Saturday September 5, 2020 | NATIONAL
Analysis by Mary P Brooke, editor | Island Social Trends
Consumer debt was up 2.8% in the second quarter of 2020 compared to the same quarter last year, as reported by Equifax Canada.
But a lot of that appears to be mortgage debt, as non-mortgage debt was down relative to 2019, with people doing fewer transactions with credit cards, taking on fewer auto loans and not using lines of credit as much during the economic shut down in most regions.
People have lost jobs or seen income interrupted during to the socioeconomic impact of COVID-19. Overall there has been less disposable income or less certainty to spend available income, which impacted retail sales in the second quarter.
Some people for whom making-ends-meet was a pre-COVID challenge had an opportunity to save on some expenditures and find an opportunity to pivot their financial pattern.
Economic uncertainty had impacts:
Due to economic uncertainty, there has been a slower paydown of existing mortgages which pushed up total consumer debt to $1.991 trillion in the second quarter, according to Equifax Canada.
There has been a strong recovery in the Canadian housing market this summer (due to pent-up demand after months of no market activity during the COVID de facto lockdown), not just for regular reasons that people buy homes but with the added desire to have living space (more or different) for spending more at-home time during home-based employment or COVID-enforced self isolation.
Rising mortgage balances helped push the average debt per person to $73,532 which is up 2.2% compared to the second quarter of 2019. Mortgages were supported by a bounceback in home sales from the pandemic lows in March and April alongside increased refinancing activity and higher average home prices.
“Mortgage activity has withstood the headwinds from COVID and showed the earliest signs of recovery,” said Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada. “Other credit products began to show greenshoots of a bounceback with credit card spending starting to rise in June.” According to Equifax, card spending for those not using a payment deferral on their credit card were effectively back to pre-COVID levels by June 30, 2020.
Payment deferral has been popular:
People took the option for payment support mechanisms during the COVID-19 pandemic, such as payment deferrals. More than three million consumers have utilized a COVID-related payment accommodation at some point since February. The 35 to 44 year-old age group have been the heaviest users where 15.1% utilized some form of payment deferral compared to only 5.7% for seniors. Deferrals have been dropping in recent weeks.
“Everyone’s situation is different. Some consumers who were feeling financial stress prior to the pandemic are showing improved credit behaviour since March and may be leveraging deferrals to assist in paying down outstanding debts,” added Oakes. “There remains a group that is feeling the financial stress of the pandemic and is reporting more missed payments.”
It’s possible that many essential and front-line workers are just too busy dealing with COVID-related lifestyle demands to be out shopping and spending disposable income. No doubt the uncertainties of COVID economic realities has been a wakeup call or reminder to many working-age adults about the power of saving and not running up debt.
Pandemic impact on delinquencies and bankruptcies
The 90+ day delinquency rate (the percentage of balances where credit users have missed 3+ payments) for non-mortgage debt was 1.24% (10.6% up compared to Q2 2019). This continues a trend from 2019 and does not measure the full weight of COVID. Younger borrowers saw a drop in overall delinquency rate compared to Q1, but this may be reflective of the increased usage of payment deferrals and government-support benefits.
“Delinquency rates held up relatively well and do not reflect the sharp rise in job losses thanks to the various support mechanisms,” concluded Oakes. “One in five people utilizing deferred payments were already financially stressed prior to the start of the pandemic. Some of these consumers may find it harder to recover as support mechanisms start to reduce.”