The Number of Canadians Reporting that They are Financially Worse off Than 12 Months Ago is at the Highest Level Ever
46.5% of Canadian households are reporting that their financial situation has deteriorated over the past year — a historically high rate — according to a new Bank of Canada meta-analysis.
This deterioration comes amidst a period of high inflation and high interest rates in Canada.
High Levels of Financial Stress Reported
According to the analysis, the most common causes of household stress include:
- lower household income.
- high levels of debt,
- low savings rate,
- unexpected expenses,
- and sudden changes in economic circumstances.
More than 16% of Canadians are reporting a greater than 50% chance of missing a debt payment in the next 3 months.
The Worst Hit Demographic: Young Renters and New Canadians
Young people and recent immigrants are more likely to rent — and a Canadian renter’s probability of missing a debt payment in the next 3 months has surged to 22% in recent months, the highest level since records have been kept.
In their report, the Bank of Canada notes that the probability of missing a debt payment, and rental accommodation inflation, are closely correlated.
This suggests that a lot of renters’ financial stress is coming from higher rents.
8% of Canadian Households are Actually Living Paycheque to Paycheque: BoC
The analysis highlights that 8% of Canadians are actually (not perceived) living paycheque to paycheque, defined as possessing two or more of the following characteristics:
- frequently running out of money before the end of the month
- not being able to immediately pay for an unexpected expense of $500
- have less than two weeks’ worth of expenditures in liquid assets
It should be noted that the Bank of Canada has a very high bar for the the “paycheque to paycheque” designation — much higher than other institutions.
37% of Mortgage Holders are Maxed Out
The analysis finds that 26% of mortgage holders in Canada have borrowed the maximum amount permitted by their mortgage lender, and that another 11% are currently above their maximum allowable mortgage amount (presumably because they secured their mortgage before the stress-test and/or before interest rates rose rapidly)
It further finds that in Q4 2023, 11% of Canadians mortgage holders reported possessing both major default risk factors:
- a maxed out mortgage amount and,
- not being confident about their upcoming renewal situation.
Mortgage Holders with Most Financial Stress More Likely to Sell Their Homes
The analysis concludes that mortgage holders in Canada who fall into both risk factors of having a maxed out mortgage, and who are also worried about an upcoming renewal, are the most likely to sell their homes over the next year.
Overall, Canadian homeowners in the highest risk category have a 7.2% probability of selling their home within the next year, all Canadians with a mortgage have a 6% probability of selling their home during the same period, and homeowners without a mortgage only have a 1.25% chance of selling.
This suggests that a lot of selling intention in Canada is tied to financial conditions, rather than being unhappy with one’s home.
