In what may have previously seemed highly improbable,
Canadians have ratcheted up more debt than their American counterparts for the
first time in twelve years, says a report.
Statistics Canada, a government agency, released reports that indicated that
Canadian household debt was at 148% in 2010’s third quarter, surpassing US
level of 147%. This bit of news is something that will make you sit up and take
notice, especially in the light of the fact that the Canadian economy has
remained steady in comparison to the U.S economy, which collapsed post the
sub-prime crisis.
It appears that the general optimism around the sound
economy and the low rates of interest have motivated Canadians to take out
mortgages, second
mortgages and the like, thus taking on large amounts of debt. The average
size of a Canadian mortgage has risen to C$170,000 in 2010 spring from 2004’s C$120,000,
says Canadian investment house CIBC World Markets. Canadian banks, which have
been largely unaffected by the financial woes, have also not slowed down the
lending pace.
The only way to stem this debt issue is to increase interest
rates, but this will also add to the mortgage servicing costs, further
stretching debt-ridden households. Other strategies to cool off the housing
market include tightening refinancing and down payment rules, thereby making
the qualification for government-insured mortgages difficult. Finance Minster
Jim Flaherty said that Canadians should be able to honor their mortgage
payments following a rise in interest rates in the near future.
The next announcement on the interest rate is on Jan 18 and
Bank of Canada will have to carefully consider these issues when it announces
the rate change.
