The Q4 2021 TransUnion Credit Industry Report (CIIR) shows signs of a return to pre-pandemic activity in the Canadian credit market. TransUnion’s Credit Industry Indicator (CII) rose 32 points year-on-year to 101.6 during the period, driven by ongoing improvements in credit performance, as well as strong demand and supply of credit. While there has been continued momentum as the economy recovers from the pandemic, the CII has not yet returned to pre-pandemic levels; in December 2019, it was at 105.7.
While credit activity returned to pre-pandemic levels, delinquencies remained low, with no significant signs for concern. Consumer credit card delinquency1 increased by only 2 bps YoY, while personal loan consumer delinquency2 increased by 9 bps YoY. This marked the second consecutive quarter for increases in both credit card and personal loan delinquency rates. However, this is a sign of a recovering and growing credit economy as consumers return to pre-pandemic credit behaviours after an extended period of no growth in new credit or outstanding balances for unsecured products.
“Canadian consumers have demonstrated resiliency, with increased savings aided by government and lender assistance programs, and the credit market has remained stable throughout the pandemic. Delinquency rates have been lower than expected for several quarters. As the credit market returns to normal activity, with higher levels of account originations and balance growth, and as interest rates rise, which increases the cost of debt, we expect to see a regression back toward pre-pandemic delinquency levels. However, delinquencies are expected to remain at manageable levels over the next several quarters.”
- Matthew Fabian, Director, Research and Industry Insights
* Représente le solde moyen détenu par un consommateur pour chaque type de produit (les consommateurs peuvent détenir plusieurs instances du même produit).
The credit market experienced steady signs of growth in Q4 2021, with a YoY increase of 1.8% in credit participation3 as more consumers opened new products and leveraged existing credit. This growth was driven by above-prime credit score consumers, who showed a 4.4% increase in credit participation from the same period last year.
Total balance growth across all credit products was up 8.5%, driven primarily by non-revolving products. Balances for non-revolving products grew 3.3%, as mortgage growth continued a positive trajectory (balances up 11%). Additionally, personal loans showed positive momentum with balances up 9%. Revolving balances grew 2% YoY, with credit card balances up 4.2% as higher consumer optimism appears to have driven increased spending and use of credit to finance that spend. Credit card spend rates increased 20% YoY as the economy reopened and consumers returned to pre-pandemic spending patterns.
While the mortgage market cooled slightly from its accelerated pace earlier in 2021, in Q3 mortgage originations continued to grow despite high home prices and tight inventory, increasing 5.6% YoY. The increase in originations was led by Gen Z consumers. A small but growing part of the market consisting of mainly first-time homebuyers, this generation increased originations 30% YoY during Q3 2021.
Home prices continued to rise in Q4 2021, fueled by low interest rates as well as low inventory. The average mortgage balance per consumer increased 10% YoY to $320,835. Average new account balances in Q3 2021 increased 19% from the previous year, up to $386,026.
As home prices remain high, affordability continues to be a concern for consumers. In TransUnion’s latest Consumer Pulse study, 44% of respondents stated high home values were a barrier to homeownership, along with not having enough for a down payment (42%) and the lack of stable employment (30%).
“Although full recovery from the impact of COVID-19 is not over, Canada has proven its ability to adapt and operate in what is now the new normal. As economic activity increases, lenders need to be prepared to re-engage with consumers, while at the same time preparing for uncertainties of the future. Embracing the next phase of recovery will require a recalibrated approach on underwriting, advanced analytics to target resilient consumers and potential investments into effective digital channels to drive sustainable growth in acquisition and share of the consumer wallet.”
- Matthew Fabian, Director, Research and Industry Insightsr
1 The proportion of consumers 90 or more days past due on at least one credit card in wallet.
2 The proportion of consumers 60 days past due on at least one installment loan in wallet.
3 The number of consumers with an open credit product.