There was a continued decline in mortgage originations in the second quarter of 2019.
Originations fell 8.9% year-over-year with younger Canadians (18-25 years) showing a 13.4% drop according to the Q2 2019 Industry Insights Report from TransUnion Canada.
Although the report acknowledges the multi-factor impacts on mortgage originations including home prices, interest rates, consumer sentiment, and unemployment levels; it says that the regulatory changes introduced in 2018 have had a material effect on originations.
“The new mortgage regulations seem to be having the intended effect in cooling the overheated housing market and broadly preventing consumers from overextending themselves with mortgage debt. This is now the fourth consecutive quarter we have seen a decline in both mortgage originations and balances,” commented Matt Fabian, director of financial services research and consulting for TransUnion Canada.
He added that there are signs of some potentially unintended consequences.
“We have started to see an uptick in co-borrowing as the means of getting a foothold on the property ladder, where multiple consumers make an application together – in effect combining the power of their salaries. Although this is nothing new, it is now often with the help of a parent, other relative or a friend rather than just a partner or a spouse,” said Fabian.
Other debts are rising
While mortgage originations were lower, the report shows that Canadians continued to load up on other debts.
Overall consumer credit balances continued to grow in the second quarter—up 4.3% compared to the same period a year ago—bringing total outstanding consumer credit to $1.88 trillion.
The number of consumers with access to credit grew 1.7% year-on-year (YoY) in Q2 2019.
The average non-revolving balance per consumer grew 6.2% year-over-year to $31.4K in Q2 2019. This figure was primarily made up of installment and auto loans but excludes mortgages.
Borrowing for revolving products (including credit cards and lines of credit) saw a slight drop, down 1.2% YoY to end Q2 2019 at $18.5K.
The increases in overall borrowing have been driven by lower interest rates and low unemployment; and consumers have been managing their debts well so far with delinquency rates stable over the past year.
However, as the economy slows and risks of an economic downturn remain prevalent, it will be important for consumers to manage these higher debt levels diligently to remain current on their obligations,” warned Fabian.
Line of credit originations were the strongest in Q2, up 13.9% year-over-year.
Gen X lead debts
The largest cohort in terms of total debt balances in the second quarter was Gen X with a combined $767.4 billion, an increase of 3.4% year-over-year.
However, Millennials are catching up fast with a 12.33% year-over-year increase taking their overall debt to $515.9 billion. Gen Z gained 50.53% to $24.8 billion.
Older Canadians reduced their overall balances: Baby Boomers by 1.8% to $514.3 billion and the Silent Generation by 7.45% to $52.5 billion.
“At a headline level, the consumer credit market continues to grow. However, growth hasn’t been uniform, and in major categories like mortgages, we continued to see a decline in origination volumes when compared to the same period a year ago,” continued Fabian. “The shift in focus toward non-revolving credit products is something we’ve seen over recent quarters. The rise of Millennials, who have equaled and slightly surpassed Baby Boomers when looking at outstanding balances, is having a fundamental impact on the approach lenders take to how they market to and service their customers.”