How’s your debt situation? If you’re making as much as you owe or more, then you’re doing great! The 3rd quarter of 2015 brought some attention-grabbing news as borrowing rose faster compared to income growth for the average Canadian household.
With the housing markets in Vancouver and Toronto still as hot as ever and the slow income growth in our oil-producing regions, debt level has risen and may continue to do so to record-high levels.
Statistics Canada released the data on mid-December 2015, sharing that the amount of household debt rose to 163.7% compared to household income for this year’s 3rd quarter, still a rise from 2nd quarter’s 162.7%. That’s owing $1.64 for every dollar of disposable income made for the average Canadian household.
Doug Porter, Bank of Montreal’s chief economist says that the combination of hearty borrowing and sluggish income growth brought the current deterioration in the headline as expected. He adds that mortgage growth is being driven up by Ontario’s and BC’s hot housing markets; in effect over-riding the oil-producing region’s softness. He further shares that income growth is being dampened by the continuing decline in oil and commodity prices.
More Significant Numbers
Disposable income did increase by 0.8%, but then household credit grew by 1.4%. To date, total household credit market debt is at $1.892 trillion (includes non-mortgage and mortgage loans plus consumer credit). The numbers are at $1.234 trillion for mortgage debt and at $572.3 billion for consumer credit debt.
Policy markets and economists continues to be concerned with what’s going on in the household market and the current numbers for household debt. Earlier this month, Ottawa made a move to require larger down payments for homes costing more than $500,00 to cool some of our hottest real estate markets.
Diana Petramala, TD Bank’s economist shared that the new rules will most likely only affect a small percentage of the housing market. She then adds that the debt to income ratio will likely to keep rising through 2016, given that there is rising unemployment. Oil producing regions such as Saskatchewan and Alberta will continue to have to deal with continued decline in home prices and rising unemployment.
Managing debts have not been a real problem for consumers in the past because of low interest rates; but then, what will happen when borrowing actually becomes ‘expensive’?
How Does Next Year Look?
This year’s report was released the day before the Bank of Canada was set to release its latest financial system review. The review will include potential vulnerabilities for the financial system and an examination of household debt.
Porter shares that the Bank of Canada’s policy is not likely to be affected much by the rising ratio of household debt to disposable income. He further shares that in the bank’s latest policy statement, the bank sees that the overall risks to financial stability are developing as expected despite the growing vulnerabilities in the household sector.
The household debt service ratio slipped to 13.6%, and the interest-only debt service ratio fell to a record low of 6.1%, while the ratio of total household debts to total assets rose 0.1% from 16.9% in the 2nd quarter to a solid 17% in the 3rd quarter.
Not sure what to make of these numbers? Contact your trusty Toronto mortgage brokers for help. We’ll make sure to answer your borrowing questions and assist you make smart informed decisions when it comes to your mortgage.