COVID-19: An Uneven Evolution of Household Debt Across CMAs

Elevated household debt remains a key vulnerability for households and it represents a risk to the stability of the housing sector. Highly indebted households are vulnerable to a prolonged negative shock that could constrain more of them to sell their houses. This would pose a risk to house prices and jeopardize household wealth if properties for sale were to flood the market.

The onset of the COVID-19 pandemic brought on a negative shock to the economic situation of both renter and owner households. This also presents a risk of more households ending in housing need and a risk of monetary loss for landlords and financial institutions.

Canadian households were highly indebted before the COVID-19 pandemic changed our way of life. We want to explore the evolution of household debt in Canada since the onset of the COVID-19 pandemic. This brief examines the evolution of household debt and employment by census metropolitan area (CMA) from the end of 2019 to the second quarter of 2020.

A silver lining in Canadian household debt

The Canadian household debt picture exhibits some contrast.

On the one hand, mortgage debt continued to increase between the end of 2019 and the second quarter of 2020 in most CMAs. This is similar to the trend observed between 2012 and 2019¹. The increase in mortgage debt was partly due to:

• the completion of pending sales transactions concluded in the months prior to the onset of the pandemic
• an increase in deferred mortgage payments from borrowers².

In addition, a sharp pullback in new listings maintained some pressure on house prices in some markets. This can contribute to higher outstanding mortgage debt.

On the other hand, outstanding non-mortgage debt decreased in both the first and second quarters of 2020, bucking a growth trend observed in previous years.

Equifax credit data shows a decline in credit card debt in Canada’s largest CMAs³. This was an important driver of the decline in the total Canadian non-mortgage debt, particularly between the first and second quarters of this year. This decline in credit card debt is likely the result of restrained spending and increased savings brought on by the COVID-19 pandemic. The contraction in non-mortgage debt since the beginning of the pandemic offset the increase in mortgage debt in all but four CMAs. Total outstanding household debt only increased in:

• Abbotsford-Mission
• Hamilton
• Toronto
• Vancouver

Regional disparities in mortgage debt growth

Mortgage and non-mortgage debt growth by CMA shows further contrast in the evolution of debt in the first half of 2020. While non-mortgage debt declined in all CMAs, mortgage debt grew by close to 3% in some areas. It decreased by almost the same percentage in others (figure 1).

Three of the four CMAs where total household debt increased since the onset of the pandemic saw the largest mortgage-debt growth:

• Abbotsford-Mission
• Hamilton
• Toronto

These CMAs are also the only ones displaying stronger mortgage-debt growth than the Canadian average.

In Abbotsford-Mission, mortgage debt increased at the fastest pace of all CMAs between the end of 2019 and June of 2020. Non-mortgage debt saw the smallest decline. While the balance of most types of non-mortgage debt decreased over the period under review, we noticed a 4.4% increase in home equity line of credit debt.

In Vancouver, also a CMA where total debt increased, mortgage debt growth was below the Canadian average. The decline in spending and credit card debt did not make as big a dent in non-mortgage debt as it did in Toronto or Hamilton, for example.

Does employment support recent mortgage debt growth?⁴

To better understand the household debt-related risk to the housing sector in the context of the COVID-19 pandemic, we looked at changes in employment by CMA (figure 2)⁵.

We found that the same four CMAs that saw the strongest mortgage debt growth — Abbotsford-Mission, Toronto, Hamilton and Vancouver — also suffered larger job contractions than the Canadian average. The combination of stronger mortgage debt growth and important employment contractions could be hiding an issue of uneven debt distribution and uneven job losses among households in these CMAs.

Figure 2 shows no particular difference in job losses between the CMAs where mortgage debt declined and those where mortgage debt grew. The exploratory findings of this analysis suggest that changes in employment were not a clear factor in the changes in mortgage debt since the onset of the COVID-19 pandemic. Additional analysis of the distribution of job losses by household tenure and by occupation would shed more light on the debt-related risk profile of some CMAs.

About CMHC Analytical Briefs

This analysis is part of our new series covering various research topics. We’ll tell you about the latest housing trends, patterns and symptoms in the data when you need it. You can use the information to influence decision-making to accelerate affordability.

Footnotes

1. We use Equifax quarterly credit data by CMA in this brief. The data goes as far back as the third quarter of 2012.
2. Consult CMHC’s Residential Mortgage Industry Report 2020 for more information on the residential mortgage industry.
3. Equifax data.
4. This note focuses on employment up until June of 2020 in order to compare employment and debt over the same period. Between June and August, employment recovered some more, but it only reached pre-COVID-19 levels in Moncton and Guelph.
5. Employment data sourced from Statistics Canada, table 14-10-0294-01. Calculations by CMHC.