Household Credit Analysis

Transcription

1 Analysis September 1, 15 ECONOMICS Highlights by Benjamin Tal Avery Shenfeld (1) Benjamin Tal (1) Andrew Grantham (1) Royce Mendes (1) Nick Exarhos (1) credit is now rising at the fastest year/year pace since late 1. Judging by the recent monthly trajectory, monetary easing by the Bank of Canada did little to stimulate household borrowing. Mortgage credit accounted for 8% of debt accumulation over the past year. The gap between housing activity and mortgage activity is still wide. The acceleration in mortgage outstandings is largely due to higher average mortgage sizes. The gap between activity in Toronto and Vancouver and the rest of the country is widening. Within Toronto and Vancouver, the asymmetrical price trajectory between detached and condo units is still very evident. There is also clear asymmetry even within the surging detached space, with prices of more expensive properties rising faster than less expensive properties over the past decade. The surge in Toronto s unsold condo inventory, highlighted by the Bank of Canada in its June Financial System Review, was due largely to technical factors and not fundamentals. Mortgage arrears continue to trend lower reaching just under.3% as of June. Arrears in Alberta are still trending lower but that should change soon. After reaching a low of % y/y growth in late 13, the pace of consumer credit growth has accelerated with credit now rising by just under 3% (y/y) the strongest showing since late 1. Both credit cards and lines of credit portfolios showed improvement over the past year while the term-loan portfolio continued to decelerate. The recent acceleration in credit card activity reflects, at least in part, reduced transfers of credit card debt into the lines portfolio. Delinquency rates in all consumer credit portfolios are trending downward. Sources: Bank of Canada CBA CREA CIBC World Markets Inc. Equifax Canada Industry Canada Statistics Canada com/res/eco/ecoresearch. html CIBC World Markets Inc. PO Box 5, 11 Bay Street, Brookfield Place, Toronto, Canada M5J S8 CIBC (1) 59-7 CIBC World Markets Corp 3 Madison Avenue, New York, NY 117 (1) 85-, (8) 999-7

2 On The Rise Chart 1 The pace of growth in household credit is building on the trend established in early 1, with total outstanding now rising by.8% the fastest pace since late 1 (Chart 1). During the year ending June 15, 8% of the build-up in debt was due to increased mortgage debt outstanding m/m % chg -mon moving average Source: Bank of Canada, CIBC Mortgage Debt Rising Faster The recent increase in the pace of growth in mortgage debt should not come as a surprise, given the still substantial gap between housing activity (as measured by MLS sales) and mortgage activity (Chart ). In part, the recent acceleration reflects stabilizing loan-to-value ratios following a period in which CMHC tightening led to an increase in the share of low-ratio (over % down payment) mortgages. So in many ways, the recent acceleration reflects more of an increase in average mortgage sizes than an increase in home-buying activity. In that context, in a recent communication the Bank of Canada suggested that the simulative effects of previous monetary policy actions are working their way through the Canadian economy. However, given that the Bank eased policy from an already low level of interest rates, it s doubtful that much stimulus came from the household credit channel. In fact, growth in household credit did not show any notable acceleration after the January easing move (Chart 3). Chart A Wide Gap Between Housing Activity and Mortgage Activity Chart 3 BoC s Cut Did Little to Accelerate Borrowing 1 3-mon moving avg Mortgage credit (L) Unit sales (R) , 5,, 35, 3, 5,, 15, 1, 5, m/m % chg, 3-mo moving avg BoC eases policy Average m/m % Growth.5 % Avg Jan- Jun 1 Avg Jan- Jun 15 Source: Bank of Canada, CREA, CIBC Source: CIBC

3 House Price Highly Asymmetrical The gap between activity in Toronto and Vancouver and the rest of the country is widening (Chart ). It is fair to say that outside those two centres, the housing market in Canada is already in the midst of a soft landing (with Calgary obviously dancing to a different tune altogether). Zooming in on Toronto and Vancouver, it is well established that in both cities the increase in the average house price masks a widening gap between surging prices of detached properties and relatively muted increases in the price of condo units. In fact, in both cities that price gap is currently at a record high. Chart A Tale of Two Markets Weighted Average Price, 3-mo moving avg All CMAs Less Toronto, Calgary and Vancouver Toronto and Vancouver However, the price asymmetry goes well beyond that. Even in the detached space the price trajectory is far from uniform. Over the past decade, prices of more expensive detached properties in general, have risen faster than prices of less expensive properties. In Toronto (CMA) (Chart 5), the price of properties in the lowest semi decile bracket (lowest 5%) rose by a cumulative 7% over the past decade which is less than the 87% increase seen in 5 th percentile mark, which in turn, is less than the 91% price appreciation seen in the 9 th percentile. The only exception to an otherwise very linear trajectory here is that, prices at the highest-end (top 1%) have risen somewhat more slowly than in the 9 th percentile. In Vancouver (Chart ), the asymmetrical price appreciation Source: CREA, CIBC trajectory is even more prominent, with the price gap widening the fastest at the highest end of the market a fact that might reflect the impact of foreign investment activity in that space. This asymmetrical trajectory has major implications for the move-up market and the growth in the renovation market in both cities. On the issue of the widely discussed condo market in Toronto, the Bank of Canada s June Financial System Review highlighted a dramatic surge in the number of completed and unabsorbed condo units in the city (up from less than 1, in December 1 to just under 3, in May 15). That commentary by the Bank and more so, the chart Chart 5 Cumulative Increase in House Prices by House Value (Detached, past decade) Toronto Chart Cumulative Increase in House Prices by House Value (Detached, past decade) Vancouver 95% Toronto 5% Vancouver 9% 85% 8% % 15% 75% 7% 5% 1% 5% % % less expensive more expensive Semi Decile less expensive Semi Decile more expensive Source: Brookfield, CIBC 3 Source: Brookfield, CIBC

4 that accompanied it, led to increased speculation both in Canada and abroad about the bubbly Toronto condo market. However, for the purpose of the report, the Bank utilized information from CMHC information that was inconsistent with data collected by private sector providers (Chart 7). A closer look reveals that the main reason for the dramatic jump in the CMHC indicator was technical in nature and did not represent any fundamental issue. In fact, more recent observations reveal a notable decline in that indicator, a trend that probably will continue in the coming months. Mortgage arrears continue to trend lower, reaching just under.3% as of June 15. By far, the highest arrears rate is in Atlantic Canada while the lowest is in Ontario (Chart 8). So far the damage in Alberta is not visible in the arrears rate which, in fact, continued to fall during the first half of the year (Chart 9). Chart 8 Mortgage Arrears Chart 7 Toronto s Condo Market 3, Completed and unabsorbed units,5, 1,5 1, Source: CMHC, CIBC Chart 9 Mortgage Arrears: Alberta % of total portfolio By Province as of June 15 Canada % of total portfolio BC Man/SK Alta Ont Que Atl Source: CBA, CIBC Source: CBA, CIBC In this context, how bad is the damage in Alberta s labour market? According to Statistics Canada s Labour Force Survey, the job market in the province is weathering the storm very nicely. Overall employment has been relatively stable despite the turmoil in the energy sector. However, the other survey (the Establishment Survey) is showing a clear downward trajectory in employment (Chart 1). Which survey should we believe? Looking at Chart 11 reveals that the relative stability of the labour force survey is masking substitution between private and public sector jobs. We find it hard to believe that the public sector in Alberta is currently engaged in a hiring spree. Given the volatility of the Labour Force Survey, it is reasonable to assume that the downward trend seen in the establishment survey is a better reflection of the true picture. Chart 1 What is Really Happening in the Alberta Job Market? s Source: Statistics Canada, CIBC Total Employment Establishment survey (L) Labour force survey (R) 1 15 s 3 3 8

5 Consumer Rising Slowly After reaching a low year/year growth of % in late 13, the pace of consumer credit growth has accelerated with credit now rising by just under 3% (y/y) the strongest showing since late 1 (Chart 1). Both credit card and lines of credit portfolios showed improvement over the past year while the term-loan portfolio continued to decelerate (Chart 13). The recent acceleration in credit card activity reflects, at least in part, reduced transfer of credit card debt into the lines portfolio as the pace of debt optimization is slowing down. That process is visible in the delinquency trajectory of the lines portfolio which is now trending lower (Chart 1). That reflects reduced risk due to the slowing of the transfer of funds from the credit card portfolio, as well as an increased share of secured loans within the lines portfolio. Chart 11 Alberta: Substituting Public for Private Sector Jobs s Private (L) Source: Statistics Canada, CIBC Labour Force Survey s Public admin., Health & Edu. (R) Chart 1 Consumer Chart 13 Consumer Term loans July 15 PLC cards Share of Consumer - July 15 cards PLC Term loans Source: Bank of Canada, CIBC Source: Bank of Canada, Statistics Canada, CIBC Chart 1 Deliquency Rates 1.8% 1.7% 1.% 1.5% 1.% 1.3% 1.% 1.1% 1.%.9%.8%.7% Cards Total Balance Delinquencies.3%.5%.%.15% Lines of Total Balance Delinquencies 1.5% 1.5% 1.%.75%.5% Term Loans Total Balance Delinquencies Q1 5Q1 Q1 7Q1 8Q1 9Q1 1Q1 11Q1 1Q1 13Q1 1Q1 15Q1 Q1 5Q1 Q1 7Q1 8Q1 9Q1 1Q1 11Q1 1Q1 13Q1 1Q1 15Q1 Q1 5Q1 Q1 7Q1 8Q1 9Q1 1Q1 11Q1 1Q1 13Q1 1Q1 15Q1 Source: Equifax, CIBC 5

6 Table 1 Consumer Debt Figures and Ratios Debt Consumer ** Mortgage ** Disposable Income+ Interest Payments Debt* Consumer Mortgage Interest Payments ($Mil) ($Mil) ($Mil) ($Mil) ($Mil) (% of HDI) (% of HDI) (% of HDI) (% of HDI) 1:1 1,35,51 3,1 89,1 98,359 73, : 1,7,999 5,355 93,9 9,17 75, :3 1,9,1 5,19 937,7 95,77 75, : 1,51,71 59,193 95,5 95,311 7, :1 1,518,7 58,7 958,778 99,78 77, : 1,55,193 5,3 98,987 97,983 78, :3 1,575,77 7,8 1,,9 988,99 77, : 1,59, 7,9 1,17,9 999,7 77, :1 1,,93 9,189 1,7,9 1,8,1 7, : 1,9,98 75,53 1,,8 1,17,78 77, :3 1,57,978 83,5 1,,3 1,9,83 78, : 1,7,35 8,57 1,75,1 1,1,318 77, :1 1,83,51 9,5 1,8,91 1,51,98 78, : 1,79,51 9,97 1,99,33 1,1,18 77, :3 1,733, 5,19 1,117,3 1,71,8 78, : 1,75,91 55,53 1,1,89 1,8,8 78, :1 1,753,8 53,3 1,13,8 1,9, 78, : 1,78,1 51,87 1,15,599 1,1,73 78, :3 1,87,8 515,778 1,173,13 1,19,183 78, : 1,88,1 519,78 1,187,7 1,117,717 78, :1 1,8, 519,1 1,19,9 1,19,9 78, : 1,873,988 5,331 1,18,37 1,138,89 78, * On Oct 15, 1, revisions by StatCan on household credit market debt to disposable income ratio was revised upward. ** Consumer and Mortgage credit quarterly data are now sourced from StatCan + Redefinition of household disposable income as part of StatCan historical revision of the national GDP by income and by expenditure accounts Table Balance Sheet Data Non- Financial Financial Debt to Total Net Worth ($Mil) ($Mil) ($Mil) (%) ($Mil) Net Worth as a Share of HDI 1:1 7,59,113 3,5,5 3,93, ,,8.7 1: 7,71,15 3,58,3 3,9, ,98,97.3 1:3 7,8,555 3,588,715,95,8 19.,173, : 7,87,53 3,7,1,, ,313, :1 7,977,75 3,95,331,8, ,3,78. 11: 8,71,85 3,7,53,39, 19.8,99,1.5 11:3 8,7,71 3,818,117,9, ,5, : 8,179,75 3,89,7,39, ,5,53.5 1:1 8,381,589 3,97,38,5,7 19.,755, : 8,59,535,,,57, ,8,1.9 1:3 8,31,51,,,589,7 19.7,95, : 8,758,89,71,533,8, ,59, :1 8,987,88,1,79,81, ,8, : 9,,5,7,77,858, ,33, :3 9,9,738,87,7,9, ,9, : 9,511,187,35,15 5,1, ,71, :1 9,753,9,11,7 5,31, ,975, : 9,97,5,99,555 5,7, ,17,3 7. 1:3 1,83,317,558,7 5,55, ,9, : 1,17,,5,395 5,1, ,33, :1 1,53,153,1,5 5,87, ,7, : 1,,7,73,88 5,9, ,7,9 7.8

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