This week we are taking a macro look at debt burdens, mortgage insolvency rates, credit card rates and how real estate is performing in other major parts of the country relative to our own. We also touch on, consumer confidence, Toronto real estate, credit tightening, inflation in the US, and some affective new ways to stimulate the housing market coming out of the UK.

Let's start by discussing mortgage delinquencies. Mortgage delinquencies are an essential indicator of the health of the housing market and the economy. Currently, mortgage delinquencies remain near a record low of 0.16%, with most not reported until six or more months of arrears. However, this is a lagging indicator, and it is expected that debt servicing ratios will hit record highs in 2024 as more and more renewals occur, leading to less discretionary spending. It is worth noting that one in five existing mortgages has felt the impact of rising interest rates, but the low unemployment rate has helped in Ontario and British Columbia.

Moving on to credit card loss rates, we see that this trend is ticking up fast. Before COVID-19, the loss rate was 3.5%, which dropped to 1.5% by January 2022. Since then, it has increased to 3%, indicating that the trend in credit cards leads the trend in
 mortgage arrears by around six months. Consumer insolvencies are also on the rise, and just saw the highest number of filings since March 2019, basically back to pre-COVID-19 levels. However, consumer proposals, restructuring unsecured credit, such as credit cards and LOCs, are at an all-time high (dating back to 2007). This indicates that there is stress under the surface.

Despite these concerns, consumer confidence is on the rise since Q3 2022, currently at 53%, up from 43% lows. Pre-COVID-19, it was 56%, and we are almost back to that level. The same trend can be seen in real estate confidence, currently at 40%, up from 20% at the end of 2022. Pre-COVID-19, it was 45%.

This confidence can be seen in Toronto home sales, which jumped 27% in April, the largest rebound since COVID-19 lows. This occurred at a time when listings were down 40% YoY, and active inventory down 21% YoY, the lowest in over a decade. Similar to Greater Vancouver, the GTA inventory has been flat all of 2023, with prices up 2.4% just last month. The GTA Sales to list price is 104%, compounding the issue is that dwellings under construction have declined for three months straight, including a 1.1% drop in March.

Even with debt burdens and high interest rates, prices are surging in Toronto and Vancouver. This could threaten further credit tightening from OSFI/BOK, making existing debt burdens even more challenging to meet.

The US added 236k new jobs, and services costs (like insurance, restaurants, education, medical care, etc.) are still surging because the labour market can't retain workers and is being forced to pay them more, creating a sticky inflation issue. The Fed in the states has raised interest rates dramatically in the last year by 5 percentage points to the highest it's been in 16 years. As it sits now, interest rates are actually higher than the inflation rate.

Where do we go from here? Check out the full episode for more!

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