“As consumer confidence picks up and people increase their borrowing, lenders are understandably concerned about growing indebtedness,” said Mike Gordon, FICO’s executive vice president of Sales, Services and Marketing. “For the last two quarters, around 65 percent of our respondents said they think credit card balances are headed higher. Those are the two highest figures we’ve ever seen in this survey. When I talk with bankers, they tell me they’re happy to see growing consumer optimism, but they’re wary of a return to reckless borrowing.”
The study was conducted by FICO, a predictive analytics software company. The company’s head points to current trends that mimic those that contributed to the U.S. housing collapse in 2008 – in both the United States and Canada’s respective housing markets.
“The home loan environment has bifurcated,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Six million homeowners in the U.S. are still underwater on their mortgages, with the average negative equity a whopping 33 percent. Yet with home prices soaring in many cities, total homeowner equity in the U.S. is at its highest level since late 2007. That doesn’t feel like a healthy, sustainable growth situation. No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages.”
However, the study also found that Canadian small businesses are expected to flourish for the rest of the year due to record-low interest rates.
“94 percent of our survey’s Canadian respondents believe lending among small business owners is expected to rise or remain the same over the next six months,” said Kevin Deveau, managing director, FICO Canada. “This is a positive sign, which points to improved optimism across sectors and also indicates continued growth in the Canadian economy. Coupled with a low interest rate environment, Canadian small businesses are well positioned to flourish in the remainder of 2014.”
Brokers may be split on the issue but a new study found that 56 per cent of mortgage industry respondents in Canada and the United States fear that “an unsustainable real estate bubble is inflating.”