Consumer Delinquency Trends and our Sleep-Premium Theory

Equifax Canada reported in late January that Canadians are paying off their debts faster with accounts more than 3 months in arrears dropping to an all-time record low. Delinquencies greater than 90 days were down to 1.19 percent in the fourth quarter of 2012 versus 1.22 percent in the third quarter. Delinquency rates as a matter of fact have been declining since the prerecession peak in 2007 of 1.75 percent.

The study (National Credit Trends), which is released each quarter, also found that average credit card balances have dropped by 3.7 per cent compared with the July-September quarter – a sign that people may be trying to pay their debts off quicker than before.

Despite this, the study also saw an increase of 3.2 per cent on non-mortgage loans, including bank loans, lines of credit and car leases in the October-December period, up from a 1.8 per cent increase in the previous quarter.

At first glance some may conclude that consumers are gaining control over their credit and debt levels, most notably with higher interest credit cards. But have they really, or have many just finally realized that they’re maxed out to the point that a good night’s sleep is now suddenly a greater value to them than having the next latest and greatest, got to have consumer gadget? Equifax also happened to note in this latest report that there has been an 11 percent decline in new credit applications, compared to pre-recession levels. There may very well be something to our sleep-premium theory.