Canada’s Household Debt Continues To Rise!
Earlier this year Canada’s government raised mortgage qualification requirements trying to slow down the white-hot housing market in Canada and particularly in certain cities like Toronto and Vancouver. At least a part of the purpose of the new requirement was to reduce Canada’s household debt by making it more difficult for consumers to borrow and limit their borrowing level to one they can afford to repay even when interest rates begin to rise.
The excerpt below shows that these measures have not yet made a difference in Canadian’s borrowing habits. With debt in Canada continuing to rise, voices of reason are sounding a call for Canadians to take control of their debt while they still can!
Canadian household debt hit a record high in the third quarter, as the country’s love affair with low interest rates fuelled another round of heavy borrowing.
The ratio of debt to disposable income rose to 166.9 per cent from a revised 166.4 per cent in the second quarter, according to Statistics Canada’s national balance-sheet report released on Wednesday.
The government agency said this amounted to households owing $1.67 in debt for every dollar of disposable income at the end of the third quarter.
Rock-bottom interest rates combined with soaring real estate prices have been responsible for a high pace of borrowing and a spike in mortgage loans.
“That really is at the heart of why we have seen this relentless rise in debt to income over the years,” said Douglas Porter, chief economist with Bank of Montreal. “It is by far and away the primary driver.”Household credit-market debt, which includes mortgage loans and consumer credit, increased 1.3 per cent in the third quarter, while disposable income increased 1 per cent. – The Globe and Mail
A barrage of reports this week highlights what we already know: many Canadians are spinning their wheels and getting nowhere fast when it comes to reducing their debt levels. The economy is challenging, interest rates are low and companies have been enticing consumers with no interest/no payment offers — resulting in more Canadians falling further into debt and saving less than ever before.
The vast majority of Canadians carry debt by way of mortgages, credit cards and lines of credit. To be fair, the vast majority isn’t due to out of control credit cards or the working poor trying to make ends meet. Rather, the higher levels of borrowing tends to be among those who are considered to be middle- and high-income earners who will be fine as long as the status quo remains.Status quo would be a low interest rate environment, job stability and inflation that remains under control. The question is what if even one of those variables is altered? Think of a three-legged stool: if one leg is compromised you will fall and likely fall hard. Any sort of fall is going to hurt……The reality is the government and central bank alone can’t protect us from ourselves. Financial literacy needs to be addressed more aggressively starting at much younger ages. This isn’t a new idea but the urgency is increasing. A classic example are the millennials who find themselves falling further behind, resulting in parents engaging in economic outpatient care helping them to sustain a lifestyle they might not otherwise be able to afford…There will be a day of reckoning. And that day will come when all the debt that’s piling up has to be paid back. Sadly, for many debt is escalating at a much faster pace than income. Time and compounding work wonderfully when you are saving money and yet it can make paying back that debt all the more painful. – BNN