Canadian Household Debt Nears Record High

Canadian Household Debt Nears Record High

Earlier this month, a mortgage-related article published on caught my eye. Looks like Canada’s household debt hovers near record high as mortgage borrowing picks up.

Statistics Canada reports that the household debt-to-disposable-income ratio was 165.3 percent for the first quarter of 2016. How does that compare to previous numbers? The last quarter saw the highest ever household debt ratio at 165.4 per cent. That means that so far in 2016, Canadian household debt continues to stay at near record high levels.

The numbers do offer a sliver of good news. Although the needle hardly budged, the slight drop in household debt ratio did put an end to the steady upward tick of the last few years. It will be interesting to see in which direction debt levels go in the next few quarters.

But have household debt levels always been so high in Canada? Well, in 1980, the ratio was at 66 per cent. 1990? About 85 percent. And in 2000, debt levels hovered around 106 percent. (Statistics Canada)

In fact, since the year 2000, Canadians have amassed the biggest increase in debt to disposable income of all G7 countries. That’s probably not the best race to be winning.

Meanwhile, mortgage related loans are up slightly from last quarter. Although showing some signs of slowing down, there doesn’t seem to be a limit when it comes to borrowing more for housing.

Ever-increasing real estate prices are having an impact on housing affordability. They are also increasing our household debt. Many of Canada’s top financial experts are pushing the Canadian Government to address this issue, especially in cities like Vancouver and Toronto. Finance Minister Bill Morneau recently said the Federal Government is taking a serious look into the current state of the Canadian housing market, and evaluating if more changes are needed.

“What we’re doing right now is we’re making sure that we have a deep dive into the information to ensure that any considerations we have for change are evidence-based,” said Morneau. “Our ongoing goal is to ensure that we understand the market in all of its complexity, that we consider all the evidence to determine what measures are necessary, on an ongoing basis, to ensure that Canadians have the ability to buy homes.”

So what happens when Canadians owe a record-breaking $1.65 of debt for every dollar of disposable income? With interest rates still low, will household debt levels continue to rise? Will we see a rise in personal bankruptcy, or will Canadians shift gears and lower their debt?

Time will surely tell how these household debt numbers play out. Meanwhile, it’s a good time for Canadians to examine their own personal finances. Tackling high interest debt, like cash advance payday loans and credit cards, is a good first step. It’s also a good time to build up an emergency fund.

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