Here it comes, the debt talk again. We’ve been hearing now for two years about how our debt-to-income ratio is climbing, and that it currently sits dangerously high somewhere near 155%. The worry comes from the fact that when the bottom dropped out of the U.S., their ratio was at 160%, and the fact that we’re getting so close has many government officials and analysts worried. But Peter Norman, vice president at Altus Group Inc. thinks that when it comes to our debt and the U.S.’ debt, context needs to be taken into consideration, and we must make sure that we’re comparing apples with apples. Once we do, says Mr. Norman, we might see that our debt situation really isn’t so bad after all.
There are three big reasons why our debt situation isn’t as dire as many think, in the opinion of Mr. Norman. He says that one of the biggest things we must look at are the demographics of our country, and the debt cycle within those demographics. The majority of the Canadian population right now is at a place where they are taking on the most amount of debt they will in their lives. There are a number of first-time homebuyers on the market right now, scooping up Toronto mortgages and houses in other major cities like hotcakes. These buyers have the most amount of debt right now than they will at any other point in their lives, because they have just taken on that mortgage. As they, and the rest of Canadians that are currently holding a lot of home equity loan and mortgage debt, start to pay that debt off, our debt-to-income ratio will start to go down drastically.
Another reason why we shouldn’t think we’re in the dire straits that the U.S. was when the recession hit, is because our housing market is much stronger – and for several reasons. Mr. Norman says that we have seen a “flattening” of home prices over the last year, which would suggest that if we were in a bubble, it would have already burst by now. In fact, it most likely was the “deflating balloon” some others who were a bit more hopeful had predicted. That combined with the fact that our interest rates are predicted to stay low for at least the next year, shows that we’re likely to ward off the plunging home values and the underwater mortgages that the U.S. saw.
Lastly, says Mr. Norman, we need to take a look at our income versus that of those south of the border. When the recession hit, unemployment in the U.S. was at an all-time high, and climbing steadily. In Canada however, our income levels are also predicted to climb steadily over the next year and onward. That should happen around the same time our debt levels start to come down as we start paying it off, balancing out the debt cycle once again.
Our debt levels are very high, Mr. Norman and just about everyone else in Canada agrees. But, we shouldn’t see it as a prophecy of crisis. The level has been climbing for over 30 years now; and while it is at a historic high right now, Canadians are generally good about paying off their debt, and we’ve shown just in the past year that we’re more serious about it than ever. That, combined with stable market conditions predicted over the next coming year, all show that there really is no reason to panic – once it’s all taken into context.
