Lions and Tigers and Bears! Oh My! It's that kind of Market
This Market reminds me of the Wizard of Oz phrase, “Lions, and Tigers, and Bears, Oh My." However, instead of the strawman, it's Canadians saying, "Insolvencies, Deliqueinces, and Unemployed! Oh My!" The cracks are starting to show in our economy, leaving many homebuyers and homeowners more nervous than the cowardly lion.
Canadian consumer insolvency filings are rising to dizzying heights. Consumers filed 11,388 insolvencies in August, an increase of 8.9% from last year, making it the second-biggest August, only beaten by 2009's Great Recession filings. The issue has become a trend in recent months, as a whopping 134,466 consumer insolvencies were filed in the last 12-month period - a 16.0% increase from the same period the previous year. Canada's surge of consumer insolvencies isn't concerning on its own. However, that changes when viewed in the greater context of the economy, as we see data compared to some of the worst recessions beginning to accumulate.
StatsCan released the data for business insolvencies, which is comparably bad. The closure rate (share as a total) also set a similar pandemic record. The rate climbed 0.2 points to 5.0% in June, meaning 1 in 20 businesses closed their doors for good last month. Even more disturbing is the fact that this issue is now widespread. Stat Can observed closures across all industries, noting it was a broad issue. They did mention that construction and retail were slightly ahead of the pack.
Toronto mortgage delinquencies are climbing at a very rapid rate. The rate climbed 0.02 points to 0.14% in Q1 2024, representing a 0.07 point increase since last year. Over the past year the rate has doubled, hitting the highest level since 2016. While overall mortgage balance delinquency rates remained lower than pre-pandemic (0.16% vs. 0.17% in 2019), mortgage balance delinquency rates in Ontario hit their highest levels (0.16%) since 2014 (0.18%). Over 3000 mortgages ($1.3B in balance) in Ontario were in severe delinquency at the end of Q2, up 66.8 percent when compared to Q2 2023.
The Canadian unemployment rate is back above Pre-Pandemic levels. The workforce is growing faster than the employment rate, creating a surplus of 60,000 workers in August. This pushed the unemployed population to 1.5 million last month and rose 272k people (+22.9%) since last year. Most of the unemployment has surged in the largest cities. Toronto now has an unemployment rate of 8%. The hardest hit is our youth demographic, as the youth (15-24 years old) unemployment rate climbed to 14.5% in August.
What's holding our economy together? Despite the housing downturn and economic turbulence, Canadian household net worth hit a record high in Q2. The combination of TSX/ US markets pushing asset prices up and real estate prices holding their value; the average Canadian net worth is over $1 MILLION, up 2.5% year-over-year. (With the top 20% of Canadians' Net Worth over $3.4M). So, although our debt levels are high, Canadians still own $6.64 in assets for every $1 of debt . Rising net worth is important since, in general, households are less likely to default when they have assets to sell off. Canadian savings have reached their highest level since '96 (outside the pandemic), breaking 7%.
With the Bank of Canada's next meeting on October 23rd, I would not be surprised if the US Federal Reserve opened the door for a 50 basis point cut to the rate. Canada can no longer rely on the stream of Temporary Foreign Workers and Student Visa population growth to hold up productivity and consumer spending. The federal government is making its best attempt to increase demand stimulus by increasing insured mortgage levels and amortizations. Only time will tell if the BOC and Feds can do enough to bring back the Canadian economy. And unfortunately, there are no ruby slippers to take us out of this situation.
Stay tuned,
Cari and Paul