As economic pressures mount, Canadians are pulling back on spending, a trend highlighted in the latest RBC Consumer Spending Tracker.
Following the post-pandemic surge, the reality of higher interest rates and persistent inflation is forcing many consumers to tighten their budgets.
Recent Bank of Canada data also show that Canadian households have pulled back in spending. Household credit advanced just 3.4% (+$96.2 billion) to $2.95 trillion in May, with annual growth returning to deceleration and potentially hitting its peak for the year. The rate of change is now just 0.2 points above the rate reported in October, which was the lowest in over 30 years.
Retail sales continued to decline in the second quarter of 2024, marking six out of seven months of negative growth. Rising debt service costs and the return of student loan payments have been significant factors in this pullback. Despite some relief in specific areas like gasoline prices, the overall cost of living remains high, leading to reduced spending on discretionary items such as dining out and non-essential goods.
Low-income households are feeling the impact most acutely, often turning to savings or credit to cover everyday expenses. With these financial strains, many Canadians are finding it difficult to maintain their previous spending levels.
While there is cautious optimism that consumer headwinds might ease in the latter half of the year, particularly if interest rates are cut, the immediate outlook suggests continued economic caution among Canadian consumers.
“Consumer spending continues to show signs of stress as many wait for the impact of the BoC rate cuts to filter through to mortgage interest costs,” wrote report author Carrie Freestone.
“Canadians renewing fixed-rate mortgages in 2024 still face significantly higher rates, which will cut into broader purchasing power,” she added. {“However, as the BoC continues its path to lower rates, mortgage holders will feel some relief and at least partially restored purchasing power upon renewal.”
B.C. revises personal-use notice period following industry feedback
In response to concerns from industry stakeholders, the B.C. government has made revisions to two recent amendments to the Residential Tenancy Act, which were originally implemented on July 18, 2024.
The latest adjustment reduces the personal-use notice period from four months to three months, starting August 21, 2024. Additionally, the dispute period has been reverted back to 21 days after it was previously extended to 30 days from 15.
These changes aim to address the impact of the extended notice period on insured mortgage approvals and commitments, which had been a significant concern for the industry.
Here’s an overview of the modifications made by the B.C. government in light of industry feedback:
- Landlords are now required to provide a three-month notice period when terminating a tenancy on behalf of a purchaser, with a 21-day dispute period.
- When landlords or their close family members intend to move into the rental property, a four-month notice period is still required.
- Tenants in these cases have 30 days to dispute a landlord’s Notice to End Tenancy (NTE), compared to 21 days where a purchase agreement is involved.
- The person moving into the property must occupy it for at least 12 months.
Canadian mortgage arrears rose in May
Canada’s national mortgage arrears rate saw a slight uptick in May, according to data from the Canadian Bankers Association.
The arrears rate, which monitors mortgages that are three or more months behind in payments, edged up to 0.19% in May, an increase from 0.18% in April, returning to the level recorded in March. The latest figures work out to just 9,481 mortgages in arrears out of a total of over 5.032 million.
Although the national average arrears rate has been rising from a low of 0.14% in 2022, it still remains significantly below the pandemic peak of 0.27% reached in June 2020.
The rate of delinquencies is highest in Saskatchewan (0.56%), although that’s unchanged from April and down from a high of 0.60% in January. Delinquency rates remain lowest in British Columbia (0.16%; no change) and Ontario (0.14%; +0.01%).
Accelerated mortgage payments: How to cut years off your loan and save thousands
Accelerating your mortgage payments can be a powerful strategy to save thousands of dollars in interest and significantly shorten the life of your mortgage.
As highlighted in the article by Zoocasa, increasing your mortgage payment frequency is a simple yet effective way to cut your mortgage down by years.
When you opt for accelerated payments, such as bi-weekly or weekly payments, you end up making the equivalent of one extra monthly payment each year. This additional payment goes directly toward your principal balance, reducing the amount of interest you pay over time.
For instance, switching from monthly payments to accelerated bi-weekly payments can reduce a 25-year amortization period by several years, potentially saving you tens of thousands of dollars in interest costs.
For example, by sticking with monthly payments on a $400,000 mortgage at a 5% interest rate with a 25-year amortization, you’ll pay approximately $233,000 in interest over the life of the loan. However, by switching to accelerated bi-weekly payments, you could cut your amortization by over four years and save more than $44,000 in interest.
Mortgage snippets
- Canada’s job numbers fall short of expectations in July: Canada’s labour market missed expectations for the second month in a row. Statistics Canada reported a net loss of 2,800 jobs in July, with 62,000 full-time positions gained but 64,000 part-time jobs lost. Economists had expected a gain of 25,000 jobs.
The unemployment rate held steady at 6.4%, though rates for recent immigrants and youth continued to rise. TD economist Leslie Preston noted that the report reflects a cooling labour market, supporting the Bank of Canada’s gradual pace of rate cuts.
Average hourly wages increased by 5.2% year-over-year to $34.97. The August employment data will be released on September 6, 2024.
- Canada’s trade balance returns to surplus in June: Canada’s international merchandise trade balance swung back into surplus in June, reporting a $0.6-billion surplus, according to Statistics Canada. This follows a $1.6-billion deficit in May and exceeded expectations of another $2-billion deficit. The shift was driven by a faster rise in exports, particularly in energy products and metal/non-metallic mineral products.
National Bank economists highlighted that increased exports to Asian markets, bolstered by the Trans Mountain pipeline expansion, played a significant role. However, despite the surplus, National Bank notes that the trade in goods is expected to have a negative impact on second-quarter GDP growth.
Canada’s shift to a trade surplus in June is significant because it signals a rebound in export performance, particularly in energy and minerals. This improvement exceeded expectations and suggests a strengthening in key sectors. However, despite this positive change, the trade balance is still expected to contribute negatively to GDP growth for the quarter, as the surplus wasn’t large enough to offset previous deficits.
- U.S. credit card debt hits record high of $1.14 trillion in Q2: This marks a 10.8% rise from a year ago, though slightly down from the 13.1% increase in Q1. Credit card debt has grown at double-digit rates for nine consecutive quarters since the Fed began raising interest rates in 2022. Despite moderating inflation, low-income households have had to rely more on credit for daily expenses due to elevated prices, the resumption of student loan payments and shrinking household savings.
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Last modified: August 13, 2024