Canadian households are still grappling with financial pressures, but there are signs those strains are easing, says BMO Capital Markets.
In a report on Friday, BMO economists acknowledged that household financial stress is still elevated — amid weak labour markets, slowing income growth and declining savings rates. However, it also pointed to an array of positive signals.
Among other things, credit card growth has slowed, and the rise of households in arrears has slowed too, the report said. “Mortgage arrears have drifted higher but remain below long-run norms,” it said.
Additionally, the wave of mortgages resetting hasn’t caused “a feared surge in defaults,” it said. “This owes partly to the stress test, as borrowing rates on more than 90% of renewals in the past year were below qualifying levels. Higher incomes, principal repayments, and extended amortization periods helped cushion the impact.”
For most fixed-rate mortgages that are resetting, payments are rising, but not jumping dramatically.
“The upshot is that while mortgage resets are likely to pinch spending and arrears for another year, the effect should be limited,” the report said.
Overall, it concludes that, “Canadian household financial stress remains elevated but appears to be levelling off if not subsiding amid lighter debt burdens and manageable mortgage resets.”
“This should help support spending, though households will remain susceptible to future economic shocks,” it said.