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Canadians end austerity drive with strong spending

YADULLAH HUSSAIN

TORONTO — Canadians are back to their spending ways again.

After a bout of austerity, commendable restraint and a zealous effort to cut credit card and other debt, the urge to splurge has once again hit Canadians, according to Equifax Canada.

Rising credit activity and mortgage growth pushed overall Canadian consumer debt up to $2.2 trillion, an increase of 7.8 per cent in third quarter of 2021 compared to the same period last year, the credit agency estimates.

Average monthly credit card spend per credit card holder is up by 3.9 per cent this quarter when compared to the pre-pandemic period of third quarter of 2019, mostly driven by younger consumers under the age of 35.

With inflation running hot at 4.7 per cent — an 18-year high — and the holiday season upon us, Canadians are ready to rack up more debt to make up for a subdued 2020 holiday season due to COVID-19 restrictions.

“Many consumers are eager to get back to pre-pandemic activities especially with the holidays approaching, which is creating increased demand for certain goods and services,” said Rebecca Oakes, assistant vice-president of advanced analytics at Equifax Canada.

“Inflation is likely being impacted as a result. Plus, certain industries are also being impacted by supply chain challenges.”

Canadians are embarking on a spending spree from a position of fiscal strength. Households have socked away around $280 billion in extra savings compared to prepandemic trends, according to Royal Bank of Canada estimates, which should serve as a buffer from major financial shocks.

But there are signs that some segments of the population are vulnerable as government support programs are rolled back.

While overall delinquency rates (excluding mortgages) contracted 22.2 per cent in the third quarter compared to the same period last year, there was an 8.36 per cent jump in delinquency rates among 18-25 year olds, Equifax data shows.

“We can likely expect a rise in delinquency in the coming months as government benefits came to an end in October for most consumers,” Oakes said.

Canadians, for the most part, had been able to cap non-mortgage debt over the past 18 months, but they have been unable to rein in mortgage debt.

While mortgage volumes eased in the third quarter, loan amounts continue to soar, primarily as a result of an inexorable rise in home prices. National home prices on average have climbed 23.4 per cent this year alone, according to the Canadian Real Estate Association.

Equifax data shows the average loan amount for new mortgages surged 18.3 per cent year-over-year and 1.4 per cent quarter-over-quarter and now sits at $360,000.

With their spending up and prospects of higher inflation and interest rates, Canadians could soon see their savings pile diminish quite quickly.

“Future interest-rate movements will not only have an impact on consumers with variable interest-rate products in the short term, but also could put pressure on some homebuyers with fixed interest mortgages in future years,” Oakes cautions.

BUSINESS

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2021-12-01T08:00:00.0000000Z

2021-12-01T08:00:00.0000000Z

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