Secular deleveraging narrative resurfaces
Observers argue that credit growth in Canada is slowing in a way that resembles a longer-term deleveraging shift after decades of falling rates, contrasting today’s environment with earlier eras of rate-driven growth. That framing is being used to explain why cyclical rate moves may behave differently this time around. (x.com)
A debate that had faded during Canada’s housing boom is back: some economists say the country is shifting from debt-fueled expansion to slower, longer-term deleveraging. (bankofcanada.ca) The raw numbers still show debt rising, but more slowly. Statistics Canada said household credit liabilities rose 0.3% in January 2025 to C$3.043 trillion, down from 0.4% growth in December 2024, while non-mortgage loan debt edged down 0.1%. (statcan.gc.ca) Mortgage debt has not collapsed. It rose 0.4% in January 2025, and annualized mortgage growth accelerated to 4.8% from 4.4% a month earlier, even as home equity line growth slowed to 3.2% from 3.7%. (statcan.gc.ca) The argument is about what rate cuts can still do. The Bank of Canada cut its policy rate from 5.00% in mid-2024 to 2.25% by March 18, 2026, but household debt service stayed high enough that many borrowers still face tighter budgets than they did when rates were near zero. (bankofcanada.ca; statcan.gc.ca) That is why the “secular deleveraging” label has resurfaced. In plain terms, it means households keep borrowing, but each rate cut produces less new credit than it did during the four decades when falling rates and rising home prices reinforced each other. (bankofcanada.ca; bankofcanada.ca) Canada still starts from a very high debt base. Statistics Canada said households owed C$1.77 in credit market debt for every dollar of disposable income in the fourth quarter of 2025, while the debt service ratio was 14.57%. (statcan.gc.ca; halifax.citynews.ca) The renewal calendar is a big reason this matters now. A Bank of Canada staff note published in July 2025 said about 60% of outstanding mortgages were set to renew in 2025 or 2026, and about 60% of those borrowers were expected to see payment increases. (bankofcanada.ca) For five-year fixed-rate borrowers renewing in 2025 or 2026, the Bank estimated average monthly payments could rise about 15% to 20% from December 2024 levels. Across all renewing borrowers, the average increase was estimated at 10% in 2025 and 6% in 2026. (bankofcanada.ca) There is a competing read on the same data. Statistics Canada said the debt service ratio dipped in the fourth quarter of 2025, and Canada Mortgage and Housing Corporation said the national mortgage delinquency rate slipped slightly even as Ontario’s rate rose 44% year over year to 0.23% in the second quarter of 2025. (statcan.gc.ca; cmhc-schl.gc.ca) So the story is not that Canada has stopped borrowing. It is that a country with more than C$3 trillion in household credit, a 177.2% debt-to-income ratio and a huge renewal wave may not respond to lower rates the way it did in the era that built that debt pile. (statcan.gc.ca; statcan.gc.ca; bankofcanada.ca)
