which
debt payments they continue to stay current on and which they allow
to go delinquent. The analysis shows that, for consumers with
credit cards, auto loans and mortgages all in their wallets, credit
card payments are generally the first product type that consumers
will go delinquent on, preferring to keep payments like auto loans
and mortgages in good standing if they are forced to choose. While
Canada is not expected to slip into a recession in 2019, any
significant economic headwinds would likely put credit cards at a
higher risk for increased delinquency rates relative to other major
credit products.
“Consumers’ ability to manage their debt is directly impacted by
their disposable income,” said Fabian. “If we were to see an
economic downturn and pressures on consumer income, we would
anticipate credit cards to be the product that would be impacted
first in terms of higher delinquencies. At the same time, we would
expect balances to rise as consumers look to cards to help make
ends meet. While current expectations are for continued positive
economic growth in 2019, lenders are likely to monitor their
portfolios closely in the event of any negative news."
2) Potential for regional shocks across
CanadaTransUnion forecasts the possibility for regional
economic shocks across Canada contributing to a slight rise in
overall delinquency. These include the impact of steel and aluminum
tariffs on manufacturing, continued decline in oil prices and
overall industry disruption such as the recent news of the General
Motors plant closure in Oshawa.
“While we see the impact of tariffs and localized shocks as
having very little impact on overall delinquency across Canada, it
would certainly be felt by consumers in those regions and some
consumer credit portfolios may be regionally impacted,” said
Fabian. “Depending on the severity and length of the oil price
decline, some regions could experience delinquency rate increases
of up to 50 bps, similar to what occurred in Alberta and
Saskatchewan following the last oil price drop. Typically, as these
economic shock events occur, we tend to see some unemployment
increases lagged by a rise in delinquency as incomes and capacity
to service debt are constrained.”
3) Mortgage balances to slightly
increaseStricter mortgage qualifying rules and stress
tests have been successful in tightening entry into the mortgage
market for many consumers over the past 12 months. As both
consumers and lenders continue to navigate the new environment,
TransUnion forecasts a slight increase in average mortgage balance
per consumer, with new mortgage origination amounts reflecting the
still-elevated home prices in many major metropolitan areas.
“The tighter mortgage rules will likely have some positive
impact on rising delinquency rates when Canada faces the next
economic downturn. Given that the Canadian market already enjoys
very low delinquency in the mortgage space, the stress testing
rules should help bolster this and reduce the impact of any shock,”
Said Fabian.
4) Non-mortgage delinquency will continue to
dropA decrease in overall consumer non-mortgage
delinquency is expected to persist through 2019 as consumers
continue to do a good job of managing their credit obligations. But
delinquency rates are sensitive to economic events including, but
not limited to, interest rates, unemployment, inflation and wage
growth.
“Core economic fundamentals are likely to remain relatively
stable through the coming year, and we predict this will have a
correspondingly positive impact on delinquency levels,” said
Fabian. “Additionally, when we look at consumer payment patterns –
particularly the ratio of how much consumers with a credit card
balance are paying off in addition to their minimum required
payments, we continue to see a healthy positive spread, which
indicates that most Canadian consumers have some excess capacity to
absorb shock.”
More information about the 2019 consumer credit forecast and
details about the latest 2018 TransUnion Canada Industry Insights
Report, including details about a variety of credit products, can
be found here. Among the details are more information about
balance and delinquency trends for auto loans, installment loans,
lines of credit and mortgage loans. Please visit the
following website to register for TransUnion's 2019
Forecast Industry Insights Webinar scheduled for Dec. 14 at 2 p.m.
ET.
About the TransUnion Canada Industry Insights
ReportTransUnion’s Canada Industry Insights Report is an
in-depth solution that provides statistical information every
quarter from TransUnion’s national consumer credit database which
includes our full credit-active population, and is aggregated
across virtually every active credit file on record. Each file
contains hundreds of credit variables that illustrate consumer
credit usage and performance. By leveraging the Industry Insights
Report, institutions across a variety of industries can analyze
market dynamics over an entire business cycle, helping to
understand consumer behaviour over time and across different
geographic locations throughout Canada. Businesses can access more
details about and subscribe to the Industry Insights Report.
About TransUnion (NYSE: TRU) Information is a
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Contact:David
BlumbergTransUnion312-972-6646david.blumberg@transunion.com
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