Following sharp declines during the COVID‑19 pandemic, many financial stress indicators have now returned to more normal levels. Here’s a breakdown of the current situation:
Households Without Mortgages Most Affected
- Stress Concentration: Financial stress is primarily concentrated among households without mortgages, with renters being the most affected, according to survey data.
- Mortgage Holders: Stress indicators among mortgage holders remain largely unchanged and are still below historical averages. Factors such as income growth, accumulated savings, and reduced discretionary spending help these households manage higher debt payments.
Future Challenges for Mortgage Holders
- Higher Interest Rates: In the coming years, more mortgage holders will renew their mortgages at higher interest rates. Market expectations suggest these increases will be more significant than those experienced by borrowers who renewed in the past two years.
- Financial Flexibility: Higher debt-servicing costs reduce financial flexibility for households and businesses, making them more vulnerable to economic downturns.
Rising Financial Stress Among Non-Mortgage Households
- Inflation and Interest Rates: The combination of higher inflation and higher interest rates continues to pressure household finances. Many financial stress indicators, which had declined during the pandemic, are now close to pre-pandemic levels, with increased stress mainly among renters.
- Credit Arrears: Arrears rates on credit cards and auto loans for households without a mortgage, including renters and outright homeowners, have returned to pre-pandemic levels and continue to rise. In contrast, arrears for mortgage-holding households remain low and stable.
https://www.bankofcanada.ca/2024/05/financial-stability-report-2024/
