8 GLOBAL ECONOMICS Household Credit Growth |% SCOTIA …

[Pages:3]GLOBAL ECONOMICS | SCOTIA FLASH

September 3, 2019

Canadian Household Credit Growth Slows in July

Canadian overall household credit growth held at 3.6% y/y from June to July, but its leading edge slowed from 4.0% m/m in June to 3.5% m/m in July as m/m mortgage credit growth came down from June's 4.8% to 4.0%.

Residential mortgage credit continued to drive the trend in overall household credit growth with a 3.8% y/y increase in July, up 10 bps from June. Meanwhile, trend consumer credit growth slowed 20 bps to only 3.1% y/y, its lowest rate in 4 years.

July's still-high, but slightly slower, m/m mortgage-credit growth rate will likely be greeted with some relief by the Bank of Canada, which we expect to prepare ground tomorrow for a rate cut at its October meeting.

HOUSEHOLD CREDIT GROWTH SLOWS ON STILL-STRONG TREND

Canadian trend household credit growth held constant at 3.6% y/y from June to July as credit demand continued to turn the corner from its spring pause. On a m/m annualized basis total household credit decelerated in July to 3.5% compared to June's 4.0%, but the 3-month moving average trend continues to point upward (chart 1). Demand for residential mortgages has been the primary driver behind household credit borrowing as consumer credit generation has flagged.

MORTGAGE GROWTH SLOWS FROM JUNE, TREND STILL SOLID

Residential mortgage credit, which accounts for about 71% of total household credit, slowed from 4.8% m/m growth in June to 4.0% m/m in July, but continues to trend strongly with July's 3.8% y/y increase the highest 12month gain in just over a year. The more recent trend is also solid at 4.4% on a 3-month moving average basis (chart 2). Falling market interest rates (chart 3) and still-moderate house price growth (chart 4) have been a boon to demand for mortgage credit so far this year. With long-term rates lower than short-term rates, home buyers have had a rare opportunity to lock in longer maturity fixed-rate mortgages at lower rates than if they had opted for variable rate mortgages. While the Bank of Canada lauded the role of lower rates in stabilizing Canada's housing markets in its July 10 statement, the Bank will be relieved to see the deceleration in mortgage credit growth from June to July as it prepares to cut its target rate.

CONSUMER CREDIT GROWTH TRENDS STILL WEAKENING

While overall household credit is trending higher on the back of residential mortgage growth, consumer credit is trending in the opposite direction and posted a 3.1% y/y growth rate in July, its lowest 12-month growth rate since March 2016. Despite a 20 bps month-on-month uptick from 2.1% in June to 2.3% in July, consumer credit has been trending downward in year-on-year terms since end2017 and in its 3-month moving average since mid-2018 (chart 5). Although lower market interest rates have increased demand for residential mortgage credit (chart 6), rates on consumer credit have come down less and only more recently, and have not spurred an increase in consumer credit growth from a four-year low (chart 7).

CONTACTS

Brett House, VP & Deputy Chief Economist 416.863.7463 Scotiabank Economics brett.house@ @BrettEHouse

Raffi Ghazarian, Senior Research Analyst 416.866.4211 Scotiabank Economics raffi.ghazarian@ @RaffiMGhazarian

Chart 1

Canadian Total

8

Household Credit Growth

% change,

seasonally-adjusted 7

6

y/y %

change

5

4 m/m % change

annualized,

3

3-mth moving average

2

m/m % change annualized

1 12 13 14 15 16 17 18 19

Sources: Scotiabank Economics, Bank of Canada.

Chart 2

Canadian Household Residential Mortgage Credit Growth

9 % change, seasonally-adjusted

8

7

6

y/y % change

5

4

m/m % change

annualized,

3

3-mth moving average

2

m/m % change

annualized 1

12 13 14 15 16 17 18 19

Sources: Scotiabank Economics, Bank of Canada.

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

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GLOBAL ECONOMICS | SCOTIA FLASH

September 3, 2019

Chart 3

7.0 %

6.5 6.0 5.5

Interest Rates Falling

Interest rate on new consumer loans

5.0

4.5

5-year fixed

4.0

mortgage rate

3.5

3.0 13 14 15 16 17 18 19

Sources: Scotiabank Economics, Bank of Canada, CMHC.

Chart 6

Falling Interest Rates Boost Residential Mortgage Lending...

7.0 %

6.5

6.0

5.5

Residential

mortgage credit,

5.0

y/y % change

4.5

5-year fixed

4.0

mortgage rate

3.5

3.0 13 14 15 16 17 18 19

Sources: Scotiabank Economics, Bank of Canada, CMHC.

Chart 4 MLS Home Price Index

25 y/y % change

20

15

10

5

0

-5

14

15

16

17

18

19

Sources: Scotiabank Economics, CREA.

Chart 7

... But Haven't Had the Same

Effect on Consumer Lending

7 % Interest rate on new

6

consumer loans

5

4

3

Consumer credit

2

y/y % change

1

0 13 14 15 16 17 18 19

Sources: Scotiabank Economics, Bank of Canada,

Chart 5

Canadian Household

9

Consumer Credit Growth

% change,

8 seasonally-adjusted

7

m/m % change

m/m %

annualized,

change

6

3-mth moving

annualized

average

5

4

3

2 y/y %

1

change

0 12 13 14 15 16 17 18 19 Sources: Scotiabank Economics, Bank of Canada.

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

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GLOBAL ECONOMICS | SCOTIA FLASH

September 3, 2019

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